Much was made by the announcement recently that CNY 20 billion (USD 3.2 billion; EUR 2.8 billion) in low-interest loans would be available to fishermen and fish farmers through the Postal Savings Bank of China (PSBC). The package is part of a 2013 blueprint from China’s State Council or cabinet, for the “promotion of sustainable and healthy development of fisheries.”

The funds to be dispersed through the PSBC is to be welcomed but may alas be a case of too little too late for an aquaculture sector beset by rising costs and ever-scarcer supplies of land and clean water.

In theory, loans of up to CNY 30 million (USD 4.8 million; EUR 4.3 million) will be offered at special low-interest rates of 3 percent – very low indeed considering Chinese corporate lenders pay up to 20 percent for short-term business loans.

The government chose the PSBC because this state-owned giant — a subsidiary of China Post — has 40,000 branches nationwide, over 70 percent of them in rural areas and small towns.

These rural areas have been underbanked because the so-called “big four” state commercial banks have gradually pulled out of rural areas in favor of servicing big borrowers like real estate developers in big cities. This is ironic given it was rural savings and earnings from agricultural exports that funded China’s initial industrialization in the late 1970s.

Government efforts to increase lending by setting up rural credit cooperatives have had very mixed results as many of the banks have been very badly run, with many sad cases of corrupt officials putting pooled rural savings into real estate and other quick-buck schemes.

Hence fish farmers in townlands across China seeking to expand have been thwarted for want of credit. Many rely on family or the network of shadow or informal lenders who lend at extortionate rates of interest. There are all too many instances of fish farmers going out of business after inclement weather damaged crops and made them unable to repay loans.

It’s understandable why government is so keen to get fish farmers into insurance schemes: The new PSBC scheme requires borrowers to have secured insurance on their ponds/vessels to be eligible for a loan. While the lure of a low-interest loan may be enough to force fishermen to overcome the difficulties of getting insured, it’s still a tall task for small-scale aquaculturists to get covered if local insurance companies are unable to unwilling to cover an industry like aquaculture.

It’s questionable if PSBC will be willing to continue long-term lending to the fish sector. After all the bank is following the other Chinese banks in going for an initial public offering (IPO) on the Hong Kong exchange, likely later this year. That will mean even more commercially focused lending criteria and less willingness to invest the time required to understand the fisheries sector in order to price risk and lend money to the industry.

It is also worth asking why China has to force a state lender to extend loans when private cash has been lining up for entry to the food sector in China, seeking rich pickings from sourcing and selling heathy and safe proteins for a wealthier population terrified about food safety.

There is certainly room for investors but they’re standing on the sidelines due to inertia in reforms on more fundamental issues like land reform and urbanization. Chinese land remains in the hands of the state and pilots started in 2008, which allowed farmers to trade their rights to use the land (long-term leases in effect), have been slowed down because of fears that farmland is being seized by unscrupulous developers. 

Thus aquaculture players remain small and fragmented, unable to borrow the cash to expand and unwilling to invest significantly in land, which may later be taken back. This is the fundamental stumbling block that can’t be overcome, even with a CNY 20 billion credit line.

What’s missing from the picture (with the exception perhaps of CNFC) is the big state-owned giants like Beidahuang and COFCO that control vast tracts of land and resources — these corporate giants have easy access to state lenders and have been central to driving production and yields in areas like dairy, grain, pork and poultry (witness Beidahuang build two breeding centers worth almost CNY 12 billion in the past two years alone).

Aquaculture in China may have to wait for solutions to fundamental issues over land ownership and to a lesser extent insurance before real money gets invested in the sector.