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Anxieties about Chinese firm’s purchase of Smithfield Foods shown to be unfounded

Bloomberg News
| Saturday, July 2, 2016 9:00 p.m

When Chinese suitors took over the pork producer in Smithfield, Va., it sent tremors through the tiny town that calls itself the Ham Capital of the World.

Three years later, residents and union leaders who represent workers at Smithfield Foods Inc. say the initial fears about the buyer from a Communist-ruled nation were unfounded. The happy marriage belies the rhetoric on the U.S. presidential campaign trail in which China is depicted as an untrustworthy business partner, and it serves as evidence that Chinese investment that can benefit both countries.

The $4.7 billion acquisition of Smithfield Foods in 2013 by Shuanghui International Holdings Ltd. marked, at the time, the biggest purchase of an American firm by a Chinese company.

It also was controversial.

Senators expressed concern that the deal would jeopardize the security of America’s food supply, and residents of the town of 8,300 people worried Shuanghui would cut jobs or move the company from Smithfield, where it was founded in 1936.

Instead, the workforce under the Chinese owners, now known as WH Group Ltd., has expanded by more than 1,000 people to almost 39,000, and rather than cutting back investment, capital spending by the Chinese-owned unit has increased, rising 24 percent last year, to $313 million.

“This is a very conservative American community and people were aghast that the Chinese had bought their company,” said John Edwards, editor and publisher of the Smithfield Times newspaper. “That’s pretty much gone away.”

From hotels to movie studios, Chinese companies are snapping up assets in the United States at a record pace. This year, Chinese firms are on pace to spend $50.8 billion on U.S. acquisitions, according to data compiled by Bloomberg that spans completed, proposed and pending deals. That’s compared with $34.8 billion last year.

The investments add a layer of potential tensions to a bilateral economic relationship characterized by the world’s largest trade imbalance, with China exporting more than $365 billion worth of goods to the United States, far more than what it bought in American imports, according to government data.

Those Chinese-made goods help fill Wal-Mart’s stores and Amazon.com‘s website with inexpensive products for American households that have had scant income gains.

The imbalance reflects competitive pressures that have fueled charges about unfair competition ­— now heard loudest on the campaign trail.

Republican presidential candidate Donald Trump said in May that “we can’t continue to allow China to rape our country.” His Democratic rival Hillary Clinton has said the next president “has to understand the games Beijing plays and be prepared to stop it.”

Chinese-affiliated companies can be found in more than three-quarters of congressional districts, according to the Rhodium Group LLC, a New York economic-research firm that specializes in China. Major multibillion-dollar projects are in the works across the country, including Yuhuang Chemical’s $1.85 billion methanol plant in Louisiana and Tranlin Paper’s $2 billion facility in Virginia.

Because deals by Chinese companies often involve state-owned enterprises, they can raise concerns about everything from intellectual-property protection to national security. Before the Smithfield acquisition, opponents of the deal raised espionage concerns, noting that Smithfield, Va., is in a military-intensive region not far from the Navy base in Norfolk that bills itself as the world’s largest.

The Obama administration has blocked some purchases of U.S.-based assets.

One-way street

Foreign investment between China and the United states remains largely a one-way street, said David Dollar, a senior follow at the Brookings Institution and the Treasury’s former economic emissary to China.

“China itself remains quite closed to inward investment. They’ve opened some manufacturing sectors, but they’re very closed in a lot of sectors that are important to the U.S.,” Dollar said. “The next president will have to take a hard look at this.”

At the same time, Chinese firms are generating jobs in the United States, adding about 13,000 employees to their payrolls in 2015, up 12 percent from 2014, according to a report by the National Committee on U.S.-China Relations and Rhodium. About 90,000 Americans are employed by Chinese-affiliated companies, a threefold increase in three years.

Thousands of those jobs are at Smithfield Foods, founded in 1936 by Joseph Luter and his son in the former port town of the same name in southeastern Virginia. The business rose to become the world’s largest pork processor and hog producer within five decades, but by 2008 it was mired in a bitter dispute with workers over attempts to unionize a hog-slaughtering plant in Tar Heel, N.C.

Before the Chinese acquisition, investors expressed disappointment in the company’s stock performance, which trailed competitors such as Hormel Foods Corp. and Tyson Foods Inc. One shareholder, Continental Grain Co., suggested that the company’s packaged meats, international operations and livestock businesses be broken up.

Concerned about the impact on workers, the union supported the Chinese takeover, and officials say collective bargaining negotiations have gone smoothly since.

“Meet the new boss, same as the old boss,” said Mark Lauritsen, director of packing and processing at the United Food and Commercial Workers International Union in Washington, who has worked on Smithfield labor talks. “As far as the worker on the shop floor goes, there’s been no change at all.”

Shuanghui promised not to close any Smithfield facilities, lay off employees or move the company’s headquarters. For Shuanghui, the deal was an opportunity to satisfy growing demand by consumers for pork in China, which is the world’s largest market for the meat.

Point of acceptance

Samples of “genuine Smithfield ham” — defined by strict guidelines set by Virginia law — can be bought at the “Taste of Smithfield,” as can a can of bacon-flavored soda.

At the Smithfield Inn, also owned by the firm, the menu features local dishes such as pork and apples.

Smithfield Foods remains an American company that operates independently from WH Group on a day-to-day basis, said Kathleen Kirkham, director of corporate communications at Smithfield Foods. WH Group executives in China weren’t available to discuss the Smithfield Foods investment.

Local business people are getting used to the idea of playing host to a Chinese-owned company.

Jim Abicht has been leasing space for the Christmas Store on Main Street from Smithfield Foods for about 25 years. He hasn’t noticed any change in his relationship with the firm under the new ownership.

“We can sit out on the street and wave our flags,” said Abicht, whose store sells bacon-shaped Christmas ornaments among other porcine-inspired decorations. “Or we can accept that we live in a global economy.”

Categories: Wire stories
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