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Feinstein, Husband Hold Strong China Connections

This story was reported by Times staff writers Glenn F. Bunting and David Willman in Washington, Dan Morain in Sacramento and Maggie Farley in Hong Kong and was written by Bunting

On Capitol Hill, Sen. Dianne Feinstein (D-Calif.) has emerged as one of the staunchest proponents of closer U.S. relations with China, fighting for permanent most-favored-nation trading status for Beijing.

At the same time, far from the spotlight, Feinstein’s husband, Richard C. Blum, has expanded his private business interests in China--to the point that his firm is now a prominent investor inside the communist nation.

For years, Feinstein and Blum have insisted that they maintained a solid “firewall” between her role as an influential foreign policy player and his career as a private investor overseas.

But such closely coinciding interests are highly unusual for major figures in public life in Washington. And now, as controversy heats up over improper foreign influence in the U.S. political process, the effectiveness of the firewall between those interests could be called into question.

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On Thursday, after he was interviewed by The Times about his China business, Blum announced that he will donate future profits from his personal investments there to his nonprofit foundation to help Tibetan refugees. “This should remove any perception that I, in any way, shape or form benefit from or influence my wife’s position on China as a U.S. senator,” Blum said.

In 1992, when Feinstein entered the Senate, Blum’s interests in China amounted to one project worth less than $500,000, according to her financial disclosure reports. But since then, his financial activities in the country have increased.

In the last year, a Blum investment firm paid $23 million for a stake in a Chinese government-owned steel enterprise and acquired sizable interests in the leading producers of soybean milk and candy in China. Blum’s firm, Newbridge Capital Ltd., received an important boost from a $10-million investment by the International Finance Corp., an arm of the World Bank. Experts said that IFC backing typically confers legitimacy and can help attract other investors.

“It seems to be going quite well,” Rashad Kaldany--who in 1994 managed the IFC’s capital markets investments in Asia--said of the project. He added: “There also was some comfort in that Mr. Blum had some contacts with the Chinese.”

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Feinstein’s Growing China Policy Role

Meanwhile, Feinstein’s role on U.S. policy toward China has expanded. In January 1995, she became a member of the Senate Foreign Relations Committee, giving her a prominent platform for her efforts to support China’s trade privileges.

Since 1995, Feinstein has made three visits to confer with senior government officials in Beijing. Blum has accompanied her each time at his own expense and has attended many of her meetings with President Jiang Zemin and other top Chinese leaders--an unusual degree of access for a private businessman.

On their trip to China in January of last year, Blum accompanied Feinstein to dinner with Jiang in the exclusive leaders’ enclave, Zhongnanhai.

“We had dinner in Zhongnanhai in Mao Tse-tung’s old residence in the room where he died. We were told that we were the first foreigners to see his bedroom and the swimming pool. It was a very historic moment to see some of these things,” Feinstein told a Times reporter later.

Feinstein said this week that her Senate position in no way has affected her husband’s business. She said that Blum has never sought to exploit her influence or access to increase his opportunities in China.

“My husband has never discussed business with Jiang Zemin, never would, never has,” she said.

Said Blum: “Somebody will have to explain just how I have been benefited because my wife goes over to China.”

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However, experts on China question whether someone in Blum’s distinct position could strictly insulate his interests when he is so prominently involved in the China market, is visibly associated with the leading friend of China in the Senate and has access to inner circles that other entrepreneurs do not.

In China, “everything is personal,” said Arthur Waldron, professor of strategy at the Naval War College and an associate of the Fairbank Center for East Asian Research at Harvard. “That’s how business works--personal contacts, friends and friends of friends.”

Ross H. Munro, co-author of the recent China policy book “The Coming Conflict with China,” said: “There is no doubt in my mind that, if Dianne Feinstein had a pattern of taking positions on U.S.-China policy that Chinese officials disliked, Mr. Blum would have a great deal more difficulty doing business in China and probably would find it impossible to do.”

Senator Is Warned of China Overtures

Already, federal investigators have detected that the Chinese government might attempt to seek favor with Feinstein. Last year, she was one of six members of Congress who received warnings from the FBI that China might try to improperly influence them through illegal campaign contributions. There is no evidence that Feinstein received such contributions.

The inquiries into allegedly improper Chinese political efforts in the United States have increased the sensitivity of Blum’s associations there. Investigators are looking at the activities of dual business-government entities, including China International Trade and Investment Corp. (CITIC), a $20-billion, state-owned conglomerate that is the most influential financial enterprise in China.

Blum’s businesses come in contact, either directly or indirectly, with such entities.

There is no indication of impropriety in any of these relationships or that Feinstein was even aware of any overlap between her husband’s Pacific Rim investments and Chinese government-related firms.

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But the links, even tenuous ones, can trigger questions in the current highly charged political atmosphere.

Newbridge Capital, the Blum business venture, has two investments with partners originally from CITIC, said Peter Kwok, managing director of the Hong Kong fund.

Kwok also serves as a consultant to a unit of China Ocean Shipping Co. That state-owned company won rights to build a $200-million cargo terminal at the closed Long Beach Naval Station.

