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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

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.

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.

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