An Urban's Rural View

Have finally arrived, after 4,945 miles and 19 days on the road, at summer headquarters in Newport, Ore. Interesting how geography shapes a person's perspective.

Looking out over the Pacific I can't help pondering the continent across the waves. Asia question for today: Should we worry about the Chinese company Shanghui International acquiring Smithfield Foods?

Lots of Americans do worry, and for a variety of reasons.

1) Fear of imported Chinese pork. China is the world's largest pork producer but Chinese consumers are wary after those 16,000 pig carcasses were fished out of the Huangpu River. Could Shanghui be planning to ship us what their Chinese customers don't want? Maybe someday, but with demand in China growing 3% a year the more likely immediate motive is to import, not export, pork.

2) Fear of further concentration in the meatpacking industry. This would be a more pressing concern if Shanghui were a big direct buyer of American pork. As it is, the acquisition doesn't reduce the number of buyers in the market. At worst it eliminates the theoretical potential for an additional buyer, as Shanghui will be less tempted to enter the market directly on its own.

3) Fear of Chinese management practices. There's been speculation that the acquisition could increase pressure on Smithfield to boost short-term profit by cutting costs and corners. Somehow, that seems unlikely. As a New York Stock Exchange-listed company, Smithfield is already under enormous profit pressure. Shangui isn't buying Smithfield to wring out additional profit. It's buying it because the Smithfield brand will reassure its Chinese customers, who are fearful of their domestic meat.

4) Unhappiness with the obstacles to American companies buying Chinese companies. Chinese companies can buy American companies; it's harder for American companies to buy Chinese. The inequality of reciprocity strikes Americans as unfair. But the unfairness can be exaggerated. We put would-be Chinese acquirers through a national-security clearance process that has derailed a number of proposed deals. Sometimes, a law professor writes in the New York Times (http://tiny.cc/…), the review board is swayed more by public uproar than any real national security problems. That could happen to Shanghui yet.

5) Technology-transfer concerns. American meat packers may not seem very high-tech but their supply-chain-management software is years ahead of what's available in China. Sooner or later, though, the Chinese will catch up, deal or no deal. And while the acquisition will catch them up quicker, the main immediate result will be safer meat in China. If the transfer poses national-security risks for the U.S., the review board can ban it as a condition of approval.

6) Vertical-integration concerns. Shanghui clearly likes Smithfield's vertical integration, which provides controls up and down the supply chain. Many Americans, including many American farmers, dislike it. The vertical-integration train left the station long ago, however, and it's hard to see how having a Chinese owner changes anything.

7) Xenophobia. Face it, nobody really likes it when someone who is not one of us buys one of ours. We live with it because we don't want other peoples' xenophobia to stop us from buying one of theirs. That's why reason-for-worry No. 4 grates. But aren't we better off fighting for our right to buy over there than denying them the same right here?

So, on balance, should we worry? Some of these qualms are more worrisome than others, but even added together they don't overwhelm. When I exhale, the thought that keeps coming back is that nervousness about earlier acquisitions by foreigners, even by Asians, has by and large proven groundless.

The big problem in most of those deals is the acquirers' tendency to overpay for American companies. That's a worry for them, not us.

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