[Senate Hearing 107-45]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 107-45

                 WHERE ARE U.S.-CHINA RELATIONS HEADED?

=======================================================================

                                HEARING

                               BEFORE THE

                     SUBCOMMITTEE ON EAST ASIAN AND
                            PACIFIC AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                               MAY 1, 2001

                               __________

       Printed for the use of the Committee on Foreign Relations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate


                   U.S. GOVERNMENT PRINTING OFFICE
72-559                     WASHINGTON : 2001



                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
CRAIG THOMAS, Wyoming                JOHN F. KERRY, Massachusetts
BILL FRIST, Tennessee                RUSSELL D. FEINGOLD, Wisconsin
LINCOLN D. CHAFEE, Rhode Island      PAUL D. WELLSTONE, Minnesota
GEORGE ALLEN, Virginia               BARBARA BOXER, California
SAM BROWNBACK, Kansas                ROBERT G. TORRICELLI, New Jersey
                                     BILL NELSON, Florida
                   Stephen E. Biegun, Staff Director
                Edwin K. Hall, Democratic Staff Director

                                 ------                                

             SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS

                    CRAIG THOMAS, Wyoming, Chairman
JESSE HELMS, North Carolina          JOHN F. KERRY, Massachusetts
RICHARD D. LUGAR, Indiana            ROBERT G. TORRICELLI, New Jersey
CHUCK HAGEL, Nebraska                RUSSELL D. FEINGOLD, Wisconsin
                                     JOSEPH R. BIDEN, Jr., Delaware

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Kelly, Hon. James A., Assistant Secretary of State for East Asian 
  and Pacific Affairs, Department of State, Washington, DC.......     3
    Prepared statement...........................................     5
    Response to additional question for the record by Senator 
      Jesse Helms................................................    45
    Responses to additional questions for the record by Senator 
      Joseph R. Biden, Jr........................................    45
Lilley, Ambassador James R., senior fellow, American Enterprise 
  Institute, Washington, DC......................................    17
    Prepared statement...........................................    19
O'Hanlon, Michael, senior fellow, Brookings Institution, 
  Washington, DC.................................................    33
    Prepared statement...........................................    36
    Article entitled ``A Need for Ambiguity'' from the New York 
      Times, April 27, 2001......................................    37
    Article entitled ``The Right Arms for Taiwan'' from the 
      Washington Post, April 14, 2001............................    38
Paal, Douglas H., president, Asia Pacific Policy Cnter, 
  Washington, DC.................................................    22
    Prepared statement...........................................    25
Shambaugh, David, director, China Policy Program, George 
  Washington University, Washington, DC..........................    28
    Prepared statement...........................................    31

                                 (iii)

  

 
                 WHERE ARE U.S.-CHINA RELATIONS HEADED?

                              ----------                              


                          MONDAY, MAY 1, 2001

                               U.S. Senate,
    Subcommittee on East Asian and Pacific Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:07 p.m. in 
room SD-419, Dirksen Senate Office Building, Hon. Craig Thomas 
(chairman of the subcommittee) presiding.
    Present: Senators Thomas, Hagel, Allen, Kerry, Feingold.
    Senator Thomas. I call the subcommittee to order.
    Some of our members are a little late today. We had a 
policy lunch that goes on until a quarter after or a little bit 
later, so I suspect we'll be joined--welcome to all of you.
    Today the subcommittee meets to examine where U.S.-China 
relations are headed, where we are, and more importantly where 
we want to go. Our relations of course with the People's 
Republic of China [PRC] are a little rocky at the moment, not 
to the surprise of anyone. Some view it pessimistically and say 
it's the start of a bad trend. I think perhaps in the longer 
term that this situation is a confluence of a number of things 
that have happened: the airplane incident, the Taiwan arms 
sales, the Taiwan visas, Human Rights Commission, the upcoming 
normal trade relations [NTR] vote, and so on.
    So I don't think it necessarily indicates where we are. 
Certainly having a new administration also has something to do 
with it. People have not been in place, and I do want to stop 
to say we are very pleased that the Assistant Secretary is 
indeed in place, all of which took place in just a few days, 
and we're very happy, Secretary Kelly, to have you there.
    I think it's also true at this time that China's testing a 
new administration to see how far that can be pushed and 
pulled, and I think that's probably true. The Chinese 
Government's faced with an unknown quantity in some ways; 
strategic partner versus strategic competitor, and so on.
    So I hope that our long-term policy will remain relatively 
unchanged; that we will adhere, of course, to the ``one China'' 
policy, which is spelled out in the communiques and in the 
Taiwan Relations Act and so on, and I for one don't believe 
that seeking to isolate China will lead us to where we want to 
go.
    We need to communicate with Beijing on a whole variety of 
fronts certainly, and have a frank dialog that deals with some 
of the issues that are important to all of us and not to ignore 
them. I think a frank dialog is useful.
    I believe both sides need to do a better job of 
communicating. The island affair illustrates--encapsulizes in 
one incident, what both sides seem not to understand and it 
continues to trouble the relationships I think. Beijing doesn't 
really understand, I don't think, the role of Congress in 
foreign affairs; our notion and our dedication to the concept 
of rule of law and playing by the rules of course, and that we 
try to do that.
    At the same time we don't understand often the concept of 
``face'' that is so important to China, or China's sense of 
history. I don't think we always recognize the intra-party 
conflicts that go on there, so each of us needs to do more than 
we can.
    I think we need to spell out as clearly as we can what we 
expect from the PRC and our bilateral relationship. They need 
to know where we are. I think we need to work on the big 
picture and not be kind of deflected by some of these smaller 
things that come up that are cumulative, they have an impact, 
so that's what I think we'd like to talk about today with all 
of our guests.
    Senator Feingold.
    Senator Feingold. I will wait primarily for the question 
period. Let me just quickly say that I think this is a very 
appropriate topic: where are U.S.-China relations headed? I'd 
be surprised if that wasn't the topic of hearings for about 
three or four decades to come. It is critical.
    All I would do is add, first of all my congratulations 
again to Mr. Kelly, and second, to reiterate what I said the 
other day, my concern about making sure that the Chinese know 
the range of concerns that we have as Americans, as a 
government and as a people, and of course it includes economic 
relations but it goes much beyond that.
    I was concerned about President Bush's remarks on the 
``Today Show'' the other day. In response to a question about 
what happened with the plane, with our people, and a variety of 
other concerns the President's answer related only to trade. I 
think it's appropriate to mention trade but in that same 
context I think the head of our government and all levels of 
our government have to consistently talk about human rights and 
other issues such as the problems that we encountered recently 
in order for there to be a clear message.
    And I agree with the chairman that we have more to do to 
understand the Chinese. They have more to do to understand us. 
But for them to understand us we have to make it clear what our 
values are, and I would simply reiterate the importance of that 
happening at all levels, especially at the very top.
    Thank you, Mr. Chairman.
    Senator Thomas. Thank you, sir.
    Senator Hagel.
    Senator Hagel. No statement. Just happy to be here.
    Senator Thomas. We're happy to have you.
    Senator Hagel. Thank you.
    Senator Thomas. Mr. Secretary, again, welcome, and we'll 
look forward to your assessment of the duties before you.

STATEMENT OF HON. JAMES A. KELLY, ASSISTANT SECRETARY OF STATE 
   FOR EAST ASIAN AND PACIFIC AFFAIRS, DEPARTMENT OF STATE, 
                         WASHINGTON, DC

    Mr. Kelly. Mr. Chairman, thank you very much. It's an honor 
again to appear within a few days before this committee.
    I have a fairly lengthy and I hope complete statement that 
with your permission I'd like to submit for the record and then 
read something that I hope won't go any longer than four and a 
half minutes or so. If that's all right, sir, I'll proceed with 
an abbreviated part of the statement that is drawn from the 
longer text.
    Senator Thomas. Your full statement will be included in the 
record.
    Mr. Kelly. Mr. Chairman, thank you, and members of this 
subcommittee for my first opportunity to appear before you as 
Assistant Secretary of State for East Asian and Pacific 
Affairs. It is fitting that our topic today is China, since the 
past month's events have drawn the attention of the world to 
this important relationship.
    As I said to the committee last week, America's national 
interests in East Asia and the Pacific are long term and 
consistent. America's presence in Asia and our relationship 
with our allies are essentials to stability in the region. That 
presence is diplomatic, economic, and military.
    Let me emphasize that the latter has long been welcomed and 
long supported by most nations in the region.
    I don't need to tell you or this committee just how 
important the development of China will be to that future. 
American interests are served by a China that is developing 
economically and politically. Recent events have called into 
question where we stand in our relationship with China and 
where we want to go.
    For our part, as the President has said, we do not view 
China as an enemy. We view China as a partner on some issues 
and a competitor on others. The Secretary of State was 
especially clear about our vision of this relationship and his 
statement is in my longer text.
    That said, we must be frank about our differences. Taiwan 
is one, human rights another, particularly freedom of 
expression and freedom to express and practice one's faith. 
Arms sales around the world and the proliferation of weapons of 
mass destruction are also important issues about which we have 
expressed concern to China.
    The spirit of competition that governs some aspects of our 
relations with China does not necessarily mean distrust and 
anger. As the President said, we will address our differences 
in the spirit of mutual respect.
    Events of the past few weeks have highlighted the 
importance of not allowing our relationship to be damaged by 
miscommunication, mistrust, and misunderstanding. Some 
influential Chinese seem to have a flawed understanding of our 
relationship, and you cited that in your statement, Mr. 
Chairman.
    Following the President's policies we have been firm but 
respectful. We have been straightforward about our interests, 
including our commitment to Taiwan's self defense, under the 
Taiwan Relations Act, and their freedom of navigation in 
international waters and air space.
    We're not going to conduct business as usual after our 
servicemen and women were detained for 11 days in China. 
Beijing needs to understand that. We have worked through 
diplomatic channels for the return of our crew and for the 
early return of our EP-3 airplane.
    Our other allies and friends in the region have a stake in 
this process of nurturing a constructive relationship. The 
administration will consult and work closely with our friends 
and allies in Asia to formulate an approach to a new and 
dynamic China that serves our long-term interests.
    We want to work both with the current leaders and with the 
next generation of leaders in China. To do so successfully we 
will need to find effective ways to deal with a changing and at 
times contradictory country; a country that embraces globalism 
at times, at other times encourages intense nationalism, a 
country that wants to join the world trading system but also 
keeps in place protectionist barriers.
    We will hold China to its bilateral and international 
commitments. If China chooses to disregard its international 
obligations in areas as diverse as security, human rights, 
nonproliferation, or trade. We will use all available policy 
options to persuade it to move in more constructive directions.
    I know how interested you are in America's relationship 
with Taiwan and want to address that subject directly. The 
President made clear in his discussion of our recent arms sales 
package that we will continue to provide defensive weapons to 
permit Taiwan to defend itself. After all, there has been a 
well noted intensification of PRC military preparations with 
Taiwan as its focus.
    China has expressed unhappiness with our decisions, yet we 
could not have been more clear in our discussions with China. 
Our maintenance of unofficial relations with the people on 
Taiwan is a fundamental part of our one China policy.
    At the same time the cross-Strait relationship is also 
complicated and to some eyes contradictory. The growth of two-
way trade across the Strait between China and Taiwan has been 
fourfold in 10 years, and Taiwan investment in the mainland has 
burgeoned. People in Taiwan see tremendous opportunity on the 
mainland. We favor and encourage dialog across the Strait, but 
we do not have a role as a mediator.
    We'll have to see how China responds to us. It would be 
unfortunate if it were to renege on commitments to 
international standards that most of the world supports and 
adheres to. We will be forthright in telling Beijing that its 
human rights violations are an anathema to the American people.
    In that regard I want to assure this committee that we have 
forcefully raised the recent detentions of U.S. citizens and 
legal permanent residents and will continue to do so. It's part 
of our duty to Americans. We made a public announcement about 
this worrying trend to ensure that those Americans planning 
travel to China had a full picture of the situation.
    Religious freedom is an issue that is at the center of our 
concerns of about how China treats its people. The President 
has made this point both publicly and in his meetings with 
Chinese.
    We will also continue to focus on Tibet. In particular we 
will press for an end to religious restrictions against Tibetan 
Buddhists. Taking the longer view, we will also work to 
preserve Tibetans unique cultural, religious, and linguistic 
heritage. We continue to urge China to open a dialog with the 
Dalai Lama or his representatives.
    The cutting edge of reform and positive social development 
in China is our trade relationship. We do have a significant 
trade deficit with China, and our imports far exceed our 
exports. But let us not forget that our exports totaled $16 
billion last year--or in 2000, up 18 percent from the previous 
year.
    Our trade with China is in our interests. We support 
China's World Trade Organization [WTO] entry as soon as China 
is ready to meet the WTO standards. Taiwan is ready for entry 
now, and we expect both to enter the WTO in close proximity.
    We look forward to China's hosting of this year's Asia-
Pacific Economic Conference [APEC] summit at Shanghai in 
October. The President has said that he plans to go to 
Shanghai. His presence at the APEC leaders meeting will speak 
volumes about our commitment to market-oriented economic reform 
in China.
    We will also continue to watch closely the developments in 
Hong Kong, which remains a vibrant international city even as a 
special administrative region of China. It is still different 
from the rest of China. It is a free and open society 
buttressed by the rule of law. Its markets are free. Our 
interests there remain strong. More than 50,000 Americans live 
and do business in Hong Kong, and our cooperation with the Hong 
Kong Government in a number of areas including law enforcement 
is excellent.
    My judgment is that the PRC has generally lived up to its 
commitments and the basic law and joint declaration would 
provide for Hong Kong to manage most of its own affairs.
    There are areas where vigilance is needed. According to 
reports we have seen Falun Gong practitioners in Hong Kong 
remain able to practice freely, consistent with Hong Kong's 
special status and the principles of universal human rights. It 
is important that Hong Kong uphold its constitutional 
principles and rule of law and maintain all the rights and 
freedoms traditionally enjoyed by the people of that territory.
    In conclusion, sir, China's behavior, particularly in the 
next few months, will determine whether we develop the kind of 
productive relationship that the President wants. We encourage 
China to make responsible choices that reflect its statute in 
and obligations to the community of nations.
    Thank you very much, sir.
    [The prepared statement of Mr. Kelly follows:]

