/

A pork sale wrapped in a thin skin

by Kevin Rafferty

Special To The Japan Times

An old saying in English, “when pigs fly,” is about something so far-fetched that it is impossible. The last month has brought the prospect that pigs may fly — not by sprouting their own wings but in modern aircraft and courtesy of a mega-deal by a Chinese company to buy an American pork producer. But the deal has also attracted opposition, with influential Americans saying it should be stopped on security grounds. Is pork really a matter of national security? How many assorted security concerns can one country have?

China’s Shuanghui International agreed to buy Smithfield Foods, the world’s largest pork producer, for $4.7 billion (or $7.1 billion including debt). Some members of Congress were incandescent with anger at prime brands like Armour passing into Chinese hands. Security experts expressed worries about a Chinese choke point over American food supplies.

Lobbyists pointed out that U.S. food imports grew to 16 percent in 2011, almost doubling in a decade, and that China is the leading supplier of staple products like apples, potatoes and peas.

Environmentalists fear that China might try to poison the United States with unhealthy agricultural practices. William Triplett, a former Republican counsel on the Senate Committee on Foreign Relations, noted, “Inserting the words ‘China food safety’ into the Internet leads to over 155 million hits — none of them laudatory as far as a brief examination can tell.”

The fact that the deal and the outcry came just days before the most important summit meeting of the year, between China’s new leader, President Xi Jinping, and U.S. President Barack Obama in California, ought to have both countries worried about the delicate and even dodgy state of their economic and political relationships.

Smithfield did not figure in the two days of talks between the two leaders, not even — if the usual sources are to be believed — in tasteless jokes about “bringing home the bacon” or “pork barrel politics” or even “pigs might fly.”

Xi and Obama had more important things to discuss, including the U.S. “pivot” to Asia, China’s aspirations to global leadership and fears that Washington is determined to block it, the dangerous situation on the Korean Peninsula, tensions in the seas around China, cyber-spying, the value of the yuan, alleged Chinese dumping of products, Beijing’s failure to protect intellectual property rights, America’s irresponsible fiscal policies, and the failure of both countries to show economic leadership befitting their global power.

Yet the impending purchase of Smithfield shows how bad practical business relations are between the two political and economic giants. This is worrying, not only for the two countries but for the rest of the world, which must suffer the consequences of the dangerous dance of two monsters.

As a high-powered and influential report from the China-United States Exchange Foundation last month stated, “The bilateral economic relationship between the U.S. and China has developed over the past few decades from virtually nonexistent to the most important in the world. The U.S. and China are respectively the largest and second-largest economies and the largest and second-largest trading nations in the world. They are also each other’s second- largest trading partners. A vast volume of trade in goods, integrated supply chains, a growing volume of trade in services, substantial direct American investment in China and even larger Chinese investment in U.S. Treasury securities, speak to the importance of the relationship.”

Contrast this with the angry outburst from the Hidden Harmonies China blog, which purported to offer a summary of the media and Internet reactions from the U.S. after the Smithfield deal was announced:

“After getting their communist hands caught in the cookie jar with cyber espionage and covert theft of our technology and IP, the sneaky Communist Chinese are shifting tactics and resorting to overt acquisition of our pig husbandry and processing technologies to save their crumbling pork industry rife with disease, contamination, poison, censorship, lack of freedom. They have to be stopped.

“Write to your congressman, boycott Communist-China-made products and turncoats who sell out to the communists. Burn all your possessions contaminated with Communist-China-made parts, like you and your neighbor’s cars (especially if they are ChiComs) … Communist China is evil, we are great, USA, USA, USA … Signed, Freedom loving, patriotic but not nationalistic, America.”

Shuanghui’s takeover of Smithfield would be the biggest Chinese investment in the U.S., though dwarfed by the $18 billion that CNOOC offered for the purchase of Unocal, a bid that CNOOC withdrew under political pressure, a sore point with China.

In the deal, Shuanghui offered $34 a share for Smithfield, a 31 percent premium, but next day the shares rose to $33.96 buoyed by the news. (The U.S. Securities Exchange Commission has charged a Bangkok trader with $3 million fraud, claiming he benefited from a Facebook tip before the deal was announced.)

The Chinese company has promised that there will be no closures or relocations of Smithfield’s operations and that the current management will keep their jobs. Top executives of Smithfield stand to make more than $85 million in stock and share options if the deal goes through.

What more can Americans want? For a country that is supposedly the world’s leader and a melting pot of immigrant peoples, the U.S. is very thin-skinned about foreign intrusion, even as Americans demand that foreign doors be opened freely to their investments and multinationals.

America’s reaction to the small advance by corporate China today is reminiscent of reactions to the Japanese 20 years ago when they feared that the foreigners were out to buy the Great American Dream: Sony and Mitsubishi and others bought Hollywood studios and acquired large chunks of prime real estate in Manhattan.

In the end, many Japanese took losses on their American adventures. Sony today is being advised to separate its Hollywood business from its loss-making electronics operations.

Chinese companies have plenty of money and it makes sense for them to spend some of it diversifying into America. Last year was busy for Chinese in the U.S., with Sinopec paying $2.5 billion for a stake in Devon Energy, Dalian Wanda buying movie-theater chain AMC for $2.6 billion and Wanxiang spending $420 million for a stake in Great Point Energy. There are a string of other Chinese deals waiting for approval, including finance, auto parts and biotech. Energy and food are high priorities because of China’s shortfalls in these areas.

In spite of the outcry, it also makes sense for Americans to welcome that money and the jobs it brings. So far, Chinese subsidiaries in the U.S. have had a positive but small contribution to job creation, providing about 30,000 new jobs. This is only about 1 percent of the foreign-generated jobs, but it could grow to 400,000 jobs by the year 2020 if China is encouraged to invest wisely and well in the U.S.

In the process, Chinese companies could understand the world better and encourage their own government to be more open and welcoming to the world. But it won’t happen unless Americans are more open to Chinese investment.

Kevin Rafferty is a professor at the Institute for Academic Initiatives at Osaka University.