Why China is spending nearly $5 billion for pork

Today, the largest-ever Chinese takeover of a U.S. company was put into motion when Shuanghui International Holdings agreed to buy Smithfield Foods for $4.7 billion.

The reason for the deal: Pork. Fatty, delicious pork.

People in China can't get enough of it. The country leads the world in pork consumption, with the average person eating 86 pounds of it a year. China also leads the world in pork production, churning out 50 million metric tons of it in 2010, which is twice the amount produced in the European Union and five times that of the United States.

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However, despite China's porcine obsession, it still relies on small family farms to raise pigs. The deal with Smithfield would give China access to the United States' massive factory-farming system.

The deal is also a no-brainer for Smithfield, maker of the famous Smithfield Ham. The company is the largest hog producer in the United States — a country where pork consumption is actually on the decline.

"This transaction will allow us to access Asia in a big way," C. Larry Pope, Smithfield’s chief executive, told The New York Times. "This is an export deal, and they are very interested in exporting products out of the U.S."

Virginia, where Smithfield is based, is no stranger to doing business with China. Virginia Gov. Bob McDonnell (R) announced last month that the state sent $638 million in agricultural exports to China in 2012, making it Virginia's largest trading partner.

The deal, valued at $7.1 billion including debt, will have to withstand scrutiny from federal regulators. Often, the concern with Chinese take-overs is national security; here, it will be about food safety.

In 2011, Shuanghui was accused of selling pork contaminated with clenbuterol, a feed additive more commonly known as "lean meat powder" that can cause nausea in humans. At least 2,000 pounds of pork were recalled and dozens of people lost their jobs.

If the deal is approved by regulators and shareholders, it should go into effect before the end of 2013.