context: There is strong political will to finance upscaled agribusiness and food processing but it does not seem to be translating well, due in part to financial institutions’ legitimate concerns on debt. The state is pushing commercial banks and insurance companies to prioritise the rural sector for lending, but banks are also under pressure to reduce debt burdens.
A series of bankruptcies and shutdowns caused by mounting debts at leading ag enterprises in Anhui province in wheat flour, seed production and bamboo flooring signals broader issues, says Business Reference News. Similar issues have been observed in Henan province’s poultry and pig farming sector, per Semi Monthly Conversation.
Qiang Changyun 姜长云 National Development and Reform Commission Industrial and Technical Economy Research Institute researcher says the phenomena is replicated nationwide, and reflects reforms at one link of the supply chain impacting others down the line. Qiang says the industrial and financial risks bear attention from analysts and policymakers alike. Zhou Jian 周健 Henan Development and Reform Academy dean says practical solutions are needed to address companies’ financial challenges, including full and clear accounting of existing debt obligations to dispel worries of financial institutions.
Data shows the local ag processing sector has experienced sharply slowing growth, from 50 percent y-o-y in 2011 to 7.9 percent in 2018. An unnamed official at Anhui Agriculture and Rural Affairs bureau says the ag processing sector still lags, with limited growth drivers. A survey conducted by the bureau shows many companies facing serious financing problems including
- banks reluctant to lend
- nonperforming loans are evident
- rising use of underground financing channels
Lack of collateral also hinders loan-making to many rural and ag enterprises, and banks struggle to assign a value to custom equipment installed in ag processing plants.