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During the 300 years of the Qing Dynasty, lobbying was an offense punishable by death. The emperor was considered the Son of Heaven, and for a mere mortal to have the audacity to suggest policy to him was unforgivable. But with normalized trade relations with China expected to pass this week in the U.S. Senate — where lobbying has never been a capital crime — American companies may soon be engaging in that once-forbidden practice. However, while the influence game in modern China is just as important as it is in the United States, the rules are very different. “Half of the time, it’s like walking across a stream by feeling the stones underneath, to quote Deng Xiaoping, because there are relations in the … hierarchy that you won’t see on any organizational chart,” says Mitch Presnick, a lobbyist with APCO Associates’ office in Beijing. There are hundreds of U.S. companies with ventures in the Middle Kingdom, and most of them have some form of lobbying representation. Interviews with more than a dozen lobbyists reveal an often contradictory system of rigid protocols and a constantly shifting network of hidden power structures. The Chinese legislative process is considerably more opaque than in the United States, where lobbyists usually have plenty of time to ply their craft during months of public hearings and debates. In China, where the legislature has traditionally acted as a rubber stamp, foreign businesses often do not hear about laws until they have already been enacted. Even knowing whom to lobby can be a mystery, says Sherry Liu, who heads the legal department of Motorola Inc.’s China operations. “It is very hard to figure out what is the law and who has the authority to make that law,” says Liu, who was raised in China and studied law both here and in the United States. “If you call today and you call tomorrow, you can get totally different answers.” Such was the case at the beginning of this year, when Motorola and every other foreign high-tech company in China found out that the government had passed a law that would severely restrict the use of encryption technology. The law was so broadly written that it would have banned any and all products that made use of encryption, including Motorola’s cell phones, the Intel Corp.’s microprocessors, and the Microsoft Corp.’s Outlook e-mail program. It was only after the law had begun to be implemented and companies were required to register all of their products with the government that the lobbying effort began. “The process of creating laws and regulations here is exactly the opposite of what it is in the U.S.,” says James Jarrett, president of Intel China Ltd. Complicating the lobbying effort was the fact that the anti-encryption law had originated with the Chinese Public Security Ministry and went right to the heart of the government’s concern about national security. Working together and separately, dozens of U.S., European, and Japanese companies went to work lobbying the ministries of trade and economics, with the hope that on this issue they would have more weight than the internal security forces with the central political leadership. “Just because one ministry says you can’t do something, it’s not the last word,” says Patrick Powers, director of China operations for the United States-China Business Council, which spearheaded the effort. “The Chinese government is not a monolith. It’s a matrix.” Even William Daley, who at the time was secretary of commerce, weighed in with Chinese officials at the World Economic Forum in Davos, Switzerland, according to Jarrett of Intel. In the end, the threat of alienating so much foreign investment was just too much, particularly in light of the free trade vote pending in Congress. By spring, the central leadership ordered that the regulations be modified to apply only to products whose primary purpose was encryption. Chinese officials could not be reached for comment. Even several months later, American businesses were still exultant over the victory, which they say was something of a first. “This was a fairly historic example of the government being willing to listen to the foreign business community in a way that would have been unheard of five years ago,” says Jarrett. That is not to say that Chinese officials are not used to being lobbied. Officials in the economics ministries, in particular, frequently deal with foreign businesses. But simply transplanting American glad-handing won’t get one very far, say government relations officials with Western companies. “You don’t start lobbying them the first time you meet them. You’d just run into a brick wall,” says Brenda Chow, the Chinese-born director of public affairs for British American Tobacco (BAT). “I cannot be like a lobbyist on Capitol Hill. If I’m too aggressive, it will not work. I have to show them my best Chinese self.” Chow says it is expected that you get to know officials and their families, have dinner at each other’s homes, and remember their birthdays. “Just calling them during office hours is not the way to make or maintain relationships,” she says. An American lobbyist, who spoke on condition of anonymity, says she has even taken Chinese officials’ wives to private swim clubs and their children horseback riding and on amusement park trips to solidify relationships with the officials. For its part, Motorola has strict rules prohibiting such personal contacts, says Liu. Doing personal favors for officials is a “slippery slope,” she says. Luckily for Motorola and other American interests, there are other ways to ingratiate oneself to officials. Companies can gain a sympathetic ear