As fishing moratorium kicks in, China looks for ways out of coronavirus slump
May Day may be a traditional Chinese holiday to mark global proletarian solidarity, but it’s also become an important date for the country’s seafood traders and importers. The first of May is the day that the country’s domestic waters are closed to fishing until 1 September.
The annual moratorium, enforced more zealously every year, has led to a surge in demand for replacements for favorites like croaker, ribbonfish, mackerel, and turbot. The moratorium has been foreshadowed this year with public trials of those caught illegally fishing in the Yangtze, which was closed to fishing this year for 10 years.
Despite the shutdown of domestic fishing creating an opening in the market, imports of seafood into China remain depressed as a result – both directly and indirectly – of the coronavirus. Seafood imports dropped 28 percent year-on-year in the first quarter of 2020 as social distancing efforts and tighter spending from consumers over economic concerns have tamped down seafood-buying in China. And on the supply side, foreign seafood firms looking to export product into China have struggled as shipping channels have dried up, either due to canceled flights, stalled shipping routes, or high freight costs.
“I have been in the logistics business 35 years and I can honestly say I have never before witnessed what is happening,” Gary Wilcox, the CEO at United Kingdom-based freight forwarder JAG UFS, told SeafoodSource. “Air freight is at the highest rates I have ever seen as airlines and co-loaders alike are for sure profiteering from the demand and supply.”
A worldwide scramble for personal protective equipment is causing havoc with air freight supply at a time when most commercial air passenger routes into China have been canceled, Wilcox said in a speech at the British Chamber of Commerce in Beijing this week.
Demand remains solid for rarer stock like Australian rock lobster have quickly rebounded in price in recent weeks, according to one trader who spoke to SeafoodSource on the condition of anonymity.
“But these are rare,” the trader said. “Almost all products are seeing lower prices and lower volumes.”
Chinese seafood exports in the first quarter of 2020 were at their lowest levels since 2012, according to government data, and seafood was among the worst-impacted of all food product exports, according to the Ministry of Agriculture, which did not provide more detailed information on trading volumes. Overall, China’s agricultural exports dropped 5.6 percent, while imports of meat products and soy rose, according to Sui Pengfei, head of data at the Agriculture Department, which also oversees fisheries.
Lower oil prices will offer a cushion for China’s distant-water fleet in 2020. One of the country’s leading distant-water fishery and tuna firms, CNFC, spent CNY 120 million (USD 16.8 million, EUR 15.6 million) on oil for its trawlers (not counting reefers) in 2019, but is hoping lower fuel costs in 2020 will improve its patchy profitability in recent years, according to recent financial statements from the company. It also hopes to be helped by a recovery in domestic tuna prices. CNFC saw its revenues fall 38 percent year-on-year in the first quarter of 2020, but despite that, the firm is also forging ahead with the construction of a 52-meter deep-freezer longline tuna trawler, as well as the renovation of four tuna longline trawlers.
Meanwhile, Guolian, China’s largest seafood firm by revenue, which received a low-interest CNY 348 million (USD 48.7 million, EUR 45.2 million) bailout from a consortium of Chinese banks to help it through the COVID-19 pandemic, is planning on focusing on the domestic Chinese market as it emerges from its coronavirus lockdown. The firm has a lot of scope to deepen its partnership with supermarket operator Yonghui, according to company chairman Li Zhong, per Securities Journal.
Yonghui, which bought a 10 percent stake in Guolian in 2018, sold CNY 200 million (USD 28 million, EUR 26 million) in Guolian product in 2019, but this figure has potential to grow to CNY 500 million (USD 70 million, EUR 65 million), according to a recently published research note on Guolian by Guotai Junan Securities.
Another company talking up the seafood market recently was aquafeed supplier Guangdong Haid. The market for specialized aquafeed will be a big driver of company revenues for the coming years, said Xue Hua, general manager of Guangdong Haid who addressed investors on the company’s plans for the rest of the year.
Xue didn’t mention any new plans for capacity expansion, which could be related to worries over China’s economic outlook and the ability of a highly indebted corporate sector to service debt. There are wider economic problems threatening China’s already highly leveraged seafood sector – including firms like Guolian and Haid, which are banking on the domestic market for a post-COVID recovery.
While the government-run banking sector has been directed to increase lending and to roll over loans, the potentially greater challenge of deflation in China, caused by weak demand both domestically and globally, has economists worried for the future of Chinese corporations. Consumer prices and producer prices have both sunk, noted Alicia Garcia Herrero, chief Asia economist at investment bank Natixis.
Garcia Herrero pointed to a weaker real estate market – central to China’s economy – and a knock-on downward impact on rents. Sales of new properties dropped 10 percent year-on-year in March, in turn creating havoc for real estate developers, who continue to drive an economy that remains more dependent on investment than many Western economies.
Slack demand in the market can be easily explained by looking at the data: Asia’s GDP will contract by 1.9 percent in 2020, a steeper decline than the 1.2 percent seen in the wake of the Asian financial crisis, according to the International Monetary Fund. However, the IMF noted that some developing countries like China will grow (China’s GDP is expected to grow 1.2 percent in 2020), while Japan and Thailand will see their GDP shrink.
Amidst all the chaos and uncertainty created by the coronavirus pandemic, China’s government has remained coy about a fiscal stimulus package for its seafood industry beyond its previous program of subsidies. Previous packages have traditionally focused on investment rather than consumption, with China in effect saddled with excess industrial capacity it has sought to export. Government-subsidized investment in trawlers has led to a huge expansion in China’s distant-water fleet, even as the country seeks to conserve stocks in its domestic waters.
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