               Prepared Statement of Hon. James A. Kelly

    Mr. Chairman, I thank you and the members of this Subcommittee for 
my first opportunity to appear before you as Assistant Secretary of 
State for East Asian and Pacific Affairs. It is fitting that our topic 
today is China since the past month's events have drawn the attention 
of the world to this important relationship.
    As I said to this Committee last week, America's national interests 
in East Asia and the Pacific are long-term and consistent.
    We seek a stable, peaceful region where each government is free to 
pursue its economic development and prosperity in a secure, open 
environment.
    We support internationally accepted standards of behavior that 
ensure the pursuit of security and development is accomplished 
transparently, through cooperation with neighbors, not at their 
expense.
    America's presence in Asia and our relationships with our allies 
are essential to stability in the region. That presence is diplomatic, 
economic, and military. Let me emphasize that the latter has long been 
welcomed and long supported by most nations in the region. Our future 
and our prosperity--and the future and prosperity of our friends and 
allies--are linked to the future of East Asia.
    I don't need to tell you just how important the development of 
China will be to that future. American interests are served by a China 
that is developing economically and politically.
    Recent events have called into question where we stand in our 
relationship with China and where we want to go. For our part, as the 
President has said, we do not view China as an enemy. We view China as 
a partner on some issues and a competitor on others. The Secretary of 
State was equally clear about our vision of this relationship, stating 
that ``China is a competitor and a potential regional rival, but also a 
trading partner willing to cooperate in the areas, such as Korea, where 
our strategic interests overlap. China is all of these things, but 
China is not an enemy and our challenge is to keep it that way.'' From 
promoting peace and stability on the Korean Peninsula to non-
proliferation to trade, we share common interests with China that are 
best served by a productive--and positive--relationship.
    That said, we must be frank about our differences. Taiwan is one; 
human rights another, particularly freedom of expression and freedom to 
express and practice one's faith. Arms sales around the world and the 
proliferation of weapons of mass destruction are also important issues 
about which we have expressed concern to China. The spirit of 
competition that governs some aspects of our relations with China does 
not necessarily mean distrust and anger. As the President said, we will 
address our differences in a spirit of mutual respect.
    Events of the past few weeks have highlighted the importance of not 
allowing our relationship to be damaged by miscommunication, mistrust 
and misunderstanding about our respective intentions and objectives. 
Some influential Chinese seem to have a flawed understanding of our 
relationship. We have been clear in word and deed, and China needs to 
be clear as well. Following the President's policies, we have been 
firm, but respectful.
    We have been straightforward about our interests, including our 
commitment to Taiwan's self-defense under the Taiwan Relations Act and 
to freedom of navigation in international waters and airspace. We are 
not interested in a war of words in response to China's very vocal 
criticism, but we're not going to conduct business as usual after our 
servicemen and women were detained for eleven days in China. Beijing 
needs to understand that. We have worked through diplomatic channels 
for the return of our crew, and for the early return of our EP-3 
airplane. We have been very clear about what needs to be done; we own 
that airplane and expect the Chinese to return it.
    From a broader perspective, our relationship with China is based, 
first and foremost, on our national security interests and also on the 
impact and influence on America's friends and allies.
    As Secretary Powell told this committee, Japan, South Korea, 
Australia and our other allies and friends in the region have a stake 
in this process of nurturing a constructive relationship. This 
Administration will consult and work closely with our friends and 
allies in Asia to formulate an approach to a new and dynamic China that 
serves our long-term interests. Consulting means listening to what our 
friends and allies have to say: they want a strong and reliable U.S. 
role to protect the peace and promote prosperity in the region. They 
are mindful of China's size, power, and recent economic growth. They do 
not support gratuitous confrontation or tension with China, either in 
their own relationships or ours. And neither do we; we need to be firm 
in our promotion and protection of our national interests and clear 
about our priorities in Asia and in U.S.-China relations.
    We want to work both with the current leaders and with the next 
generation of leaders in China, as Secretary Powell has said. To do so 
successfully, we will need to find effective ways to deal with a 
changing and at times contradictory country--a country that embraces 
globalism at times, and at other times encourages intense nationalism; 
a country that wants to join the world trading system but also keeps in 
place protectionist barriers.
    We will hold China to its bilateral and international commitments. 
If China chooses to disregard its international obligations in areas as 
diverse as security issues, human rights, nonproliferation or trade, we 
will use all available policy tools to persuade it to move in more 
constructive directions.
    I know how interested you are in America's relationship with Taiwan 
and want to address that subject directly. The President made clear in 
his discussion of our recent arms sales package that we will continue 
to provide defensive weapons to permit Taiwan to defend itself. After 
all, there has been a well-noted intensification of PRC military 
preparations with Taiwan as its focus. China has expressed unhappiness 
with our decisions. Yet we could not have been more clear in our 
discussions with China: our maintenance of unofficial relations with 
the people on Taiwan is a fundamental part of our ``one China'' policy.
    At the same time, the cross-Strait relationship is also complicated 
and, to some eyes, contradictory. The growth of two-way trade has been 
four-fold in ten years and Taiwan investment in the mainland has 
burgeoned. People in Taiwan see tremendous opportunity on the mainland. 
We favor and encourage dialogue across the Strait, but do not have a 
role as mediator.
    We will have to see how China responds to us. It would be 
unfortunate if it were to renege on commitments to international 
standards that most of the world supports and adheres to. China's own 
interests--and its responsibility for the promotion of global peace, 
security, and prosperity--should guide the leadership in Beijing to 
uphold international standards in policy areas ranging from human 
rights to nonproliferation. China must live up to its global 
obligations as would any other country in the world.
    Our productive relationship with China can only be based on a true 
reflection of our values. This is our greatest strength. We will be 
forthright in telling Beijing that its human rights violations are 
anathema to the American people. Every American Administration has been 
clear about this: U.S.-China relations cannot reach their full 
potential so long as Americans are persuaded that the Chinese 
government systematically violates its people's most basic rights of 
worship, peaceful assembly and open discourse.
    In that regard, I want to assure this Committee that we have 
forcefully raised the recent detentions of U.S. citizens and legal 
permanent residents, and will continue to do so. As part of our duty to 
Americans, we made a public announcement about this worrying trend to 
ensure that those Americans planning travel to China had a full picture 
of the situation.
    Religious freedom is an issue that is at the center of our concerns 
about how China treats its people. The President has made this point 
both publicly and in his meetings with Chinese. Abuses of freedom of 
conscience and religion of numerous groups have been growing in recent 
times. We have decried, for example, the demolition in recent months of 
home churches in China, and the abuses committed against followers of 
the Falun Gong, and have raised these issues with the Beijing 
government. After we saw reports of China's arrest of a 79-year old 
Catholic Bishop on April 13, Good Friday, we immediately engaged to try 
to confirm the reports and to urge the immediate release of the bishop 
if reports prove true.
    We will continue to focus on Tibet. We are pressing the Chinese 
government at all levels to end abuses including use of torture, 
arbitrary arrest, detention without public trial or detention for 
peaceful expression of political or religious views. In particular, we 
will press for an end to religious restrictions against Tibetan 
Buddhists. Taking the longer view, we will also work to preserve 
Tibetans' unique cultural, religious, and linguistic heritage. We 
continue to urge China to open a dialogue with the Dalai Lama or his 
representatives.
    The cutting edge of reform and positive social development in China 
is our trade relationship. We do have a significant trade deficit with 
China, and our imports far exceed our exports. But let us not forget 
that our exports totaled $16 billion in 2000, up 18% from the previous 
year. Our trade with China is in our interest. That is not changed by 
the fact that trade also happens to be good for China. As the President 
said to the American Society of Newspaper Editors on April 5, the 
marketplace promotes American values; trade encourages more freedom and 
individual liberties. You can see that happening today in China, where 
trade has led to greater openness and fewer government controls on day-
to-day life, particularly in the coastal region most affected by 
international trade. We do not claim that trade will remake China, but 
it helps. For these reasons, as well as our economic interests, and to 
help foster China's greater integration in the international community 
of nations, we support China's WTO entry as soon as China is ready to 
meet WTO standards. Taiwan is ready for entry now, and we expect both 
to enter the WTO in close proximity.
    For the same reasons, we look forward to China's hosting of this 
year's APEC summit. The President has said that he plans to go to 
Shanghai in the fall. His presence at the APEC Leaders' Meeting will 
speak volumes about our commitment to market-oriented economic reform 
in China.
    We will continue to watch closely developments in Hong Kong, which 
remains a vibrant, international city even as a Special Administrative 
Region of China. It is still different. It is a free and open society, 
buttressed by the rule of law. Its markets are free. Our interests 
there remain strong--more than 50,000 Americans live and do business 
there; and our cooperation with the Hong Kong Government in a number of 
areas, including law enforcement, is excellent. My judgment is that the 
PRC has generally lived up to its commitments in the Basic Law and 
Joint Declaration, which provide for Hong Kong to manage its own 
affairs, except in the areas of foreign affairs and defense. There have 
been a few exceptions since 1997, but these have served to highlight 
the fact that for the vast majority of Hong Kong residents, autonomy is 
a real fact of life. There are areas where vigilance is needed: 
according to reports we have seen, Falun Gong practitioners in Hong 
Kong remain able to practice freely, consistent with Hong Kong's 
special status and the principles of universal human rights. It is 
important that Hong Kong uphold its constitutional principles and rule 
of law, and maintain all the rights and freedoms traditionally enjoyed 
by the people of Hong Kong.
    There are additional areas where we share interests with China and 
would like to see it continue or expand constructive policies. We want 
to build on cooperation against narcotics trafficking; China realizes 
that drugs are a threat to the Chinese people. We want to work with 
China to combat the spread of HIV/AIDS. And we will continue to work 
together where possible to protect the environment.
    Secretary Powell stated that we have a strong interest in 
supporting the development of the rule of law in China. We are prepared 
to offer an American perspective to China as it attempts to develop a 
more transparent and accountable legal system; we have, after all, the 
most open, transparent, democratic legal system in the world.
    In conclusion, let me stress that we have enunciated a clear way 
ahead. China is in a position to chart a mutually beneficial course for 
our future relationship. This Administration wants a productive 
relationship with Beijing that promotes our interests and those of the 
entire Asia-Pacific region. We are willing to work with China to 
address areas of common concern that I have mentioned. These are items 
on a bilateral agenda with China that are in our national interest and 
we believe China's leaders will also see these as common interests.
    But we will be firm in advocating our views:

   We will not shy away from supporting our friends and 
        defending our common interests in the region.

   We will address differences with China forthrightly and with 
        a spirit of mutual respect.

   We will be guided by our values and ensure Beijing 
        understands it cannot have a stable relationship with the 
        American people if it continues to oppress its own citizens.

   Above all, we will insist that China respect its bilateral 
        and international obligations.

    China's behavior, particularly in the next few months, will 
determine whether we develop the kind of productive relationship the 
President wants. We encourage China to make responsible choices that 
reflect its stature in and obligations to the community of nations.

