• Introduction
• Founders and Board Members
• Honorary Advisors
• Foundation Events
• China This Week
• Washington Journal of Modern China
• US-China Policy Review
• China Forum
• USPCF Staff
• Other Links
• Professor Chi Wang's Introductory Remarks
• Ambassador Chas Freeman's Introductions and Remarks
• Ambassador J. Stapleton Roy's Remarks
• Rear-Admiral Eric A. McVadon's Comments on the Rise of China's Military
• Ambassador James Sasser's Remarks
• Q&A

August 1, 2005

Transcript for the USCPF Panel Discussion at the National Press Club:
ďCan the US Come to Grips with a Growing China?Ē

The National Press Club
Washington, DC

Dr. Wang Chi:
My name is Wang Chi. I am the co-chair of the US-China Policy Foundation. My colleague, Ambassador Freeman, is another co-chair of the foundation. The foundation was founded in 1995, so this is our 10th anniversary. This morning, our panel discussion is entitled; Can the US Come to Grips with a Growing China? And on behalf of the foundation, I want to thank you all during this vacation month and joining us today on such short notice, just less than a week, because we wanted to have some kind of a panel discussion scheduled.

Normally, the foundation has two panel discussions each year, one in the spring, one in the fall. So we didnít have any in the spring because of so many things happened during the spring between China and United States, and also we wanted to wait the Pentagon Papers coming out before we have some kind of maybe if not better clearer picture of the Pentagon on China, so at least wait until after July 21 the paper come out. So we decided to have one or not to have one, so we decided to have one. And even one person showed up, we still have one here.

During the last few months so much things happened between US and China over the last few weeks, including Chinese National Ocean Oil Corporation and Higher [phonetic] bid to acquire US companies, and the Pentagon report on Chinaís military, evaluation of [indiscernible] just a few weeks ago, and the six party talks on North Korea resumed last week, and also, the one very important to my mind, the KMT leader and the People First party leader visit Beijing during late May and early June. So that was kind of an icebreaking historical trip to China.

And so many things that we can discuss. We only have two hours, and we have four distinguished speakers. The US-China Policy Foundation is committed to creating better understanding the US-China relations. It is our goal to keep the public informed about major developments in US-China relations. We are an educational and advocacy organization.

This event is just one of many even that the foundation has hosted during the last decade. In fact, this year is our 10th anniversary. At the end of this year, maybe early December, we are planning to have a two-day national symposium to assess where America stands in its relations with China, and weíll have a small planning committee for the programs and I will keep everybody informed. I want to thank our distinguished panel members, many of whom rearranged their schedules to be with us today.

Now, may I introduce Ambassador Chas Freeman - weíve been friends for more than 35 years, and also co-chair the foundation - who will introduce our panelists and also moderate the discussion. And this is going to be kind of informal discussion. Nobody has any written paper for this, and we welcome anybody on the floor to ask questions and participate. We have a microphone there, and just announce your name and then so weíll be happy to have you participate. Thank you very much. Hope you enjoy the two hours.

Ambassador Freeman:
Thank you, Dr. Wang, and welcome everybody. I am co-chair of the US-China Policy Foundation, Chas Freeman. Iím going to make a few remarks and then introduce the panelists asking them, if possible, to keep their remarks to around 15 minutes and also to be prepared for interruptions from the floor if points of clarification are necessary. If you do feel obliged to get up and interrupt, please give me a little signal and then let us know who you are. And when we finish the presentations, we will have a discussion. And again, Iíd ask if youíd identify yourself, please, when you make your comment or ask your question.

As Dr. Wang said, an enormous number of things have happened in the recent past to remind us of the challenge that the return of China to wealth and power represents. The last few months, we have seen the merger and acquisition moves by Inovo, Higher [phonetic] and CNOOC, with respect to American companies, the beginning, clearly, of a long term trend and with many others to follow.

The Pentagon, after much delay and much interagency discussion, has released probably the most comprehensive report that the US government has ever done on Chinese military power. And this and related issues have put new attention to the growing strength of the BLA.

And finally, a number of political and diplomatic issues have arisen, not simply the North Korean issue, in which we have subcontracted much of the diplomacy to the Chinese, but issues elsewhere to remind us of the growing weight of China in international affairs. China is, in fact, I would argue, returning to its traditional role in the world, and, for much of recorded history, it accounted for between a third and two-fifths of the global economy. As late as 1820, it was around 34 percent of the global economy. It was not overtaken in the largest economy in the world until 1850 when it was displaced in that role by Great Britain. By 1940, however, China and the area from Japan to India, which in 1820 had been 58 percent of the global economy, had fallen to about 19 percent.

Economists Ė and you can pick your economist and get your date Ė will tell you that 2020, 2025, China is likely to be back as a significant part of this arc of Asia from Japan to India, which will, again, be 57, 58 percent of the global economy. So the center of gravity in the worldís economic affairs is moving back to East Asia where it traditionally was. The question for the United States is whether we intend to profit from this explosive growth and wealth in that region or to distance ourselves from it, whether we intend to open ourselves to the opportunities it represents or to attempt to close ourselves off and thereby retard the growth of the region.

Ironically, in many respects, today China has a more open economic system than the United States. Itís easier to get a visa to go there, itís easier to get a work permit, itís easier to hire foreign employees, itís easier to make an investment, and the impediments to trade are less. And I think that is an irony and something we should ponder.

In the meantime, thereís a contradiction in our own approach based on the choices that I suggested we may have to make. We need more exports to China to rectify a terrible imbalance in trade, but the principal activity of the US government at present is directed at retarding and inhibiting high technology exports rather than facilitating them, and weíre doing so in the name of concern about Chinese military developments. If we do, in fact, increase the restrictions on US technology trade, investment and transfer to China, will this hurt China or us? Or if it hurts both of us, which will it hurt more? Will it, in fact, inhibit Chinese growth or simply drive the Chinese to our competitors or to greater self reliance on their increasingly capable science and technology establishment? These are questions which clearly deserve more public debate than they have had, and perhaps weíll get into them today.

Then we come, of course, to the issue driving the restrictions on technology transfer, which is Chinese military modernization. Is this modernization focused on Taiwan or does it have objectives which go beyond Taiwan, as the Pentagon report suggests it may? If Chinaís objective does include power projection beyond Taiwan, power projection to where, for what purpose? Not clear. If we do mismanage the Taiwan question and stumble into conflict over it Ė and I think that is the question, will we manage it or not Ė do we currently underestimate or do we overestimate the military challenge of defending Taiwan against the PLA? And by the way, exactly what is Taiwan doing to maintain the adequate self defense that the Taiwan Relations Act commits us to help it do? Is it maintaining its own defense capabilities at an adequate level?

And finally, I turn to the political realm, which is generally not seen as one in which China poses much of a challenge, but I suggest that is increasingly wrong. China, of course, is an attractive economic model, and, in fact, in many ways, globalization used to be seen as Americanization around the world, and now itís seen as inroads by China, a sea change that has occurred without anyone really noticing.

China is, of course, a focus of peopleís diplomatic attention because it is now the worldís biggest consumer of copper, tin, zinc, platinum, steel, iron, the second largest consumer of aluminum and lead, the third largest of nickel, the fourth largest of gold, and it is, of course, the second largest oil consumer after the United States, and until this past year was the source of most of the growth in the worldís oil demand. This last year, the United States actually counted for more pressure on prices through higher growth in imports than the Chinese did.

In any event, China in the political sphere does not pose quite the challenge that it does in the economic area. It has an unappealing political system and an ideology that is incomprehensible and irrelevant to foreigners. Still, I think we are beginning to see, as I said, some measure of political and diplomatic challenge from China, and this reflects the devaluation of the US model in terms of our fidelity to our Constitution, our respect for human rights and the standard of civil liberties in our own country. Guantanamo, Abu Ghraib, mass detentions without charge at home of immigrants and catonization of essentially irrelevant, but extremely irritating restrictions on Americans at places like airports have taken their toll on our reputation. We seem in the area of the war on terror to be focusing on the supply side, much as we do with splendid success in the war on drugs, rather than looking at the causes of the problem and trying to address those. Thatís an aside which has nothing to do with China.

In part, however, the militarization of US foreign policy and the substitute of the use of American force for the rule of law and reliance on international institutions accounts for a lessened reputation of the United States, even as Chinaís reputation grows. Polls around the world show that most people have a very positive view of China, and most now have a very negative view of the United States. This is an irony, of course, and I note here that in our own domestic politics, since it is politically incorrect either to admit that our reputation has suffered internationally or to explore the reasons for this, itís very convenient to blame it all on China. Then we donít have to think about what we may have done to contribute to it.

