World Class Faculty & Research / February 4, 2016

Why U.S. Should Reject ChemChina-Syngenta Deal

SMITH BRAIN TRUST -- ChemChina’s $43 billion bid to take over Swiss seed and pesticide maker Syngenta and similar deals "should be rejected" until “China genuinely opens itself to foreign investment,” says economist Peter Morici at the University of Maryland’s Robert H. Smith School of Business.

Syngenta generates about a quarter of its revenue from North America. The deal means its U.S. headquarters in North Carolina and facilities across several states would be controlled by state-owned ChemChina, a factor expected to be scrutinized for national security implications by the Committee on Foreign Investment in the United States (CFIUS). 

“(U.S. operations) controlled by top officials in major Chinese multinational corporations, who also are members of the Communist party at some very high levels in the advisory capacity with the government, is a source of considerable concern,” Morici tells BBC Radio’s Business Matters. “But CFIUS has a very high threshold for rejection.” Instead of weighing the security and economic factors collectively, the committee will evaluate the deal “in independent processes,” he says. The commerce-trade protection element favors the deal: “One of the problems here is if you run it by the numbers (a cash buyout) the antitrust considerations largely evaporate.”

China’s slow economy has its firms increasingly dealing abroad to boost and diversify themselves. In China’s biggest deal yet, ChemChina wants Syngenta’s genetically modified seeds to capitalize on an anticipated move by the Chinese government to allow for genetically modified food production for its 1.4 billion people.

So, would a U.S. rejection be blocking the function of the free market? “Not exactly,” Morici says. “The Chinese won’t let us invest there the way want to invest here.  … (The likes of) Apple and GE have been substantially compromised in the decisions over there.”  

“My feeling is that this should be rejected and similar investments should be rejected until China genuinely opens up and disconnects between the Communist party and these major corporate investments abroad,” Morici says. “But [such shifting by China] is not likely any time soon.”

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The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and flex MBA, executive MBA, online MBA, business master’s, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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