Fishy figures

Just don’t ask for scallops

Zhangzidao county comprises 13 islands in the Yellow Sea near Dalian. In the 1970s a people’s commune there made the front page of the People’s Daily for the size of its seafood harvests. The local waters were so clear and the marine life was thriving. Yet Zhangzidao’s more recent reputation is for murkier reporting.

In a stock exchange circular last week Zhangzidao Group said more than 80% of the scallops at its farm in the Yellow Sea had died of “unidentified” causes that the company still believed to be “natural”. It is still assessing the damage but the book value of the crop was Rmb300 million ($42.68 million), so it will be a major hit to earnings.

If the story sounds similar, that’s because something like it has happened before – twice, in fact.

In late 2014, the fishery firm booked a Rmb812 million loss, claiming that abnormally high water temperatures had wiped out the entire harvest of its 70,000-hectare scallop farm. Onlookers mocked that Zhangzidao must have spawned a unique species of scallop with legs, that could run away (see WiC260).

The company blamed similar climatic reasons for another hefty loss last year in a case that resulted in a Rmb600,000 fine from the China Securities Regulatory Commission. Amid a broader crackdown on financial fraud in the A-share market, Zhangzidao’s chairman was banned for life from holding positions in listed companies (see WiC461).

Zhangzidao’s marine farms supplies more than 50,000 tonnes of scallops a year, its website says. Just over 100,000 tonnes of scallops were traded globally last year, according to the Food and Agriculture Organisation of the United Nations.

State broadcaster CCTV sent its own investigative team to check out what has been happening at Zhangzidao. The channel’s reporters said that the area was a paradise for sea farming as recently as the 1990s, when the county’s production brigade was regrouped into a state enterprise controlled by the local government. “A diver could easily collect up to three tonnes of scallops a day,” a 60 year-old villager recalled (possibly exaggerating a bit for effect).

The marine harvests made the county one of the wealthiest in the region. The local government built a hospital and new schools, and a Rmb2,000 stipend was handed out to residents every year. After the fishery went public in 2006, members of the original production brigade received generous dividend payouts for several years.

However, since the report in 2014 outlining the scallop harvest’s first major loss, things have been going badly for Zhangzidao, which has piled up losses of Rmb2 billion. Debts have also climbed to more than Rmb2.5 billion.

While the reasons for Zhangzidao’s disastrous harvests haven’t been confirmed, overfishing and the pollution of local waters by neighbouring industries have affected marine life in the Yellow Sea in general, Xinhua reports. Indeed, after their onsite inspection, CCTV’s journalists said they could barely see a single scallop at the aquaculture farm. “There seems to be less than a kilogram of scallop production per hectare, which isn’t enough for a single dinner,” CCTV reported.

Because of the local fishing economy’s decline, young people have been leaving for more urban areas. The county’s population has now dropped to around 5,000 residents from a peak of nearly 20,000 in the 1990s.

Regulators have now started another round of investigations into Zhangzidao’s financial wellbeing. The company said that scallop sales accounted for just 6% of total revenues in the first nine months of this year.

But since its scallops started to scarper, Zhangzidao’s investors have been voting with their feet as well. The company’s market value has plunged nearly 90% over the past four years to about Rmb1.7 billion as of this week.

For the villagers still living on Zhangzidao’s 13 islands, there is a silver lining to the fiasco.

“Zhangzidao is now a widely known name. There are more tourists coming here for sightseeing and buying abalone,” one local told Xinhua.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.