    Senator Thomas. Thank you, sir.
    Welcome to the ranking member. We'll try and do 5 minutes 
questioning and then we'll move around a little bit.
    You mentioned trade. Certainly you mentioned we have $16 
billion. We also have an $84 billion trade deficit. Do you 
think that that huge trade advantage they've had has caused 
China to be a little more--a little easier to work with than 
would be otherwise? Have we gained any advantages from having 
this trade, and if we go on with WTO and lower some of those 
barriers do you think that trade balance will level out?
    Mr. Kelly. Well, Mr. Chairman, it certainly with membership 
in the WTO is going to start to beat down the barriers of 
protectionism that China has and make it more balanced. Whether 
we will get to a point remains to be seen, and I wouldn't want 
to project on that.
    The size of the trade deficit with China has been big and 
it's grown quite immense recently. In my view this really does 
underscore the need for China's membership in the WTO. It has 
certainly bought us a kind of a hearing and an understanding in 
China, but I'm not sure that all of those sales to United 
States have necessarily been decisive in any part of our 
political relationship. If that were true the recent events 
have shown little sign of it.
    Senator Thomas. Well, it does seem like with that kind of a 
trade opportunity and things they're trying to do in China that 
they would try to keep things a little more even to continue 
that.
    Go back to the most recent thing. When did the People's 
Liberation Army [PLA] begin the aggressive intercept of our EP-
3 airplanes?
    Mr. Kelly. To the best of my knowledge, sir, that began 
within the last year. The observation flights in international 
waters and international air space off of China have gone on 
for many, many years. The aggressive tactics were the subject 
of representations to the Chinese Government in December of 
this year, and it's my understanding that they have begun only 
in the month before that, and not in all areas of the Chinese 
coast line.
    Senator Thomas. Do you have any current information on the 
airplane situation?
    Mr. Kelly. Our team of experts are on the ground in Hainan 
as of a few hours ago, and I very much hope they'll get the 
opportunity to inspect the aircraft over the next couple of 
days.
    Senator Thomas. We of course will be responsible for the 
cost of removing the airplane and so on. I presume we will not 
be in the mode to be paying the PRC any money because of the 
incident. Is that correct?
    Mr. Kelly. Mr. Chairman, the Vice President and the Chief 
of Staff I think made that very clear on Sunday, and that is no 
change in our policy. There will be no reparations. There would 
only be payments that would be of a routine nature to 
physically move the aircraft on to some kind of a barge or ship 
and to move it from Hainan Island.
    Senator Thomas. Well, let me move on.
    Senator Kerry, would you care to make a statement?
    Senator Kerry. Well, thank you. Mr. Chairman, thank you.
    I guess it's important that we're here, though I must say 
I'm a little surprised, having seen you only a few days ago 
before you were confirmed. I'm not sure what's changed in the 
24-hours that you've been on the job.
    Mr. Kelly. I'm not sure either, sir.
    Senator Kerry. But I will venture to see if we can try to 
make some progress now that you're in your official capacity, 
and I welcome you and certainly congratulate you on getting 
there.
    Mr. Secretary, share with me if you will how it is that you 
believe this administration is going to change the relationship 
with China, from something that appears more tenuous than it 
was a few months ago with greater tensions and less 
communication than we've had previously, into the positive 
relationship--perhaps you might even define what you envision 
as that positive relationship.
    Mr. Kelly. Well, Senator Kerry, the positive relationship 
is clearly something that we aim to build over a very long 
period of time.
    Senator Kerry. And what would that be? What do you 
envision?
    Mr. Kelly. Oh. I envision that we will--that as China 
itself develops, opens more to the outside world, its economic 
reforms proceed, there is also bound to be some kind of a 
political change and political development over time that 
Chinese themselves are going to develop.
    We will try to influence in a fair and not insistent way 
that this moves along in lines that will bring China more fully 
into the community of nations.
    Senator Kerry. Well, do you view something more specific in 
terms of how a potential superpower but certainly growing and 
vital force, the most important player in Asia, obviously, one 
of the most important in the world--do you have a more positive 
sense of the cooperative efforts that we and the Chinese might 
engage in jointly?
    Mr. Kelly. I think there are a lot of positive efforts 
including trade, including work on such matters as disparate as 
environment issues and cooperation on AIDS, infectious 
diseases, on law enforcement, the threat of drugs, on 
participating together to reduce proliferation of weapons of 
destruction, of proliferation of weapons around the world.
    China is the biggest country in East Asia. All of its 
neighbors never take their eyes off of what China is doing, yet 
China itself is uncertain about how to exercise this kind of 
mass power, and what we will try to do is work with them and 
influence them in a positive direction and signal firmness when 
the moves are in directions that are not in our interests.
    Senator Kerry. Well, I appreciate that answer, and I think 
you've given a pretty comprehensive list of the areas we might 
find cooperation.
    Would you agree with the statement, Mr. Secretary, that 
China is neither an enemy nor yet a full-fledged friend or 
friend at all?
    Mr. Kelly. I would say China is a kind of a friend. I would 
certainly agree that it is not a kind of an enemy, and I would 
also state that it's certainly not our ally.
    Senator Kerry. Now----
    Mr. Kelly. Friend is a term in English that has a lot of 
different meanings, and you can have some very stiff 
disagreements with friends, so I would like to characterize 
that the goal is to have this kind of friendship.
    Senator Kerry. Now, if you had some 18 to 23 operative 
nuclear missiles and all of a sudden the United States is going 
to build a system unilaterally that can shoot down missiles and 
you were a hard liner in China looking at that, would not your 
instinct be, well, sounds like we don't have much of a 
deterrent or offense any more. We'd better build a few missiles 
to overwhelm that shoot down capacity.
    What would your reaction be to a unilateral move by someone 
across the seas that you look warily at if you saw that 
unilateral move yourself?
    Mr. Kelly. Well, first of all, Senator, if I was a hard 
liner in China I might be well aware that ballistic missiles 
were one of the areas of military technology that the PLA, our 
own PLA, so to speak, in this simile, have been developing for 
a number of years. The growth of medium and the potential 
development of long-range ballistic missiles is not something 
that might begin. It's something that's quite ongoing.
    With respect to the rest of it, it would depend on the 
reading of what the United States case has been made on missile 
defense, and I believe our President----
    Senator Kerry. Well, you're not suggesting--let me stop 
you--you're not suggesting that there's any deployment in 
excess of the numbers that I cited?
    Mr. Kelly. Eighteen to 23. I would have to take that 
question for the record, Senator. I really don't know the 
answer right now. It is my belief that there is a potentially 
larger number out there, no matter what the United States does 
or does not do on missile defense.
    Senator Kerry. Well, we might want to do that one in a 
classified session, but that is certainly the operative public 
number today.
    Mr. Kelly. I understand that, sir.
    Senator Kerry. Considerably less, I might add, than Russia.
    Mr. Kelly. Far less than Russia.
    Senator Kerry. And both countries have indicated near 
apoplexy publically about the prospects of unilateral breach 
with ABM and movement on national missile defense by the United 
States.
    Mr. Kelly. Both countries have made very strong 
representations to that effect, but I would have to say, 
Senator----
    Senator Kerry. So do you see that improving relations or do 
you see that increasing tensions?
    Mr. Kelly. Well, what I would say, Senator, is that there 
are some very active consultations going on today. I happen to 
meeting with the Chinese Ambassador at 5 o'clock this afternoon 
to brief him. I asked for the opportunity to meet with him 
actually before the President's speech to review these points 
and begin the consultative process.
    I very much hope to visit Beijing myself within the next 
couple of weeks as well as a number of other Asian capitals, 
some with more senior officials to consult with these people 
about what their feelings really are.
    Senator Kerry. Let me just say I find that a stretch, the 
concept of consultation. The President's giving a speech this 
afternoon. I understand that Mr. Putin was spoken to this 
morning, and I gather you're going to meet this afternoon with 
the Chinese counterpart. If that's consultation then it's 
getting a new definition beyond anything I've known.
    You don't--you consult weeks ahead of time, months ahead of 
time, you lead up to it. There's no rush here. There just is no 
rush, Mr. Secretary, and we're not about to deploy it. We don't 
have an architecture. We don't have a budget. We don't even 
have a successful test.
    And to be calling people the day you're making this kind of 
announcement--I think it just sends a terrible message. I think 
it's bad diplomacy, and I say that to you very directly, and 
it's hardly interpreted by any of them as consultation. It's a 
most perfunctory form of saying, well, we're going to tell you 
the day we're giving a speech what we're doing. That's not 
consultation, sir.
    Mr. Kelly. But neither is this speech, sir, the last word 
on American missile defense policy.
    Senator Kerry. Well, I understand that, but it is a brash 
statement about our intent to move forward rapidly with 
deployment and to proceed with changes in the ABM treaty that 
are fundamental to people's notions of the current balance of 
power, and very fundamental, and it seems to me we've been over 
this ground in so many ways, but I don't see what the rush is. 
We can't even have a successful test and we announce we're 
going to go ahead and deploy and abrogate the ABM treaty.
    What are we thinking? It's without any relationship to a 
ground reality, if you will, and I think it serves to heighten 
the tensions, not diminish them.
    Senator Thomas. We might visit later about our consultation 
with the PRC with their 50 missiles on the Strait perhaps.
    Senator Allen has joined us--he's not on our subcommittee 
but he's welcome and has a comment he'd like to make or a 
question.
    Senator Allen. Thank you, Mr. Chairman. Thank you so much 
for allowing me to join in. I'm on the Foreign Relations 
Committee but not on this esteemed subcommittee, and I also 
want to thank Senator Hagel for letting me go ahead of him.
    Mr. Secretary, I'd like to raise the issue of continued 
detention of three United States based scholars in the People's 
Republic of China. The three are Li Shaomin, a U.S. citizen who 
teaches business at the City University of Hong Kong; Gao Zhan, 
a permanent resident of the United States and a research 
scholar on women's issues at American University; and Xu 
Zerong, an associate research professor at Guangdong Provincial 
Academy of Social Sciences.
    Now, one of these scholars that I mentioned, Gao Zhan, is a 
resident of Virginia and a researcher at American University. 
She has been held in custody incarcerated by the Chinese 
authorities now this is the 80th day today. We have no idea of 
her location nor of her condition. They have denied access to 
her family, denied access to her lawyer, and even the Red Cross 
has been denied access to her location and her condition.
    Her husband, Dong Hua Xue, is a United States citizen, as 
is their 5-year-old son, Andrew. They live in Virginia. Andrew 
was held for 26 days, violating the U.S.-Chinese consular 
agreement of notifying us within 4 days. He was held 26 days 
away from his mother and father. The husband was as well, and 
they're back here.
    The husband has hired a lawyer in China competent to 
practice law in that country. The lawyer has been twice denied 
access to Gao Zhan. The lawyer has written the Chinese State 
Security Ministry asking for the reasons for denial. There's 
been no response. I'm told this is even a violation of Chinese 
law that permits a person under arrest to meet with a lawyer of 
his or her own choosing.
    Now I'm concerned about the dangerous situation in which 
Gao Zhan finds herself. She was held for 40 days before they 
even charged her without any evidence. She doesn't have a 
chance to defend herself. Her husband and son do not know her 
location or condition or her health, and I suspect she has no 
idea of what's happened to her husband or her young 5-year-old 
son, much less that anybody out here knows what is going--or 
she doesn't know that others are concerned.
    When one looks at the interrogation of our crew members in 
trying to get them to admit and apologize and so forth--they 
had 23 other crew members. I can imagine Gao Zhan and what kind 
of support and sympathy there may be for her, which is 
virtually zero I suspect in whatever detention facility the 
Chinese authorities have her.
    Now, this large-scale detention of U.S. based scholars of 
Chinese origin by the People's Republic of China creates, I 
believe, a hurdle to normal relations between the United States 
and the People's Republic of China. These scholars are human 
beings, they have families, and I think they ought to be 
treated in an appropriate way, and this is not the way to treat 
human beings, especially the issue of--the matter of Gao Zhan, 
of which I'm most familiar, talking with her son and her 
husband.
    So, Mr. Secretary, my question is several questions. What 
can our Government do to help obtain the release of these 
scholars and can we seek help from non-governmental agencies to 
visit them?
    Mr. Kelly. Thank you for that question, Senator Allen. It's 
a very important case and I share your concerns.
    We have raised all three of the cases you cite, certainly 
including Ms. Gao Zhan with the Chinese Government and we are 
going to continue to do so. We haven't had any luck in her 
case. We have not done a lot better in the case of the American 
citizens who are there, and there is a difference in the 
treatment China is required to accord to American citizens who 
enter China under a U.S. passport as opposed to those such as 
Ms. Gao who entered China under a Chinese passport.
    She is in fact a permanent resident of the United States 
and of Virginia. She is a subject of almost daily 
communications from our authorities from our embassy to the 
Chinese Government. Once again, we have not been satisfied with 
the replies that we get.
    We were particularly concerned over the--what you 
mentioned, the long detention of the 5-year-old young boy named 
Andrew for that time. That did in fact violate the U.S.-China 
bilateral consular agreement, and it also violated the Vienna 
Convention on Consular Relations, so it violated two different 
agreements--international agreements to which China is a party 
and is really a matter of concern.
    So for that reason the only thing I can say further is 
that's why we have issued this travel warning to all American 
citizens and especially those of Chinese descent who may be 
doing academic research that may be deemed by someone somewhere 
to be sensitive that their safety, even if they've traveled 
there often before, might well be at issue here now.
    But it's not over and we're not satisfied.
    Senator Allen. Well, time's up, but when you're meeting 
with the Chinese Ambassador this afternoon will you please let 
me--please would you once again press this matter with him for 
Andrew and her husband, and for Americans as well?
    Mr. Kelly. I certainly will do so, sir.
    Senator Allen. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Senator Thomas. Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman.
    Mr. Secretary, supporters of de-linking trade and human 
rights issues and U.S. policy toward China often claim that 
increased economic openness will inexorably lead to increased 
civil and political openness, and as you well know China has 
been engaged in significant international trade for some time 
between the United States and China. Trade has increased from 
$4.8 billion in 1980 to $94.9 billion in 1999.
    In your view has there been any indication that this 
relationship has led to increased political openness and 
tolerance in China? Of course note that the State Department's 
own human rights reports from recent years seem to suggest that 
the situation is actually getting worse and not better.
    Mr. Kelly. Well, sir, there are several segments to that. 
For some individuals those who practice religions, those who 
seek to demonstrate on the streets, I think I agree with you. I 
don't think their situation's any better, and in the case of 
American citizens of Chinese ancestry their situation may be 
even more difficult than it was.
    Overall though I think there is little question that 
between 1980 and the current moment that many, many Chinese 
have the ability to say things and do things that are far more 
open than they were 20 years ago, so that there has been a 
large mass of improvement but those who are deemed by whatever 
process to have crossed the leadership and the leadership's 
policies are in lots of trouble to this day, and that's why 
human rights remains such a serious issue for us.
    Senator Feingold. OK. Thank you.
    Say a little bit about to what extent you think the 
Communist party in China is threatened by the strong emerging 
strain of nationalism in that country. What might that regime 
do in order to in effect placate or appease the nationalists?
    Mr. Kelly. Well, that's a real problem because the 
legitimacy of the leadership has with the decline of the 
Communist ideology has essentially been fostered by two things: 
the developing economic sphere in China and then this increased 
nationalism, and with a kind of what I would call a culture of 
victimization, a sense that foreigners have been coming over 
here and mistreating Chinese for 150 or 200 years.
    There is certainly some considerable truth to that, but 
that also infers and stimulates feelings that, don't look at 
the facts. Don't look at the information and start jumping to 
conclusions is starting to put pressure onto the leadership. 
It's a force that the leadership sets in motion but which it 
cannot control, and it's potentially a dangerous force and one 
with which we are concerned.
    Senator Feingold. I appreciate the answer.
    On another matter, the PNTR bill last year required the 
establishment of a bipartisan congressional executive 
commission on China on human rights and labor issues, but it 
appears that we'll now be voting again in just a few months on 
annual NTR, but the commission hasn't even begun its work.
    What issues should the commission review, and do you agree 
that the commission's findings and recommendations should be 
considered relevant to the totality of our China policy?
    Mr. Kelly. The commission that you refer to, Senator 
Feingold, is I understand getting itself organized. There is no 
question whether its predominant membership from the Congress 
but also strong representation from the administration that its 
recommendations are going to have to be considered quite 
strongly.
    Senator Feingold. Will they be ready in time for this 
year's review?
    Mr. Kelly. I don't know the answer to that, sir.
    [The following response was subsequently received:]
                         china: pntr commission
    Question. Will the Bipartisan Congressional-Executive Commission on 
human rights and labor issues created by the PNTR legislation be ready 
in time for this year's review?

    Answer. I understand that not all congressional members of the 
Commission have been appointed yet, nor has the President announced his 
appointment of executive branch commissioners who will serve on behalf 
of the Administration. Once the Commission is up and running, 
Administration Commissioners and working level staff will work with 
their Commission counterparts to provide any information necessary for 
the Commission to complete the annual report by October 10 called for 
under the PNTR legislation.