Finally, as the United States experiments with a diplomacy-free foreign policy, the Chinese continue to attempt to build working relationships and influence around the globe. And we find ourselves forced to defer to their comparative advantage in diplomacy, as in the case of North Korea, in the past in South Asia, and perhaps over the coming months with Uzbekistan. In my view, the challenge of China is, therefore, far more than it is usually described as. It is seen in bits and pieces as an economic challenge, which is addressed by some people. There is a military challenge, which is addressed by others. There is a political diplomatic challenge, which is hardly addressed at all. And the question for us, if we indeed do face a requirement for comprehensive adjustment, is are we going to rise to the challenge to compete or are we going to whine and flail about aimlessly in some orgy of feckless China bashing?

We have three extremely distinguished students of China and practitioners of diplomacy with us today to speak to all of the issues I have mentioned and others that I have omitted. And I think you have the biographies in front of you. I wonít recapitulate them. Iíll simply say that J. Stapleton Roy Ė Stape Roy Ė had an extremely distinguished career in diplomacy, which included service in US-Russian relations, US-Soviet relations. He actually learned Mongol. He served in China at a crucial moment of normalization where he assisted Leonard Woodcock, the then head of the Liaison Office, in the negotiation of the Normalization Communiquť. He was Ambassador to Singapore, to Indonesia and to China, and, finally, Assistant Secretary for Intelligence and Research, a remarkable career which he has continued since leaving the Foreign Service by association with Kissinger and Associates.

Eric McVadon, submariner Ė I believe anti-submariner. Sorry. Seeking submarines, yeah, better. [laughter] Admiral McVadon had a very distinguished career in the Navy, which he blighted by serving as Defense Attachť in Beijing from í90 to í92, made the terrible mistake of going to China, and the predictable happened. He got hooked by China, and he has emerged as one of the, if not the most, prominent one or the most eminent American analysts and writers on the subject of Chinese military modernization.

I think itís fair to say Eric began as somewhat of a disparager of Chinese capabilities, and he has emerged now as one of those most impressed by how the PLA has done. So he has an interesting perspective, and the underlying theme of it, I think, is analytical honesty, reality-based analysis, something which is out of favor in Washington, but quite refreshing when you encounter it. And finally, Jim Sasser, who probably needs no introduction to a group in Washington, a Senator from Tennessee from 1977 to 1995, and then Ambassador to China during a tumultuous period, which included the mistaken bombing by the United States Air Force of the Chinese Embassy in Belgrade and all of the reaction to that in China that Jim handled with great aplomb and dignity for our country. And Jim is now a Professor at George Washington University and a consultant and once in a while will lend us his wisdom on the political dimension of US-China relations and China, in general. And weíre glad to have you here today. Thanks.

So these are the three panelists. Iíve shot my wad. I may interrupt some of them if I disagree with them up there. Iíd ask you to try to keep reasonably brief. And Stape, youíre first.

Ambassador Roy:
Okay. Should we Ė Ambassador Freeman:
You may do what you wish. If you wish-

Ambassador Roy:
Iíll stand up. Good morning. China seems to be very much in the news these days, and I guess our goal today is to see if we can talk and think sensibly about China because not all of the recent discussion, based on the commentary of others, has not been completely reasonable and sensible. Can the United States come to grips with a rising China?

Now, thereís another way to put that question. Can the strongest and most prosperous country in the world come to grips with a country that has suffered from backwardness and lack of modernization for most of the last 150 years and which only in the last 25 years has, by learning from the west and by opening its society to the outside world, found the secret of rapid economic growth? And if you put the question that way, the question is, if we canít come to grips or cope successfully with a country like that, then thereís something wrong with our country. And while we may have problems in our country, I donít think thatís where our problem lies.

So I wonít keep you in suspense. My answer is a resounding of course we can cope with a rising China. The question is whether we maximize the success of our behavior or whether we commit egregious errors that makes the problems and the advantages for the United States much less. There is no question, as Ambassador Freeman pointed out, that Chinaís economic and military power and its political influence in the world are growing with remarkable speed. Never before in history has a country risen as rapidly as China is rising, and China, in population terms, is the largest country in the world. So when a country with this size of population rises rapidly economically, it obviously has enormous implications, very different from that of a Taiwan, Singapore, Hong Kong or South Korea, who have also shown dramatic ability to rise rapidly. This is affecting not only the balance of power in East Asia, but itís affecting the global outlook because China is emerging as the only country that really has the capability to challenge US supremacy in the world, and, therefore, itís not surprising that we are reacting to this with a great deal of attention.

But of course, the real question is how is China going to use all of this additional power and influence? Is it going to seek to challenge the US role in East Asia, to drive us out of the Pacific and to establish a sort of central kingdom hegemony in East Asia? Or is it going to keep is principal focus on economic development and to continue to develop successfully economically? Chinaís policy, as clearly enunciated by its leaders, and its behavior, as clearly demonstrated, both before and during the current Bush Administration, has shown that it feels a stable, constructive relationship with the United States is essential.

So while the question is a legitimate one, we shouldnít prejudge the answer and assume that China is going to embark quickly on a course that will undermine its very long term economic development strategy. At the same time, as the recently issued Pentagon study of Chinaís military power indicates, the PLA military is accelerating its modernization process, and it is preparing military options for Taiwan scenarios. And many of those scenarios could involve the United States, so we have to look at the question of whether we are heading for a confrontation with China or with Taiwan or some other clash of our interests, or whether China is simply engaging in a normal modernization process for its backwards military.

But we also have to reverse the question because it takes two to tango, and, if China is to accomplish its goal of rising peacefully in a non-destabilizing fashion, it means that itís not simply Chinaís behavior that is going to determine the outcome, but how the other major countries of the world react to Chinaís rise. Because if our reaction to Chinaís rise is that we canít tolerate it and we have to suppress it, then the prospects for conflict emerging at some point in the future obviously increase enormously, and this is because of our reaction, not necessarily because of Chinaís behavior patterns.

So we have to keep our perspective in looking at this. The future is going to be determined not only by how China behaves, but by how we behave, and we need to keep that perspective, and we need to look carefully at how we position ourselves as China becomes more powerful.

Now, in doing so, itís useful to keep some considerations in mind. The United States basically rose in a non-destabilizing fashion, but the reason is we rose in the western hemisphere where we were already the dominant power even before we began our rise. And we were able to maintain that position in large measure because of the British fleet which enforced the Monroe Doctrine, if you will.

China doesnít have that luxury. China is surrounded by powerful neighbors, three of whom have nuclear weapons, with all of whom it has fought military conflicts in recent history, meaning over the last 60 years. This includes the United States, Korea, Japan, India, Vietnam and Russia. So when you say that China has no enemies, youíre not going to convince that they donít have threats out there, and we need to keep those types of factors in our minds. So China, in other words, is going to confront the constraints of powerful neighbors as it continues its process to rise, and this is going to put enormous burdens on Chinaís diplomacy and policies because, if China mishandles its relations with powerful neighbors Ė and weíre only one of those powerful neighbors Ė then Chinaís development process is going to be set back at a stage when China, relatively speaking, is still a semi-developed country rather than an advanced country.

The second thing to remember is that, while Chinaís growth is truly dramatic, China is starting from a very low base. Dallas Federal Reserve Bank President, Richard Fisher, gave a speech recently in which he not only pointed to the dramatic aspects of Chinaís economic development, but also to some of the other aspects. US agricultural productivity is 33 times better than Chinaís. The productivity of US industry is five times great than Chinaís. The United States has 19,497 airports. China has 126. We have 150,000 miles of oil pipelines. China has less than 10,000 miles. We have 481 cars per 1,000 people. China has seven. Seven versus 481. We have much higher levels of education and technology. So we have to bear this in mind when we translate Chinaís growth curve into a sense that China is going to feel that it should take on the worldís most powerful country in ways that would cause China to lose many of the advantages of its last 25 years of rapid growth. How does this translate into the question of what sort of relationship weíre likely to have with China down the road? Now, the answer is letís take a good neighbor of ours, Canada. If we look at US-Canadian relations, what we find is there are elements of strong cooperation and strong rivalry.

And yet, we have managed to maintain a decent relationship with Canada for a long time. Now, granted, Canada is not one of the worldís major powers, but, nevertheless, we have a long common border with Canada, and many countries are not successful in maintaining decent relations with other countries with whom they have long common borders.

My argument is that partnership and rivalry are part of any relationship between significant countries, and the real question isnít whether those elements are present. Itís whether or not the relationship you maintain permits you to continue the cooperation which your own interests require or whether you are heading for a hostile antagonistic relationship that makes such cooperation impossible. And my argument would be Ė and this is based on simply experience in dealing with leaders in both China and the United States Ė is that, as long as there are sensible leaders in China and in the United States, maintaining the constructive bilateral relationship is well within our capabilities. This is not something we have to panic about.

If you look around the world at all of the countries with whom we are unable to maintain a constructive relationship, you will find that those countries have leaders that complicate the ability of those countries to have constructive relations with anybody. But China has constructive relations with virtually every country in the world, including the United States, so it would be foolish to assume that Chinaís leaders are bent on objectives that are going to bring them into antagonistic confrontation with the United States under the existing leaderships in both the United State and China where both sides clearly want to make this relationship work in constructive ways. But this is not going to be easy. It requires policies that are designed to make the relationship retain its constructive elements. You canít just give in to emotions or highly emotional debates.

