The biggest fools – and they have plenty of companions in this – were two Chinese banks. Of the 16 billion yuan ($A2.8 billion) extracted by Dezheng Resources, using one pile of metal as collateral for loans from 18 Chinese banks and six foreign lenders, the Export-Import Bank of China and Bank of China loaned 4.2 billion yuan between them.

The story that has had the metal markets enthralled and curious has become clearer this week.

On top of the money that has gone west comes the news that some metal has, too.

Bloomberg is reporting that Citic Resources Holdings, the commodities trader controlled by China’s largest state-owned investment company, says more than half of the alumina it had stored at Qingdao port has gone missing.

What a riot!

And then there’s a fascinating piece in the Japanese press reporting that steel makers in China are just ignoring market forces and reinforcing the worldwide slump. The Nikkei Asian Review magazine headline says it all: “China’s zombie industries menace global markets”

But first, the Qingdao scandal.

It is at least two years since some analysts began talking about the practice in China of companies using one lot of metal (aluminium and copper being the most common) and raising loans several times over, the various financiers unaware they do not have sole claim if the money is not paid back.

The case that has surfaced in Qingdao, and which has knocked the metals markets over the past few weeks even though until now it was an unconfirmed incident, is now being laid out in all its extraordinary detail.

If the media reports are right, then Dezheng Resources, a mining and trading company, was not happy with half measures. No, three or four loans were not for them using the same metal: indeed, 35 loans were extracted from the bankers. Eighteen Chinese banks fell for it, but here’s the most astonishing aspect of the latest report: it is said that 17 loans were made by foreign banks, but – wait for it – there were six foreign banks involved. If that is true, then at some of those six foreign banks made multiple loans themselves on one pile of metal.

According to Dow Jones Newswires, foreign banks have been doing business in Qingdao for years, lending hundreds of millions of dollars on the basis of collateral held at Qingdao port.

And the Beijing-based Caixin news service says the 16 billion yuan figure calculated by the China Banking Regulatory Commission “may only be at the beginning” of the probe, with the banks concerned there may be other loans to surface. Apart from the two big banks, the Chinese lenders range from the mammoth Industrial and Commercial Bank of China to regional lenders including Qilu bank and the cutely named Evergrowing Bank.

Then there’s the Citic missing alumina. Qingdao port authorities are now counting all the metal in its bonded warehouses against documents for all collateral loans, although the report quotes Helen Lau at a Hong Kong brokerage saying Citic’s loss “is just the tip of the iceberg”. She believes many more companies will be found to be victims.

As one writer on The Wall Street Journal quipped, the idea of metals as “hard assets” now had more the meaning of it being hard to figure out what was going on with them. The paper says Goldman Sachs estimates that $US110 billion of foreign exchange inflow into China over the past decade was tied to loans based on metals collateral.

Meanwhile, the Nikkei article says, in essence, that China’s economy has been slowing but Chinese steelmakers keep boosting their output. It cites the case of the Tangshan Xingye Gongmao steel plant in Hebei province, one of eight steel mills that have been forced to close by the provincial government to try and rein in the levels of over-production.

And these are just the incidents we get to know about. Even the Chinese authorities cannot get a real handle on the shadow banking system. According to The Financial Times, these murky lenders have pumped $4.8 trillion into the financial system since 2006, most of it still outstanding. Standard & Poor’s this week revealed that China had passed the US in terms of corporate loans; credit expansion in China had reached 87% of GDP, compared to the 43% in America in the lead-up to the GFC.

These are matters worth keeping in mind as China strives to become the world’s large economy and the master of the world’s reserve currency.