He comes back after the fire attack, that's how you're supposed to find him. ;)
Beat him the first time, that's fine. Just go looking for him again after Liu Bei mentions him later in the stage, he'll be hiding on a boat to the north. --- Xiahou Mao, True Hero of the Three Kingdoms!
If you have trouble finding him, just press start and check the battleground info shortly after the fire attack has succeeded. Look in the enemies list and you'll find Xu Shu on a boat more towards the top of the map in the North.
This is how I found him right away and quickly made my way there.