China Lobby Curries Favor With U.S. Government

By correspondent Li Xin from Washington, D.C., staff writer Wang Feng, and intern researchers Natalie Ginsberg, Therese Lim and Jennifer Liu from Beijing

It’s a new start for both Jeffrey Carlisle and Lenovo.

’We don’t even have the Lenovo logo up yet,’ said Carlisle, vice president for US government relations for Lenovo, China’s largest computer manufacturer. The first ever in-house lobbyist for a Chinese company in the United States, Carlisle has just moved into his office in Washington D.C.’s North Capitol Street.

But he is not alone. Chinese companies looking to expand in the US have been hiring more and more local lobbyists in an attempt to play by Washington’s long-established—but unfathomable to outsiders—influence-peddling rules.

The Bank of China, listed for the first time in Hong Kong and Shanghai this summer, hired Public Strategies Inc. to smooth the path for its IPO road shows in the United States.  For US＄ 85,000 a month, the public relations company designed a comprehensive crisis management framework for the bank to ensure the success of its IPO.  Meanwhile, the Chicago headquarters of public relations firm Hill & Knowlton in May signed a three-year contract with the city of Beijing to promote the 2008 Beijing Olympics stateside. 

Analysts say that the decision of Chinese companies to hire international PR firms to promote their images abroad is a sensible one, given that several such companies have become mired in overseas financial scandals and class action lawsuits in recent years. Bruce Stokes, a senior journalist and political commentator based in Washington, told that policymaking in Washington can be influenced by China’s interests—and that furthermore, the US is accustomed to the tactics that successful lobbying requires.  ’Americans are very used to the influence game. Like it or not, that’s the way Washington operates,’ he said.

Most Chinese firms—like Huawei Technologies, TCL, and Haier—have set foot on U.S. soil and are ’learning to hire law and PR firms for lobbying,’ said Harriet Mouchly-Weiss, founder and managing partner of the U.S.-based Strategy XXI Group.  According to Mouchly-Weiss, the Chinese must learn how to navigate Washington’s so-called ’K Street,’ where the most influential lobbying firms are based.  For example, many U.S. government officials become professional lobbyists after they leave their public posts, though the recent ’revolving door’ law aims to prevent conflicts of interest.

Carlisle was chief of the Wireline Competition Bureau of the U.S. Federal Communications Commission (FCC)—where he specialized in Internet policy and homeland security—before he joined Lenovo in 2005. He and other lobbyists work in Washington to promote Chinese companies and to inform legislators, politicians, and the public of how these companies serve local interests.  Given the United States’ deeply rooted wariness of China, though, any major move by a Chinese company risks being tagged with ulterior motives. 

In 2004, Lenovo’s acquisition of the world computer giant IBM’s PC division got the go-ahead from the U.S. Committee on Foreign Investment only after it made a series of ’special arrangements.’  In March this year, Lenovo won the bid for a US＄13 million contract with the US State Department—but U.S. legislators, led by Larry M. Wortzel, chairman of the U.S.-China Economic Security Review Commission, fiercely opposed the deal, citing security concerns and alleging that the US has been a primary spying target for China.
 
Analysts say that the political barrier—however unfounded—is still a reality Chinese companies must come to grips with. Carlisle told that Lenovo plans to maintain active contact with U.S. congressmen and government officials to establish a presence. ’We should let them know who we are and the fact that we have significant amounts of investment here,’ he said.

Perhaps the clearest illustration of the need for Washington lobbyists is the abortive attempt of China National Offshore Oil Corporation (CNOOC)’s bid for US oil firm Unocal last year.  CNOOC spent US＄ 3 million to hire a 96-member team from Akin Gump Strauss Hauer & Feld LLP to pave the way for the acquisition.  The lobbyists included several high-profile former government officials and diplomats, who used every possible channel—including the media—to gain the support of U.S. policymakers.  Despite the firm’s considerable manpower, CNOOC ultimately lost its bid, not least because of the anti-China sentiments of several congressmen.

The failure, analysts say, comes largely from the lack of both foresight and a preemptive strategy.  According to David Lampton, a senior China expert at Johns Hopkins University, CNOOC waited too long before beginning its lobbying efforts.  The company began lobbying only after it announced its acquisition plan, which immediately drew outraged protest from US legislators and propelled the bid into a ’crisis’ mode. Without existing channels of communication, the CNOOC move seemed ’explosive.’ Blindsided U.S. legislators were more likely to react negatively, Lampton told .

Fu Changyu, the chairman of CNOOC, agreed—in hindsight.  He told The Wall Street Journal last month that the most valuable lesson he learned from the failed bid was that public relations and political lobbying should precede formal moves for acquisition.

Before 2000, U.S. multinationals would lobby the government themselves for favorable trade terms with China. Such efforts culminated in 2000, when several U.S. conglomerates spent more than US＄ 100 million to push the Clinton administration to grant China Most Favored Nation (MFN) trade status.  But now, tables have turned: as the U.S. trade deficit with China skyrockets and U.S. companies suffer from China’s more ambiguous policies, ossified bureaucratic structure, and lack of transparency, some interest groups have begun opposing moves that may benefit China.

Lobbyists, analysts warned, must take heed of non-economic factors, such as IPR, trade friction, and the exchange rate as they carry out their work.  In many cases, commercial behavior becomes easily ’politicized’ in Congress, said Daniel Spiegel, a partner with Akin Gump.

However, lobbyists may be able to curry favor with U.S. legislators with a number of strategies, including direct investment, according to Robert Kapp, the former president of the US-China Business Council.[xl2]  The most effective way for a foreign company to increase its influence o  U.S. policies is to provide jobs for Americans, he said.  If they do so, the American public may push their representatives to be more lenient on Chinese companies.

A more intractable obstacle is the ’state-owned’ status of many Chinese firms.  Chevron Texaco, CNOOC’s biggest rival in the Unocal bid, accused the company of bypassing fair market-based behavior by cashing in on cheap funding from the government during their heated competition for Unocal.  While it is impossible to change the official status of many Chinese companies, says Stokes, the D.C.-based political commentator, they can win trust abroad if they make their corporate governance more transparent, their operations and policymaking more market-driven, and their communication with U.S. policymakers more effective.

Martin Alintuck, the China managing director for public relations firm Edelman, said that Chinese corporate leaders can promote their corporate image on the international stage with human interest stories.  Many such stories are already occurring in China, he said—now it’s up for Chinese companies to tell them.

English version by Xin Zhiming and Jennifer Liu