China also is going to pose problems for us. As Chinaís capabilities grow, its ambitions are going to grow. Thatís a natural process, and a stronger and more prosperous China, therefore, is going to potentially create conflicts, even if theyíre peaceful conflicts, with neighbors and possibly with the United States. But China, as it gets stronger, is also going to have more to lose, and that means China can no longer practice the minimal deterrent policies of a weak country.

China is becoming a much stronger country, and, when you visit China, you see how much wealth has been created for the Chinese people by the last 25 years of economic development, and the Chinese have not spent 25 years developing in order to throw it all away through rash military adventures. And when you talk to their serious people, whether civilian or military, you find that this is not the way they think.

It is inevitable that, as Chinaís economy continues to grow, its military is going to continue to grow. So the question is how is China going to use this military strength and what should our reaction be? There are quite a few voices heard in the United States these days that see a stronger China as an emerging threat, and thatís an issue that deserves serious attention. But unfortunately, rarely are we given the context for assessing this question in a sensible fashion. Let me cite some considerations.

First, we almost never get any historical context that gives us a basis for understanding how Chinese thinkers about Chinaís defense needs are likely to define their objectives. You have to be aware of Chinaís history in order to understand how China approaches defense questions, and, as I mentioned a few minutes ago, China has had military conflict with most of its neighbors in recent history, and, therefore, any Chinese leader is going to need to prudently look after the defense needs of the country.

Second, thereís an absence too much Ė not completely because the marvelous thing about a free society is that, even if the dominant view ignores certain factors, thereís always available those additional factors that you need to pay attention to. And one of these factors is the external considerations that affect Chinaís defense programs, and clearly some of those are the dramatic victory of highly sophisticated, high technology weapons in the Gulf War 13 years ago, and more recently in the Iraq War. Every military in the world has had to reevaluate their defense strategies based on this demonstration of how a sophisticated modern military can defeat with relative low cost backward military forces.

So you would have to be a gravely irresponsible Chinese military leader not to feel that China needed to play catch up in areas of technology related to Chinaís military. That doesnít mean we have to help China in these areas, but it means that we should not assume that Chinaís military modernization process is driven by aggressive ambitions, as opposed to simply the prudent type of actions that countries take when they have seen demonstrations of what new military technology can do.

Thirdly, we rarely see efforts to calculate what sort of defense budget is appropriate for China. Now, the Chinese themselves wonít agree on that question anymore than Americans agree on what the size of Americaís defense budget should be. But the point is, if the Chinese claim that their defense budget is $25,000,000,000, and we claim that itís actually $67,000,000,000, the question is, is $67,000,000,000 enough or is it too little? If you donít have that benchmark, if youíre not able to establish what reasonable parameters for Chinaís defense spending are, then you can turn any amount of defense spending either into a deficiency or an excess. So you have to have these benchmarks to talk about these things significantly.

Fourthly, rarely do we see comparisons of what China is spending, as compared to other countries. Now obviously, this is relevant to China because, if Chinaís defense spending is going up and thatís relevant to us, why isnít it relative to China whether India becomes nuclear, whether Japanís defense budget is increasing, whether the United States is spending more in its defense budget? Well, what do we find? Letís not trust Chinese statistics. Letís take the published CIA estimates of defense budgets around the world. And what do we find? If take the British, the French, the German and the Italian defense budgets, add them together, we find that Chinaís defense budget is only about 50 percent. And yet, these countries are all members of the EU, they arguably donít have any obvious enemies in the world, and yet theyíre spending 50 percent more than China on their defense needs. Is that excessive? Not if you listen to the United States. Weíre constantly lecturing Europe for not spending enough on defense.

Well, letís look at the defense budgets of the countries around China. It turns out that, if you take the budgets of Japan, Russia, India, Taiwan, South Korea, that China also has a defense budget thatís roughly 50 percent of the combined defense spending of countries on its periphery. So letís look at Japan. Chinaís budget is about 50 percent larger than the defense budget of Japan, according to the CIA figures, but China has 10 times the population of Japan and much, much larger population and much, much larger borders to defend. And it doesnít have a defense alliance with the United States, which ultimately is the guarantor of Japanís security.

So how do you make a comparison? If you only look at the percentages, you can argue that China is spending too much, but you have to look at the context, and we are rarely given the context.

Finally, as Iíve touched on earlier, the question is are Chinaís leaders rational or irrational? No matter what happens over the next 10 to 20 years, the United States is still going to be much, much stronger than China. The relative difference in the strength between China and the United States will still be very significantly different than the relative military strengths in comparison with its neighbors of, say, Nazi Germany or Imperial Japan. Well, with those recent historical lessons, is China likely to suddenly decide itís rich enough to embark on adventurous policies taking on global military titans like the United States? And if so, at what cost? So in assessing Chinaís defense spending, we have to keep these type of considerations in mind.

Now, there are reasons why we have to be concerned. We donít know how China is going to use its growing military strength, and we do know that itís preparing for contingencies in the Taiwan Strait that could potentially involve the United States. So the need for attention to this question goes without saying. The question is whether our debate on the issue is sensible and based on a context that enables us to understand all of the considerations that should come into play in sensible discussion of the issue or whether we simply pluck figures out of the sky in order to make a case that China is an emerging threat. I would argue weíve had too much of the latter type of behavior, and we need more of the former type of behavior in order to assess both what our policy should be and where China is heading.

Let me wrap up. Whatís the outlook? The outlook is not bad, and we have some tests that we can use to ascertain what the future course will be. And the most immediate test is the current state of China-Japanese relations. They are tense. Theyíre having difficulties. Japan has woken up to the fact that China is growing rapidly. Japan is not prepared to become a second-class citizen in East Asia, and Japanese nationalism is rising just as Chinese nationalism is rising.

This is occurring at a relatively early stage in Chinaís development process. If the two countries can successfully manage this current set of emotional issues in their bilateral relationship Ė and these are more emotional than they are really substantive. The substantive issues havenít fully developed down the road yet. If they can manage it, then the prospects for Chinaís peaceful rise are not bad. If they canít manage it at this early stage, then China is going to encounter increasing problems down the road.

This is not a problem that China can solve on its own, but it ought to be viewed by the Chinese as a test of the concept of peaceful rise because the only attractive future in East Asia is one in which a stronger and more prosperous China can coexist peacefully with a normal Japan that is no longer being tightly constrained within the strictures placed on it after World War II. And in some ways, thatís what the current set of tensions are all about. But how the United States defines its objectives in the region and in the world is also highly relevant. If our goal is to preserve unchallenged supremacy, there are going to be two inevitable consequences.

First, weíre going to have to go it alone because no other power center in the world will share that objective. And secondly, inevitably, Chinaís rise will become threatening to us at some point because I noted earlier China is the one country that really has the potential at some point down the road to challenge our global supremacy. But if our goal is to insure the prosperity and security of the American people in a world where other countries have the right to pursue the well being and security of their own people through means other than by force and intimidation, then thereís no reason for the United States to be threatened by rising China. So much of it rests on how we define our own objectives, and this has to be translated into policies.

Thereís another factor, as well. If we want China to move toward more representative political systems, the only way they can do it is through economic development. In East Asia, thereís an unbroken pattern where economies that have developed rapidly for 30 to 40 years have all moved to representative systems of government from authoritarian systems. Thereís no exception in East Asia.

China is only about halfway along that path. It doesnít make transformation inevitable, but it makes it highly likely. So in thinking about the question, weíve got to recognize thereís a tradeoff for us. If we want China to have good political reform, the basis for it is economic development. But economic development will make China a stronger country.

So the question is are we more afraid of a stronger China or do we feel that the world will be a better place if China goes through the process that we have seen so dramatically demonstrated in East Asia of developing and then having authoritarian systems become representative? I would answer itís a good gamble for us to bet on economic development because it benefits everybody if managed properly.

I think you all saw the piece in the Washington Post yesterday by Jim McGregor on China. If you havenít, itís in the Opinion column. Itís well worth reading in that he not only offered some constructive ideas about how to deal with China, but he characterized the US view of China as unfocused, fractured and often uninformed. And he argued that China and the United States have manageable differences and many complementary interests, and what we need is an intelligent and consistent China policy.

Well, I would argue that how do you come up with an intelligent and consistent China policy if our views of China are unfocused, fractured and often uninformed? There is a connection between how you look at China and whether you can have consistent policies.

So in a sense, thatís the real challenge for us. Can we come up with a more coherent view of China so that our policy has a more coherent base for dealing with the challenges ahead? And that is at the heart of the question of can we come to grips with China. Thank you.

[audience applause]

Ambassador Freeman:
Thank you, Stape. I think Stape has done a great deal to give us focus, a comprehensive view and maybe lay the basis for some sort of more sensible and productive approach to China than we often have taken, and I thank you very much. But enough of all this rational discourse. We all prefer to sink ships and shoot down aircraft and to deal with hardware and not all this political stuff. So Eric, come tell us how to sink a submarine.