    Senator Feingold. Perhaps we'll follow on that later.
    Finally, as you alluded to, the Chinese Government 
continues to undermine religious and cultural freedom in Tibet, 
and China's dialog with the Dalai Lama seems to have basically 
ground to a halt. What should the administration be doing about 
the lack of progress on Tibet?
    Mr. Kelly. Well, the Congress has certainly set some tones. 
We are providing this bridge fund assistance to NGO's. We have 
embassy officials visiting Tibet quite regularly. The recent 
report was actually mildly encouraging about the conditions on 
the ground there and the ability of Tibetans to live a 
religious and normal life somewhat better, but this issue 
remains on our agenda.
    Senator Feingold. Well, obviously I'd urge the pressure to 
be kept on that issue in particular, and I thank you for all 
your answers.
    Thank you, Mr. Chairman.
    Senator Thomas. Senator Hagel.
    Senator Hagel. Mr. Chairman, thank you, and welcome, Mr. 
Secretary.
    Senator Kerry alluded to Russia. Could you develop a bit 
for this committee what your sense of the emerging relationship 
between Russia and China is today? I note in the papers this 
morning that there were some agreements signed. That 
relationship seems to be developing in some new and deeper 
directions than in the past.
    Would you give us your sense of that and where all that is 
going?
    Mr. Kelly. Thank you, Senator Hagel.
    From of course the early 1960's until late into the 1980's 
the relationship of China and the then Soviet Union was 
essentially poisonous with literally millions of troops 
literally pointing weapons at each other across rivers and 
borders. It has significantly improved in a way that was first 
probably stabilizing, but in recent years has been a little bit 
more troubling, particularly because China clearly is 
interested in access to the military technology that the former 
Soviet Union developed in which the Russian Federation now 
possesses, and clearly changes of technology in fighter 
airplanes and naval missiles, in ballistic missiles, in all 
kinds of areas of military cooperation are not in our interests 
and not to our liking.
    Otherwise the nature of the Russian economy is such that 
there really hasn't been all that much development on the 
economic side.
    Politically these two share a huge expanse and there's a 
lot of suspicion that remains notwithstanding these recent 
agreements, so I see that as a relationship that is important 
and worth watching and which is troubling to some extent, but 
which probably has some inherent limits on how far it's going 
to go.
    Senator Hagel. Is there anything in our policy toward and 
with Russia and China that addresses the Russian-Chinese 
relationship?
    Mr. Kelly. I don't think there's a great deal. There may 
well need to be more, and I think that's part of what's going 
to be looked at very carefully in our policy review.
    Russia and China do have--and both apparently describe it 
or at least the Chinese side describes it as a strategic 
partnership, although there are as I said some real limits on 
where that is going. I think it's something that we're going to 
want to take up, and I'm looking forward to taking it up myself 
with Chinese counterparts and also with Russians.
    As early as the 1980's we have a lot of consultations with 
the then Soviet Union about its interests in Asia, and that's 
something that I think we're going to be able to followup on 
again, and I know the non-governmental organizations are doing 
quite a bit of work on that.
    Senator Hagel. Thank you.
    You noted in your testimony the contradictory country of 
China, implying obviously the internal contradictions. Those 
internal decisionmaking contradictions were on display during 
the recent EP-3 incident. Could you develop that a bit, the 
internal conflicts, the inconsistencies, the contradictions, 
and the schizophrenia between the PLA, the reformers, and the 
traders that will likely impact the change of power over the 
next year or some months? Maybe that has already been decided 
but I'd be interested in getting your sense of that.
    Mr. Kelly. There is a transition going on, and the experts 
and mentors that will follow me here I think know even more 
about it than I do. But clearly that was playing there. There 
are limits on the power of the most senior leaders of China. 
When the EP-3 airplane landed on Hainan Island it became in 
effect the property of the People's Liberation Army, and its 
crew and the airplane were their property, and apparently some 
kind of bargaining process then began with the authorities in 
Beijing.
    This does not seem to be exactly the sort of thing that 
we're familiar with here, but it's about the only explanation I 
can come up with of the lack of anybody to talk to in Beijing 
about this for quite a while, and the differing attitudes that 
were there--it's fairly clear, Senator, that some in the PLA in 
China think 11 days holding the crew, that's nothing.
    Well, it's not nothing. It's a lot. It's a very substantial 
and serious problem as you understand perfectly.
    Senator Hagel. Thank you.
    Senator Thomas. We have another panel. Do you have any 
other burning questions, Senator? If not, Mr. Secretary, I 
appreciate it very much and wish you well.
    Mr. Kelly. Thank you very much, Mr. Chairman, and thank you 
again for your remarkable processing of my confirmation last 
week.
    Senator Thomas. We were just plum out of an Assistant 
Secretary.
    We have now a panel of experts that we're anxious to hear 
from along these same lines: Ambassador James Lilley, resident 
fellow, American Enterprise Institute; Mr. Douglas Paal, 
president, Asia Pacific Policy Center; Mr. Michael O'Hanlon, 
senior fellow, Brookings Institution; and David Shambaugh, 
director of the China Policy Program, George Washington 
University.
    Thank you very much, gentlemen. I think one of the reasons 
for doing this and having and asking you to come--and we 
appreciate you being here--is to get different views, different 
perspectives of where we are.
    Again, I've been dwelling lately--it doesn't matter whether 
it's electric deregulation or whatever--on sort of having some 
goals as to what we want to accomplish over 10 years and then 
measuring what we're doing with respect to the accomplishment 
of those goals, and I think that applies to most everything we 
do, so--Ambassador Lilley, welcome, sir.

    STATEMENT OF AMBASSADOR JAMES R. LILLEY, SENIOR FELLOW, 
         AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC

    Ambassador Lilley. Thank you.
    Senator Thomas. Nice to see you again.
    Ambassador Lilley. Mr. Chairman.
    Senator Thomas. By the way, your total remarks will be 
included in the record and you can be as brief as you want.
    Ambassador Lilley. Well, you can see from my remarks that I 
think China is a serious problem, but from time to time it 
helps not to take it all that seriously. As I say, this is my 
47th wedding anniversary so I'm fully aware of contradictions, 
and as I said before, contradictions are an element in the 
Chinese relationship which we must understand. This is what my 
wife told me as we left Beijing in May 1991.
    I've gone through some of these contradictions as an 
exercise in the complexities of internal situation in China, 
and how we perceive them. First, I will try to deal with the 
conflict between the state-owned enterprises and the free 
market sector, democratic village elections and the suppression 
in China, China's perception of the United States as the great 
hegemon, bully, arrogant superpower, and their fascination with 
our inflammatory ideology, our huge military might, et cetera. 
Their obsession with nationalism which right now is probably in 
its most distasteful form.
    I've talked to a number of American businessmen from China 
recently and they say nationalism has taken a form that is 
quite unpleasant. Chinese people, partners they've known for 20 
and 30 years spout this nationalist line which is often 
patently based in false premises.
    We have gone through this before, false accusations of U.S. 
germ warfare in Korea in 1950-53, but now it's happening again 
with the youth. That's depressing. But again, my experiences 
when I was there in 1989 were postitve. The United States was 
admired and liked. This has changed but it can come back.
    The conceptions of the military--David Shambaugh can deal 
with that better than I can, but the army is considered a 
monster by some and a junkyard army by the others. Both of them 
are wrong. We try to come up with some balanced judgment of 
what their military is. We heard the exchange between Senator 
Kerry and Jim Kelly and how we can misunderstand what they're 
doing with their missiles, I think that problem has to be 
examined very closely.
    And finally, as the Chinese say, ``you yi di yi, bi sai di 
erh,'' friendship first, competition second, Then they whip 
your tail in ping pong while they're smiling the whole time. We 
do have these contradictions.
    Now, what I'll try to do is to examine three areas where we 
can focus our efforts. I'd put first priority on the economic 
area, to which we should change the subject very quickly. We 
may not be able to accomplish this but it's in our interest to 
do so. We've got a new Ambassador going out there, Sandy Randt. 
He's a lawyer and businessman, and we're going to switch the 
subject from military confrontation to trade, permanent normal 
trading relations with China, getting China into the World 
Trade Organization along with Taiwan, and moving with this 
tremendous dynamic movement in Asia.
    Second, we cannot ignore their military. We've made some 
moves recently which have clarified the picture and probably 
made hostile military action less likely. It has been my 
experience in Korea, and various other areas in Asia that when 
we are vague on our commitments we're inviting disaster. When 
we become clear and back our statements up with power it lowers 
the possibility of conflict substantially. It is important that 
we neutralize the military factor in the next 10 years so the 
Chinese can do what they can do best, namely make money with us 
and with Taiwan.
    And finally, we have this rhetorical argument with them on 
principles. We never give up. They never give up. On their side 
it is sovereignty, unity, face, dignity, and pride. On our side 
free market, democracy, individual human rights. This argument 
has infected our relationship from time to time as it should, 
but at the same time we've got to put this argument into 
perspective and get on with the issues of war and peace, life 
and death for the largest number of people in Asia.
    And finally, I just wanted to take one brief moment to talk 
about what I think is an important and misunderstood dynamic in 
this whole situation, and that is the economic relationship 
between Taiwan and China. It was only briefly touched on.
    But this dynamic to me can change the face of Asia. People 
talk about political factors always overriding economic factors 
and cite Nazi Germany or Japan or whatever. But this economic 
dynamic is so strong, the trends are so dominant, that if we 
don't understand it we're missing a great opportunity for 
reconciliation between China and Taiwan.
    I can give you some statistics on this. A 108 percent 
increase in investment last year between China and Taiwan. 
Taiwan's former premier is going to China this month to talk 
about common market concepts, this sort of broadminded 
cooperation. Then there are the Shanghai attractions--read the 
Washington Post on the 28th of April which give a clear idea of 
the dynamism. There are perhaps 300,000 Taiwanese living in 
China right now. They have their own schools, their own 
churches, their own associations, and are buying villas at a 
furious pace.
    There is an important dynamic here. Investments are getting 
stronger. China and Taiwan are moving toward direct links. The 
latest polls in Taiwan go from 5 percent for one country two 
systems to triple this. There is clearly a trend. The Chinese 
influence on Taiwan could move from military exercises to 
political action and economic integration.
    They seem to be starting to do this. This kind of activity 
is acceptable because in the economic field and political field 
we can handle them. What the United States has to do is to take 
the military option and neutralize it and then switch the 
subject and focus on economics. That's the thrust of my 
remarks. Thank you.
    [The prepared statement of Ambassador Lilley follows:]

            Prepared Statement of Ambassador James R. Lilley

``If you do not understand contradictions, you cannot begin to 
        understand China.''--Sally B. Lilley, May 1991, Beijing

``1 May 2001 is our 47 wedding anniversary, talk about 
        contradictions!''--James R. Lilley, 1 May 2001, Washington

    In this testimony today in this complicated period in U.S.-China 
relations, I will try to be concise and to the point. There has been 
too much purple prose from both sides. While rhetoric is important and 
(just look at the word games we play in our 3 communiques, the Taiwan 
Relations Act and most recently in the ambassadorial letter on the 
Hainan plane accident) there still are more enduring realities.
    But first, an explanation of the contradictions--the Yin and the 
Yang to China--the unity of opposites--thesis, antithesis and synthesis 
in more modern terms. And to us, our principles versus our interests, 
our view of China's relative prosperity and its suppression, 
containment versus engagement. In the words of the King in ``The King 
and I,'' it's a puzzlement.
                   a few examples of contradictions:
Contradiction 1
    China's state system conflicts with the free market sector. 
Allocation of resources by the State to an expanding market sector has 
led to rapid growth and to massive corruption. China is bedeviled by 
corrupt cadres and greedy entrepreneurs who combine to form monopolies 
in both suburban and rural areas and who become rich by production and 
exploitation.
Contradiction 2
    Since 1987 China has had some relatively democratic village 
election. Some rascals have been thrown out, others have grown more 
powerful. Some criticism of government policies has emerged in the 
National People's Congress.
    There has emerged a freer media in the past 25 years. Talk shows, 
soap operas, upstart magazines ridicule the structure, pompous party 
officials, sleazy corruption, but still no one touches the emperor, 
advocates Taiwan independence, forms any real opposition party, or 
practices religious freedom!
Contradiction 3
    The U.S. is the great hegemon, the bully, the arrogant world super 
power who seeks to humiliate and contain China's lofty and just 
ambition. The U.S. is also the mecca for the young nationalistic 
students, its practices are emulated, its pop culture is pervasive. 
U.S. technology and business methods, our mastery of international law, 
even our constitution are widely admired, but our fascination with 
human rights, our inflammatory ideology, and our huge military might 
are considered the greatest threats to the survival of the great 
Chinese state.
Contradiction 4
    As Brian Mulromey once said, nationalism is patriotism without 
honor. Raw nationalism has expanded throughout China and its overseas 
Chinese communities. The Chinese party and propaganda alternately feed 
it and suppress it according to the needs of the State. The hate 
against foreigners, especially Americans, flared up in March 1996 
during the crisis in the Taiwan Strait, in 1999 during the Belgrade 
accidental bombing, in 2001 over the Hainan plane incident. These 
flare-ups were reminiscent of the Boxer Rebellion in 1900 which was 
incidentally fed by the Empress Dowager and then punished by her. We 
saw this phenomenon of hate during the Culture Revolution in the 
destruction of the British Embassy in 1967, it also manifested itself 
in violent anti-Japanese demonstrations in 1985 in Chengdu, Sichuan, 
which in fact quickly turned against the local Chinese government.
    Nationalism in China is riding a tiger and it is hard to get off. 
It can destroy the state if it gets really out of hand. Yet, it is 
essential to the regime in the diversion of the citizenry from domestic 
failures.
Contradiction 5
    China publicly and frequently expresses adherence to the five 
principles of coexistence particularly non-interference in the internal 
affairs of other states. Yet China has a long record since 1949 of 
fighting with its neighbors-Korea in 1950, Taiwan in 1958, India in 
1962, Soviet Union in 1969, and Vietnam in 1974, 1979 and 1988. China's 
record in Africa in 1960 was marred by numerous expulsions for 
supporting local resistance movements.
Contradiction 6
    Some say China's military is a modernizing monster, indoctrinated 
against the U.S., using concepts of asymmetrical warfare to exploit our 
vulnerabilities. It is acquiring large amounts of high tech weaponry 
largely aimed at us. Others say its power is minimal compared to ours, 
its military budget is much smaller, it has little systems integration 
capability and its military officers defect regularly. It is in reality 
a junkyard army that cannot shoot straight.
Contradiction 7
    Friendship First, Competition Second, as they whipped us in Ping 
Pong in 1972 as we opened up to China.
    There are many more but I will stop here and spend more time on to 
what we face and what we might do about it.
    For the sake of clarity, I emphasize 3 areas where U.S. and Chinese 
interests meet.
    Currently, the most important priority for the future is the 
economic relationship with China. China's future depends on its ability 
to manage turbulent domestic problems which include an obsolete 
financial system, a stagnant state sector, rural unrest, corruption, 
disparities of wealth. China's economic growth which is necessary for 
its stability depends in large part on Japanese, U.S., and Taiwanese 
inputs in the form of investment, trade, tech transfer, management and 
training. China's entry into WTO and PNTR should in the long run 
contribute to controlling Chinese economic instability and would create 
a stable environment around China with both Taiwan and Japan as 
friendly neighbors. Lee Teng-hui was the president of Taiwan when 
Taiwan's largest economic contributions to China took place, and these 
were unaffected by Tiananmen or sabre-rattling in the Taiwan Strait in 
1995-96. Lee has been castigated by China as a splittist, and a traitor 
etc. while in reality he has helped keep them afloat, a luxurious and 
bizarre contradiction which the Chinese choose to ignore.
    The most dangerous area of potential confrontation between China 
and the U.S. remains military. U.S. forward deployment of forces, our 
security alliance structure and our commitments are the single greatest 
obstacles in Chinese eyes to China's manifest destiny. This destiny 
boils down to greater influence on the Korean peninsula, dominance of 
the East China Sea by regaining the Senkaku Islands now claimed by 
Japan, drawing Taiwan into China's orbit by neutralizing its military 
and political challenges and establishing some sort of unification 
structure over the island, and gaining a commanding presence in the 
South China Sea (all of which China claims). China's current efforts 
seems focused on the Spratly Islands.
    The United States has a strong military presence in Korea, and 
alliance with Japan, security commitments to Taiwan in the TRA, and a 
permanent interest in maintaining the freedom of the sea lanes in the 
South China Sea as well long term U.S. support for our allies and 
friends in southeast Asia. A number of these southeast Asian nations 
have conflicting claims in the South China Sea with the Chinese. The 
power of the U.S. naval forces and air forces in the area represent 
military superiority, and provide a credible deterrence to military 
adventurism (CDMA). This power, however, must be handled with great 
skill and precision given the potential explosive quality of any direct 
confrontation with China as well as the sensitivities of neighboring 
countries to China's power. Chinese continuing rapid missile 
deployments could lead inevitably to a persuasive rationale for TMD and 
NMD development and deployment. An improving power projection for 
Chinese submarines and modern surface ships has resulted in our 
supplying a much expanded ASW capability for Taiwan. Chinese 
acquisition of the advanced fighter SU-27 from Russia led to our 
supplying the F-16 to Taiwan.
    Peace has been maintained in the waters around China for 50 years. 
Threats, military exercises, collisions and forays have been a 
permanent part of this peace process. Arm sales to Taiwan when handled 
well have not historically led to a widening gap between China and 
Taiwan. In fact the opposite case can be made in some instances. Seven 
months after the F-16 sale to Taiwan in 1992, China and Taiwan sat down 
in Singapore for their first substantial talks since 1949.
    Major battles and heavy human losses have however been avoided in 
our dealings with China. Although the situation may have become more 
volatile with the build-up of Chinese military and economic power, war 
can still be avoided if the price for military adventurism is just too 
high, and the rhetoric on both sides is kept under some control.
    Finally, there is the area of rhetoric and principles, and here 
there is of course much sound and fury. China has an outspoken and 
repetitive demand for respect for its sovereignty, unity, pride and 
dignity--in a word, its face. Its principle that China reserves the 
right to use force to defend its sacred sovereignty and unity is 
propagated everywhere, but particularly with reference to Taiwan. The 
United States for its part loudly proclaims its commitment to human 
rights, protection and expansion of democracy, globalization of 
economics and free and open markets, prevention of the proliferation of 
weapons of mass destruction. It is often here where our differences 
with China are most visible and audible. We recognize that our social 
systems are basically different. Our rule of law versus their rule by 
law, our habeas corpus and 5th Amendment rights versus their reform 
through labor camps and their fixation on induced confession as an 
integral part of their court system. Our most basic principles are 
democracy and human rights, free market economies. China stresses its 
sovereignty and unity and economic prosperity for its own people. There 
is a however a wide space for cooperation between our differing 
principles, and that is where our focus should be.
    In summary, in a dangerous and uncertain passage, China has 
developed a formula for control of and prosperity for its vast country 
based on political conformity and economic experimentation. The Russian 
model of ``glasnost first'' has been vigorously rejected by China and 
China has something positive to show for its decision to reject 
glassnost. China believes it has reason to fear both our soft and hard 
power and has taken steps to survive and maintain its control against 
our so-called intrusions. Part of this process is to defy us, but 
probably not to the point of direct military confrontation.
    In the 1980s, roughly from 1983-89, we had an effective policy for 
expanding our relations with China, while assuring Taiwan of our 
support. One significant result of this policy was China and Taiwan 
opened up to each other and tensions virtually disappeared. We are in a 
different circumstance today but the basic ingredients remain the same:

   Economic cooperation--difficult but essential.

   Military stability--changing but manageable.

   Rhetorical neutralization--don't let our mouths get ahead of 
        our minds.

    Senator Thomas. Thank you very much, sir. I appreciate 
that.
    Mr. Paal.

 STATEMENT OF DOUGLAS H. PAAL, PRESIDENT, ASIA PACIFIC POLICY 
                     CENTER, WASHINGTON, DC

    Mr. Paal. Thank you, Mr. Chairman. I have in my prepared 
statement tried to touch on three points which in my previous 
experience with my fellow panelists I think may not be what 
they want to touch on.
    I don't look out 10 years as you've admonished this 
afternoon but just the next 4 years in the hope that we have an 
agenda that can be the basis for some constructive work with 
China or at least put us in a better position to deal with 
China if constructive relations elude us.
    The first point is more in the way of an admonition than a 
prescription, and that is--and I'm rather pleased to hear as 
many Senators as were here today have shown sensitivity to the 
rise of nationalism in China. I don't think our own public 
understands quite how serious this matter has become and how 
vital it is to the survival of that regime, and the admonition 
I have is that we ought to do what we can in the form of 
resolutions that come from this body or statements out of the 
administration or from private citizens as well to distinguish 
between the people of China and the government, which is really 
quite an unpopular government in many ways.
    One of the consequences of a lot of our actions in the last 
decade has been to drive people who would otherwise be quite 
unhappy with their regime into the arms of the regime in the 
defense of the nation of China, and this started back in 1993 
by my reckoning, when we took an official position opposing 
China's hosting the Olympics in 2000. It was wonderful that 
Australia did as well as it did and had those Olympics, but a 
lot of Chinese--for them, the young ones especially, their 
reference point is not the Tiananmen massacre. They were too 
small to remember it, and they don't remember the Vietnam war. 
Our kids don't remember that as you know very well.
    They don't remember their feud with the Soviet Union. They 
remember the last decade and the sparks between our two sides, 
and so the U.S.--it comes with the territory. We're the big 
power. We're the biggest guy in the doorway, so we tend to be 
seen as an adversary.
    My hope is as we approach each of our policy formulations 
we'll try to distinguish between those things which pertain to 
the regime and those which are matters for the people of China 
and try to get on the side of the people, supporting reforms, 
supporting change in the system.
    The second point I have has to do with the twin missile 
problems that China presents. The first set of missile problems 
is directed at Taiwan. President Bush I think is off to a 
strong start with his statement on arms sales this past week. 
It was necessary after several years of careful deferral of 
weapons systems by the previous administration in the hopes 
that the Chinese would show some restraint, that the United 
States indicate that restraint is not going to last forever on 
the American side.
    And my hope is that in the aftermath of this, as the two 
Presidents meet and as their diplomats prepare for those 
meetings, we be prepared to address directly with the Chinese 
leadership, both the current and aging leadership and then the 
incoming leadership that we need to demilitarize, or face the 
issue of Taiwan in ways that are political and not military 
only, and that China does not have a path through military 
buildup that will solve the problem for them. I think that 
first step has been a good one and we need to pursue it.
    The second military--missile issue is that of--it was 
reflected in the questioning earlier today by Senator Kerry, 
and that is on the missile development of China. When I left 
office in 1993 from the NSC there were two Chinese missiles 
capable of reaching the United States. Today the number is 
roughly, as Senator Kerry said, about 24, which is the number I 
have from public information.
    That will be continuing to grow. China will not stop adding 
to its fleet of missiles--its supply of missiles. Moreover, the 
missiles they're building are becoming more hair trigger. 
They're trying to go from storing the air frame and the fuel 
and the warhead separately to road mobile systems, and we don't 
know how well they can protect them, whether these things can 
be subjected to criminal or accidental within China, whether 
the Chinese can establish the technical safety.
    The President's initiative today on missile defense is 
generally the right one, but one important decision that has to 
be made as we confront missile defense is the degree to which 
we are prepared either to capture or neutralize China's missile 
capabilities, as Senator Kerry was questioning Secretary Kelly 
earlier, or are we prepared to reach an agreement with China 
that will provide us with stability against those occasional 
rogue launches, enough missile defense to do that, and the 
Chinese will be permitted the legitimacy of a deterrent.
    Now, we can have quite an internal and interesting debate 
about whether or not we want to go down one or the other of 
those roads, and a lot depends on whether we can, that we have 
the ability to make that choice. That will be before us for the 
next few years.
    Senator Kerry. Mr. Paal, the chairman has allowed me to 
just make one intercession here, because we have a Finance 
Committee meeting I've got to go to on the tax bill, and I know 
that notwithstanding your deep interest in China you also want 
us to do the right thing on that.
    But just quickly if I could ask you, in your experience--
and maybe you want to all lay down something for the record as 
you go down the road on this--it seems to me that there was the 
potential conceivably to reach some understanding with China 
before we get into the predicament we got into with the former 
Soviet Union where we're both building and responding to each 
other. That in this new world we're living in where most people 
are looking differently at the kinds of conflicts we may deal 
with and what the potential for real confrontation is after 50 
years of the cold war that there may be a way. I'm for 
researching and indeed I'm for certainly doing a thorough job 
of having the potential to shoot down one or two accidental 
launch or rogue missiles if that were to become a realistic 
threat measured against many other tiers of threat that I think 
are much more immediate.
    But that said, if you could have China's assent and even 
Russia's, to what that process for deployment may be, you can 
do this with a whole different potential of reactions that come 
with it, whereas if you do it on a unilateral basis you can 
change the balance of power. I think you would agree with that. 
No?
    Mr. Paal. I'd probably modify your characterization to say 
you need a mix. You should be ready to discuss but if you're 
not prepared to take action and if you hem and haw then they 
will never respond to----
    Senator Kerry. Well, nobody should have a veto over our own 
security. I agree with that premise. But you have to make an 
ultimate judgment about what the nature of each threat is. Is 
there a greater threat of a rogue missile or accidental launch 
than there is to the ultimate security of the country of a 
renewed arms race?
    Mr. Paal. Well, that has to be an ancillary discussion, 
sir, on the question of whether China is capable of competing 
with us in an arms race, and that's something that I would if I 
were in government look at very----
    Senator Kerry. Well, it's the same argument we made about 
the former Soviet Union.
    Mr. Paal. Yes, sir. But I think we ought to----
    Senator Kerry. And in every single case except for Sputnik 
and submarines from the dropping of the bomb at Hiroshima and 
Nagasaki in every single case the United States of America took 
the lead on a particular technology: MIRV'ing, the hydrogen 
bomb--each step of the way, so that ultimately it may take 
longer. The people who want to catch up will catch up if that's 
where you've left things.
    Mr. Paal. Let me just remark that I've led a delegation, 
so-called Track Two of unofficial people with some money 
provided by the State Department in January to China to discuss 
these issues, and we found that at very, very senior levels in 
China the attitudes were very hard line and rigid, but that if 
you got just below those levels, even with flag officers of the 
People's Liberation Army, there was preparation among them to 
think about something like a grand bargain, so this is an 
avenue that has some distance we can travel to explore the 
willingness of China to actually reach----
    Senator Kerry. Well, I don't want to abuse the process here 
of all the testimonies, but I'd like Mr. O'Hanlon to be able to 
answer that afterwards for the record just if possible because 
I think it's important to have different views here as to what 
the reactions may be and what the possibilities may be.
    I certainly don't want to leave Los Angeles or New York 
exposed to the potential of either accidental launch or a rogue 
missile, but I've served 6 years on the Intelligence Committee 
and 16 years on this committee, and I can remember being deeply 
involved in the arms control issues of the last three decades, 
and my sense is that there are great possibilities here for how 
we may be able to reduce the danger if we proceed thoughtfully, 
but there are equally great possibilities for how we may 
enhance it if we don't, if we misread the intentions and 
desires.
    So my hope is--as I look at those threats the threat of a 
rogue missile right now would require a liquid fueled rocket. 
It requires a pad. It requires a rollout. All of that is 
discernible by national technical means over a period of days. 
Preemptive strike remains always an option for the United 
States. It worked for Israel against Iraq. It would work for 
us. There are many different kinds of options, and we need to 
view these threats I think in a most realistic way.
    Most of the intel community tells me the far greater threat 
to the United States is a rusty freighter coming into San 
Francisco or New York lifting its cargo doors and launching a 
cruise missile against which there is absolutely no ballistic 
missile defense whatsoever, or a bottle of Anthrax about twice 
the size of that would take out an entire city. So I think we 
have to be much more realistic about threats as we think about 
where we're heading down the road, and maybe the rest of you 
could discuss that.
    And I apologize profusely, but America's tax cut waits. 
Thank you.
    Senator Thomas. For that reason we'll excuse you, Senator.
    Had you finished, sir?
    Mr. Paal. I just wanted to make the third point, which is 
that I think the United States has learned in its experience 
dealing with China that if we're activist and take the 
initiative we can often write the first draft of Chinese 
foreign policy. Now, that's become more complicated as China's 
become more involved with the world and as we have a less 
simple environment, no longer centered on our common opposition 
to the former Soviet Union.
    But today we look at the regions surrounding China and I 
can see an activist agenda that starts with continuation of our 
separate tracks but mutually reinforcing policies with respect 
to North Korea, move on to Southeast Asia where there is 
potential for cooperation and regional and political trouble 
spots where we'd like to entice the Chinese into a more 
cooperative relationship, and where we need to be more active 
to prevent ourselves from being excluded from exclusionary 
Asian multilateral organizations.
    In South Asia we have a potential to engage China in trying 
to deal with the underlying sources of instability rather than 
working on just the weapons tip of this, the weaponization of 
the nuclear capabilities that have emerged in South Asia. We 
ought to be addressing the underlying insecurities and China 
must be part of that dialog.
    Finally, there's a Shanghai Five process on the western 
borders of China which is involved in police and other kinds of 
activities to reduce cross-border crime, deal with insurgencies 
and other matters. There are areas--these are delicate areas 
but there are places where the United States could also offer 
assistance and be part of the story in Central Asia more than 
we have been in the last few years.
    Thank you.
    [The prepared statement of Mr. Paal follows:]

                 Prepared Statement of Douglas H. Paal

    Mr. Chairman, thank you for the opportunity to join this panel 
today to discuss the road ahead in the United States' relations with 
the People's Republic of China. It is quite common in discussions like 
this to focus on the calendar items before us and offer judgments or 
prescriptions about what the U.S. Government should do in each case. 
For example, in light of recent Chinese behavior, questions arise 
whether the President should meet the Dalai Lama in the private 
quarters or Oval Office of the White House. Should the U.S. formally 
oppose China's effort to host the Olympics in 2008? Should the 
President make a state visit to China later this year?
    I would like to take a different approach today. My prepared 
statement touches on three aspects of dealing with China that might 
inform policy making in the next few years:

   The gap between the people and the unpopular regime in 
        China,

   Addressing Chinese missiles aimed at Taiwan and those aimed 
        at us and our allies, and

   Constructing an agenda for regional cooperation with China 
        where possible, and competition where not.

