China invests in the U.S.

Date posted: June 28, 2013

A Chinese company recently announced the purchase of Smithfield Farms, a large agribusiness company specializing in pork and with operations in North Carolina. Why did this happen, and is it a good thing or a bad thing? N.C. State University economist Mike Walden responds.

“Well first we should say that this sale has yet to be approved by the U.S. government, so we will see if it goes through.

The short answer of why it happened is this is all part of our new globalizing economy and specifically a part of the rise of the Chinese economy. I think most people understand that China has really built its economy over the last 25 years by focusing on exports.

They are the manufacturing center of the world. They sell those manufactured products to other countries, including the U.S. They, therefore, accumulate the currency of those countries they sell to. So they have accumulated a lot of dollars. They have to do something with those dollars.

They invest those dollars. Up to now, largely speaking, China has used those dollars that’s accumulated to buy financial assets, primarily U.S. Treasury securities. This is where the claim comes that China has been funding our budget deficit.

But now China appears to want to broaden its investments and go into some hard investments — buying companies — and they’ve been doing that not only in the U.S. but around the world. So this is another example of that. Now in terms of whether it’s a good or bad thing, all I can say is if you look in the U.S. at foreign-owned companies broadly speaking, they actually pay wages that are above average for other workers. “

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