Admiral McVadon:
Well, Iíll fall a little short of that. Dr. Wang, thanks for inviting me. You asked me to talk a bit about the DOD report and PLA modernization and then to mention maybe North Korea and oil issues. Iíll try to do all that in a few minutes. I feel I have so much I want to say, so let me rush right into it and say to begin with that Ambassador Royís remarks were, in my view, a superb preface and really put my remarks in context, and I want you to remember that. I share his view that we should and can maintain and accommodate a good relationship, accommodate to China Ė to a rising China.

And yet, there is something that I think we all need to be aware of, and maybe this is going to be an imperfect analogy and one I just dreamed up and Iíll probably regret saying, but China developed in 1964 a nuclear capability. And of course, it has not ended up being used.

The capability the PLA is doing right now is comparable to that in its scope, I would argue. Weíll see if you agree later on. It can be accommodated. Itís a matter of our looking at it realistically and determining for ourselves what the implications are. Chas, you raised the issue of whether PLA modernization is directed solely with respect to the Taiwan issue and US intervention. Of course, that military hardware is useful in other ways and, as both Ambassador Roy and Ambassador Freeman have mentioned, China has to look over its shoulder at Japan and Russia and India and be concerned for other possible threats in the region. It, of course, has to look at us in ways other than just US intervention. It canít ignore that there is at least the prospect of something to fear about that.

Well, let me turn now to the DOD report. My first thoughts when I read it were that it alludes to but underplays the fact that we are now seeing what I call at least potentially a narrowly focused new PLA, truly a new Peopleís Liberation Army, primarily with the Navy, the Air Force and the Strategic Rocket Force or Second Artillery, as most of us call it.

Let me read to you a few sentences and phrases. But we see a China facing a strategic crossroads. Questions remain about the basic choices Chinaís leaders will make as Chinaís power and influence grow, particularly its military power. PLA modernization has accelerated since the mid to late 1990s in response to central leadership demands to develop military options for Taiwan scenarios. In the short term, the PRC appears focused on preventing Taiwan independence or trying to compel Taiwan to negotiate a settlement on Beijingís terms. A second set of objectives includes building counters to third party, including potential US intervention and cross Strait crises. PLA preparations, including an expanding force of ballistic missiles, long range and short range cruise missiles, submarines, advanced aircraft, other modern systems and so forth.

These sentences and phrases were extracted from the opening paragraphs of the DOD report. Some of you may have recognized them. And they contain a central message that I fear gets lost in the following six chapters that seem, unfortunately, to reflect the qualities we often jokingly attribute to a product of a committee. The important message concerning the remarkable, ongoing surge in modernization of the PLA Navy, Air Force and Strategic Rocket Force is blurred at a time when it should be kept in sharp focus. By its actions and written and spoken words Ė and the Chinese are openly and candidly saying this Ė the Chinese and PLA leadership have made clear their goal to be reached all too soon of having the fulsome capability to completely overwhelm Taiwanís forces quickly and decisively and to deter or complicate timely US intervention in a crisis, allowing the PLA to bring about rapid capitulation of the Taiwan military and government and presenting all concerned with a fait accompli.

Iíve spent more than a year studying the details of all this. Let me describe to you, since Chas asked for it, how we go about this. China is developing an arsenal and very actively pursuing this and proceeding with it much more quickly than we thought possible both short range and medium range ballistic missiles. Remember, ballistic missiles are the ones that go out of the atmosphere and come back in very fast. Those munitions have, in some cases, maneuverable reentry vehicles with seekers that will allow them in a few years to be able to hit ships. That is a major new development. No one else has come up with that. It is focused in only one area, preventing US carrier strike groups from being able to approach China. Itís not an issue of whether we do it or not. Itís whether we have the capability and whether we would have to Ė how prudent it would be under certain circumstances.

Those munitions also have all sorts of penetration aids. They have multiple independent reentry vehicles for various sorts of them. They have sub munitions so that they spread out. And what these things can do is to degrade the air defenses of, for example, a carrier strike group so that now follow on attacks can be made. Now, China has developed a layered redundancy and diversification here that is truly remarkable. Let me just give you an example of the next layer, at least as I would see it, and I would use it as a military commander or that I would want the US to know this is what youíre going to face if you come to the aid of Taiwan. China is right now getting eight new kilo class conventional very quiet and capable submarines. Those submarines will carry the most capable anti-ship cruise missile in the world, the SSN 27 Bravo. We call it the Sizzler. Itís a supersonic attack cruise missile, and it is really remarkable and will probably defeat all American air defenses. It is the second round of being able to degrade air defenses in order to prepare the force for further follow on attacks if they choose to do so.

China right now has gone into rapid production, much more rapid than anyone ever expected, of new nuclear attack submarines. Now, I mention also theyíre building a new SSBN, a ballistic missile submarine, but Iím not talking about nuclear attack submarines. I neglected to mention that, of course, these missiles launch from submarines or launch while submerged and from more than 100 miles. The nuclear attack submarines are being added to a fleet that is now in serial production of the new song class submarine.

Additionally, they surprised us with the introduction of a new Yuan class submarine that may even have a new propulsion system. These all also have very capable, although subsonic, anti-ship cruise missiles. Do you see the kind of force that Iím building up and developing here? And I havenít even touched on aviation, and, by the way, I am an aviator and not a submariner, but not a fighter pilot, a P-3 guy.

China has a fleet of new fourth generation airplanes that is stunning. They have obtained the most important ones probably from the Russians just with respect to the PLA Navy, and, of course, Iím only giving you a sample now of what is happening because itís truly a remarkable development. China developed indigenously the FB-7. It is now building new versions of that. This is a maritime interdiction airplane with a remarkable new assortment of anti-ship cruise missiles, including anti-radiation missiles and all sorts of exotic things, and theyíre testing them and theyíre working. They got the SU-30 MK-2, which is a very advanced multi-role fighter. Itís now in the PLA Navy Air Force.

The PLA Air Force has many other airplanes along the same line. The PLA Naval Air Force has B-6s. These are the long range bombers, and you might say, boy, that B-6, Iíve heard of that for a long time, itís very old. Well, guess what? Brand new versions of it with really scary anti-ship cruise missiles, lots of range and lots of capability.

I havenít touched on the surface force yet. Some of the most important ships are the SOVREMENYYs. They have two already. These have the second most scary anti-ship cruise missiles in the world, also supersonic in the attack mode. Theyíre about to get two more of those. They will now have four of the SOVREMENYYs, but behind that China is now building and upgrading more classes of destroyers and frigates than I thought they would build ships in my lifetime, classes of ships rather than ships, including the one thatís called the new Chinese AEGIS.

Someone made a decision. Someone had a concept to put all these things together. And guess what, folks? They all fit very narrowly in being able to deter, if possible, a US intervention in a Taiwan crisis. And as they have said directly to me, yes, we went all out. We got the money. We got the technology. We got the assistance from the Russians, and so we are proceeding full speed ahead. We could not convince you on the Taiwan crisis or the Taiwan situation another way. We are now going to insure that we deter you, and, if we do not, well, letís see what happens.

It would be very difficult, I suspect, for the Chinese leadership in a crisis, which none of us forecasts. We expect that it will not happen. But we should have the realization that this is a new PLA that weíre looking at. It does not resemble the PLA that existed in any way when I worked for Ambassador Roy in Beijing. Now, I have to qualify some of that. And by the way, I did forget one part. Theyíre also developing new land attack cruise missiles that could strike Okinawa, in addition to Taiwan and so forth.

Remember, cruise missiles fly in the atmosphere like airplanes. So they fly very low, theyíre very hard to hit, and theyíre very, very accurate. All of these missiles now have new accuracy so that theyíre militarily capable. It used to be they couldnít hit within 300 meters or something. Now, weíre talking about well less than 50 meters accuracy for the ballistic missiles and pinpoint accuracy for the cruise missiles. Fly it through a window like weíve long been able to do.

So now, those capabilities exist. We shouldnít be surprised, just as Ambassador Roy described. We should expect that an emerging China should have a modern military, but we need to be aware of this truly extraordinary surge and figure out how we cope with it.

Thereís one other aspect that I should mention. China is an information operations wannabe. They want very much to be able to do computer network attacks and so forth, and they talk about it. And they write specifically about saying we are right now planting viruses in your systems that will be latent and weíll activate them. Now, do the people that are writing this know what theyíre talking about? Beats me. But in any event, this is the kind of thing youíre talking about.

We are, of course, almost certainly doing the same thing. So itís not extraordinary. But I mention to you that, in addition to these other factors, that the Chinese are probably looking into the area of information operations in order to find another way to be able to disrupt our ability to cope with their attacks and to blind us in space and those kinds of things.

