China's Corruption Probe Widens As Government Detains Edelman PR Boss

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Steven Cao, head of Edelman's China operations

The U.S.-based public relations company Edelman said Friday it doesn't know the whereabouts of Steven Cao, head of its China operations, following Cao’s detention by police several days ago. Cao is cooperating in a Chinese government investigation into Rui Chenggang, a high-profile television presenter arrested on corruption charges on July 11.

Cao and Rui have been linked since 2002, when the two co-founded the Chinese PR firm Pegasus Communications. Edelman bought a 78 percent stake in Pegasus in 2007, the same year Rui gained widespread public attention by attacking a plan by Starbucks Corporation (NYSE:SBUX) to open a franchise in Beijing’s historic Forbidden City. In the years since, Rui -- who sold his 8 percent stake in Pegasus in 2010 -- has emerged as a vocal champion of China’s national interest. Until his arrest, Rui had served as the host of Economic News, a nightly business program with an estimated audience of 10 million people. He also amassed 10 million followers on Sina Weibo, the local equivalent of Twitter. 

In a statement, Edelman acknowledged its ties to Rui Chenggang but characterized him as a “minority, non-active shareholder.”

China’s investigation into Edelman has occurred amid a sweeping anti-corruption campaign in the country, one that hasn't refrained from targeting high-profile figures. Beijing said Tuesday that Zhou Yongkang, once in charge of domestic security, was under investigation for disciplinary violations, making him the highest-ranking official to face such an investigation in China.

The campaign has increasingly placed state television CCTV, whose various networks attract an audience of well over 1 billion people, under close scrutiny. Government officials detained Guo Zhenxi, the head of CCTV’s financial channel and Rui Chenggang’s supervisor, in May, while Li Yang, the channel’s deputy, came under investigation on July 11.

Privately owned Edelman, which had $707 million in annual sales for its year ended June 2013, is the world’s largest public relations firm. More than 10 percent of its business comes from its Asia, Middle East, and Africa division, which employs 1,300 people. Despite Cao’s absence, a spokesman for Edelman said that “senior management is overseeing operations at the company, and business in [China] is running as usual.”

Nevertheless, according to Bill Bishop, editor of the China-focused newsletter Sinocism, China’s investigation of Edelman signals that the company -- and its clients -- may face turbulent times ahead.

“Edelman looks to be in big trouble in China,” Bishop wrote. 

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