    I believe it should be axiomatic in the conduct of U.S. foreign 
policy that the U.S. should, to the extent possible, avoid actions that 
tend to rally the support of the Chinese people to the unpopular regime 
that governs them. Today Chinese communist power derives in part from 
its control of the gun, or the People's Liberation Army. But it also 
rests on two pillars: economic expansion and nationalism. Without the 
latter two, the former would become untenable.
    Beijing knows well that it must aggressively display its defense of 
Chinese national interests to overcome the history and mythology of the 
past century and a half of what the Chinese term ``humiliation'' at the 
hands of foreigners, or it will lose influence. When incidents arise, 
such as the accidental bombing of the Chinese embassy in Belgrade or 
the recent EP-3 collision with a Chinese fighter, Beijing's leaders 
believe they must rush to the forefront and appear to lead in 
expressing indignation or they will be judged soft and weak. In a time 
of leadership succession as is now underway in China, this is 
particularly so, as candidates for advancement seek to court broader 
coalitions of support and cannot afford to be seen as weaker than their 
rivals.
    By promoting nationalism as a substitute for ideology and in 
response to the expectations of a Chinese public more aware and vocal 
than before, the Chinese leadership is, in its language, ``riding a 
tiger.'' Once you begin to ride it, it is very hard to get off without 
being eaten. In fact, every regime in China in the twentieth century 
prior to the present government fell from power largely because it 
proved insufficiently effective in defending China's interests from 
Western and Japanese encroachment. As a result, after the bombing of 
the embassy in Belgrade, Beijing's leaders saw popular indignation 
rising and they moved quickly to get in front of the crowd and appear 
to be leading it. At the same time, however, they worked hard to 
ritualize and channel the subsequent protests lest the public anger 
turn on them as well.
    Today, we prepare to face the next few years of rising Chinese 
power and increasing regime insecurity. It will be important for policy 
makers to ask themselves, every time they must make a big decision 
about how to deal with China, whether the substance and style of the 
decision will increase the bonds between an unpopular leadership and 
the regime or not.
    For example, hosting the 2000 Olympics was a popular notion with 
the Chinese public in 1993, when the U.S. signaled its opposing view to 
the International Olympic Committee. The Olympics decision went to 
Sydney, which performed magnificently. But ordinary Chinese 
subsequently blamed the U.S. for denying them their turn in the 
spotlight. A similar question is before Washington now. Should it voice 
official opposition to Beijing hosting the 2008 Olympics? Doing so, 
should Beijing lose its bid, will add another episode to the growing 
list of slights against the rise of China that the public perceives and 
the regime exploits to its advantage. Doing so, should Beijing win the 
2008 Olympics bid, will add to the list, but also diminish respect for 
U.S. influence. Hence, formally opposing China's bid is a lose-lose 
proposition; we will be better to let other criteria decide whether 
Beijing wins the opportunity to host. If Beijing wins, moreover, the 
behavior of the regime will come under greater international scrutiny 
and the price of pressuring Taiwan will go up.
    As a general principle, policy makers should whenever possible 
attempt to distinguish between our necessary dealings with the Chinese 
regime and our aspirations for the Chinese people. We can more 
effectively express our concern about the gap between regime rhetoric 
and real reform in China by targeting our concern on regime 
shortcomings, not labeling China as a whole.
    When we talk about the potential for reunification or independence 
of Taiwan, we will do well to frame the discussion in terms of China's 
need to fulfill its reform agenda and make itself more appealing to 
Taiwan's people. This will reduce the potential for Beijing to 
manipulate public opinion if we short circuit the debate by calling 
directly for the island's independence.
    Incidentally, the new Administration is doing well by not repeating 
President Clinton's ``three no's,'' which explicitly ruled out Taiwan's 
eventual independence from the mainland. Who are we to rule out the two 
sides ultimately agreeing to go their separate ways? We should 
encourage the Chinese to think about Taiwan in more discriminating 
terms.
    Missiles aimed at Taiwan and the U.S. are likely to bedevil 
relations between Washington and Beijing for some time to come. China's 
growing inventory of short and medium range missiles opposite Taiwan 
has drawn warnings from the Clinton and Bush Administrations. The U.S. 
repeatedly declared its intention to exercise restraint in arms sales 
to Taiwan in hopes of China's restraint in missile deployments. Up to 
now this has been an unavailing approach. President Bush's recent arms 
sales decisions, should they be carried through to completion, help to 
reaffirm American seriousness, after China's repeated indifference to 
President Clinton's pleas.
    The credibility that President Bush has garnered from his decisions 
should not be squandered. By being firm on the security of Taiwan he 
has prepared the stage for a candid and tough discussion with China's 
leaders. They seem to believe that time is on their side in building up 
their military capabilities, that Taiwan, being smaller, will in the 
end prove weaker.
    President Bush has begun to show them that a new team is in town 
and has a different agenda, and that it will not shrink from supplying 
Taiwan what it needs and can use to defend itself. The President's 
remarks regarding Taiwan last week showed that he is unambiguous in his 
support of Taiwan's security, as specified in the Taiwan Relations Act.
    Rather than raise tensions, as many fear will result, the new voice 
in Washington should seek opportunities to channel the competition 
between Taiwan and the mainland back into the political realm. An arms 
race will not solve the problem for Beijing so long as the U.S. 
underwrites Taiwan's security. Beijing needs to be persuaded to give up 
the missile build up and return to the bargaining table.
    Similarly, the Administration must take notice of the small but 
growing number of Chinese intercontinental missiles that probably are 
aimed at us. The new Administration is correct in stressing missile 
defense for a host of reasons. Given the related trend toward 
militarizing the political problems in the Taiwan Strait, the U.S. has 
greater need not to be vulnerable there to nuclear blackmail. Moreover, 
China is developing a new generation of road mobile, solid fueled 
missiles that can be launched instantaneously, unlike earlier 
generations of missiles with less of a hair trigger launch capacity. 
Until China demonstrates it can safeguard these new mobile missiles 
from criminal or accidental launch, there is an additional legitimate 
need for missile defenses.
    An important question on the road ahead is the approach the U.S. 
will take to missile defense regarding China. Will Washington seek to 
build just enough defenses to intercept a few rogue, criminal or 
accidentally launched missiles? Or will it build a larger system 
intended to deny China any retaliatory or first strike capability 
against the United States? As a citizen, I view the latter as 
desirable, if it is also affordable and effective.
    As an alternative, realistic consideration may be given to reaching 
a political understanding with China that the U.S. is seeking only to 
protect itself from the rogue, criminal or accidental launches, as 
President has stated frequently. In return, China would be expected to 
become transparent about its secretive rocket forces and constrain its 
arsenal to maintain minimum deterrence. In other words, the U.S. and 
China would exchange defensive stability for deterrent stability. In 
reaching such an agreement, major assumptions about China's reliability 
and long term ambitions would require close examination and discussion 
within the U.S. government.
    As China becomes more assertive in its own neighborhood and in 
global affairs, as we have seen recently in the EP-3 incident and 
China's interception of an Australian Navy flotilla, we will need to 
work out written and unwritten rules of the road. This applies not just 
to peacetime contacts between armed forces, but also to pursuit of our 
respective interests in regional affairs. As a newcomer in some arenas 
and a familiar hegemon from imperial days among its neighbors, China 
presents a complex challenge.
    The U.S. government will be well advised to survey issues in 
Northeast, Southeast, South and Central Asia where China is playing a 
role or has the capacity to contribute positively to regional 
stability. China clearly is pursuing its own interests on the Korean 
peninsula, and they correspond in some ways to those of the United 
States, Japan and the Republic of Korea. These include maintenance of 
stability along the demilitarized zone, denuclearization of the 
peninsula, and prevention of long range missile capability.
    The Bush Administration's emphasis on the alliances with Japan and 
Korea is welcome, and they will be necessary for future management of 
China's rise in power. It is increasingly apparent that relations with 
China cannot be managed in a balanced fashion by Japan or Korea or the 
United States, each on its own. It is our cooperation in the alliance 
framework that stays China's had of coercion and diverts it into 
cooperation or at least restrained competition.
    In Southeast Asia, China has sought to reassert its traditional 
influence on its own through stepped up and sustained diplomacy and 
commerce. The Bush Administration has a near vacuum to fill after the 
Clinton Administration's episodic attention to the region. Here the 
emphasis may at times be on competition between Washington and Beijing, 
but the region's residents are often uncomfortable having to choose 
between the two.
    The U.S. might usefully seek limited areas where cooperation can be 
coaxed from China, which is reluctant formally to acknowledge U.S. 
influence in the region. Multilateral institutions and cooperation 
offer venues, for example in peace keeping in trouble spots or in 
responding to economic crises. The U.S. will have to step up its level 
of effort, however, to keep pace with Chinese efforts to convert 
multilateral institutions into instruments of Chinese influence and to 
build institutions that exclude the U.S. and Australia. Japan, Korea 
and others will make important partners in limiting China's efforts to 
circumscribe U.S. influence.
    In South Asia, there is a need to begin to address the underlying 
sources of insecurity that produced the nuclear arms race there. The 
U.S. can usefully energize its diplomacy with Pakistan and India, 
taking advantage of the new self-confidence of the Indian BJP-led 
government and working to prevent the further decline of Pakistan's 
economy and polity.
    President Clinton was correct to show presidential interest in the 
region for the first time in a quarter century. If the U.S. is to 
address the underlying sources of insecurity, and not just their 
nuclear symptoms, China cannot be excluded. Its past troubles and 
promising future with New Delhi combine with a long-term relationship 
with Islamabad to make it a key element of any lasting security 
arrangement in South Asia. Beijing will be wary at first, however, and 
therefore it is likely to be necessary for Washington to begin the 
process with an expanding set of bilateral and multilateral security 
dialogues, from which China will ultimately not want to isolate itself.
    Finally, Central Asia is a target of Chinese policy making. The 
Shanghai Five arrangement is moving toward institutionalization with a 
formal secretariat to coordinate diplomatic, police, military and 
intelligence cooperation among Russia, China, Kazakstan, Kyrgyzstan, 
and Tajikistan. Pakistan has applied to join to make it the Shanghai 
Six. All these states share an interest in dealing with cross border 
crime, migration, radical Islam, and related issues.
    The U.S. may be able to make a small contribution to those 
interests among the Shanghai group that overlap with American 
interests, as in crime fighting. Energy issues also touch on U.S. 
interests. Reinvigorating a modest U.S. diplomatic effort in the 
Central Asian region may serve to test China's willingness to cooperate 
rather than to contend with the United States there.
    Thank you, Mr. Chairman, once again for this opportunity to discuss 
the future of U.S.-China relations with you. I look forward to your 
observations and questions.

    Senator Thomas. Thank you very much.
    Mr. Shambaugh.

 STATEMENT OF DAVID SHAMBAUGH, DIRECTOR, CHINA POLICY PROGRAM, 
          GEORGE WASHINGTON UNIVERSITY, WASHINGTON, DC

    Mr. Shambaugh. Thank you, sir. I also welcome the 
opportunity to testify in front of you, and I, like the others, 
have a brief statement that I've submitted for the record.
    Let me, in the short time allowed, try and summarize a few 
highlighted points from that statement for you. And indeed, I 
think we should come back to Senator Kerry's concerns about the 
missile defense and China's nuclear response issue, and I would 
have something to say on that point later too.
    The three points I'd like to touch on first have to do with 
my assessment of where the relationship is today; second, the 
role that Chinese nationalism and mutual perceptions, public 
perceptions are playing in the relationship more generally; and 
third, the subject of the hearing, where do we go from here, 
although just to tag my argument of where we go from here has 
to do very much with the question of what we seek from China, 
and what kind of relationship do we seek?
    I would hope that the administration is not simply going to 
try and trot out a laundry list of issues that we seek to 
negotiate with China, but indeed has a strategy, has a 
framework, has an overall vision for where they want to take 
the China relationship.
    But briefly where do I see the relationship today? If you 
look back we've certainly had worse times. We've had better 
times. It's not as bad as it was after 1989 in the aftermath of 
the Tiananmen massacre when Ambassador Lilley was serving in 
Beijing. It's not as bad as it was at the height of the 1996 
so-called Taiwan Strait crisis. But I'd say myself looking back 
on the relationship of 25-30 years, as long as I've been 
studying it, it's pretty bad.
    I say that because there's a sense of fragility in the 
relationship today that I haven't seen before, and there's a 
sense of mutual suspicion that is becoming set on both sides 
that I haven't seen before. And I think the EP-3 incident--
we're still a bit too close to it to have the perspective to 
analyze it--but I think when we look back on it we may see it 
as a kind of watershed in the relationship in the following 
way. I think it has shifted public perceptions in both 
countries of the other in a qualitative way toward seeing the 
other as an adversary.
    Prior to the incident the American public was divided on 
the question of whether China is an adversary or not. Public 
opinion polling today--and it doesn't take a rocket scientist 
or a public opinion poller to tell that now China is seen in an 
increasingly adversarial light by the majority of the American 
public.
    Similarly in China the United States is seen as a nation 
hostile to China's interests, as an adversary of China, and 
this is--as you've discussed earlier--driven by Chinese 
nationalism and indeed explicit anti-Americanism to an extent 
that we haven't seen in a very long time in that country. Some 
of this is whipped up by the government. Much of it, however, 
is genuine and very broadly shared in the Chinese population.
    So when you look at the overall relationship this is a 
variable. This is a public perception that I think is very 
important to look at, and it concerns me, and it will constrain 
both governments in dealing with each other.
    We are a democracy. Obviously our public perceptions are 
going to shape Assistant Secretary Kelly's and the U.S. 
Government's policies toward China. They may be a one-party 
authoritarian state, but public opinion in China also shapes 
the Chinese Communist Party's positions toward us. So I'm 
concerned with the kind of overall negative perception that 
each side has of the other.
    Let me note briefly some other elements that concern the 
Chinese, and I say this only to sensitize you to how they look 
at us. Of course we are concerned with our policy toward China, 
but consider yourself a member of the Chinese Government with 
an incoming Bush administration that characterizes you as a 
strategic competitor, claims that it wishes to downgrade China 
as a strategic actor in East Asia while strengthening U.S. 
bilateral alliances and security partnerships all around China, 
seeks to move ahead with a robust and multilayered network of 
global ballistic missile defenses, steps up arms sales to 
Taiwan, suspends bilateral military exchanges, reports in the 
press in the last day or two, which I gather the President may 
echo in his speech today that we're going to retarget a number 
of our own ICBM's on China, condemnation of Chinese human 
rights abuses, failure to appoint any China specialist to the 
top ranks of this administration in any department, possible 
opposition to Beijing's bid for the 2008 Olympics, and our 
reluctance to pick up where the last administration left off on 
North Korea.
    This is how American policy looks from Beijing, and it's 
not a pretty picture. I'd say this not to pass judgment on 
these policies and positions but simply to draw your attention 
to how our policy and our government look from their 
perspective.
    Now, let me then move to my final point, which is what 
should we seek from China in this relationship? I think you 
called a very important set of hearings at a critical time. The 
administration is just getting off the mark. It's undertaking a 
full-scale policy review. As I say, I think it needs a 
framework and a strategy and a vision for managing this 
relationship proactively, not reactively, and it needs to be 
engaged on a constant basis at very high levels with China 
policy.
    China policy is like a garden. It needs to be tended 
constantly. We cannot wait for these incidents to erupt and 
then try and put out the fire.
    But we need to deal with a China that is positively engaged 
peacefully with its region and the world, including Taiwan, 
does not threaten its neighbors, a China that does not 
destabilize other areas in the world through the export of 
ballistic missiles or other sensitive technologies and means of 
delivery, a China that accommodates itself to the American-led 
regional security architecture in East Asia rather than seeking 
to undermine it or oppose or disrupt it--this is a critical 
point that I think we need to have high-level strategic dialog 
with the Chinese about--a China that undertakes its own 
military modernization but in a measured and non-threatening 
manner, a China that does not contribute to the spread of 
narcotics, organized crime, public health threats and others 
that Assistant Secretary Kelly mentioned, and finally, a China 
that does not build its relationship with Russia, a so-called 
strategic partnership, into an anti-American alliance.
    I am very concerned with the question that Senator Hagel 
raised earlier, but like Assistant Secretary Kelly, I don't 
think there's great cause for concern at the moment but need 
for very careful monitoring. So I think as the administration 
goes forward with their policy review they need to review 
former administration's policy reviews, going back to the 
Carter administration, and we need to ask ourselves some big, 
broad questions about the kind of China we seek, China's role 
in this region, China's role in the world, and to then 
structure policies strategically and tactically from that 
framework.
    Thank you.
    [The prepared statement of Mr. Shambaugh follows:]