Now, maybe I can illustrate this point of attacking US niche vulnerabilities by suggesting this. We have some very, very capable attack submarines, the US SSNs, and the Chinese have never succeeded in doing anti-submarine warfare, my specialty, very well. Even though I lectured them on it, apparently they didnít learn a lot. Maybe that was intentional. But anyway, so that is one of the things that protects our carrier strike groups. Well, guess what? If you hit the defenses with ballistic missiles, you just donít give a damn whether there are any SSNs around or not because, of course, you go around it.

So these Ė I could give you many more illustrations of how, when you put all this together, the concept becomes clear. This was very cleverly done. It was done in a very determined way. You have to give them Ė it has to be admired in the way that itís all put together. And remember, their goal is deterrence. They are not itching for a fight. They do not wish to fight us over Taiwan. They donít want us to come if they have to go. So I made a note to myself, conclude that this is an unprecedented surge with respect to focus, pace, modernity and scope. So Iíll emphasize that point. And this should not be interpreted as evidence of China seeking a conflict with Taiwan, as I alluded to a minute ago or the US. It should, in my view, be seen as determined and calculated as an effort at achieving deterrence at persuading Taipei not to go astray and convincing Washington that it should work diligently to avoid the occurrence of situations requiring US military intervention. However, if deterrence fails, China has at least readied and is now rapidly implementing a concept to delay and complicate US military action in support of Taiwan.

Now, let me explain a big kicker in all of this. China is not yet ready to coordinate these forces. Imagine our trying to conduct a campaign against Taiwan and a major adversary all at the same time. The command and control and coordination, the C-4 ISR, the command, communications, computers, so forth and intelligence, surveillance and reconnaissance are very difficult to do. In their words, they donít necessarily know where our forces are yet. But in a crisis, will China look to a situation and say, even if we are not altogether ready, even if we donít know where the carriers are all the time, if by serendipity or some specific determination we can determine that the carrier is in a given location, why not take a potshot at it.

So there is also the danger that, even before our intelligence organizations say that China is altogether ready to go, that in a crisis they may look to these things, and Beijing may look to the PLA and say, with all that we put into it, with this situation we have to use it. So thatís another fear that we should have.

All this, in my view, raises a question of what the US should do, and Ambassador Roy suggested some of the things along these lines, too. How it should react to the narrowly focused effort to deter, dissuade or delay prompt US intervention? Obviously, systems and methods to cope with these new PLA capabilities should be sought. In other words, we should be able to somehow deceive them, jam them, all these kinds of things, and certainly those efforts are underway. Where direct defenses are not yet available, other countermeasures such as I just suggested could be conceived. But on a grander scale, we might want to wrestle now rather than during a crisis with what this renewed Chinese expression of seriousness about the Taiwan issue implies. Does this not suggest the urgent need for a renewal of vigorous efforts to remind both sides of the profound imprudence of allowing things to get out of hand, and, certainly in that regard, Chinaís realization that it destroys much of what itís built in the last 25 years probably if it undertakes this? We should emphasize that and probably not by finger wagging under their noses. At a minimum, it must be recognized that a very different and more capable PLA is now a factor in the equation. Put another way, Beijing increasingly has available to it a military option while Washington is decreasingly assured that it can prudently come to the aid of Taiwan promptly and effectively. Yes, we all hope and many believe that a military option is not a likely choice by Beijing. But who among us is willing to say that a conflict canít occur? As Ambassador Roy suggested, how we position ourselves can greatly influence the outcome of this. I think thatís the real lesson.

Well, let me conclude by offering a few quick and possibly random thoughts on China and the North Korean nuclear issue and then China and energy security. On the North Korean issue Ė Iíll say this is just some random thoughts. The Chinese have often reminded me how much they look to stability as the priority for the Korean Peninsula saying, look, weíre the pragmatists and youíre the moralists in this. You really ought to listen to us a bit more. Maybe we have started doing that. The PLA officers tell me they surely do not want to send the PLA Chinese troops back into North Korea, and, of course, kind of the joke is, look, we went in and we got out once and you didnít. So thereís a lesson in that that we donít, so maybe thatís slightly amusing, but maybe thereís something there.

They have also described to me that it is, in fact, a distracting factor in PLA planning that they have to have a blocking force against refugees and so forth in Northeast China in Dongbei, that certainly it would be a preferable situation for PLA planners to not have to be concerned about that so they could focus altogether on Taiwan. Itís interesting to me the number of times that Iíve heard the PLA say that it has to modulate its relations with the ROK forces, the South Korean forces, in military relationships so as to avoid angering the north.

PLA officers, including Major General Zhu Chenghu, the fellow who spoke about the nuclear issues just recently and got so much play in the press, he and others have described to me, in he PLA now, a genuine concern about North Korea having nuclear weapons, and that was sort of a new development because previously they would say, look, you people are a little bit obsessed with this. Well, the tune changed in the last few years among my PLA colleagues, and they have said, look, we are genuinely concerned about it.

Maybe weíve gotten religion. First, because Japan, South Korea and Taiwan could follow suit of course and, because nuclear weapons are materials originating in North Korea, could be used by terrorists in China. And of course, they always somehow manage to allude to Chin Ziang when theyíre talking about where the terrorist association might be.

Well, a few random comments on oil. I suggest that, if the Taiwan issue didnít exist, that the PLA Navy would probably be focusing mostly now on protecting its sea lines of communication, not just oil, but primarily oil, realizing how much ocean commerce means to the continuing growth of the Chinese economy.

Now, among other things, this implies probably some organic air, so I would suspect that at one point we will see that the PLA Navy will, in fact, move to an aircraft carrier. I contend that it has not done so yet because aircraft carriers donít mean anything for Taiwan. Youíve got all the land-based air close enough. Itís just a target. Itís not an asset.
The thrust of their effort, if they went to the SLOCs and if they developed a force for this, would be to deter interference, to discourage others, maybe India or heaven only knows who sometime in the future, from even contemplating disrupting the flow of oil to China so that China would simply have the capability that in some way resembled the US Navyís, that nobody messes with US ships at sea. Or at least thatís what weíd like to think about it, because the US Navy can enforce freedom of navigation on the seas.

As to the fear thatís often mentioned of a US blockade of oil into China in a Taiwan scenario, I suggest that there would be very little effect in what I think would be a very short war. But of course, China canít be sure that the war will be short, even if it might hope so, as well. So China was prompted to establish in 2004 a strategic petroleum reserve, maybe for other reasons, as well.

Let me mention one closing thought. I was at a conference on China and energy security the other day, and it struck me that weíre seeing a new situation in todayís world with the global war on terrorism. Both pipelines and tankers Ė and I mean now with both situations carrying oil or natural gas Ė theyíre both almost equally vulnerable now. The pipelines are more likely to be the targets of terrorists, while the tankers are more likely to be the targets of national navies. But of course, either one of them could be subject or could be vulnerable in the other ways, too.

Well, a few thoughts on that. I hope I did not have a failing of the DOD report and dilute my points on the PLA by talking about North Korea and oil. So I hope youíll remember the early ones. But thanks for having me here today.

[audience applause]

Ambassador Freeman:
Thanks, Eric. A couple of comments before we continue. First, the military buildup that Eric has described in 2005 had its genesis in the 1995-í96 Taiwan Strait crisis, and the decisions that were made in the immediate aftermath of then President Lee Teng-huiís 1999 July two-state doctrine proclamation, which gave the PLA the commitment from the central government to fund the program that is now producing the results that Eric mentioned. Those of us who talked to people in Beijing at the time of the 1999 decisions were told that the procurement would be delayed, new systems would be delayed in terms of being put into operation until the last minute, meaning against a target date of 2007-2008 for several reasons.
The Chinese economy would grow, and it would be relatively easier to support these costs. Second, troops could be trained on equipment, but equipment would be new when and if it actually had to be used. And third, there was no particular reason to give Taiwan and the United States advance warning of the particular military challenges that we might confront so that we could do what Eric suggests we ought to be doing, which is preparing to counter those threats. And in particular, it was stated that, from the period 2005-2007, we would see a series of innovative systems, not further specified, the beginnings of which we are now seeing. But itís not clear to me that this is the end.

So I think that makes it all the more important to keep in mind the context, as Eric described it. These systems do not foreshadow an attack on Taiwan. They do give credibility to Chinese deterrent capability, and, in that regard, I couldnít agree more heartily with his last point, which I think Stape also in a way made in his remarks, namely that we have to be very careful about how we manage the Taiwan question in the current era. Itís consequences are vastly larger than many seem to imagine.

And I would just close by noting that one element that neither of them mentioned, but which should be very much on our mind is that no one knows how to limit a conflict over Taiwan. It would be fought on Chinese territory under circumstances where the Chinese working assumption is a strike on the Chinese homeland would necessitate reprisal against the US homeland, not nuclear necessarily.

This is the dilemma that General Chu Chung-Hu [phonetic] was wrestling with so unfortunately the other day, and I donít think he speaks for China. I think he reflects a strategic dilemma that the Chinese have, that they donít have the capability to carry out effective reprisals with anything but nuclear weapons at present. And so, we need to be very mindful if we get into a fight over Taiwan that the consequences could be vastly larger than they were during the offshore island crises of 1954, í55 and í58, and act with appropriate prudence. And here to give us a taste of prudence is Jim Sasser.

