Chinese meat processor Shuanghui International Holdings completed the acquisition of US pork producer Smithfield Foods Inc last month. [Photo / Provided to China Daily]

Chinese companies eye more overseas mergers and acquisitions to offset rising safety concerns at home

Donna Wang is one of the several shoppers buying ham at a busy supermarket in downtown Shanghai. Unlike most of her peers who are scouring the shelves for reputable foreign brands, Wang prefers to buy ham made by the Chinese pork producer Shuanghui Group.

"My actions may seem rather strange," Wang says. "Food safety has become a matter of grave concern in China, especially after the recurrent scandals over contaminated products and substandard ingredients. As a result most of the shoppers prefer to shun local products and opt for foreign brands," Donna says.

As an old customer of Shuanghui, Wang feels that the brand does have the vital ingredients - trust factor and quality - needed to build confidence with customers.

"The Chinese company has moved further up the quality ladder with its recent $7.1 billion purchase of US pork producer Smithfield Foods Inc.

"I believe that the association with the US company, which has a reputation for high quality, will automatically make the Chinese company conform to international standards. This also helps ensure the safety of the meat."

Shoppers such as Wang who are keen on quality as well as homegrown brands are now spurring Chinese food companies to shop overseas for modern production techniques, safety systems and reputed brands to cater to the growing demand.

Experts say that the Smithfield acquisition, when complete, will help Shuanghui gain access to the brands perceived to be of higher quality and over the long term provide it with products for China's burgeoning middle class, especially those that are made abroad.

Chinese food companies have for long sold products at low prices, but have now discovered that buyers are willing to spend more for products they believe are better or more prestigious. They are seeking to offer them everything from milk to bacon at premium prices, Vineet Sharma, head of consumer research at Barclays Capital's Asia (excluding Japan) division, commented in a recent interview to The Wall Street Journal.

"Consumers aren't just looking at the cheapest brand. They want the better brand," said Sharma.

Global consultancy firm McKinsey & Co found in a recent survey covering 10,000 Chinese shoppers that more than 80 percent of the respondents said they were spending more money on food than before, while a third of the respondents said they were buying more high-end brands.

Xu Hang, a 30-year-old professional services employee, who has recently returned to China from Canada, says he has to buy huge quantities of milk powder for his family and friends every time he flies to Hong Kong for business.

"It is hard to trust domestic brands when it comes to food," he says. "The price of imported food is a bit higher, but it is also safer because it comes with the hallmark of quality."