(Yicai Global) Dec. 17 -- Dalian seafood producer Zoneco Group, which has reported repeated scallop failures over the past five years, actually bought a large volume of imported scallops, processed and sold them below cost as locally-grown ones, The Paper reported, citing insiders.
Zoneco has sourced scallops from Japan, South Korea, East China's Shandong province and other islands in the drawn-out chain in the Yellow Sea between China's mainland and the two Koreas and sold them below cost to guarantee its supply of the market in recent years, according to several insiders. The company also sells one-year scallop spats in purchased shells, fobbing them off as high-quality three-year olds, one employee said.
Scallops are generally farmed via either hanging culture using net rafts or bottom cultured -- sown directly on the seabed -- the employee noted, saying Zoneco-grown-and-sold scallops are all one-year raft-cultured ones.
Bottom-cultured ones are harvested every three years, but Zoneco has reported four large-area scallop failures over the past five years using this method, which is cheaper but slower than using rafts since fewer plankton on which the bivalves feed are present at depth.
Zoneco reported the first failure in October 2014, claiming bottom-sown scallops went missing because a cold water mass struck its aquafarm, wreaking CNY812 million (USD116.1 million) in losses in the first three quarters of 2014. The firm again reported three large scale scallop deaths in January last year, and then in April and November when other islands reported bumper harvests. Its net losses have totaled CNY2.1 billion (USD300 million) since 2014. The company's mysterious scallop die-offs resulted in the ouster of Feng Yuming, its chief executive. Shrimps have also escaped from or died en masse in its custody.
The company plans to give up its aquafarm of around 1,000 square kilometers because of the mass die-offs and disappearances and change its scallop sowing techniques, the firm announced on Dec. 13, will also abandon farming of about 1,000 square kilometers of affected seabed till late June 2020, it said in a statement last month, which should save CNY70 million (USD10 million) over the year. That is about 65 percent of the total it has the right to use.
In 2015, 2,000 residents of Zhangzidao island, after which the company was formerly named, jointly reported Zoneco made up the cold water mass claim, The Paper reported, saying the scallop failure was actually because Zoneco secretly pre-harvested the scallops, adding even spat procurement was tarnished by corruption and fabrication.
Zoneco was also investigated for illegal information disclosure in December last year and was found to have committed financial fraud, falsification of records and delayed disclosure of information after a 17-month investigation, China Securities Regulatory Commission said in a document in July. It also imposed a life-long market ban on the firm's Chairman Wu Hougang China's securities regulator has fined Dalian Zoneco Group, a marine aquaculture firm which fiddled its financial data for several years, CNY600,000 (USD87,441).
It also fined Wu Hougang, the company's president, CNY300,000 and barred him from China's stock market for life. In the severest penalty the China Securities Regulatory Commission has ever handed down against a listed firm and its personnel under China's securities laws, another 23 executives or employees implicated were each fined between CNY30,000 and CNY30,000 and the firm's executive vice president, board secretary and chief financial officer were banned from the stock market for between five and 10 years.
Zoneco's stock [SHE:002069] price has declined over the past few years to CNY2.66 (38 US cents) per share as of 11.00 a.m., a slight rise of 0.76 percent during the day and a drop of nearly 90 percent from its peak in 2015. The firm's market value is now less than CNY1.9 billion.
Formed in 1958, the company's main products are Yesso scallops -- named from an area north of Japan -- sea cucumbers, abalones, conches and sea urchins. Formerly Zhangzidao Fishery Group, the company was China's largest seafood company by capitalization.
Zoneco was formerly Zhangzidao Group but changed its name in 2016 to avert de-listing under bourse rules after logging two years of losses in a row, the Seafood Source reported.
Timeline of the Zoneco Saga
The company announced the first anomaly with its scallop stocks in October 2014 and was forced to write these off to the tune of almost CNY800 million (USD115 million).
Zoneco again announced an irregularity in January last year, this time scrapping CNY630 million in stocks. It cites a shortage of food that starved the fan-shelled bivalves to death as the cause. The firm announces that this scallop apocalypse caused it net profit losses of CNY43.14 million in its first-quarter report.
In July, Wu Hougang, chairman of Zhangzidao, was fined CNY600,000 by the China Securities Regulatory Commission for alleged information disclosure violations and is slapped with a life-long market ban.
Zoneco was charged with collecting sea cucumbers during the no-fishing period in August, but the company denied these allegations.
Zoneco once again reported a mass death of scallops worth over CNY300 million, which posed a risk of inventory impairment. The cause of this mass mortality is as yet unknown.
Editor: Ben Armour