New loan surge to reboot China’s seafood sector, exports
Officials in a top seafood-producing region are attempting to reboot the sector by unblocking a shortage of credit that has long been blamed for restraining the largely privately run seafood sector.
Home to the processing hubs of Qingdao and Yantai, the province of Shandong has announced that a state-owned bank is pioneering a new finance model for the seafood sector to tackle a credit shortage which provincial government blames for “blocking the scale and development” of the province’s export-focused seafood sector. If successful the campaign could result in a new source of growth for China’s seafood sector while also funding firms keen to diversify product ranges and distribution channels for export and domestic markets.
Interviewed by the Shandong-focused Qilu news portal, Qin Dejun, manager of the state-run Agricultural Bank of China in the coastal city of Penglai, said his bank has extended CNY 56 million (USD 9 million, EUR 6.6 million) in loans over the past year to the seafood sector, having devised an effective model of pricing risk for borrowers in the sector.
“We have for a long time been seeing a large number of applications for credit from companies in the seafood sector but it has always been difficult for them to produce adequate amounts of collateral…We have now fixed that problem by engaging a third party firm which prices and guarantees the frozen seafood stocks of each loan applicant.” Frozen seafood stocks can last for up to two years, said Qin, who explained that his bank insists that the frozen stocks of each loan applicant must match the size of the loan in terms of longevity and value. “If we lend CNY 2 million (USD 322.257/EUR 234,110) for a two year term we must be satisfied that the applicant’s stocks match that figure in durability and value.”
A freeing up of credit would be a welcome boost to the seafood export sector, according to Chinese trade promotion authorities. The China Council for the Promotion of International Trade in Zhanjiang, China’s key shrimp export hub, told SeafoodSource that the city’s seafood sector was hopeful. “Easier access to finance would be a great boost to seafood exporters, especially given the challenges they face on rising costs and a more volatile exchange rate,” said an official surnamed Lu.
Government data shows China’s mostly small and medium sized privately owned firms get only 20 percent of bank loans but generate about 65 percent of GDP and 80 percent of employment. Many of the country’s seafood processing firms rely on loans from family or resort to expensive borrowing from the ubiquitous shadow or underground lending sector. Meanwhile, as of the end of January, rural financial institutions accounted for CNY 19.45 trillion, or only 13.1 percent of total banking assets in China, according to the China Banking Regulatory Commission.
Now there are signs that China’s seafood sector is getting easier access to finance that could increase the quality and competitiveness of local output. The People’s Bank of China (China’s central bank) this month also issued guidelines on the creation of a credit system for small and medium enterprises (SMEs) and farmers, allowing those with sound credit histories to easily get loans. Establishing a reliable credit information system has been difficult to achieve in China but essential long-term project for the PBoC that claimed that at the end of 2013 it had 2.4 million SMEs and 151 million farming households in its credit database.
The central bank wants the development of a credit system to go hand in hand with the ramp up in rural banking networks and lending. As part of a package of reforms announced last autumn China has allowed the establishment of five new banks which it hopes will lend to the small, private enterprises and in turn spur economic growth.
Another hopeful sign that the market is being allowed to take hold in financing China’s economy was the default by a Shanghai-based firm on its bonds. Normally unthinkable for central and local governments, who’d typically lean on the local state-controlled bank to roll over loans or extend the terms by which corporations could pay bondholders.