by being good corporate citizens. For instance, BAT, the tobacco company, has an educational foundation and contributes to flood relief programs and the National Symphony. In a more pointed effort aimed at China’s restrictions on cigarette advertising, the company has also been the primary sponsor for several years running of a conference on consumer rights and advertising freedom. Another way to gain access to officials is through the for-profit “research centers” that most ministries maintain. “Working with them can sometimes be useful in getting meetings, understanding internal dynamics, and getting to know people on a working level over time,” says Rebecca Weiner, who worked as a consultant with Burson-Marsteller’s Beijing office. While many deals may still be cut in backrooms in China, protocol nonetheless plays an extremely important role in business dealings with government. Nearly every lobbyist interviewed knew their own perceived rank and, therefore, what level official they could speak with. Most often, U.S. company lobbyists identified themselves on a level to meet with a deputy minister. The only company official qualified to meet with a minister would probably be a CEO, they say. Such meetings, when they do happen, usually take place after months of informal negotiations between lower-level officials and company lobbyists. By the time the formal meeting occurs, it should be almost like a choreographed event, says Presnick of APCO. “The worst thing that can happen in a meeting with a senior official is to have topics come up that weren’t predetermined,” he says. As in Washington, firms in Beijing keep the process running smoothly by utilizing the revolving door. Presnick, for instance, has more than eight former Chinese government officials on his 45-person staff. “You look for people that have an understanding of the process within a key government ministry,” says Presnick. Among them are the former head of the American division at the ministry of foreign trade and a journalist for the Chinese news agency who spent 20 years in the leadership compound. The latter is even a member of an exclusive club for high government officials, APCO boasts in its promotional material. Jim Gradoville, the vice president for Asia Pacific government relations for Motorola, says he does not usually lobby the Chinese government himself. That he leaves to Liu and two in-house Chinese nationals. Gradoville concentrates his lobbying on the U.S. Embassy and with U.S. trade officials. The U.S. government has an “almost hand-in-hand relationship” with American business, he says. If a U.S. company is in trouble — say, it has a shipment detained at a port and cannot extricate it from the local officials — it may turn for help to the American Chamber of Commerce or the U.S.-China Business Council. Both groups say they have pull with the Chinese because of their years of lobbying the U.S. government to normalize trade relations. For the U.S. company, which may have much at stake in the new Chinese market, using one of the business groups to lobby on its behalf insulates it from retaliation from angry officials. “If it’s a dicey thing, they will use us to fight because we can do it without getting burned,” says Michael Furst, head of the American Chamber of Commerce. Powers, of the U.S. China Business Council, says that when his group lobbies on behalf of a company they often do so without revealing who they are representing. “It’s more polite that way,” he says. “It saves everybody’s face.” Except for these two, however, trade associations and coalitions are a relatively new phenomenon in China. APCO’s Todd Stellfox runs the two-year-old China Anti-Counterfeiting Coalition, a group of 38 companies including the Anheuser-Busch Cos., Dell Computer Corp., Johnson & Johnson, and Philip Morris Cos. Counterfeiting is a huge problem in China. As Stellfox was being interviewed at an outdoor cafe, street hawkers approached him every few minutes offering to sell him pirated video compact discs. Since foreign business groups are still uncommon, how the China Anti-Counterfeiting Coalition was set up was very important. The group originally had trouble registering and so had to be based, on an ad hoc basis, in Hong Kong. But government officials were nervous about dealing with the group unless it was officially sanctioned, and so it ultimately found a sponsor with the Chinese Association of Enterprises With Foreign Investment. In the short term, the coalition is seeking increased enforcement of anti-piracy laws. In the long term, it would like to see a comprehensive anti-counterfeiting law. In crafting the coalition’s positions, great care was taken not to appear heavy-handed, says Stellfox. “You generally don’t want to become too visible because then you create enemies,” he says. At the same time, he says, the coalition has been resonant with the government because of the tremendous amount of foreign investment — $6 billion — that it represents. “The implied threat is that these companies will withdraw their investment if these problems cannot be resolved,” says Stellfox. But China is still an authoritarian government, and economic power goes only so far. In the case of Motorola, the company is being forced to form a joint venture with a Chinese company it is less than ecstatic about doing business with, says Liu. And despite the fact that Motorola is the largest foreign investor in China, the company has no choice but to cooperate if they want to work in the market. “The market is so tightly controlled by the government,” she says, “you don’t have a viable option.”

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