Subsidies, Distant-water fleets and the Galápagos (SDG)

China’s large fishing vessels spend more time fishing than the next ten biggest countries combined. Part of its distant water fleet has been detected in international waters off the Galápagos, home to the largest concentration of shark biomass in the world.  Distant water fishing is only economic because the Chinese Government provides sizeable fuel subsidies to the owners, or if illegal fishing takes place. These subsidy programmes must be reformed and supported by SDG compliant investors.

Destination Galápagos  

In July 2020, 260 Chinese-flagged distant water fishing (DWF) vessels were recorded in international waters just outside a 188-mile wide exclusive economic zone around the Galápagos islands.[i]

Although fishing in international waters is legal, these vessels pose a threat to the delicate ecosystem surrounding the islands, home to the highest density of shark biomass in the world. In recent years, Chinese fishing fleets have often been found in this vicinity, and in 2017, thousands of illegally caught sharks were seized on Chinese vessels in this area.[ii]

Distant water fleets – fishing undertaken by countries far from domestic waters – are unfortunately viewed as a solution for nations which suffer from depleted dwindling fish stocks closer to home.[iii]

Figure 1: Positions of fishing vessels between the Galapagos islands (left) and Ecuador (right). All reported positions (light blue dots) over the last month (as of July 28th).[iv]

Identifying the fleet off the Galápagos

By using data from Global Fishing Watch, Marine Traffic and Trygg Mat Tracking, Planet Tracker has identified some of these vessels, allowing us to understand their dimensions, trajectories and whether they are recognised as illegal, unreported and unregulated (IUU) fishing vessels. In our sample of 30 vessels randomly selected on the Global Fishing Watch map, we have found that one of the vessels currently operating off the coasts of the Galápagos (Huali8) has been found guilty of illegally fishing in the Exclusive Economic Zone (EEZ) of Argentina, in the past.

Table 1: A sample of the Chinese distant water fleet currently fishing off the Galapagos Islands .[v] *Note: Maritime Mobile Service Identity (MMSI) is a series of nine digits codes which are sent in digital form over a radio frequency channel in order to uniquely identify ship stations, ship earth stations, coast stations, coast earth stations, and group calls. We used MMSI codes to match vessels appearing on Global Fishing Watch maps with those listed on the Trygg Mat Tracking list of IUU vessels.

Vessel name	Flag	MMSI*	Length overall (m)	Width (m)	Last port of call (as per Marine Traffic)
CHANG SHUN 9	China	412329633	66	10	Callao (Peru)
DONG YU 1529	China	412421041	74	11	Callao (Peru)
NING TAI 8	China	412420501	44	8	Not available
HONG PU 5	China	412420971	57	9	Davant (USA)
HUALI8	China	412420941	65	11	Punta Arenas (Chile)
CHANG SHUN NO 2	China	412329653	69	11	Callao (Peru)
CHANG SHUN 7	China	412329463	360	34	Callao (Peru)
RUNDA605	China	412420578	60	8	Not available
LURONGYUANYU808	China	412331072	65	12	Punta Arenas (Chile)
H0NGDA1	China	412420456	80	10	Zhoushan (China)
LUYANYUANYU006	China	412331034	66	10	Callao (Peru)
HONGPU6	China	412420986	459	48	Not available
CHANG SHUN NO 1	China	412329652	70	10	Callao (Peru)
JIN HAI 717	China	412420996	59	8	Chimbote (Peru)
HAI DE LI 703	China	412421046	52	8	Chimbote (Peru)
HAIZHIXING801	China	412439575	65	9	Montevideo (Uruguay)
HAI DE LI 708	China	412420991	56	8	Qushan (China)
WAN XIN 7	China	412421072	68	9	Chimbote (Peru)
XINJILI5	China	412420001	65	10	Not available
RUN DA 806	China	412421085	45	15	Not available
ZHOUHONGYUAN1	China	412420417	80	8	Not available
PU YUAN 837	China	412420538	50	8	Zhoushan (China)
NINGTAI61	China	412420854	48	8	Not available
ZHOU YU 907	China	412421042	38	1	Zhoushan (China)
LURONGYUANYU679	China	412329698	67	22	Shidao (China)
HONG RUN 1	China	412420228	42	8	Not available
PUYUAN826	China	412420536	52	8	Not available
LURONGYANYU602	China	412334075	61	11	Punta Arenas (Chile)
HAI LI 8	China	412420816	74	12	Singapore
JIN HAI868	China	412420427	50	6	Not available

