WASHINGTON — In 1996, the Heritage Foundation opened an office in Hong Kong and put a public-relations expert in charge. That same year, it hired businesswoman Elaine Chao as a distinguished fellow, paying her a starting salary of $200,000 a year.

Heritage later named Chao chairman of its Asian studies advisory council of “leading scholars on the region.”

According to the official line, the Hong Kong shop was set up to act as a “listening post” in the region, feeding information and data back to research analysts at Heritage’s Asian Studies Center here. And Chao was brought aboard to showcase her knowledge of Asian affairs in papers and lectures.

But five years later, fellows at the conservative think tank say neither have made substantial contributions to policy research.

Instead, they say, Chao and Hong Kong office director Ken Sheffer — who reports directly to Heritage President Edwin Feulner — have focused on raising money in Hong Kong and opening doors to American donors looking to cut business deals in mainland China.

But now, in a quiet development, Heritage plans to phase out its Hong Kong office, spokeswoman Khristine Bershers confirmed yesterday, though she says no closing date has been set.

The news comes amid growing concerns over Chao’s close family and business ties to communist China. Chao, President Bush’s pick for Labor secretary, is scheduled to appear today before the Senate in her first and probably only day of confirmation hearings.

As WorldNetDaily first reported, Chao serves as director of an Alabama-based insurance company that partners with the Chinese government. And she and her husband, GOP Sen. Mitch McConnell, are tied to a New York insurance magnate and Heritage donor who is one of Washington’s most influential China trade boosters.

What’s more, Chao’s father is on a first-name basis with Chinese President Jiang Zemin, and his New York-based shipping company does extensive business with China.

When Heritage brought Chao aboard in July 1996, it said she’d be working “virtually full-time” lecturing and writing on Asian issues.

But that hasn’t been the case, according to sources who have worked with her.

“The expectation and the hope was that she would write two or three op-eds” for major newspapers, a Heritage fellow said. “That never materialized.”

Also, he says, Chao gave few lectures. And when she did speak, her remarks were brief and general.

“Frankly, she doesn’t have a good understanding of Asia and the history, the culture and the people — beyond maybe China and Taiwan and how to make money there, and who has what in which banks,” said the Heritage fellow, who asked not to be named. “In fact, she knows very little about Asia.”

“But then, she doesn’t have to in order to fulfill her role,” added the scholar, who has attended meetings with Chao.

What’s her role? Opening doors in China for Heritage’s corporate donors, he claims.

“She knows as much as she needs to know to strike the deals over there,” he said.

He said that Chao herself “clearly has business interests in China, and has taken a lot of trips to China” while at Heritage.

So what? Such ties may present a conflict if Chao becomes a member of the U.S. Cabinet, the fellow argues.

“It’s serious,” he said, “because, man, these people (Chinese communist officials) do expect favors.”

‘Strange operation’

Bershers said that Heritage opened its Hong Kong office in January 1996 “to provide Heritage’s Asian Studies Center with a point of contact and information in the region.”

“Hong Kong provided the best geographical location for a listening post in the region,” she explained, from which information could be fed back to policy experts in Washington.

But that’s not the full story, says a former Heritage fellow.

“One of the goals was to track money from wealthy Hong Kong elite,” he said.

“Heritage has already raised a lot of funds in South Korea and Taiwan,” continued the fellow, who requested anonymity. “The Hong Kong office was an attempt to focus fund-raising activities there and throughout the mainland.”

Bershers says that Sheffer, as office director, acts as a “policy coordinator” and “contributes to papers” written by analysts.

“His official duties are to assist analysts from the main Heritage office while they are traveling in Asia, assist in setting up press events like the press
conference releasing our annual Index of Economic Freedom, which has taken place in Hong Kong the last two years, and overall to be the ears on the ground for our Asian Studies Center,” she said.

But Heritage analysts say that Sheffer doesn’t work with them on policy papers.

