China conditionally approved the $5.6 billion purchase of US grain supplier Gavilon by the Japanese trading house Marubeni Corp on Wednesday, but only after delaying the process by nearly a year and imposing severe restrictions on how the combined company can sell soybeans. The ultra-cautious approach betrays an age-old Chinese preoccupation with securing enough food to feed its more than 1.35 billion people.
China has to look abroad for soybeans, one of the most crucial component in its food supply, used for cooking oil, tofu products, and animal feed. China imported 58.4 million tons of soybeans in 2012—about 80 percent of its total consumption. Merritt Cluff of the UN Food and Agricultural Organization told CNN that without imports, China would need to devote about a quarter of its total arable land to soybeans in order to meet demand.
The dilemma underlines the fact that China is crowded, with relatively little land to feed its huge population. The country has 19% of the world’s people but only 7% of its farmland—a proportion that is only getting worse as more land becomes desert and urbanization swallows up farms. In a research paper released at the Beijing International Food Safety Forum last week, DuPont warned: “China faces a monumental challenge to establish a sustainable food system.”
Under the restrictions imposed by the antimonopoly bureau of China’s commerce ministry, the soybean units of Gavilon and Marubeni must operate separately in China, with barriers to block information sharing that the Chinese authorities believe would result in uncompetitive behavior. Last year Marubeni accounted for 10.5 million tons, or about 18%, of China’s foreign soybean imports—the largest amount of any single foreign seller, but still far below the 30-35% threshold usually used by European anti-trust authorities, according to the Financial Times.
Marubeni’s Japanese heritage could also be a factor, as tension in the South China Sea over disputed islets once again strains relations. China itself has used exports as a weapon in the dispute, cutting off rare earth exports to Japan during a flare-up in 2010.
And the Murabeni-Gavilon deal is not the only recent example of China using M&A approval to support its strategic goals. Just a few days ago, China removed the final hurdles for commodities supplier Glencore in its $30 billion takeover of Xstrata, forcing the latter to drop a mining project in Peru in an attempt to diversify the supply of metals. Constrained access to metals would be a drag on the Chinese economy—but not nearly as bad as more than a billion people struggling to find enough cooking oil, tofu, and pork.
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