Blum called any purported link between China Ocean Shipping and his firm “ridiculous.”

Feinstein said, “I had absolutely no knowledge” of any of this.

In separate telephone interviews Wednesday, Feinstein and Blum emphasized that they share a deep, personal interest in China dating back two decades.

Blum won permission from the Chinese in 1981 to lead the first attempt in modern times to climb the east face of Mt. Everest. He describes himself as a “close personal friend” of the Dali Lama, the exiled Tibetan religious leader--a friendship, he notes, that would not win favor with the Beijing government.

Establishing Shanghai, San Francisco Ties

As a pro-business mayor of San Francisco in the 1980s, Feinstein worked intently to expand economic ties in the Pacific Rim, especially in China. She set out early in her tenure to establish sister city relations between San Francisco and Shanghai.

Feinstein and her counterpart in Shanghai at the time, Jiang Zemin, who is now China’s president, agreed in 1986 to designate various corporate entities to foster trade and other business relations. One was named Shanghai Pacific Partners; Blum served as a director.

In 1992, the value of Blum’s stake in Shanghai Pacific Partners was between $250,001 and $500,000, according to Feinstein’s financial statements. By last year’s filing, Blum’s interest had grown to between $500,001 and $1 million.

Blum said that less than 2% of the approximately $1.5 billion his firm manages is committed to China. He said that he has put between $1 million and $2 million of his own money into China firms--the same amount as before Feinstein was elected to the Senate.

Blum’s biggest investment, an estimated $300-million stake in Northwest Airlines, is poised to gain from China’s emergence as an economic power. Northwest operates the only nonstop service from the United States to any city in China. Blum earned in excess of $1 million from his Northwest holdings in 1995, according to Feinstein’s financial report.

The potential for conflict between Feinstein’s and Blum’s parallel China interests increased after Feinstein was elected to the Senate in 1992 and Blum formed Newbridge in 1994 with more than $100 million provided by various investors who had to put up a minimum of $1 million to participate.

Blum is a general partner along with Texas financier David Bonderman, according to reports filed with the Securities and Exchange Commission.

In a boost, Blum’s partnership secured a $10-million investment from International Finance, the World Bank entity. The deal was approved without the support of the United States, which holds one seat on the IFC’s 24-member governing board, because of objections to China’s human rights record. The U.S. abstention on Blum’s proposal was reported to three congressional committees in April 1995--including the Senate Foreign Relations panel on which Feinstein serves.

Kwok, the Newbridge managing partner in Hong Kong, said in an interview that investors thought Feinstein’s high profile in China might help Blum’s business there.

“But it’s not the case,” Kwok said. “We thought the Chinese would be very polite and respect who he is but Chinese are very pragmatic these days. They just care about the deal.”

In June 1996, Newbridge acquired a 24% effective stake in Beilong Iron & Steel Group for $23 million. Beilong is a state-owned enterprise near Shenyang in Liaoning Province that makes pig iron often used in automobile manufacture. The deal was initiated by Englong Group from Hong Kong, a troubled investment and property company run by a former CITIC official and ex-vice minister of petroleum, said Kwok. Together, Englong and Newbridge hold a 60% stake in Englong.

In late 1996, Newbridge invested $14 million in Xuzhou W Food and Beverage Ltd., the leading producer of soybean milk in China and maker of the popular brand “Wei Wei.” Newbridge bought a 24% stake from Guangdong Enterprises, run by another old CITIC executive, Kwok said.

The third venture, made final in January, is a 50% stake in Guangshengyuan, a leading maker of milk candy and honey products. Their most popular product is “White Rabbit” milk candy.

Blum’s Travels With Feinstein

Blum traveled with Feinstein to China in August 1995, and January and November 1996. Jiang Zemin personally invited Feinstein to make the first visit.

Feinstein’s support of China in Congress has been so outspoken that she occasionally has drawn criticism. In a recent speech, she called for creation of a commission that would study the evolution of human rights in both the United States and China. The panel “would point out the success and failures [of] both Tiananmen Square and Kent State,” she said, in a remark denounced by some human rights advocates. Hundreds of demonstrators were killed in the 1989 assault by the Chinese military. Four students were killed by Ohio National Guard gunfire in the 1970 antiwar demonstration.

Blum’s associates said that his connections in China do not guarantee that he will succeed in business there.

“He still has to be a good businessman,” said San Francisco attorney Gordon Lau, a former director of Shanghai Pacific Partners. “Anybody can lose money in China.”

Feinstein said that she has made every effort to consult with the Senate Ethics Committee on possible conflicts of interest and to avoid any official action in government that could affect Blum’s business.

“I am open to any suggestion as to how I can even make a firewall more fireproof,” she said. “I don’t know what else I can do. . . . Either he retires or I suppose we end our marriage.”

Times staff writers Rone Tempest in Beijing and Janet Hook and Norman Kempster in Washington contributed to this story. Also contributing were Anthony Kuhn in Beijing, Bao Lei in Shanghai and Silvia Cavallini in Hong Kong.


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