Credit remains a bottleneck for China’s armies of small-scale aquaculture producers, who make up the bulk of the country’s output in key species like shrimp and tilapia. There are, however, new signs of government-inspired efforts to loosen credit for small-time producers, who often lack the credit history and collateral of larger entities. An example of such a scheme is visible in the aquaculture on the outskirts of Hangzhou, a prosperous city in Zhejiang province on the east coast.
A 90-minute drive from Shanghai, the Yong Sheng Aqua-products Cooperative has been granted CNY 15 million (USD 2.5 million, EUR 1.9 million) in loans in the past two years to help it expand crab-breeding facilities. A credit rating system pioneered by the city authorities has assured local lenders, which had previously refused the co-op.
The company got an AAA credit rating after it had been refused three times before because all the land it uses is rented and the bank judged that that wasn’t sufficient for collateral because the company had no title to the lands.
Similar examples of government credit initiatives are popping up across the country. Propaganda authorities in southwesterly Sichuan province have highlighted in particular the case of a fish farmer, Liu Min, who used CNY 200,000 (USD 32,616/EUR 25,002) in loans from her local government-run credit cooperative to expand her ponds of carp and tilapia.
Rural enterprises are frustrated by the lack of credit — even though China’s industrial revolution was ultimately subsidized by taxes on the rural sector (taxes which have since been eased) the country’s financial system continues to favor manufacturing and state-controlled industries in terms of lending.
Blamed by many for holding back the modernization of China’s agricultural and fisheries sectors, China’s rural banking system remains a mess. China’s largest commercial banks have continued to shrink their overall rural branch networks: While supposedly the country’s top agricultural lender, the Agricultural Bank of China takes 40 percent of its deposits in rural areas but only hands out 30 percent of its loans in rural districts. Rural cooperative banks, favored by earlier communist leaders like Mao Zedong, have in recent years sought to cash in through IPOs, requiring them to avoid rural lending, seen as more risky.
Some banks have however been promoting rural finance products that don’t require collateral, such as micro credit loans to individual farmers and single loans to groups of farmers who together pool collateral for a single loan — examples of this kind of rural banking product include the Hao Dai Hao Huan loan at the Postal Savings Bank of China and Dai De Lei loans offered by HSBC at its so-called ‘Village Banks’ in China. Likewise, a government-pushed roll out of agriculture insurance is intended to assure banks by serving as a form of collateral for loans to the aquaculture and agriculture sectors.
China’s central bank classifies rural related lending in three subcategories: agriculture, countryside (including rural-located enterprises and construction projects) and farmers. Loans outstanding to farmers at the end of 2012 totaled CNY 3.62 trillion (USD 590 billion, EUR 452 billion), a year-over-year increase of 15.9 percent. However, new loans to farmers (including fish farmers) — CNY 499.9 billion (USD 81 billion, EUR 62 billion) — were down by CNY 1.9 billion (USD 310 million, EUR 237 million), a decrease which we believe is explained by a new emphasis on lending to agro-processing firms involving cooperatives of farmers producing and processing vegetables for urban and export markets.
Policy makers in Beijing appear to have recognized that rural incomes — and China’s aquaculture boom — could be threatened by the continued lack of a coherent national reform plan for the rural-focused rural banking system. To continue to deliver on its promise of improved finance to the rural regions, central government has been pushing local banks to increase lending to rural borrowers by 20 percent a year. That figure appears to be surpassed in some key aquaculture hubs: in Hainan province for instance the RCCs claim to have CNY 30.6 billion (USD 5 billion, EUR 3.8 billion) outstanding at the end of 2012, along with CNY 2.5 billion (USD 408 million, EUR 312 million)in microfinance.
In Zhenjiang (Jiangsu province) rural related lending rose 24.3 percent year-over-year in 2012, outpacing growth in other lending by 8.4 percent. In Shandong province, lenders in Dongying claimed to have CNY 100.7 billion (USD 16.4 billion, EUR 12.6 billion) outstanding in loans to rural borrowers by the end of August 2012, a year-over-year increase of 25.9 percent. It remains unclear what percentage of those loans went to farmers as opposed to rural-based processing companies. The prospect of easier credit is good news for producers like Hang Yong. “With credit we can increase the quantity and the quality of our crabs,” he said.