Ambassador Sasser:
Well, Ambassador Freeman, thank you very, very much. I honestly donít think that I could add anything to whatís been said by my distinguished predecessors at this podium, and Iím reminded of something that Congressman Mo Udall said many, many years ago when I think he was perhaps the 33rd speaker at a Democratic National Convention, and he rose to address the audience at about 2:00 a.m. And he said, ladies and gentlemen, I want to inform you that everything that needs to be said has been said. Itís just that everybody hasnít said it yet, and thatís the reason I stand before you this evening. So thatís the reason I stand before you. Everybody hasnít said it yet.

Now, when Ambassador Freeman makes the very valid point that China has resumed or is in the process of resuming their leadership in the world and that until 1850 they had the largest GDP in the world, Iím reminded of a slogan we had at the American Embassy when I was the ambassador there in the late 90s. And some of the young political officers would say, well, the Chinese have had a bad 150 years, but theyíre back. And they are indeed back, indeed back in spades.

Well, the question that Dr. Wang wanted us to address today, as I understand it, is can we accommodate Ė can the United States accommodate Ė the rise of China? And my answer to that is the same as that of a distinguished student of China and diplomat, Ambassador Stape Roy. Of course we can, if we will do so.

And I think the question as to whether the accommodation can be accomplished really involves American leadership. Weíve all heard the old slogan, if you treat them as an enemy, you will make them an enemy in due course. And I think thatís true indeed.

A real problem, I think, is that there is, in many corridors of this country and certainly in some corridors of the United States government, Cold War thinking, concepts that really are outmoded and outdated, concepts in my view that probably you could make a case were outdated in the post-Stalin era in the 20th Century. But itís still there, and this hegemonic thinking of some that this is the American time, that we are the sole remaining superpower, and even the foolish talk a year, a year-and-a-half, two or three years ago about an American empire.

Now, one of the salutary things about the war in Iraq, if there is any salutary thing about it, is that it has destroyed, I think, this type of foolish thinking. I think people now are beginning to see that US power is not capable of extending its influence around the world. Weíre not capable of making the world over in our own image, and we see in Iraq that our military there, in just this small country in the Middle East, is severely overextended. So now I think the talk of an American empire is something thatís in the past.

Another salutary spin-off from the war in Iraq is that those in this country who have the need for an enemy have been distracted. Theyíve been distracted from China, and you hear less talk about the Chinese threat than you did prior to the war on Iraq. So Iraq has shown us the limitations of US power. It showed us, I think, the need to have cooperation with allies, to try to build alliances with our European friends and others, rather than destroying it, and itís distracted us Ė the hawks in our government Ė away from China.
Now, what about the Chinese side? How do they view the rise, and how do they intend to handle it? Well, the Chinese, in my view, have been very careful to try to placate the apprehensions and anxieties of their neighbors in Asia and elsewhere. And the slogan is a peaceful rise of China in an effort to alleviate the apprehensions that some may see as the Chinese economy rises and becomes more dominant in Asia, and as the Chinese military modernizes, as weíve just heard.

Former Foreign Minister Chichi Chen [phonetic] and former President Jiang Zamin very skillfully, and I think very successfully, built relations around China or stable relations around the border of China with all of the countries that could be viewed as a possible threat to China Ė Russia, India, Vietnam and so forth Ė all in an effort to build an atmosphere that would allow the Chinese to develop their economy and move forward and improve the quality of life of their citizens. And that, in my view, is the crucial ingredient of Chinese foreign policy, the effort to have stability, non-threatening neighbors, so that they can continue to grow this economy. And the economy is a crucial importance, I submit, to the Chinese leadership.

Well why? Because theyíre not revolutionaries. They didnít make a revolution, so they donít have the legitimacy that Mao Tse-tung had or Dung Shao Ping had with the people. These are essentially bureaucrats and technocrats. They donít have the legitimacy of the ballot box, as we have in western countries and in Japan and other places.

So their legitimacy comes from building this economy, making tomorrow better than today, and today is better than yesterday. So that, in my view, is the underpinning reason why we donít necessarily have to fear the rise of China and why we can make some accommodation if we have wise leadership in this country.

Now, I would submit, as you rummage around in the garbage pail of this Administrationís foreign policy and you come across old Europe and you come across the failed concept of weapons of mass destruction in Iraq, et cetera, et cetera, you come across one pearl in this garbage pail, and I think that is the Administrationís attitude towards China and their policy towards China. Now, it started out rocky. You remember the campaign in which the Bush campaign in 2000 was saying that China was not a strategic partner, as the Clinton Administration said. We claimed we were working towards a strategic partnership. The Bush campaign said that China was a strategic competitor. They also accused the preceding administration of ignoring our traditional allies in Asia, Japan, South Korea and so forth and concentrating all of our efforts in trying to ingratiate ourselves to China and, for having done so, we had gotten nothing.

This was also an administration in the campaign that was talking about a missile defense system that would be positioned initially in Alaska. Well, who would that missile system be aimed at? Of course, China, although there was some talk that it would be North Korea, but that didnít fool anyone, including the Chinese. Then when the Administration was elected and came in, you had the P-3 incident, and this was where the bottom of Sino-US relations as far as the Bush Administration is concerned. President Bush himself made some very intemperate statements, in my view, and, of course, this occasion a response from President Ziang over this airplane incident.

But after all of that, when you look at what has occurred in the interim, President Bush has been to China more than any president in history. He has laid down the law to the present government of Taiwan and Chen Shui-bien when the Chinese Premier was here, I think last fall. President Hu Jintao will be here in September, and Bush will be going to China somewhat later on a state visit.

There continues to be increasing economic connections between the two countries, and that web, I think, has become so complex and so important to the economies of China and to the United States, that this is going to continue to have a salutary impact, I think, on the relations Ė the diplomatic relations of the two countries Ė even while it causes some problems in trade practices between the US and China.

Well, what are the problem areas? Well, I think some of the problem areas, as far as the United States is concerned, is you have the fragmented approach that Stape Roy referred to earlier and our friend in Beijing wrote about in the Washington Post. The State Department moving in one direction, as far as China policy is concerned, and then over in the Department of Defense you have the DOD hawks there continuing to, in my view, distrust China and raise problems.

I certainly wish the President would be stronger in this regard and take a strong hand and enunciate what the policy is and tell the guys in the Department of Defense either you follow the policy that weíre laying out here in the White House or hit the road. He doesnít seem to have any problem in other areas of saying itís going to be my way or the highway, and I think he ought to do this as far as the folks over at DOD are concerned.

Well, what are the problems with the relationship from the Chinese side? The Chinese have Ė we always talk about Chinese strengths, and the economy is moving ahead at a breakneck pace, and this is, by all accounts, the fastest development of a developing country in the history of the world. But there are very serious problems on the Chinese side, problems of corruption in the government, which they have a very difficult time addressing, problems of pollution of the air and the environment and the water, problems in the banking system that they seem to have great difficulty in addressing.

And you worry at some point that, as these problems rise and as the leadership becomes concerned about them, that they might try to alleviate some of the pressure by again pushing in the direction of stirring up Chinese nationalism. And we see that nationalism is very strong with regard to relations with Japan, and I saw the face of that nationalism personally after we bombed the Belgrade Embassy, and many of the students began picketing and trying to destroy our American Embassy there in Beijing.

So those are some of the problem areas, but, in my view, I have an optimistic outlook, as far as Sino-American relations are concerned. You may have the Congress here creating problems in the Sino-American relationship. And, by the way, I was disappointed, and Iíd be interested in seeing what our other panelists have to say about this, about what I thought was an intemperate statement by the Chinese Foreign Ministry with regard to the Congressí position on the CNOOC.

Now, you could certainly understand the Chinese view on it. You can certainly understand that they would be irritated. But it seemed to me that to make that statement was counterproductive. For example, even though it was justified, it was counterproductive, and, as a result, a banquet that was to be held by a company here in Washington in honor of the Chinese Ambassador, to which many congressmen and senators had been invited, was reduced down to a small private dinner because all of the congressmen and the senators canceled their appearances after this statement was made by the Foreign Ministry. It would have been much better Ė well, in the first place, thereís no need for the Chinese government to take on the Congress. The Administration is formulating the foreign policy, and Congress can be an irritant and can cause problems, as they have done in the CNOOC Unocal question. But it does no good, as far as Iím concerned and as far as the Chinese are concerned, to irritate the Congress. They should treat the Congress with benign neglect and do their best to try to build bridges to them, as the previous ambassador from China did during his term here and as the present ambassador is trying to do during his term here.

And I talked to one of the congressmen after this CNOOC Unocal statement was made by the Foreign Ministry, one who is friendly to China. And he indicated that this had been a very damaging statement on the part of the Foreign Ministry and that, as far as most congressmen were concerned, it was detrimental to their political interest to take a favorable position to China at this time.

