WASHINGTON/OTTAWA Aug 22 Back in the day,
before the U.S. Congress tore apart China's proposed
multi-billion dollar deals with Western companies one after the
other, Beijing's lobbying left little to the imagination.
China's Washington embassy blasted out form letters to every
U.S. lawmaker when it was upset with Congress, warning of grave
damage to Sino-American relations, congressional aides recall.
One aide to a senator, who was being courted by arch rival
Taiwan, was told by visiting Chinese officials "that all trade
between your state and China will come to a screeching halt!"
The confrontational tactics rarely worked - in one pivotal
decision, Congress in 2005 essentially killed Chinese state oil
company CNOOC's $18.5 billion bid for U.S. firm Unocal - and now
China has largely abandoned them.
Instead of issuing tirades, the Chinese hire top-notch
lobbying firms whose ranks are filled with well-connected former
U.S. and Canadian officials; buy TV advertisements to buff their
image; and seek acquisitions less likely to stir nationalistic
Whether this new strategy fares any better could be known
soon. CNOOC is trying to buy Nexen Inc., a Canadian oil company
with assets in the U.S. Gulf, in a deal valued at $15.1 billion.
China's Wanxiang Group is poised to take over A123 Systems Inc,
a struggling U.S. battery maker that received hundreds of
millions of dollars in grants from the Obama administration. And
Huawei, a Chinese company founded by a former People's
Liberation Army soldier, along with Chinese telecom company ZTE
Corp, are coping with a congressional security investigation.
CNOOC PREPS AHEAD OF BID
China may be the world's second largest economy, a
veto-wielding permanent member of the U.N. Security Council and
the fastest growing export market for a United States eager to
revive its economy through trade. But the country of 1.3 billion
labors under a poor image in Washington.
Chinese firms - even those like Wanxiang that are not
directly beholden to the ruling Communist Party - face intense
scrutiny from lawmakers who see them as tools of China's
geopolitical strategy or part of a system that grossly favors
their own firms with allegedly illegal subsidies and what
critics see as an artificially low currency.
CNOOC's second major bid for a North American company,
Calgary-based Nexen, came after the Chinese firm laid the
groundwork in Canada and after Beijing made an effort to
understand how the U.S. Congress operates. Nexen, Canada's 10th
largest energy firm, has 10 percent of its assets in the U.S.
"They know there is no point in just arriving and doing a
brief tour of the country and thinking that approach will
produce results. Those days are over," said a source familiar
with the Chinese lobbying effort in Canada, who spoke on
condition of anonymity.
When CNOOC came looking for introductions in Canada, it
chose Hill and Knowlton Canada and its president, Michael
Coates, a longtime Conservative who worked for a government
minister before becoming a lobbyist in 1983.
Coates, who was leader of Conservative Prime Minister
Stephen Harper's election debate preparation team for three
federal elections, accompanied CNOOC Vice President Fang Zhi
during talks with top Canadian bureaucrats in which Fang
stressed Canada was an attractive place to invest. He did not
mention any particular targets.
Along with doing their homework and talking to the right
people in financial markets, Chinese firms had a greater
intuitive grasp of what was possible in Canada, a second source
familiar with China's lobbying said.
"They went after Nexen because they knew everybody knew
Nexen was a mess. If Nexen had been a crown jewel ..." this
source said, making clear a bid for a more important firm would
have been rejected.
The companies still need approval from Canadian authorities.
Hill and Knowlton Canada declined to comment.
In Washington, CNOOC also hired Hill and Knowlton. Its
lobbyists include a former Democratic congressional aide, Robert
Ludke, who worked with the Chinese company during its failed bid
And CNOOC is voluntarily submitting its deal for a U.S.
government security review.
"In contrast to 2005, we're finding people are much more
willing to consider the benefits of the deal from a U.S.
perspective," CNOOC spokesman Peter Hunt said.
TRANSLATING CONGRESS INTO CHINESE
The turning point for Chinese lobbying efforts in North
America was the tumultuous CNOOC attempt to buy Unocal, whose
blue-and-orange gas station signs were something of an icon to
many, including some U.S. lawmakers.
In the summer of 2005, Congress voted overwhelmingly against
the bid. It was a protest vote, but CNOOC understood that it
meant the deal was going to be rejected by the U.S. government
and it jettisoned the plan.
China's U.S. ambassador knew something had to change.
Just over a week after the vote, the Chinese Embassy
retained top lobbying firm Patton Boggs. The monthly retainer,
which was initially $22,000, has since climbed to $35,000,
according to the latest forms disclosed under the Foreign Agents
A handful of lawmakers, who were shocked at the visceral
reaction to the Unocal deal, formed a group to help China
understand Congress and vice versa. The Chinese Embassy started
inviting members of Congress to meet their policymakers and its
ambassador - then the suave and good-humored Zhou Wenzhong -
paid visits to Capitol Hill where he would take verbal beatings
over volatile issues such as China's support for Sudan.
"As long as the door was closed and the media wasn't there,
(lawmakers) and the Chinese discussed third rail issues," said
one congressional aide. "This allowed Americans to blow off a
lot of steam."
