Courting China

Lobbyists set up shop in world's largest market to smooth way for U.S. business

Shai Oster, Chronicle 9jan01

Beijing -- While there is still no Gucci Gulch in China, foreign firms are making inroads in the world's biggest consumer market and their lobbyists are shaping government policy by playing the influence game, business executives say.

Recent policy reversals by the communist government in key areas such as telecommunications and contract law indicate a state once cloaked in secrecy is now open to foreign input.

"It has reached a point in China where you can do things systematically," said David Wolf, director of the Beijing branch of the U.S. public relations firm Burson-Marsteller.

In recent years, American PR giants such as Burson-Marsteller, APCO Associates and Hill & Knowlton have set up shop in Beijing to help their multinational corporate clients win important government-controlled business contracts as well as to lobby against the many legal hurdles imposed on foreign investment.

With China likely to enter the World Trade Organization this year, lobbying efforts will increase as other governments and companies jockey to have their interests represented in the new laws China must issue to comply with WTO regulations.

The most dramatic success occurred last spring over an anti-encryption law that would have sharply curtailed the use of mathematical codes that protect privacy in such areas as e-mail programs and cellular phone transmissions.

After an intense lobbying campaign by U.S., Japanese and European chambers of commerce, the Beijing government caved in. The regulations were finally modified to apply only to specialized encryption used in banking and other sensitive industries.

In the past, foreign investors were at the mercy of a mysterious regulatory process. The Chinese government still formulates laws behind closed doors and has no formal mechanism for public review. That leaves companies with few ways to influence regulations that could have a paralyzing effect on their business.

Governments at all levels in China often spring new regulations with little or no advanced warning. More important, almost all large business contracts require approval by the highest levels of the central government.

Shortly after the government opened the country to foreign investment in 1979, getting anything done required either carefully choreographed high-level meetings or get-to-know-you banquets with local Communist Party cadres. By the late 1980s, foreign company officials often found themselves pressured by corrupt officials who wanted free trips abroad or cash bribes.

Connections -- known as guanxi -- with the right officials were deemed more important than contracts or law, and American notables-for-hire such as Henry Kissinger and former President George Bush were flown in by multinational companies eager to curry favor.

In 1998, when General Motors wanted to secure a contract for its $1.5 billion Buick plant in Shanghai -- the largest U.S. investment in the country - - the corporation sent CEO John F. Smith Jr. to meet with President Jiang Zemin and Premier Zhu Rongji.

More recently, San Diego-based Qualcomm Corp. sent well-known board member Brent Scowcroft to push for the sale of a network using the company's cellular phone technology. Under the Bush administration, Scowcroft was the national security adviser who helped patch U.S.-China relations after pro-democracy protests were crushed by the Chinese army in 1989 at Tiananmen Square.

But businesspeople and lobbyists in China agree that relations with government officials have undergone a substantial change in the past two years after the central government slashed its staff by 50 percent and began replacing party hacks with party technocrats.

"The karaoke era is passing," Wolf said of the days when companies had to wine, dine and take government officials to karaoke bars to maintain relationships.

The central government also has actively pursued outside help on several key pieces of legislation.

For example, sections of the annual policy paper prepared by the U.S. Chamber of Commerce were incorporated into China's new contract law, and state accounting regulations were written with the help of the multinational firm Deloitte Touche Tohmatsu.

Moreover, drafts of the newest regulations on the Internet and telecommunication industries were widely circulated last summer among industry executives. Companies were able to offer their opinions through back-door channels, so there were few surprises when the law was finally passed in October.

To be sure, foreign companies still experience unpleasant surprises. St. Louis-based Anheuser-Busch brewing company was recently ordered to remove its slogan "world's best-selling beer" from all Budweiser cans and advertising, forcing a potential costly redesign of its label and marketing campaign.

The government says the slogan violates truth-in-advertising regulations, and it has rejected the company's arguments that it is the world's biggest brewer, sources said.

While company officials have refused to comment, diplomats and industry insiders said Anheuser-Busch has hired APCO, which also represents Dell, Johnson & Johnson and Philip Morris in China, to wage a low-profile lobbying campaign to reverse the ruling.

Mitch Presnick, who heads APCO's Beijing office, declined to speak about the Budweiser case but said many corporations are likely to be caught in the government's campaign against false advertising by domestic firms.

"The advertising law's intentions are good. I don't think they are protectionist in nature," Presnick said. "I think the government is going on the strict edge of the spectrum."

In the meantime, foreign business executives who still rely on old- fashioned guanxi are taking a chance of being upstaged by other companies as modern business practices slowly enter Chinese society.

"Personal guanxi as a business tool is temporary," said Patrick Powers, head of the Beijing-based United States-China Business Council.

"It resides in the hands of the individual, not the institution."