                 Prepared Statement of David Shambaugh

    Mr. Chairman and members of this distinguished committee, I am 
grateful to you for this opportunity to offer some of my views 
concerning the future of U.S.-China relations. You have heard from my 
colleagues, and going last there is not a great deal to add to their 
comments and insights--as I agree with much of what they have said--but 
allow me to offer a few observations about ``where do U.S.-China 
relations go from here?''
    You have called these hearings at an important and sensitive time 
in the relationship between our two countries. Bilateral ties have 
certainly been worse in recent years--notably in the wake of the 1989 
Beijing massacre and at the height of the 1996 Taiwan Strait crisis--
and they have certainly been better. But I would say that I sense a 
distinct fragility, uncertainty, and mutual suspicion in the 
relationship now that may be unprecedented. I say this with full 
cognizance of the fact that fragility is a permanent feature of Sino-
American relations (and both sides need to learn to live with it), but 
I do believe that the accumulated weight of strains on the relationship 
in recent years is beginning to show, and that we may look back on the 
recent EP-3 incident as a qualitative watershed.
    I say this because it was not only a difficult matter for the two 
governments to manage and negotiate (the release of the crew and return 
of the plane), but principally because of the impact that the events 
had on public perceptions in both countries. It had the cumulative 
effect of deepening existing mutual suspicions hardening public views 
of the other. Both public opinion polling and anecdotal evidence 
confirm that a majority in each nation now perceive the other as a 
principal adversary. The Chinese public, in particular, now sees the 
United States as harboring hostile intent towards China and its 
national aspirations. Some of this perception is the direct result of 
government propaganda and manipulation of information, but much of it 
also reflects genuine and widespread public perceptions.
    Chinese nationalism has been a potent force for much of the period 
since 1919, and it is now increasingly directed against the United 
States. To be sure, it may also be convenient for an insecure regime to 
have (and create) a convenient external target as it wrestles with 
intractable internal problems. But the U.S. is now perceived by a 
majority of average Chinese as trying to hold China back and down, 
retarding its modernization, infringing on its national dignity, and 
restricting its rightful emergence as a world power. Modern history is 
filled with examples that those who seek to frustrate and deny these 
deeply-held Chinese aspirations earn the ire of aroused Chinese 
nationalism.
    If there was a ``is America a threat?'' debate in China prior to 
the EP-3 incident--and there is evidence to suggest that this debate 
was resolved in the affirmative by a series of unfortunate events 
during 1999-2000--this is no longer the case. While many Chinese, 
including some of China's most senior leaders, would like to maintain 
stable and productive ties with the United States, they see unmitigated 
hostile intent coming from Washington. In addition to the EP-3 incident 
(which symbolized to them the hostile intent of the U.S. military), 
they have been very concerned about the new Bush Administration's:

   characterization of China as a ``strategic competitor'' (a 
        term, by the way, that I endorse as an empirically accurate 
        while allowing for simultaneous cooperation);

   desire to downgrade China as a strategic actor while 
        claiming that its principal priority in East Asia policy will 
        be to strengthen U.S. bilateral alliances and security 
        partnerships all around China;

   determination to move ahead with a robust and multi-layered 
        network of global ballistic missile defenses;

   stepped-up arms sales to Taiwan;

   suspension and review of bilateral military exchanges;

   failure to appoint any China specialists to the upper ranks 
        of government, while peppering the administration with well-
        known ``hawks'';

   possible opposition to Beijing's bid to host the 2008 
        Olympic Games; and

   reluctance to pick up where the last administration left off 
        on North Korea policy, which is at variance with the 
        preferences of China, Japan, and our ally the Republic of 
        Korea.

    My point here is not to pass judgment on these policies and 
positions of the new administration, but rather to simply draw your 
attention to how American policy and the U.S. Government look from 
Beijing's perspective--and that of the average Chinese citizen.
    To be sure, American public perceptions of China also shifted in a 
demonstrably negative direction as a result of the EP-3 incident. 
Several public opinion polls following the incident reflect that 
perceptions of China as an ``adversary'' more than doubled--from 
approximately 30-35% to more than 70%. No doubt there is also a residue 
of bad taste among many in the administration and U.S. Embassy in 
Beijing who had to negotiate with China during the crisis.
    Taken together, these mutually suspicious perceptions is not good 
news for the relationship--but any assessment of ``where do U.S.-China 
relations go from here?'' must begin by recognizing this factor as an 
important feature of the relationship. It will have the tangible effect 
of shaping and constraining policies of both governments. China may be 
a one-party authoritarian state, but public opinion and mass 
nationalism is definitely an increasingly important variable affecting 
Beijing's policies toward the United States. Obviously, public 
perceptions also play an important role in shaping foreign policy in 
our democracy. The fact that these mutual public perceptions have moved 
in a more negative direction may be regrettable, but they are a 
subjective fact that have objective consequences.
    As our two nations move ahead in the relationship with China, we 
must be prepared for some rocky waters. This is going to be an 
increasingly difficult relationship to manage and it will likely 
contain a fairly consistent amount of tension. While not desirable, it 
is entirely natural and understandable. It is also manageable. In my 
opinion, however, it does require:

   Constant attention at the senior levels of the National 
        Security Council, White House senior staff (including the 
        Office of the Vice-President), Department of State, Department 
        of Defense, USTR, and intelligence community. The Sino-American 
        relationship is not one that can simply percolate and manage 
        itself--putting out fires where necessary--but rather is one 
        that must be proactively managed.

   Officials with specific expertise and experience in dealing 
        with China and Taiwan affairs--preferably including Chinese 
        language capabilities and time substantial time spent in 
        China--appointed to senior positions in the aforementioned 
        government departments. To date, the lack of such expertise in 
        the administration is glaring. Possessing China expertise does 
        not guarantee sound policy or a harmonious relationship, but it 
        should make for informed policymaking.

   Knowing the past record of relations and agreements with 
        China.

   Keeping an eye on the long-term and big picture of China's 
        domestic evolution and emergence as an active member of 
        international community.

    In terms of China's external orientation, the United States should 
seek a China that:

   Is engaged positively with its region and the world;

   Does not threaten its neighbors, including Taiwan;

   Does not destabilize other sensitive areas of the world 
        through proliferating WMD and their means of delivery;

   Accommodates itself to the American-led regional security 
        architecture, rather than opposing or trying to disrupt it;

   Modernizes its national defense capabilities in a measured 
        and non-threatening manner;

   Is not a purveyor of non-conventional security threats--
        narcotics, aliens, organized crime, HIV/AIDS, pollution, etc.;

   Does not try to turn its ``strategic partnership'' with 
        Russia into an anti-American alliance or relationship;

   And that restrains its own nationalistic and xenophobia 
        impulses.

    Pursuing such an agenda with Beijing will not be easy, but it is 
worth pursuing. In some of these areas we will find that China and the 
United States can and do cooperate. Our respective national interests 
and government's policies coincide with respect to North Korea (at 
least before the Bush administration took office); a mutual desire for 
peace and stability in the Asia-Pacific; control of WMD; and in many of 
the non-conventional security spheres noted above. Yet, at the same 
time, we ``strategically compete'' in our divergent visions for an East 
Asian regional security architecture; over policies toward Iran, Iraq, 
and other ``states of concern''; over the export of ballistic missiles; 
over Taiwan's security; over the regional security role to be played by 
Japan; and over the very role of the United States itself in world 
affairs.
    In short, the dichotomy of whether China is a ``strategic partner'' 
or ``strategic competitor'' of the United States is a false one--as 
China is both simultaneously. It is difficult for Americans to 
understand and adapt to such a relationship of ambiguity and 
complexity, as our nation is more accustomed to dealing with clear 
friends and foes. Yet this ambiguity and complexity is a fact of life, 
and our policymakers in the executive and legislative branches must 
accordingly be both cognizant and creative in this context.
    These are broad benchmarks for what we should seek from the PRC, 
but let me just close this opening statement by saying that we should 
not be naive about the regime we are dealing with in Beijing. It is a 
government that:

   Harbors deep suspicion, even hostility, towards the United 
        States. It is not an exaggeration to say that Beijing's 
        singular foreign policy goal is to weaken and dilute U.S. power 
        (although, fortunately for us, it lacks the capability to do 
        so). It claims that the United States is a hegemonic nation 
        attempting to conquer the world and is, therefore, the greatest 
        threat to world peace. This is not only the view of some 
        hardline hawks in the military and Communist Party, but is a 
        view shared across bureaucracies and in the public mind as 
        well. Make no mistake, the kind of hostile rhetoric we have 
        heard and read out of China in recent weeks is no aberration--
        nor is it empty propaganda we should dismiss as such. China 
        does not care for how the United States behaves in the 
        international arena.

   Is a one-party authoritarian state--but it is also one that, 
        I believe, has a deep sense of insecurity.\1\ It is very 
        resistant to political change from without, and is experiencing 
        only superficial political change from within. The regime is 
        insecure-sitting on all kinds of problems--but not on the verge 
        of implosion like the former Soviet Union or Eastern Europe. 
        Rather the regime's legitimacy and power is progressively 
        decaying over time. Yet there are two observations one can 
        offer about insecure regimes: (1) they can be dangerous, and 
        (2) they will try to create external enemies to divert 
        attention away from domestic problems and mobilize popular 
        nationalism against an outside ``threat.''

   Wishes to restore its dominant role in East Asia--eventually 
        pushing us out of the region militarily, keeping Japan ``in a 
        box'' without any role to play in maintaining regional 
        security, while exercising a veto power over other states in 
        the region.

   Is intent on reintegrating Taiwan under the sovereign and 
        political control of the mainland--preferably peacefully, but 
        by force if necessary.

   Finally, it is nonetheless a regime that needs the United 
        States in a number of ways, does not seek an openly hostile 
        relationship with Northeast Asia, and is prepared to coexist in 
        the short-term, as long as Washington does not jeopardize its 
        four core interests:

                --Monopoly of political control by the CCP;

                --Reabsorbing Taiwan;

                --Maintenance of territorial sovereignty and integrity;

                --Maintaining an inert Japan with weak defensive 
                capability and no re-
                  gional security role.

    Thank you for this opportunity to share my thinking with you. I 
would be pleased to try and respond to any questions you may have.

--------------
    \1\ This perception of mine was seconded in recent days in a 
conversation with a visiting senior Chinese intellectual with close 
ties with several Communist Party leaders.

    Senator Thomas. Thank you very much.
    Mr. O'Hanlon.