Figure 2: The Chang Shun 7, one of the fishing vessels present off the Galapagos Islands.[vi]

The magnitude of China’s DWF

In 2016, Chinese-flagged boats accounted for 43% fishing hours undertaken by large ships worldwide, more than the ten next largest countries combined.[vii]

Since 1950, heavily subsidized fleets have increased the total fished area from 60% to more than 90% of the world’s oceans. The distance travelled from home ports has doubled whilst the catch per kilometre travelled has decreased by approximately 66%.[viii] China’s DWF fleet is the largest in the world, estimated at 16,966 vessels in 2020 – five to eight times larger than previous forecasts.

The fleet currently off the Galápagos islands accounts for 1.5% of Chinese DWF fleet, and 2% of the Chinese DWF fleet observed outside internationally recognised Chinese waters between 2017 and 2018 (12,490 vessels).[ix] Distant water fleets are highly dependent on a fuel subsidy to be profitable.[x]

All-important fuel subsidies

Global fishery subsidies were estimated to total USD 35.4 billion in 2018.[xi] Estimates differ by source but China is believed to provide the highest amount of total fishery subsidies for all countries, accounting for 21% of the global subsidy total. Fishery subsidy regimes can be broken down into three segments – beneficial for fishery stock management, capacity-enhancing subsidies beyond sustainable levels (such as fuel subsidies), and ambiguous subsidies, which may promote greater stock management or overexploitation – see Figure 3.

Figure 3: Subsidy Regimes by Country in USD Billion, 2018.[xii]  

In 2013, the Chinese Government spent USD 6.5 billion on fishery subsidies – 94% in the form of fuel subsidies. ‘Harmful’ subsidies are defined as capacity-enhancing fishery programs which have a deleterious effect on fisheries.[xiii] 95% of Chinese fisheries subsidies were identified as harmful to sustainability.[xiv] By 2018, subsidies for diesel in China had grown to USD 10.1 billion for the fishing sector, accounting for 81.7% of the government’s total subsidies for China’s aquaculture and fisheries sectors.[xv]

On average, subsidies account for 26% of revenue for Chinese DWF vessels, and profits average 15% of revenue (after subsidies).[xvi]  In FAO Fishing Area 87, which includes the Galápagos, Chinese DWF vessels were found to be loss-making, even after subsidies, based on reported revenue. [xvii] The figure below shows that long liners and trawlers (the types of vessels operating off the coast of the Galapagos) cannot yield a profit by fishing in this area, so distant from China, based on the revenue they report.  Therefore, it is possible that some of these vessels may engage in IUU fishing to ensure profitability.[xviii]

Figure 4: Estimated profit/loss (in % of revenue) for Chinese DWF vessels operating in FAO Fishing Area 87 by type of gear[xix].

Looking specifically at the area off the Galápagos, the maps below shows that without subsidies the whole area would become unprofitable for Chinese DWF vessels. Along the west coast of South America some unprofitable areas turn profitable with subsidies, notably in the deeper water adjacent to Peru and Ecuador.[xx]

The importance of fuel subsidies to fishing shipowners is reinforced by the Chinese Government’s use of fuel subsidies as penalties – typically for one year – to sanction vessels engaged in IUU fishing. Since 2016, 78 DWF companies and 264 illegal fishing vessels have had their fuel subsidies suspended or cancelled, resulting in a penalty of 700 million yuan (USD 102 million).[xxi] When such subsidies are removed, the economic consequences can be significant.

For example, CNFC Overseas Fishery Co Ltd, the listed arm of China National Fisheries Co and the owner of the largest fleet of DWF vessels in China, reported poor 2019 results which was attributed to a combination of reduced trawler subsidies, global oversupply of tuna, and a failed investment in an insurance firm.[xxii]

Figure 5: Profitability of Chinese DWF vessels by area (red/orange/yellow: loss-making, blue: profitable) with and without subsidies[xxiii].

Conforming to the SDGs

Sustainable Development Goal (SDG) 14.6 aims to “prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, and eliminate subsidies that contribute to IUU fishing, and refrain from introducing new such subsidies, recognising that appropriate and effective special and differential treatment for developing and least developed countries should be an integral part of the WTO fisheries subsidies negotiation” by 2020.[xxiv] Investors who adhere to SDG criteria need to be aware of this commitment.

