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A Chinese company has boughtthe biggest pork producer in the U.S., raising concerns that the deal will pave the way for more foreign takeovers of major U.S. companies.
The Chinese company W.H. Group purchased Smithfield Foods, which comprises 25 percent of the U.S. pork industry, for $4.7 billion. The deal marks the largest acquisition by China of a U.S. company to date.
Senator Debbie Stabenow, head of the Senate Agriculture Committee, suggested that the Chinese government helped finance the deal, giving W.H. Group an advantage over American companies who could have bought Smithfield Foods instead.
The price tag marked a 30 percent increase from Smithfield Foods’ market value, which no U.S. company could match, according to congressional adviser Daniel Slane.
“American companies are not competing with a Chinese company, but with the Chinese government, and they can’t win that competition,” Slane said.
Larry Pope, the CEO of Smithfield Foods, said that W.H. Group is not state-controlled, but Slane called this comment “delusional.”
China’s government has encouraged companies to purchase overseas businesses in recent years. In 2011, the government put forth a five-year plan that directed food companies to shore up their production through acquiring foreign companies.
The Chinese government does not own W.H. Group outright, but it does own the Bank of China, which approved a $4 billion loan to W.H. Group in one day for the acquisition.
W.H. Group president Zhang Taixi said that the Chinese government supported the company with “preferential policy, as well as investment.”
The purchase has set a precedent for Chinese companies to purchase other major U.S. brands, according to lawyer Carl Sanchez, who represented W.H. Group in the deal.
“I can tell you firsthand that this has paved the way for other deals,” he said.
Stabenow suggested the U.S. government create policies that will protect food companies from large-scale Chinese takeovers.
“Food security is national security,” she said.
Warm up questions
- Where is China? Do they have a larger or smaller population than the United States? What about compared to the rest of the world?
- How is China’s government different from the United States? (Hint: think about who owns and controls the nation’s resources)
Critical thinking questions
- Is food security something that the United States should be worried about? Explain your answer.
- Why might the purchase of the largest U.S. pork producer by a Chinese company alarm members of our government?
- Some politicians argued that the Chinese company who purchased Smithfield Foods is not truly independent from the Chinese government because the government loaned them $4 billion. Do you agree with this statement? Why or why not?
