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A Nexen shale gas drilling operation in northeastern British Columbia. The company is Canada's 10th-largest energy firm. Photo: EPA

Suitors learn softer touch

Chinese firms on the acquisition trail are adopting a more sophisticated approach, abandoning threats in favour of lobbying

ZTE

Back in the day, before the US Congress tore apart China's proposed multibillion-dollar deals with Western companies one after the other, Beijing's lobbying left little to the imagination.

China's Washington embassy blasted out form letters to every US lawmaker when it was upset with Congress, warning of grave damage to Sino-American relations, congressional aides recall.

One aide to a senator, who was being courted by Taiwan, regarded by Beijing as a renegade province, was told by visiting Chinese officials "all trade between your state and China will come to a screeching halt!"

The confrontational tactics rarely worked - in one pivotal decision in 2005, Congress essentially killed Chinese state oil company CNOOC's US$18.5 billion bid for US firm Unocal - and now Beijing has largely abandoned them.

Instead of issuing tirades, it hires top-notch lobbying firms whose ranks are filled with well-connected former US and Canadian officials; buy television advertisements to buff the country's image; and seek acquisitions less likely to stir nationalistic fervour.

Whether this new strategy fares any better could be known soon. CNOOC is trying to buy Nexen, a Canadian oil company, in a deal valued at US$15.1 billion.

Meanwhile, China's Wanxiang Group is poised to take over A123 Systems, a struggling US battery maker that received hundreds of millions of dollars in grants from the administration of Barack Obama. And Huawei, a Chinese company founded by a former People's Liberation Army soldier, along with Chinese telecommunications firm ZTE, is coping with a congressional security investigation.

China may be the world's second-largest economy, a veto-wielding permanent member of the UN Security Council and the fastest-growing export market for a United States eager to revive its economy through trade. But the country labours under a poor image in Washington.

Chinese companies - even those such as Wanxiang that are not directly beholden to the ruling Communist Party - face intense scrutiny from lawmakers who see them as tools of China's geopolitical strategy or part of a system that grossly favours its own firms with allegedly illegal subsidies and what critics see as an artificially low currency.

CNOOC's second major bid for a North American company, Calgary-based Nexen, came after the Chinese firm laid the groundwork in Canada and after Beijing made an effort to understand how the US Congress operated. Nexen, Canada's 10th-largest energy company, has 10 per cent of its assets in the US portion of the Gulf of Mexico.

"They know there is no point in just arriving and doing a brief tour of the country and thinking that approach will produce results. Those days are over," said a person familiar with the Chinese lobbying effort in Canada, who asked not to be named.

When CNOOC came looking for introductions in Canada, it chose Hill and Knowlton Canada and its president, Michael Coates, a long-time Conservative who worked for a government minister before becoming a lobbyist in 1983.

Coates, who was leader of Conservative Prime Minister Stephen Harper's election debate preparation team for three federal elections, accompanied CNOOC vice-president Fang Zhi during talks with top Canadian bureaucrats in which Fang stressed Canada was an attractive place to invest. He did not mention any particular targets.

Along with doing their homework and talking to the right people in financial markets, Chinese companies had a greater intuitive grasp of what was possible in Canada, a second person familiar with China's lobbying said.

"They went after Nexen because they knew everybody knew Nexen was a mess. If Nexen had been a crown jewel …," this person said, making clear a bid for a more important company would have been rejected.

The deal still needs approval from Canadian authorities.

Hill and Knowlton Canada declined to comment.

In Washington, CNOOC also hired Hill and Knowlton. Its lobbyists include a former Democratic congressional aide, Robert Ludke, who worked with the Chinese company during its failed bid for Unocal.

And CNOOC is voluntarily submitting its deal for a US government security review.

"In contrast to 2005, we're finding people are much more willing to consider the benefits of the deal from a US perspective," CNOOC spokesman Peter Hunt said.

This article appeared in the South China Morning Post print edition as: Suitors learn softer touch
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