Well, I want to try to get to your questions because Iím anxious to hear what my distinguished colleagues on this panel have to say. And, as I look over my notes, I think everything has been said that needs to be said here. And Iíll just close by saying this, that the rise of China can be accommodated by the United States if we have the wisdom of leadership to do that. And frankly, I think we will have it. As you look back over our policy towards China since Nixon went there in the early 70s, the policy of all administrations has been constant.

Now initially, in the campaign phase, thereís been a lot of China bashing and maybe even some neglect of China early on in each administration. But the policy of trying to build bridges and build a stable relationship with China has been constant and I think will continue to be in future administrations. And certainly, as Stapleton Roy has written, China will be our largest foreign policy challenge, I think, in the 21st Century. It cannot be ignored. It will not be ignored, in my view, by future administrations. And there needs to be a major educational effort made to educate the American people about the importance of China and the importance of Sino-US relations and a stable, cordial relationship between the two countries because, remember, the Congress reflects the American people. And if the Congress has a hostile attitude towards China, itís because the American people do. And so, somehow weíve got to recapture the goodwill towards China that the American people had in the 1930s and certainly during the war years of the 1940s. Thank you very much, and I look forward to your questions and my colleaguesí answers.

[audience applause]

Ambassador Freeman:
Thank you. Thank you, Jim, for that very thoughtful statement. I think we now have about 25 minutes or so Ė 20 minutes Ė for comments and questions, and if you would be so kind as to raise a hand, I will call on you. And youíre first, sir. Tell us Ė if you would come to the microphone and tell us who you are, that would be good. And others can indicate a desire for questions and comments, and Iíll take you in order.

Mr. Ahern [phonetic]:
Yes, Dave Ahern [phonetic], Defense Today. You each have mentioned the enormous economic growth of China, which of course has come in part from the fact that you have manufacturing transferred from the United States to China. Textiles, toys, electronics, DVDs, who knows what, including large portions of airplanes. Why could we not indicate to China that, if you folks go the military option, if you invade Taiwan, you wonít get one Chinese good into the United States, that weíll shut you out? Aside from the fact, of course, that this would negatively impact Wal-Mart, Boeing, General Motors, Ford and a lot of other companies, would it be politically impossible to use this to dissuade China from a military adventure?

Ambassador Roy: I donít think you have to threaten the Chinese with economic retaliation over a conflict that obviously would put our entire relationship with China in deep freeze. The points that you make affect the fundamental interest of both sides, and thatís why thereís every reason to believe that a conflict over Taiwan can be avoided, precisely because China doesnít want to have its relationship with the United States fundamentally damaged if it can be avoided, and nor does the United States wish to have our relationship with China fundamentally damaged if it can be avoided.

Can it be avoided? The answer is yes. All it requires is that you donít pursue policies in Taiwan that make conflict more likely.

So I think that the points you make are valid points in the sense that there would be enormous damage to Chinaís interests in its economic relationship with the United States if it were to go into a military conflict over Taiwan. But I think that making threats against China as a deterrent factor is not as an effective approach as having a policy of working with China to insure that conflict over Taiwan does not occur.

Admiral McVadon:
Can I add just a thought?

Ambassador Freeman:

Admiral McVadon:
To build on what Ambassador Roy said a little bit, it seems to me thatís part of the positioning that we do to find a way where we know that in the debate about how to react to some provocative action, at least as is seen in Beijing by Taipei, that in that debate it is taken fully into account what the consequences might be for China. I think we have to be careful in doing it. Thatís what I meant by no finger wagging under the nose because nobody likes to be told things like that. But for the full realization of the economic consequences, and thatís not where it ends. There are other consequences. Of course, it may end up losing a great portion of its armed forces and so forth. So we just need to find a way so that those factors are in the Political Bureau Standing Committee and in the Central Military Commission and so forth when that intense debate that we hope never occurs might be underway, that those factors are taken fully into account.

Ambassador Sasser:
Can I just say something?

Ambassador Freeman:
Please, Jim.

Ambassador Sasser:
Yeah, just one thing quickly. If the Chinese are determined to invade Taiwan, the threat of embargo on Chinese goods with the United States is not going to stop them because I think thatís the least of the negative fallout they will get. As the Admiral says, theyíd probably lose a substantial portion of their military force. They would become pariahs, I think, all over Asia and in Europe. This would have a serious, detrimental effect on their economic development, and, as I said earlier, I think that is the fundamental glue thatís holding China together now is the economic development and the view that tomorrow is better than today, and today was better than yesterday.

So just the threat of that embargo on Chinese goods coming to the US I donít think would have any impact. And of course, then youíve got the political problem of trying to enforce that in the United States, and I donít think an administration could say that. Maybe they could say it quietly in advance, but I donít think that would be a determining factor in dissuading the Chinese.

Ambassador Freeman:
I would agree. And I want to make a couple of other comments, if I might. Itís been 90 years since Woodrow Wilson came up with the notion that economic sanctions could be a substitute for war, and the succeeding 90 years have proven him wrong on every single occasion. I know of not a single instance in which economic sanctions have dissuaded any country from carrying out the political imperatives as it sees them, nor have they ever succeeded Ė and South Africa is not an exception Ė in changing the constitutional order in another country. They didnít succeed in Panama where every conceivable advantage existed for American economic dominance. They did not succeed in Haiti. They did not remove Saddam Hussein from Kuwait. And I could go on and on, so I think economic sanctions are the first refuge of political scoundrels in the United States, to be sure, but they are notoriously ineffective.

Second, in the case of China, 60 percent of our imports are from US owned or operated factories. Therefore, the political opposition to this would not be just from Wal-Mart, but from a very substantial section of the American economy which is invested heavily in manufacturing facilities in China. And third, and perhaps most fundamental, to go back to the key point, which Stape and Eric and Jim have all made, in any war in the Taiwan Strait everybody must be clear about what the consequences are. There are too many people in Taiwan who do not understand that Taiwan would be the battlefield, and it would end the war as a smoking ruin, even if it won the war. Winning for Taiwan is losing. That is everything Taiwan has built over 50 or 60 years is at jeopardy.

Similarly, everything the PRC has accomplished in the 25 years of Dung Shao Pingís reform era that he inaugurated, as Stape pointed out, is subject to severe setback. Finally, the United States cannot be assured that our own homeland would not be part of the theater of war. And the final point, and that is weíre talking about a war far from the United Statesí borders to determine the borders of another great country, China.
No one should assume that the Chinese care less about their borders than we do, and no one has yet come up with a war termination strategy for the Taiwan issue. If the United States, as I think we would, prevailed militarily in a conflict with China over Taiwan, would the Chinese give up or would they rebuilt and try again?

So we need to remind all concerned that the stakes are much too high to play games with a very serious issue with huge consequences for all concerned, which are fundamentally unacceptable. And therefore, we must return to the point about managing the issue in an intelligent way, and, fortunately, I think all the speakers have made the point, and I agree with them, it is more likely than not that intelligent men on both sides and women can do that. David?

Mr. Dean:
My name is David Dean. Iím with the Chiang Ching-Kuo Foundation. I think I agree with Ambassador Sasserís point that the Iraqi War diverted those who might otherwise have desired to exacerbate our relationships with China in a negative way. But now the war seems to be winding down, at last in some peopleís mind - there are some plans of removing troops perhaps next year Ė and I think there is more and more emphasis now being placed on the dangers of China to the United States by some of the same people who felt that way about Iraq. I think this does consist of a real danger, but I donít see how weíre going to get a coherent policy unless the Administration itself engages in this type of educational effort by discussing the whole aspect, the whole range, as we have today, of our policy towards China, the advantages and the disadvantages.

As far as Taiwan is concerned, I think the Administration did act responsibly in putting a great deal of pressure on Taiwan to prevent it from going even further when the discussion about referenda and other issues were hot. And I think that Taiwan really understood at that time the US intention of not going to war with China over something that Taiwan itself was causing. And I think that that is pretty well understood. I think we have a lot of influence to prevent irrational actions in Taipei towards China, and I think, as weíve all heard, the Chinese themselves are very intent on trying to avoid a war if they can.

So my feeling is that the Taiwan issue may not be the central issue here. It may be other issues like our trade imbalance, like job flight, like all sorts of other things that people point to China about. And thatís why I think that I agree with you completely there should be an educational effort to spell out the entire scope of our policy towards China and to allow people to understand how important it is.

Ambassador Freeman:
Jim, would you like to respond?

Ambassador Sasser:
Well, I donít know that, Chas, that really requires any response. The question comes how do you educate the American people on the significance and the gravity of our relationship with China. Certainly, if the President would take the bully pulpit and do that, he could attract attention and do it to a certain extent. And I would like to see the President, as I said earlier, crack the whip and declare that this is my China policy and everybody in this Administration adheres to it. And I donít want you fellows over in the bowels of the Department of Defense getting into business for yourself here and trying to come up with a China threat. But I am encouraged now when I see the media coverage of China when I was there as Ambassador from í96 through í99, the media coverage in China, which was generally negative, has gotten slowly much better. And I think the New York Times and the Washington Post and other reporters who have reporters there and others are now, I think, giving the American people some view of what China is really like and what life in China is about. For example, Stapeís reference to Jim Ė I canít remember Jimís last name.

