Subsidies to China fisheries part of deeper financing problems

The issue of Chinese government subsidies to producers of seafood (and numerous industrial products) has again sent U.S. trade officials to take China before the World Trade Organization (WTO). American trade officials last month claimed China’s use of ”demonstration bases” (designated zones enjoying low-cost utilities and land) amounts to unfair subsidies. Several Chinese seafood producing regions have established demonstration bases, including in Guangxi and Guangzhou, major producers of shrimp and tilapia.

While China has been very coy in releasing data on how much it gives in subsidies to the country’s fisheries sector, it’s possible to deduce from new agricultural ministry data and policy papers that state aid to the sector is growing. China in 2014 increased by 8.2 percent the amount it paid in ”agricultural modernization funds”: It handed out CNY 13.15 billion (EUR 1.88 billion; USD 2.08 billion) to projects that help meet an overarching state policy of guaranteeing food security.

But the overall sum paid to the country’s rural sector rose 30 percent in 2012 to CNY 1.6 trillion (USD 261.09 billion; EUR 229.75 billion) in 2013. While no formal figure has been released for 2014, it appears from preliminary provincial data that the overall figure spent last year will total almost CNY 1.9 trillion (USD 287 billion; EUR 252 billion). While the figure that goes to fisheries is not specifically stated it is thought to be around 20 percent of the total — the overall agricultural subsidies figure includes money spent on rural infrastructure and agricultural (and fisheries) research as well as training.

Within this huge bundle of state supports, aquaculture producers can apply for assistance under various schemes, like the National Agriculture Comprehensive Development Program and the Leading Enterprises and Industries Development program, which aims to boost competiveness in industries unique to certain regions. The Conservation of Fisheries program gives subsidies for the development of ”marine ranches” and for the reduction of ship conversions to curb overfishing in domestic waters.

Though the application requirements stipulate minimum enterprise or farm sizes (part of the government efforts to increase the scale of producers). This means it’s often larger scale companies and cooperatives who apply under schemes.

While American anger at subsidies is genuine and well placed — especially where subsidies are absorbed by large scale ”dragon head” enterprises at local level — China’s subsidies must also be seen in the light of a dysfunctional financial system that underserves rural China.

Agriculture and fisheries suffers from low levels of credit because financial institutions have in recent years preferred to lend to a booming real estate scene or to state owned enterprises. By contrast banks have balked at lending to farms and fishing/fish farms because of an unwillingness (due to lack of experience in pricing risk) to accept livestock or fish as collateral.

It doesn’t help that China has had a threadbare insurance coverage for its agricultural and fisheries sector — something which the country is admittedly trying to right with a plethora of pilots that subsidise insurance premiums to encourage farmers willing to insure their stock. Chinese banks have long pointed to the lack of insurance of potential collateral as a reason for not issuing loans to the agricultural and fisheries sectors. 

While central government has commanded that 20 percent of bank lending be directed to rural areas of the country, little of the cash is going to bona fide food producers. As everywhere in China, bank lending tends to be skewered towards a frothy real estate sector and towards state owned enterprises. Loan recipients have been found to be developers setting up rural based companies to collect loans then redirected to city real estate projects. Likewise, the directors of some rural credit cooperatives have collected deposits from villagers and in some unfortunate cases redirected the cash to take a bet on real estate. 

The single biggest obstacle is ownership, and that’s not going to be solved anytime soon. Banks don’t lend to farms (including fish farms) in China because rural land legally belongs to the village committees which have control at a local level. Farmers have leases which in effect confer the right to use the land for long periods (typically 30 to 50 years). Chinese law doesn’t allow this usage rights to be sold or to be used as collateral for loans. The land conundrum has likewise curbed enthusiasm among private investors such as venture capital firms to invest in agriculture.

A patchwork of pilot programs across the country are currently being used to seek ways of allowing rural dwellers to trade the rights to their (usually very small) plots of land. But the Communist Party is split between those who see land reform as akin to disinheriting rural peasants (historically the bedrock of Party support) and those who see the marketization of farm land as key to improved efficiencies and food output in the rural sector by allowing small-time farmers to go make a better life in the cities. This debate is unlikely to be resolved for a long time. In the meantime subsidies will continue to be paid to plug the gap.


Want seafood news sent to your inbox?

You may unsubscribe from our mailing list at any time. Diversified Communications | 121 Free Street, Portland, ME 04101 | +1 207-842-5500