What the Chinese are buying

Skipping directly to the punchline: intangibles and knowledge. That is what the Chinese companies are buying with their purchases of U.S. companies — including the proposed purchase of Smithfield Foods by Shuanghui International. As a recent Washington Post article pointed out, Smithfield has the brand and the technology:

[Smithfield] has developed genetic strains that the company’s annual report promotes as “the leanest hogs commercially available.”
In the largest single Chinese purchase in the United States, that history and know-how will be absorbed into a firm that has its own global ambitions. Officials of Shuanghui, already the largest pork producer in a nation where pork consumption has exploded in tandem with national income, have said that they want to make their company one of the premier meat producers in the world.

And, as the article goes on to say:

The deal comes amid a record flow of investment by often cash-rich Chinese companies into the United States. While Chinese firms have taken over some well-known U.S. brands, including the AMC theater chain and IBM’s personal computer business, the Smithfield acquisition is the first major foray into the food industry and the most significant in terms of a daily consumer item.
Thilo Hanemann, a Rhodium Group analyst who tracks Chinese investment in the United States, said the deal represents an emerging strategy of Chinese companies to buy up market-leading expertise — whether the insight an AMC has into running a national theater chain or the skill Smithfield has in raising, slaughtering and processing pigs.
In many cases, he said, “Chinese companies are buying assets in the U.S. not to expand in the U.S., but to gain a competitive edge at home.”

In other words, the Chinese economic strategy recognizes the importance of intangibles and knowledge assets as the drivers of competitive advantage. U.S. policymakers need to understand the same.

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