Chinese metals traders are grappling with significant financial losses after a key player in their trading network, Xu Maohua, fled the country.

On Monday, Bloomberg reported that these traders have incurred losses amounting to at least 1 billion yuan ($144 million) due to unfinished deals left in Xu’s wake, raising concerns among top regulators about hidden financial risks.

Xu, known as “The Hat,” was central to a trading network involving state-backed SDIC Commodities Co. Xu owed money for shipments of metals, and his sudden departure left a chain of unmet financial obligations.

This situation has led to at least one lawsuit, with Guangdong Prolto Supply Chain Management Co. suing SDIC for 219 million yuan over unpaid metal shipments, reports Bloomberg.

Chinese Traders Face Billions In Unseen Risks

The Chinese government has been wary of risky commercial practices that could disrupt market stability, particularly within state-owned enterprises. The practice of circular trading, where companies repeatedly buy and sell the same asset to create the illusion of revenue, has drawn regulatory scrutiny.

Xu’s disappearance has disrupted a long-standing chain of trades, potentially revealing the extent of such practices.

A court in Tianjin has taken action by seizing 3,150 tons of refined copper held by SDIC in Wuxi, Jiangsu province. This move aims to preserve assets in light of ongoing litigation, according to Bloomberg.

How Xu Maohua’s Exit Shook The Metals Market

Xu’s network was reportedly involved in irregular deals that bypassed government rules, which restrict state firms from trading raw materials.

Xu allegedly facilitated these trades by selling invoices at a discount to firms offering factoring services, allowing him to quickly realize cash without actual deliveries of metal.

According to Bloomberg, the alleged scheme included metals not owned by Xu, with many involved companies reportedly under his control. This has added to the complexity and potential scale of the financial fallout.

The Alarming Rise Of Circular Trading Practices

Xu’s financial troubles may have been compounded by a failed bet on silver prices, which doubled in recent months, prompting his flight from China. His departure has left a significant impact on Chinese metals markets, highlighting vulnerabilities within the sector.

Xu’s background includes trading recycled metals before expanding into refined metals and concentrates. His activities have now become a focal point for regulatory scrutiny, as the Chinese government seeks to mitigate the risks posed by such trading practices.

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