Ambassador Roy:

Ambassador Sasser:
Yeah, Jim McGregorís article in the Washington Post.

Terrific article. Front page story today in the Post, in which they indicated that, yeah, there is some problem in China between inequality of income and inequality of privilege, et cetera, et cetera. So I think weíre making slow progress, but itís not fast enough.

Ambassador Freeman:

Admiral McVadon:
The Chinese, I think, are helping in this regard or at least theyíre trying to. I think, and I guess most people would accept this, that a few years ago Beijing made the very conscious decision that, despite difficulties and so forth, that they were going to have a good relationship with the US and that that was a very high priority.

Iím told that Tang Jiaxuan during his recent trip told the people at the embassy that, look, our priority is good relations with the US. Now, of course, that was flying in the teeth of the things I described and some other words that donít seem to be quite consistent with that. But I think if we could get together with the Chinese leadership that is trying to make that point, that there is an opportunity here and that could be leverage.

Ambassador Freeman:
I would like to go back to something that Jim said earlier, if I may, which is about the importance and the difficulty of dealing with Congress in this regard. This last year something over $3,000,000,000 was spent on lobbying Congress. Thatís a big part of the Washington, DC economy. There are 240 former congressmen and women and administration officials who have lobby firms in the United States. The way our system works reflects the requirement for adversary procedures and arguments to be made in congressional offices and for money to back those arguments.

Well, if one talks about educating the American people or the Congress about China, one has to recognize the difficulties in that regard because a recent poll by the Committee of 100 Chinese-American group demonstrated that the most negative attitudes in the entire United States against China are among congressional staff. And that got me to thinking about why that might be the case, and I realized that, if you talk about the issues that weíre talking about, virtually every lobbying group and, therefore, everything that staff hear is in the nature of a complaint or the exaggeration of a threat from China.

In the economic area, it is protectionist, it is demand for relief from Chinese imports or it is complaints about intellectual property rights or other serious issues on the economic side. In the military area, the military industrial complex is barred from doing business with China, but can sell to Taiwan. Therefore, it has an immediate interest in exaggerating the threat to Taiwan, and it also has an interest in exaggerating the long term threat from China because, if there were no China, there would be no requirement for F-22s or other systems, arguably, to maintain US supremacy over a putative peer competitor. So the business interests, by and large, the military interests are all focused against China.

And in the political realm of human rights and other issues, IPR being a legal issue, rule of law, we have a lot of people who make money for their organization, keep their organizations afloat, by campaigning regularly against Chinese practices in the area of birth control or human rights or religious practices or the lack of them. And therefore, we have an entire industry which is part of that $3,000,000,000 lobbying effort that is devoted to denigrating China, criticizing it, blackening its name and exaggerating the threat from it.

There is no one arrayed on the other side, except in response to specific initiatives. If the Congress takes up some particularly egregiously stupid piece of legislation, then a small band of people will come together and oppose that. But no one will take on the broader issue. Therefore, the entire process in this town is badly skewed against a realistic and favorable view of China, and thatís just a fact. Therefore, the Administration, in trying to deal with these issues, has to be given credit for facing a pretty uphill battle, and I think doing not too badly at it over the course of the last five years.

But Jim, Iím sorry, you had another comment?

Ambassador Sasser:
Well, I was just going to say I couldnít agree with you more, Chas, but you leave out one ingredient. When I served in the Senate, the Taiwan lobby was the second most powerful lobby in this town surpassed only by the lobby for Israel. And of course, the Taiwan lobby has a vested interest in blackening the name of China.

And there are certain congressmen Ė one I will name, Tom DeLay, a very powerful congressman Ė who takes it upon himself to take the view, take the side of Taiwan and take the side against China at every opportunity. So this lobby, I think, in the past has been very formidable, probably not as much now as it had been. But still it is a formidable lobby.

Mr. Rogan [phonetic]:
Thank you. My name is Josh Rogan [phonetic]. Iím from Asahi Shinbun. My first question is for Ambassador Roy. You mentioned that the China-Japan relationship was crucial in determining whether the rise of China would be peaceful or not. Iím wondering if you could talk about that a little bit more specifically.

What should Japan be doing? It seems that, as was mentioned, China stokes anti-Japanese feeling in order to cover up some domestic issues or problems, and, of course, all countries do this to some degree. But what should Japan be doing with regards to issues like Yasakuni shrine visits? Or should they continue to pursue their prominence in international organizations, which seems to irk Chinese leadership? Or should they continue to shed their pacifist military ways? How should Japan be approaching these issues in order to manage the relationship?

And my second question is for Ambassador Sasser. Youíre talking about congressional action towards China, and, of course, the one thatís in the news now is the CNOOC acquisition of Unocal. Iím wondering is there any validity to the opinion that the Chinese acquisition of American energy interests possesses a national security threat? And maybe that could be answered by all the panelists. Thank you.

Ambassador Roy:
I donít think we have time for a detailed answer, and Iíll avoid sort of trying to lay out policy prescriptions. Iíd rather make a philosophical point, that many people think history repeats itself, and thatís because many of the forces that shape history exist in any historical epic. But good leaders have shown repeatedly that, when they intervene in a historical process in order to change the way things are headed, they can do so successfully much of the time.

The examples I think of are the formation of the European community, which required European leaders after World War II who said weíre not going to let Europe simply repeat the processes that have gone on for the last 60-some years and produce two devastating wars. And so, they created a new Europe based on leadership.

We saw the same thing in the US decision to seek a breakthrough with China in 1971, where leaders made a decision and shocked the world by a willingness to take unheard of actions, such as sending a president to a country with whom he had a bad relationship and no diplomatic relations in order to achieve a breakthrough that changed the course of history in East Asia after that.
We saw the same thing in the decision by the ASEAN leaders who made the decision to not have Southeast Asia balkanized and established a cooperative organization that has managed tensions among the ASEAN members very successfully for over three decades.

So what you need in the Sino-Japanese relation is a commitment by the leaders on both sides that theyíre not going to let the very familiar historical animosities between the two countries that have always been there beneath the surface and which have reemerged recently because of a rise of nationalism on each side to dominate the future of the relationship between the two countries.

Can they do it? The answer is yes. But it requires them to intervene in a process and not simply stoke the flames. So I think you have to have that framework for understanding how to manage the relationship, and thatís more important than the question of do you visit the Yasakuni shrine, do you revise your textbooks or what do you do. You have to set the goal of keeping relations on an even keel.

Ambassador Sasser:
On the question of the Unocal CNOOC problem, I bear some responsibility, I think, for causing that problem because, at one time, I represented Unocal. Iím not a lobbyist, Chas, but I was asked by Unocal to assist them in a project they had in China drilling for natural gas, I think off the Shanghai Coast, and we worked it out where their partner would be CNOOC. So CNOOC liked what they say of Unocal and later on wanted to buy them.

Now, does that represent any threat to the energy reserves in the United States? I would say no. I think Unocal represents, I think, eight-tenths of one percent of US oil reserves. Seventy-five percent of Unocalís assets and reserves are in Asia. Unocal has become primarily a natural gas company. They produce Ė theyíre an energy company, but they produce primarily natural gas, and their largest product is off the coast of Thailand. They provide almost all the natural gas for Thailand, and it looks to me like itís in the worldís interest to allow the Chinese to have as much access to natural gas as possible to try to wean them off fossil coal so you get less pollution.

But finally, Iíll say this. The United States is probably the largest international investor in the world, and US multinational corporations are everywhere, including China. And I think it would have been better if we had used CNOOCís interest in Unocal as leverage to get the Chinese to allow US corporations to wholly own their businesses in China. As it stands now, most of the major US corporations operating in China are required to have Chinese partners, and theyíre not allowed even to have a controlling interest in their entity, although thatís changed somewhat since WTO.

In my view, to sum up, we ought to allow the Chinese to buy Unocal. It represents no threat to our energy reserves. And we ought to use this Unocal business as a means of assisting our corporations.

And lastly, this Unocal thing is just the beginning. Just as the Japanese came in here and purchased American companies to their later detriment in the 1980s when they paid too much for them, as the Chinese economy grows and theyíre sitting on $700,000,000,000 of foreign reserves, theyíre going to be in the United States in a big way in the not too distant future, in my view.

Ambassador Freeman:
I think thatís a very good answer and hard to improve on. And I think weíve come to the end of our time. Iíd like to thank all of you in the audience and also the panelists, if youíd join me in thanking them.

[audience applause]

Meeting adjourned.

[end of program]

   316 Pennsylvania Avenue SE, Suite 201-202 • Washington DC 20003 • phone: 202.547.8615 • fax: 202.547.8853