Arthur Kroeber and Steve Dickinson make convincing, logically sound, and systematic arguments on why the U.S.
government should not try to block the takeover of Smithfield by Shuanghui International. All of us should be grateful
to them for doing the serious work of showing why the "controversy" over this sale is insane.
Now that they've done the serious work, I think there is only one real question that remains. It is: What, have we
really become a nation of morons? Can it really be true that politicians or policy experts are urging us to fret about
the sale of a meat-packing chain? Even in (as Arthur Kroeber points out) an odd-numbered year?
There are lots of things to worry about in the U.S.-China relationship and China's emerging role in the world. Those
range from the environment; to cyber issues; to military-civilian relations within China and their consequences for
China's dealings with the the U.S. and other countries; to the consequences pro and con of China's economic
"rebalancing"; and back to the environment again. We can all imagine Chinese takeovers of U.S. firms that would raise
questions -- for instance, if Huawei wanted to buy Intel, or Baidu bought Google, or the China Daily purchased
the New York Times. But by any sane analysis, a meat-packing deal comes nowhere on this list. Again, as our
two previous analyses point out, what would keep Shuanghui from selling Chinese-style suspicious food to U.S. customers
after the deal is the same thing that keeps them from doing so now: U.S. food-safety laws that apply within the U.S.
(at least until The Sequester takes full effect). It's far more likely that this deal will have a "leveling-up" effect,
of Shuanghui using it as a way to promote a safer-brand image in China, than the dreaded race-to-the-bottom
Is there any good side to this controversy? I would say yes: the very fact that it seems to be fizzling out. For all
the reasons my two colleagues explain.
I saw the entire live Congressional hearing on the Shuanghui/Smithfield deal, and most of questions were,
let's say, less than enlightened. Since I fully agree with Arthur's and Samuel's takes
on the political and legal dimensions of this deal, I won't add much beyond the smart things already said.
But a few quick additional points for thought.
1. It strikes me that food trade and investment is an area of natural complementarity between the United
States and China. America has developed one of the most efficient agriculture sectors in the world -- with
just about 2 percent of the labor force, we can waste a lot of food, feed 300 million people, often a little too
well, and still export tons of surplus into global markets. The United States has been a food exporter for
decades, and this is clearly not the case for China. To understand the opportunities in this sector better,
the Paulson Institute recently published an
from Dermot Hayes at Iowa State University that explores several investment ideas in agrobusiness to
attract Chinese capital.
Those who worry Chinese buying up food companies will lead to the same result as moving production to
China, job losses a la the last decade of manufacturing (itself a debatable point), fundamentally
misunderstand China's comparative advantages. China could become a manufacturing powerhouse so quickly
because it has (or had) a surplus of inputs critical to that sector: abundant labor. The rise of the
Chinese labor force over the last 15 years arguably had a broadly deflationary effect on wages.
This is not the case at all on food. China sits on just 7-8 percent of world's arable land, and faces water
scarcity that go back centuries. Chinese policymakers spend much of their time worrying about how to keep
food cheap enough (the true cost of the inputs would be quite high without generous subsidies from the
government), since China still has half a billion relatively poor who spend a disproportionate amount of
disposable income on just feeding themselves. Unlike the United States, China is a victim of its resource
fate, which means it simply does not have the comparative advantage in food production and agro-business
that the United States has. If you talk to the average Chinese, they look at the United States as this
people-less fecund land of vast soils: "there are no people in the middle of the country!"
2. Chinese food demand is shifting rapidly. A rising middle class is increasingly choosing a meat-rich and
protein-rich diet, and we all know that the Chinese are major pork eaters. Chinese meat consumption has
already far outstripped that of the United States. The Chinese now consume more meat than the entire world
produced in 1950. As Smithfield's CEO testified, pork consumption is apparently declining in the United
States for a variety of reasons, but in places like Mexico and China, that's not the case. If you're a pork
company trying to prosper and increase market share, China is it. India is a big consumer market, but
they're not pork eaters.
3. As for China, importing food has long been a sensitive subject. Unlike other commodities, say oil, food
is an absolute necessity. And because of cultural and historical dimensions unique to China, food sits in a
exalted position in the Chinese psyche. So it isn't a surprise that the Chinese government still officially
maintains a "95% self sufficiency" policy on food. But in reality, China relies just as much on the global
market for soybeans and corn (particularly from the U.S. and Brazil) as it does for its crude oil and
natural gas. This is an intellectual issue that will need to be untangled for China to more fully "trust"
global markets as a reliable provider of its foodstuffs. If recent trends and demand patterns are any
indication, China may have little choice but to shift its stance on food security, if not formally, then
through de facto action.
A version of this post appears at ChinaFile, an Atlantic partner site.