Representatives, who rarely got the chance to talk to U.S.
Cabinet members, much less Chinese policymakers, were now able
to confer with Beijing's top ministers and make productive trips
to China. The bipartisan Congressional U.S.-China Working Group
"helped translate the Congress into Chinese," said the aide.
Gone were the old ham-handed approaches - like the 20-page
blast fax on Taiwan and Tibet that once went to scores of U.S.
lawmakers, according to congressional aides and trade experts.
China's sheer economic size and importance as a market
increasingly speak more effectively than its diplomats or hired
hands from K Street.
While Chinese imports to the U.S. remain very high, 420 of
the 435 congressional districts saw higher growth in exports to
China than they did to other overseas markets in 2011, according
to trade data compiled by the U.S.-China Business Council. Even
districts of strident critics of Beijing or authors of
protectionist legislation aimed at China enjoyed rapid growth in
exports to the Chinese market.
And the tide of Chinese investment has just begun, with
China and its companies sitting on hundreds of billions of
dollars in cash.
NO ONE WANTS TO BE HUAWEI
CNOOC and Wanxiang are doing whatever it takes to avoid a
repeat of what happened to Huawei, the world's second largest
telecom equipment maker, which has had deal after deal fall
apart in the United States.
In 2008, Huawei and private equity firm Bain Capital were
forced to give up their bid for 3Com Corp after a U.S. panel
rejected the deal because of national security concerns. Some
lawmakers fear that Huawei gear could allow the Chinese to tap
into the U.S. telecommunications network or even provide a way
for it to sabotage systems.
Then in 2011, the company was forced to relinquish plans to
buy some assets from U.S. server technology firm 3Leaf after the
Committee on Foreign Investment in the United States mandated
that Huawei divest certain parts of the deal.
It was a shock - especially given the deal, which had
already been consummated - was worth just $2 million. Huawei had
not even filed with the U.S. government for security approvals.
In contrast, when Wanxiang announced in August it would
rescue A123 Systems, the companies quickly said they would ask
the U.S. government to review the deal for potential national
The Chinese auto parts maker - which plans to provide up to
$465 million to A123 - has retained a law firm for the security
review, but has not hired lobbyists to make the case for the
"We're confident the process will be transparent and will be
fair. I think we're trying to help the company and save the
jobs," said Pin Ni, president of Wanxiang America Corp.
With lawmakers probing Huawei for any potential threats to
U.S. telecommunications, the company has boosted its lobbying
efforts. It plucked Donald Purdy, a member of a White House
staff team that drafted a U.S. national strategy to secure
cyberspace in 2003, to serve as chief security officer for its
"Politics are politics. The realities of this industry are
that, whether you are talking infrastructure or devices, it is a
transnational industry. It is utterly borderless," said William
Plummer, U.S. spokesman for Huawei.
The company now has seven firms registered to lobby U.S.
lawmakers, including APCO, Doyce Boesch and Fleishman-Hillard,
according to forms filed under the lobbying disclosure act. T hat
is up from four firms in 2011, two in 2010 and one in 2009.
Top lobbyists for Huawei include William Black, a former
chief of staff to Steny Hoyer, then Democratic leader in the
House of Representatives.
Huawei has also started appealing to mainstream audiences.
During this year's Summer Olympics, it aired commercials on NBC.
The company sponsored a high profile food fair in Chicago and is
set to sponsor similar events across the country.
In Canada, Huawei has made strenuous efforts to show a
long-term interest in the country since winning a contract in
2008 to build networks for domestic operators Telus and Bell
It opened a Canadian head office in Ontario and has received
a grant from the province to create jobs and invest C$67 million
in research and development. Huawei has since hired an executive
from Canadian tech company Nortel Networks to be its senior vice
president and has partnered up with Telus to establish a center
in their names at a leading Canadian university.
LOBBYING NOT THAT EFFECTIVE
But hiring a former government official doesn't always work.
Take China's ZTE Corp, the world's fifth largest telecom
gear maker. It hired Jon Christensen, a relatively unknown
former Republican congressman from Nebraska.
The FBI has since opened a criminal investigation of ZTE's
sale of U.S. computer equipment to Iran in breach of U.S.
sanctions, and Christensen resigned as ZTE's lobbyist after the
probe became public.
And many lawmakers have yet to be persuaded by China.
"The fact that they have formalized their lobbying efforts
means that they're getting bolder and bolder in the actions that
they have, and I think that should concern individuals in the
United States," said Republican lawmaker Randy Forbes, a key
critic of the Unocal deal.
One veteran advocate for Taiwan independence - Beijing
considers the island a wayward province - says China's
heavy-handedness often backfires, to his group's advantage.
"A lot of people say they're gaining prowess, they're being
more prominent and they're learning ... but I have never seen
it," said Coen Blaauw of the Formosan Association for Public
But Blaauw says China's deep pockets and big market talk.
Referring to the top Republican and Democrat in the House of
Representatives, he said: "My worry is the big corporations who
can call up John Boehner and Nancy Pelosi and tell them 'If you
do this, (the companies will) lose billions and billions of