Chinese government statistics are a black box, but one economic indicator you can always count on to reflect reality is demand for pork.Pork is so ubiquitous in the Middle Kingdom that the word for it is the same as meat. And as the Chinese have gotten richer, they’ve eaten a lot more of it – as exemplified by this week’s $7 billion offer from China’s largest meat processor, Shuanghui International, to acquire Smithfield Foods, the world’s largest pork producer. The Chinese middle class is predicted to triple in size to 630 million people by 2022, according to a new study released by the China United States Exchange Foundation, and this new aspirational class wants meat, cars, better housing, more elaborate white goods – in short, all the things that the Western middle class wants.
This presents some incredibly opportunities for direct investment into the U.S., as cash-rich Chinese firms look to ramp up acquisitions of Western companies. At less than $2 billion a year, direct investment from China to the U.S. is miniscule relative to the sizes of either economy. Part of that is due to the fact that a number of recent Chinese acquisitions of U.S. firms have been blocked due to national security or anti-trust concerns.
While it’s hard to argue that bacon is a strategic asset, the Smithfield’s deal will certainly be put through the regulatory paces. Yet as Joe Nocera and I discussed on this week’s episode of WNYC’s Money Talking, it might also present an opportunity for the U.S. to force the Chinese to open up their own markets, in which state-owned firms have been playing a bigger role in recent years, and also to do their part to protect the intellectual property of American firms via a more robust legal system. These issues and many other economic challenges will surely be on table when President Obama and Chinese premier Xi Jinping meet next week in Los Angeles.
Listen to this week’s episode of ‘Money Talking’ below: