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Feinstein, Husband Hold Strong China Connections

Asia: Senator, Blum insist a solid 'firewall' separates her foreign policy role, his growing business interests there.

March 28, 1997|GLENN F. BUNTING | 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

WASHINGTON — 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.

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."

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."

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.

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