“He has no communications with policy analysts — zero,” said one Heritage analyst. “And this has been going on for five years.”

“When they have the annual Index of Economic Freedom trip, Sheffer makes appointments for people — but that’s the extent of it,” he added.

Former Heritage executive Marshall Wittmann says that, besides coordinating trips, the Hong Kong office’s functions were a mystery.

“It would arrange events when we had them in Hong Kong,” he said.

“But I don’t know what the day-to-day activities were.”

The office also appears to be a mystery to local press.

“I know people who have been in Hong Kong for 20 years — including journalists with publications like the Far Eastern Economic Review — who say they didn’t even know we had an office there,” the analyst said. “It’s a very strange operation.”

Bershers says Sheffer reports to Feulner and Larry Wortzel, director of the Asian Studies Center.

In fact, “he only talks to Dr. Feulner,” a senior Heritage fellow said. “The vice president of foreign policy, Kim Holmes, other vice presidents and the
director of Asian studies don’t even get an answer from him when they e-mail him.”

He added: “Only Dr. Feulner knows what Sheffer does.”

The fellow claimed that Heritage’s president is “obsessed” with fund-raising.

Heritage’s website also lists Sheffer’s title as “counselor to the president.”

The Hong Kong office consists of Sheffer and a secretary, Bershers says.

She refused to disclose the amount it costs Heritage to run the office each year, but the Heritage fellow contends that Sheffer claimed personal expenses alone totaling more than $100,000 in one recent year.

“He’s obviously running up a bill,” the fellow said. “Yet what he’s doing is not think tank-related.”

Sheffer, who yesterday was returning to Hong Kong from Washington, could not be reached for comment.

The former Heritage fellow said the think tank “has dumped a lot of money into that office.”

“It’s interesting that they’re pulling the plug now, at about the same time all these other issues (regarding Chao) are coming out,” he said.

Pro-China tilt

Since Chao came aboard, the think tank has tilted more favorably toward China, a long-time Heritage fellow notes.

Not long after Chao took over the Asian studies advisory council in 1998, she abruptly dropped a long-time board member from the University of Miami who’s a Taiwan specialist, he says.

She also worked closely at Heritage with former Commerce Secretary Barbara Franklin, a well-known China cheerleader, in coordinating trips to China, he says.

Chao, who made $210,000 last year, also took issue with papers written by former Heritage military analyst Richard Fisher that warned of China’s growing military threat. Her objections allegedly led to Fisher’s 1999 ouster, although other factors also played a role.

“I have no doubt that Elaine wanted to get rid of Rick,” the Heritage fellow said. “His research was a source of embarrassment for her on her trips to the
PRC (People’s Republic of China).”

Before last year’s House vote on permanent normalized trade with China, insurance executive Hank Greenberg — a pro-China lobbyist and contributor to Chao’s husband — threatened to cut off funding to Heritage over positions critical of China.

In the end, Heritage came out in support of the trade bill, burying concerns about export controls and Chinese army front companies in its final report.

Also, the fellow says that Heritage “did an about-face” by not endorsing an amendment to the Senate China trade bill on weapons proliferation.

Heritage, Washington’s largest public-policy think tank, plans to co-sponsor a conference in China later this year on business partnerships and trade.

Feulner, a China trade booster and political tactician, is close to McConnell and the GOP establishment. McConnell chaired Bush’s inaugural committee.

Interestingly enough, Chao may have been in line for a Cabinet post long before Linda Chavez withdrew her nomination as Labor secretary.

“Over the summer, we were told Transportation was Elaine’s, that this was a done deal — no ifs, ands or buts about it,” the Heritage fellow said.

The post went instead to Clinton administration official Norman Mineta, another Asian, in what was seen as an olive branch to Democrats after the close election.

Related stories:

Pro-China coup at Heritage

Chao has biz ties to Lippo

Harry Wu’s concerns about Chao

Chao’s ties to Jiang

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