Lessons from football for business

 
Paris St Germain match Football clubs such as Paris St Germain are owned by wealthy foreigners

The US has approved the largest ever takeover of a US company by a Chinese firm.

The world's biggest pork producer, Smithfield Foods, is being acquired by Chinese food company Shuanghui for $4.7bn (£3bn).

It is still subject to shareholder approval but the offer placed a significant premium on Smithfield's shares that I wrote about when the bid when the bid was first announced.

After several high profile rejections of Chinese bids by the Senate Committee on Foreign Investment in the past few years, including Chinese telecoms giant Huawei's attempt to buy 3Com and CNOOC's attempt to buy US energy firm UNOCAL, is this a significant change in the US attitude towards Chinese investment?

Strategic interests

Importantly, businesses will be looking to China to allow more investment into its market, a recurring source of complaint by foreign companies.

Both countries use slightly different approaches to stop acquisitions.

In the US, the Senate Committee on Foreign Investment assesses proposed deals based on if they affects the US strategic interests. For instance, China's Wanda has bought the US AMC cinema chain, which wasn't viewed as impinging on strategic interests.

For China, the regulators tend to rely on their rather new Anti-Monopoly Law to block investments.

In 2009, Coca-Cola's bid for Chinese company Huiyuan was blocked on anti-competitive grounds. Two years later, Swiss company Nestle was allowed to buy Chinese drinks company Yinlu, and the Indonesian company Indofood bought China's Minzhong Food Corporation just this month.

They're not quite as sizeable as Coke of course.

Global field

These deals are likely to be viewed as positive steps by businesses who have sought to access the Chinese market, as well as for Chinese firms seeking to become multinational players.

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At their peaks, Britain and the US accounted for half of the world's foreign investment - including Hong Kong, China has about 10%”

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The recurring issue for Chinese investment is whether there is a level playing field both in terms of Chinese companies investing overseas and foreign companies competing in China.

Some Chinese investments, particularly in energy and natural resources, have been funded by Chinese state-owned banks on favourable terms. Chinalco's problems in investing in Rio Tinto's operations in Australia is a case in point.

This is compounded by the fact that many of the largest Chinese firms are state-owned which warps the playing field as well.

The 10 largest Chinese firms are all state-owned. Of the 123 companies with revenues of more than 100bn yuan, just 16 are private. Thus, firms like the national oil company CNOOC struggle to buy UNOCAL in the US.

'Fair play'

Europe has been more receptive to Chinese investments than the US. China is one of the top three largest investors in Germany and has bought assets in rescued countries, such as a significant port in Greece.

A European policymaker explained their approach to me this way.

It comes down to something analogous to the "fair play" rule in football (or soccer to Americans).

Europeans are somewhat less concerned about the source of the money.

Many giant clubs are owned by wealthy non-nationals (Paris St Germain is owned by the Qatari sovereign wealth fund) and are more focused on whether there is an impact on the competitiveness on the playing field.

For the football fans out there, this probably opens up a can of worms. It's also a big issue for business to compete against or be acquired by a state-owned or state-financed entity.

Open play

So, it may be slightly easier in Europe, but greater transparency about the funding source and the ownership structure of Chinese firms will help with their overseas acquisitions, particularly in the US.

At their peaks, Britain and the US accounted for about half of the world's foreign investment. Including Hong Kong, China has about 10%. This is despite the fact the largest listed Chinese firms already form nearly half of the top ten largest companies in the world and account for about a tenth of global stock market values.

Greater openness will also help Western firms with market access and improve the playing field in China.

It would aid private Chinese firms as well. They often face unequal access to financing and similar obstacles as Western firms, due to the oligopolistic structure of key industries dominated by Chinese state-owned enterprises.

Witness the challenges faced by China's largest mobile phone maker ZTE. Despite being the world's fifth largest handset company rivalling Apple, it reportedly faces challenges on its home turf against well-connected state-owned firms.

Food and movies

Put into context, the Smithfield acquisition is dwarfed in size by the $5bn that China is ploughing into one Kazak oil field and the $30bn of investment that has just been announced in Kazakhstan.

In all of last year, China invested just $5.25bn into the US, which is pretty small - but a big jump from 2007 when it was less than $1bn.

US investment in China was $51.4bn, though mostly spent on setting up factories or opening stores and not on acquisitions of Chinese companies.

In terms of levelling the playing field for commercial deals, food and movies may be a good start.

 
Linda Yueh Article written by Linda Yueh Linda Yueh Chief business correspondent

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  • rate this
    +1

    Comment number 7.

    China has stashed the cash and is not afraid to take risk, some of the investments are bound to lose asset value....but you are right LY, the Kazakhstan investment is MASSIVE, and the Chinese have invested in security of commodity supply.
    re your football analogy, their business plan depends on consumers paying over the odds for TV coverage, likewise UK consumers should not support cartels

  • rate this
    0

    Comment number 6.

    total different stories, there are too much concepts involved and mixed here. its true, Chi-Gov has money after 30 + years development without twists&turns, But it doesnt make any sense to its own people because they could get any benefit from these deals. for those giant state-owned Chinese firms, please do remember on this stage they want to buy everthing, they dont like follow the rules.

  • rate this
    0

    Comment number 5.

    This is just the logical consequence of the USA,s BoP deficit,bond market and current account deficit over many years and is necessary if the global system is to work. Don't like it ? Then put the house in order economically ad the problem disappears. Actually though this just brings China more closely into the global partnership of nations and very welcome they should be too.

  • rate this
    0

    Comment number 4.

    I would have thought that the Chinese would have worked out how to run a pork business long ago.

    I fear the Chinese are being suckered into buying corporate USA much like the Japanese were: all they get for their efforts is the bill.

    I can appreciate that technology and know-how are useful but American executives only possess skills in how to loot their business. Not commercial people at all.

  • rate this
    0

    Comment number 3.

    Perceived shareholder gain. Profits That is what will be driving the bid acceptance. All short term. Unless the US government steps in to stymie the deal
    On what grounds though?
    The WTO may have things to say. And that may or may not please the big investment houses that just want profits to keep rolling in.
    Then we get to the bid details. Just what is being offered?
    Trade requires two way wealth

 

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