GUEST POST – Scallop Crisis Slips Up Seafood Specialist

Bottom Line: Seafood producer Zhangzidao’s surprising and stunning loss of $139 million on one of its key products once again poses many questions on the governance of listed Chinese companies.

By Lu Jin

Fishy business at Zhangzidao

Over 7 billion scallops have disappeared from a 70,000 hectare, 50 meter-deep sea farm owned by top Chinese seafood firm Zhangzidao Group (Shenzhen: 002069). Some 860 million yuan ($139.9 million) was lost. And why? Because an unexpected cold water current swept into the sea in July and August.

This was the short version of what Zhangzidao told its investors in their latest financial announcement. (company announcement) The case marks the latest example of the mysteries around listed Chinese companies and also potential risks in their continued outbound investments.  

In early November Zhangzidao, headquartered in the northeastern city of Dalian, said it experienced big damage to its scallop stocks due to a rare natural disaster, and announced the astronomical loss.

The company exports to 20 countries, and says it has been the only company in China to sell to the EU after the trading bloc suspended imports of China fishery products in 1996. The effort was a preparatory step for a big global expansion, as Zhangzidao planned to expand its total production volume to 80,000-100,000 tons a year in 3 to 5 years from the current 50,000 tons. The company submitted an application to EU’s Food and Veterinary Office in 2013 and said it was confident that the FVO would allow more of its products into the EU.

This mollusc stocks in the huge loss are one of the firm’s key products and have been reared for three years and were set to be harvested this year. Suspicion is rife that the marine producer may have used the natural disaster as a cover for possible financial fraud, as official meteorological data never predicted any major cold water current in the area and no other major seafood producers reported the same kind of suffering.

The way that the company handled the crisis has added to investors’ doubts.  Even though it must have known about the disaster for several months, the company never warned, or even hinted at any potential loss before the major announcement. And in explaining the potential cause of the stunning loss, the company’s chairman only attributed it to the unpredictable nature of the sea current and difficulty in seeing the dead shellfish.

No matter what has really happened, the incident casts heavy doubt on the company’s governance and credibility, as well as its ambition to tap further into European and other lucrative markets such as Australia and Japan. Just last week amid the controversies, the company launched its brand new corporate identity under the new name ZONECO, indicating a unique and ecological sustainable zone in the ocean. This came right after it unveiled the acquisition of a Canadian lobster processor, Capital Seafood International, in late October.

Since Chinese companies started investing overseas in the early 2000s, transparency has been an increasing concern, especially in information disclosure. Chinese seafood companies that are used to the domestic market also have yet to learn to play by the international rules.

About a month ago the Hong Kong Stock Exchange reportedly ordered tuna processor China Tuna to suspend its draft IPO because the company “gravely misled investors and the international community” on its overfishing behavior that violates international agreements. Standard & Poor’s also cut Singapore-listed fish-oil maker China Fishery Group (Singapore: B0Z) which acquired Peru’s Copeinca in August, citing refinancing risks.

The value of aquaculture products is often higher than land crops, and therefore large scale aquaculture companies such as Zhangzidao enjoy higher growth potential, which is why it attracted a lot of interest from investors. But now the company has surfaced as a major eyesore on China’s business landscape, and the case shows there is still a long way to go for Chinese companies to convincingly establish themselves and grow globally.

Lu Jin is a public affairs and strategic communications consultant at Fortune China Public Relations in Beijing. He can be reached at or via LinkedIn at

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