Fisheries subsidies reform in China

Abstract

Subsidies are widely criticized in fisheries management for promoting global fishing capacity growth and overharvesting. Scientists worldwide have thus called for a ban on "harmful" subsidies that artificially increase fishing profits, resulting in the recent agreement among members of the World Trade Organization to eliminate such subsidies. The argument for banning harmful subsidies relies on the assumption that fishing will be unprofitable after eliminating subsidies, incentivizing some fishermen to exit and others to refrain from entering. These arguments follow from open-access governance regimes where entry has driven profits to zero. Yet many modern-day fisheries are conducted under limited-access regimes that limit capacity and maintain economic profits, even without subsidies. In these settings, subsidy removal will reduce profits but perhaps without any discernable effect on capacity. Importantly, until now, there have been no empirical studies of subsidy reductions to inform us about their likely quantitative impacts. In this paper, we evaluate a policy reform that reduced fisheries subsidies in China. We find that China's subsidy reductions accelerated the rate at which fishermen retired their vessels, resulting in reduced fleet capacity, particularly among older and smaller vessels. Notably, the reduction of harmful subsidies was only partly responsible for reducing fleet capacity; an increase in vessel retirement subsidies was also a necessary driver of capacity reduction. Our study demonstrates that the efficacy of removing harmful subsidies depends on the policy environment in which removals occur.

Keywords: China; buyback program; fisheries subsidies; sustainable fisheries.

Fig. 1.

The cap-and-trade market for engine power quota under different fuel subsidy policy regimes. With no buyback subsidy, the equilibrium price (P) and exchange of quota (Q_e) are determined by the intersection of the demand (D) and supply (S) curves (SI Appendix). Before the fuel subsidy program (Panel A), capacity reduction was achieved through a buyback subsidy. By setting the buyback price (B) above P, some vessel owners retired their quota, resulting in capacity reduction of Q_b − Q_e. With fuel subsidies (Panel B), engine power quota became more lucrative, shifting the quota demand and supply curves up and pushing the equilibrium price above the buyback price. Capacity reduction was thereby choked off. Reform of the fuel subsidy program (Panel C) regained capacity reduction by reducing fuel subsidy payments and raising the buyback price above the new equilibrium quota price.

Fig. 2.

Fuel subsidy payments per kW of engine power for all large trawling vessels (≥24 m) in the Province of Zhejiang. Boxes represent the 25th, 50th, and 75th percentiles, while whiskers extend to 1.5 times the interquartile range (IQR).

Fig. 3.

Average fuel subsidies (Left) and vessel exit rates (Right) as a function of vessel length (meters), before (Top) and after (Bottom) the fuel subsidy reform. The vertical line denotes the vessel-length threshold for determining vessel classes. Blue dots denote sample means in evenly spaced bins of vessel length with 95% CI (43). Red lines are fitted by cubic regressions on either side of the threshold.

Fig. 4.

Annual marginal treatment effects of a one-percent reduction in fuel subsidy payments on the probability of exiting, relative to the baseline year 2015. Estimates from the difference-in-differences model with 95% CI.

Fig. 5.

Estimates of heterogeneous treatment effects of a one-percent fuel subsidy reduction on quadrennial postreform exit and buyback probabilities across quantiles or categories of vessel characteristics with 95% CI, where vessel length (m) and vessel age (in 2012) are grouped into six quantiles, and engine power (kW) is grouped into 90-kW intervals.