Criminality hampers branding, innovation in China's seafood sector

China’s seafood industry has become inextricably linked with criminality.

Chinese television news shows are constantly filled with reports on fraud, illegal fishing, smuggling, and intentional (mis)use of toxic substances. In the most recent example, Chinese authorities announced the bust of an illegal smuggling operation valued at CNY 3 billion (USD 480 million; EUR 420 million) – considered the largest seafood smuggling operation ever encountered by Chinese authorities.

Getting less attention but showing the width and depth of the misdeeds prevalent in China’s seafood sector is the recent case of a Shandong fishing company brought to court for flouting national fishery laws by using much smaller nets than allowed by the standards set by China’s Agriculture Ministry, thus damaging national fishery stocks and the country’s marine environment. Evidence presented in the ongoing court case shows that the transgression was willful and knowing. The case has also revealed the willingness of middlemen to either turn a blind eye toward the murky origins of their fish, or worse, knowingly sell illegally caught fish in search of a quick buck.

Such greed and short-termism is visible in the retail and foodservice side of the sector, too. There have been numerous cases of seafood restaurateurs overcharging and defrauding customers in tourist towns like Haikou, Qingdao, and Xiamen. Customers receive astronomical bills and are put under duress to pay, further damaging the seafood sector by drawing lines in the public mind between seafood and unscrupulous behavior.

And on the retail side, China’s Food and Drug Administration (CFDA) officials periodically crack down on market stalls selling shrimp glazed with formaldehyde to give it a fresher look in the eye of the consumer. And there have been numerous cases brought by the CFDA over seafood contaminated with antibiotics. 

All across the seafood sector there’s ill-doing that risks damaging the industry and proving almost impossible to police. The illegal operations not only defraud the public purse of import duties, they also endanger public health, with smuggled seafood not receiving any health and sanitary checks.

But these cases keep recurring. Meanwhile, the criminality that attaches to the sector is hampering the professionalization of China’s seafood sector. Companies are having trouble justifying investments in research, development, and marketing that goes into creating a great feed or vaccine program for fisheries knowing their products have a high likelihood of being copied or counterfeited. And why would you spend a fortune creating a genuinely organic aquaculture system and product if there’s a dozen suppliers in the local supermarkets making various claims to “ecological” and “green” seafood? Even though there’s an advertising law in place that’s supposed to prevent against false claims for food products, China’s supermarkets are awash in greenwashing.

There is, of course, the sticking issue of what happens if China really acts against smugglers: Prices might skyrocket – and that scares a lot of people.

However, China lacks brands, traceability, and public confidence in its domestic seafood sector. Enforcing its laws would be a big help in putting this right. What’s happening in seafood is symptomatic of a wider malaise in the broader Chinese economy, which has expanded well beyond the government’s capacity to regulate it. Businesses operating in fiercely competitive but poorly regulated sectors, like retail, take advantage by grabbing profits through malpractice.

And yet, despite all this, the market is still providing seafood-related opportunities. More inland cities are lining up to handle seafood imports due to the duties that are collected on them. Likewise, a wave of new restaurant chains are opening up with transparent, value-focused pricing that draws a huge clientele in fast-urbanizing China.

It’s worth remembering that the counterfeiting of CDs and DVDs, once so prevalent in markets Beijing and Shanghai, died out thanks to innovation rather than law enforcement. As China embraced smartphones, it was cheaper to download a film or software program from a legitimate source than it was to buy it from a curbside DVD hawker.

There are signs that the evolution of seafood distribution in China could have a similar impact. China’s data-driven modern retailers are proving that doing things the legitimate way actually works in China. For instance, there’s the case of the Alibaba-backed He Ma supermarket chain and other forward-thinking retailers, which are bringing in seafood through the proper channels and selling it – in a largely traceable manner – at healthy margins, using that very traceability as a key marketing tool. 

Success of new business concepts like He Ma could serve as a model for the whole industry, showing that criminality offers only short-term gains but dents the long-term health of the seafood sector. 


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