In July 2020, China started lobbying for special and differential treatment (SDT) in regard to World Trade Organisation (WTO) fishery subsidies. China is arguing for developing nation status,[xxv] which would permit the country to maintain its current subsidy regime for a longer period.[xxvi]

China has responded to sustainability concerns over their distant water fleet in the past. In May of this year, China’s DWF fleet was subject to two temporary closures of squid fisheries in the south-west Atlantic and eastern Pacific, to permit two squid species to recover. China catches 50-70% of squid globally.[xxvii]

West African fisheries have become strained and overexploited due to distant water fleets from the EU and China.[xxviii] Investors should look to West African coastal states and see if lessons can be learnt. For example, the impact of Chinese trawlers in Ghana has raised serious concerns.[xxix] The country’s waters were home to the largest fleet of Chinese DWF vessels, before the fleet near the Galapagos Islands was discovered, totalling 137 ships.[xxx] There are many commentators who attribute the collapse in fishing stocks in this region to this intensive form of fishing.[xxxi]

Unsustainable

China is by far the largest fishing nation in the world. Its fishing fleet hunts far from home shores in search of seafood, encouraged by a Government which subsidies the fuel bill. The Eastern Pacific, notably around the Galápagos Islands, is a favoured hunting ground. If fuel subsidies were to be removed, the restocking of these fisheries is more likely. Investors which adhere to the SDGs should examine their portfolios to ensure they are not promoting such unsustainable practices. West Africa provides a chilling comparison of nations exporting food supply externalities, and where this disregard for natural capital could be heading.

[i] Collins (2020). Alarm over discovery of hundreds of Chinese fishing vessels near Galápagos Islands.

[ii] Bale (2017). Thousands of Sharks Found on Boat in Huge Illegal Haul.

[iii] Mallory (2013). China’s distant water fishing industry: Evolving policies and implications.

[iv] Global Fishing Watch (2020).

[v] Global Fishing Watch, Marine Traffic (2020).

[vi] Marine Traffic (2020).

[vii] Hancock (2018). China’s long-distance fishing fleet reliant on subsidies.

[viii] Tickler et al., (2018). Far from home: Distance patterns of global fishing fleets.

[ix] Gutiérrez et al., (2020). China’s distant water fishing fleet: Scale, impact and governance.

[x] Hancock (2018). China’s long-distance fishing fleet reliant on subsidies.

[xi] Sumaila et al., (2019). Updated estimates and analysis of global fisheries subsidies.

[xii] Sumaila et al., (2019). Updated estimates and analysis of global fisheries subsidies.

[xiii] Mallory (2016). Fisheries subsidies in China: Quantitative and qualitative assessment of policy coherence and effectiveness.

[xiv]  Mallory (2016). Fisheries subsidies in China: Quantitative and qualitative assessment of policy coherence and effectiveness.

[xv] Godfrey (2020). CNFC’s sluggish performance raises doubts about Chinese fleet’s profitability.

[xvi]  Sala et al., (2018). The economics of fishing the high seas.

[xvii] Sala et al., (2018). The economics of fishing the high seas.

[xviii]  Sala et al., (2018). The economics of fishing the high seas.

[xix] Sala et al., (2018). The economics of fishing the high seas.

[xx] Sala et al., (2018). The economics of fishing the high seas.

[xxi] Shen, Huang (2020). China’s policies and practice on combatting IUU in distant water fisheries.

[xxii] Godfrey (2020). CNFC’s sluggish performance raises doubts about Chinese fleet’s profitability.

[xxiii] Sala et al., (2018). The economics of fishing the high seas.

[xxiv] SDSN (2020). SDG 14.6.

[xxv] Godfrey (2020). China’s demand for special status a sticking point in WTO fishing subsidies negotiations.

[xxvi]WTO (2020). Special and differential treatment provisions.

[xxvii] Chun (2020). China Imposes its First Closed Season for Distant-Water Fishing Fleet.

[xxviii] Munshi (2020). The fight for west Africa’s fish.

[xxix] Godfrey (2020). Trawler from China’s top processing hub is seized by Ghanaian authorities for second time.

[xxx] Godfrey (2020). Trawler from China’s top processing hub is seized by Ghanaian authorities for second time.

[xxxi] Environmental Justice Foundation (2020). The “people’s” fishery on the brink of collapse: small pelagics in landings of Ghana’s industrial trawl fleet.