Government Pork of a Different Variety: When Chinese State-Run Companies Bring Home the Bacon
Over on our sister-site MetalMiner, Stuart Burns breaks the story (courtesy of the FT) that Chinese steel manufacturers are diversifying into pig farming. Yes, you read that correctly. Stuart writes that "faced with falling profits but mountains of cheap government loans, the major state steel companies have desperately diversified in a bid to supplant their dwindling steel revenues by returns from elsewhere -- hence, the hog-wild move ... In fact, many of China's powerful steel groups -- which account for about 8 percent of China's gross domestic product -- have also quietly expanded beyond their core business (perhaps for a piece of the bacon). There appears no hiding the fact that falling sales and massive overcapacity have hit steel firms' profits hard as demand from the construction industry has collapsed."
On the surface, pig farming and traditional integrated steel production are somewhat similar (although the mini-mill model may be a better comparison, because like pigs, you can feed these types of facilities scrap as a primary ingredient). After all, you take raw materials (e.g., iron ore, pig slop) and then convert them into something more valuable (e.g., hot rolled coil or pork bellies). Yet there are subtle differences in the feedstock and the production output. As Stuart opines, "Let's hope steel producers hire the appropriate skills to manage their new acquisitions. Production processes like hot, pickled and annealed has some merits for pig processing, but hot stamped and galvanized remain challenging."
All of which begs a few questions:
- Will the WTO hold Chinese steel plants with pig interests accountable for scooping up pig waste to prevent unauthorized "dumping"?
- How will the politburo shareholders respond to executives in government owned entities putting the proverbial lipstick on an investment pig...?
- Will scrapple now have to contain a country of origin label saying it originated in China?
- Will we have to disinfect Chinese steel sheet coming into the US due to potential swine flu contamination?
- Will other Chinese manufacturers piggyback off of this example when declining government subsidies shed some daylight on the true state of their P&Ls?
- In non-secular countries with Muslim majorities -- or companies headquartered in these locales -- which historically do not trade with any groups with swine interests (based on on religious beliefs) consider Chinese steel given this diversified leap?
- Will Pig Latin replace Mandarin in company board meetings?
At the end of the day, we can't help but wonder if George Orwell was lucky or an amazingly prescient novelist when he made the communist leaders in Animal Farm, well, pigs. That was Russia -- at least metaphorically in farming terms -- yes, but red is red. Mao would be proud.