    STATEMENT OF MICHAEL O'HANLON, SENIOR FELLOW, BROOKINGS 
                  INSTITUTION, WASHINGTON, DC

    Mr. O'Hanlon. Thank you, Mr. Chairman. It's a pleasure to 
be here. I just wanted to quickly talk about four issues in 
primarily defense and security policy, which is my area of 
expertise. I don't have the China background of my 
distinguished fellow panelists, but I wanted to just talk about 
theater missile defense [TMD], national missile defense, arms 
sales, and the strategic ambiguity question just very briefly, 
touching on each.
    My oral remarks as written up here summarize my overall 
take on where we stand with the military trends, but I wanted 
to apply that analysis now to these four issues if I could.
    On arms sales I would simply argue that the Bush 
administration devised a very strong and balanced package 
because it recognized I think the basic situation 
strategically, which I think will continue for at least 10 
years. I disagree here with a Pentagon report that expects that 
there could be an invasion vulnerability of Taiwan in the near 
future. I think that there will not be such an invasion 
vulnerability on the part of Taiwan but a blockade 
vulnerability is much more pressing. There's a much more 
pressing worry and real worry that China could blockade Taiwan.
    So I think the arms sale package that focused largely on 
naval capability and anti-submarine capability for Taiwan was 
appropriate, and I hope that continues to be a policy we can 
put forth despite the problem with the diesel submarine 
production we've all learned about a fair amount about in the 
last few days.
    I'll come back to theater missile defense in just a second.
    On strategic ambiguity, here I'm afraid I have to disagree 
with Ambassador Lilley in the sense that I don't think there 
was an analogy between the Korea case of 1950 and the Taiwan 
case of the recent past. In Korea Dean Atchison was very 
explicit. We did not consider Korea within our area of interest 
or defensibility. In the case of Taiwan we've always been much 
more ambiguous, and I think we've been ambiguous in a way that 
leans strongly toward intervention.
    I think China already knows that, and so I think you have 
to ask how does the policy change for the practical scenarios 
that may be of relevance and greatest concern here, and I 
certainly agree that we should never allow any doubt in China's 
mind about whether we would allow Taiwan to be conquered. 
Regardless of who starts the diplomatic crisis and how the war 
unfolds, there should be no doubt in Beijing that we would 
prevent Taiwan from being conquered.
    I don't think that's the real scenario of greatest concern. 
I think the question is what sort of missile strikes might 
China undertake? What sort of submarine hit and run attacks 
might it undertake if Taiwan moves toward independence? And in 
that situation as I spell out in an op-ed that I've attached to 
my prepared statement, I think we want some flexibility. I 
think it's better for us to be able to say on the one hand to 
Beijing, cut it out, and we're going to use military force if 
this keeps up and gets worse, but also say to Taipei, back off 
the declaration of independence, and if you want our military 
help stopping these missile strikes or quickly breaking the 
blockade you're going to have to do some things to quiet this 
crisis down. I think our position is stronger if we have 
leverage over both sides.
    I apologize for moving so quickly through these points, but 
I just wanted to keep within my 5 minutes.
    On theater missile defense, the basic way I see this in 
military terms is it's a very hard problem from the point of 
view of the defender. It's very hard to stop ballistic 
missiles. We all know that China has now 300 near the Taiwan 
Strait. Even if we had a Navy theater wide defense up and 
running today the distance from China to Taiwan is so short 
that those missiles could underfly Navy theater wide. Navy 
theater wide is designed to intercept missiles outside the 
atmosphere.
    Other theater missile defenses that we're developing might 
be able to handle the short-range missile threat, but they're 
only going to have a limited geographic coverage. China has so 
many missiles that I think in the end we should not delude 
ourselves into believing that we can really protect against 
them in a full-fledged way.
    On the other hand, I don't think we want to give China the 
sense that it's on the ascendence, that it has the momentum 
with this missile coercive capability. We want sort of a 
balance of perception, a balance of momentum even if we don't 
really at the end of the day believe we can have a robust 
missile defense for Taiwan. So in this case I actually would 
have supported a PAC-3 missile sale or a commitment to such a 
sale on the part of the Bush administration, and my guess is 
they may go ahead with that next year or in the foreseeable 
future.
    I hope there will be some restraint on the Aegis sale. I'm 
not sure that's well advised in the short term because again, 
I'm not sure Taiwan should spend its scarce defense resources 
on a capability that's not going to be that robust anyhow.
    So those are my limited thoughts on TMD. You're looking for 
a balance. You can never really have militarily complete 
defensibility, but it also doesn't make sense to give China a 
carte blanche with its missile buildup near the Taiwan Strait.
    And then finally, getting to national missile defense, just 
a very quick point, and also in reference to Senator Kerry's 
question. My bottom line, I don't know whether it's a good idea 
or not for the United States to try to stop China from having a 
capability against us. It's a very difficult strategic 
question.
    I'll make a military judgment, which is we can't do it--we 
cannot do it even if we try. I simply do not think that any 
technology I know of on the drawing board or even nearing the 
drawing board will be able to deal with the likely and almost 
inevitable Chinese response to any national missile defense 
capability we might devise. On the other hand, China will see 
our buildup and perhaps worry that it has to then build up 
itself.
    So I think in the case of China I would not encourage the 
United States to view that as a plausible target for our 
national missile defense efforts. I think we should focus very 
seriously on Iraq, Iran, and North Korea, and especially with 
boost-phase technology that I think is more promising than the 
Clinton administration proposed system, but I just don't think 
we have the wherewithal technologically to defeat China in an 
offense-defense missile competition because the offense has so 
many advantages in this realm.
    So we may not want to apologize to China too much for our 
deployment, and I'm not interested in giving China too much in 
the way of an ability to protract our own deliberations on this 
subject, but I do think that at the end of the day we cannot 
really win a competition with China, and therefore there's no 
great purpose in trying to, and we might as well reassure them 
so they don't go ahead and take counter-measures or do things 
like proliferate technology to the likes of Iran, Iraq, and 
North Korea as a consequence of our own deployments.
    So I'll wrap up there if you don't mind, Mr. Chairman, and 
look forward to a discussion.
    [The prepared statement of Mr. O'Hanlon follows:]

                 Prepared Statement of Michael O'Hanlon

                          a military analysis
    Chairman Thomas, Ranking Member Kerry, and other members of the 
subcommittee, it is an honor to appear before the Senate today to 
discuss the important matter of the future direction of U.S.-PRC 
relations. Because my expertise is in the general area of defense 
policy, I will focus on the military aspects of those relations.
    China and the United States are in the uncomfortable position of 
trying to be friends while increasingly becoming each other's chief 
military rivals. Given the very real possibility of conflict, 
particularly over Taiwan, and the need of military organizations to 
conduct plausible worst-case planning, it is nearly inevitable that 
this paradox will be with us for many years to come.
    Against this backdrop, we need to prepare ourselves for the fact 
that we are indeed engaged in a protracted military competition with 
China. In this sense, President Bush is surely right to call China a 
strategic competitor. That term may be unfortunate, and even somewhat 
incendiary, if used to describe the broader relationship--hence I would 
encourage Mr. Bush to be more selective about the context in which he 
employs the phrase. But in a military sense, Mr. Bush's description is 
fair, and Americans as well as Chinese need to steel ourselves to that 
reality--rather than be surprised when the other country takes certain 
actions we find less than friendly.
    There is no reason to think that we are headed for an increasingly 
dangerous competition with China. But even those who are sanguine about 
the long-term prospects of the U.S.-PRC relationship and impressed by 
how far China has come in the last 25 years must acknowledge that there 
is a real possibility of war and that both sides will continue to 
prepare for it.
    That said, the United States begins the 21st century with several 
striking strategic advantages vis-a-vis China, and these advantages are 
in my judgment likely to endure for the foreseeable future--certainly 
much more than a decade. They are as follows:

   The United States greatly outspends China on defense--
        presently by a ratio of about 5:1 or even more;

   The United States owns roughly $1 trillion of modern defense 
        equipment, in contrast to China's total of $100 billion or 
        less, and these numbers will not change quickly;

   China's large armed forces, roughly twice the size of the 
        U.S. military, drain resources away from modernization and 
        training accounts. Ironically, partly because it has a large 
        military, China also has a poorly equipped and trained 
        military;

   There are no plausible circumstances under which the United 
        States would wish to mount an invasion of China, so China's 
        large but largely immobile armed forces would do it little 
        good--and China would not have the same type of ``home court 
        advantage'' that countries such as Iraq or North Korea might 
        possess in a future war against America;

   China's domestic defense industrial base is large and 
        improving, but of mediocre quality. China produces no top-notch 
        fighter jets, for example, and is also weak in areas such as 
        submarine and ship production. Moreover, China's domestic and 
        economic problems are severe enough--as my colleague Nicholas 
        Lardy has convincingly shown in a 1998 Brookings book, 
        ``China's Unfinished Economic Revolution''--that it will not 
        easily transform its science and defense industrial sectors 
        into first-class operations anytime soon.

   Regarding Taiwan, although China has Russia as a ready and 
        willing arms supplier, Taiwan has access to the weaponry of the 
        United States and France; the value of Taiwan's arms imports 
        exceeded the value of China's by a ratio of more than 5:1 in 
        the 1990s.

   Taiwan's proximity to China would allow the PRC to use land-
        based aircraft in any conflict over the Taiwan Strait. However, 
        the Strait is sufficiently wide, and Taiwan sufficiently well-
        armed and sufficiently difficult to invade, that amphibious 
        assault is well beyond China's means.

    Of course, China has some advantages as well, even if they are not 
as impressive on the whole as those of the United States. In addition 
to its proximity to the most likely combat theater--Taiwan and 
surrounding waters--it is firmly devoted to the cause of getting the 
island back. It probably has a greater tolerance for casualties than 
the United States. If China's main interest were in coercing or harming 
Taiwan rather than seizing it, its geographical proximity would become 
a significant advantage. For example, it could probably mine Taiwanese 
harbors rather easily, could use submarines in occasional hit-and-run 
attacks against commercial shipping going into and out of Taiwan, and 
could undertake missile strikes against the island. Finally, it might 
be able to profit from certain vulnerabilities in the technology-
dependent American and Taiwanese militaries, especially if they let 
down their guards. For example, to the extent that the United States 
has reduced its efforts to harden military electronics against high-
altitude electromagnetic pulse (EMP)--as appears to be the case--China 
may be able to detonate a nuclear weapon high in the atmosphere east of 
Taiwan and destroy many American and Taiwanese electronics systems 
(without necessarily causing any significant loss of life or otherwise 
provoking U.S. nuclear retaliation).
    What of future trends? The first point to make is that change is 
not that fast in military affairs; building high-quality armed forces 
takes many years if not decades. In particular, I would strongly 
disagree with a recent Pentagon report claiming that China will 
probably have the ability to conquer Taiwan by 2005. The second point 
is that China's military wastes too much money maintaining a large 
force structure--further limiting its ability to modernize quickly. 
(The PLA's official annual budget is increasing 18 percent, but that 
increase is designed partly to help the military get by without owning 
as many private industries.) That is the relatively good news.
    Third, however, China will have the means to improve certain 
capabilities in significant ways in the years ahead. For example, it 
should be able to acquire significant stockpiles of several types of 
advanced missiles--Sunburn anti-ship missiles, improved air-to-air 
missiles, increasingly accurate cruise missiles, as well as accurate 
homing submunitions that may be released by ballistic missiles. Such 
capabilities will put Taiwan at increasing risk of surprise attack 
against its airfields, command posts, ports, and ships, unless Taipei 
and Washington redress their vulnerabilities.
    The long and short of this brief assessment is that the United 
States, and its friend Taiwan, enjoy a relatively strong strategic 
position vis-a-vis China that they can expect to retain for many years. 
However, they will have to be vigilant and responsive to improved PRC 
capabilities. They will also have to be careful to avoid actions that 
could provoke war (as of course will Beijing). The fact that Taiwan and 
the United States could prevail in any conventional conflict in the 
Western Pacific for the foreseeable future does not mean that they have 
anything to gain by winning such a war. In fact, such a war would lead 
to the embitterment of the world's most important and largest rising 
power, and could quite possibly entail a sustained period of low-level 
PRC attacks against Taiwan and the United States even after most 
hostilities were over. Even more than some wars, it is a conflict that 
we must do everything to avoid.

    [Following are two recent op-eds of mine on the subject.]

                                Appendix

                [From the New York Times--Apr. 27, 2001]

                        ``A Need For Ambiguity''

                         (by michael o'hanlon)
    Washington, DC.--In an interview Wednesday on ABC's ``Good Morning 
America,'' President Bush said the United States would do ``whatever it 
took'' to help Taiwan defend itself, up to and including the use of 
military force. The White House later insisted that Mr. Bush had said 
nothing new. But his crystal-clear statement was unquestionably a 
departure from the longstanding policy of strategic ambiguity--in which 
the United States expresses a strong interest in Taiwan's security 
while avoiding an outright promise to defend it in war.
    In one sense, Mr. Bush is right. The United States could never 
stand by and watch China swallow Taiwan. Even though we have not had a 
formal security treaty with Taiwan since the 1970's, it is a thriving 
democracy of 23 million people that remains an important friend. Doing 
nothing while China seized it would make our other allies question our 
commitment to their defense--and might even lead some to consider 
embarking on dangerous military buildups.
    However, China does not have the means to invade Taiwan. If leaders 
in Beijing ever elect to use force, they will probably try to coerce 
Taipei with missile strikes or a naval blockade rather than trying to 
seize the island. Under those circumstances, the United States would 
want the option of doing nothing--at least at first. President Bush's 
ill-considered statement takes a step toward depriving us of that 
option.
    Consider a specific possibility. What if Taiwan clearly moved 
toward declaring independence and China replied with a limited attack? 
China might launch one or two conventionally armed missiles against 
Taiwan's territory and then demand that Taipei renounce its statements 
about independence or face further strikes. Or China might deploy its 
submarines to blockade ships headed toward Taiwan until Taipei 
reaffirmed its commitment to the concept of a single China.
    Under the policy of strategic ambiguity that has been followed by 
the last four American presidents, Washington could take a judicious 
approach in such a situation. It could insist that China call off the 
attacks and could threaten military action--while quietly telling 
Taipei to retract any independence rhetoric if it expected American 
military help. Such a strategy might well work in quelling the conflict 
before it escalated and before it directly involved the United States.
    Unfortunately, Mr. Bush's statement would seem to commit the United 
States to help Taiwan in all circumstances. His pledge of American 
military help if China should attack Taiwan was unequivocal and 
unambiguous. Taiwan would get our prompt assistance regardless of 
whether it renounced provocative statements, whether China's attack was 
limited or open-ended, or whether we had good military options 
available.
    The China-Taiwan relationship is one of the most dangerous in the 
world. President Bush treated it with proper care in his carefully 
balanced arms sales package for Taiwan, but he mishandled it Wednesday. 
In this case, clarification of intent is likely to make the Taiwan 
Strait a less stable, more dangerous place.

               [From the Washington Post--Apr. 14, 2001]

                     ``The Right Arms for Taiwan''

                         (by michael o'hanlon)

    During the [EP-3] standoff with China, the Bush administration 
wisely stated that future U.S. arms sales to Taiwan would not be 
influenced by the crisis. Instead, the administration signaled that it 
would decide which arms to sell Taiwan based strictly on the island's 
military needs. It is high time to ask what those needs really are.
    Taiwan has requested a slew of weapons ranging from submarines to 
surface ships to anti-submarine aircraft to advanced munitions. Given 
its strategic position--a small island [of 23 million] with a defense 
budget of $15 billion, facing the world's largest nation with annual 
defense spending around $40 billion--that extensive shopping list is 
unsurprising. But the United States needs to base its decision on what 
arms to sell on a detailed understanding of Taiwan's military needs, 
and with an eye toward promoting stability and smooth relations between 
Taipei and Beijing. That approach calls for a robust package of arms 
sales this year--but also for a degree of restraint, most specifically 
over the high-visibility issue of Aegis-class destroyers.
    Taiwan is not particularly vulnerable to invasion. Amphibious 
assault against a small, well-armed, densely populated island such as 
Taiwan is extremely difficult. China's ill-equipped and unevenly 
trained military would have to storm shores known for their ruggedness 
in the face of Taiwan's anti-ship weapons, large guns and small arms. 
Leaders in Taipei would have time to mobilize their reserve forces of 
more than 1.5 million--100 times the number of troops China could 
transport in a single journey of its entire amphibious and airborne 
armadas.
    That is not to say Taiwan should be complacent about its 
invulnerability to invasion. For example, it should continue to harden 
its airfields and command posts against Chinese surprise attacks. But 
its real problems lie elsewhere. Specifically, it is at less risk of 
being conquered than of being strangled or coerced. Chinese missile 
strikes and naval blockades are its real headaches.
    To cope with the risk of blockade, Taiwan needs to improve the 
naval balance across the Strait. China currently has some 70 
submarines, with nine of respectable quality. Its surface fleet is 
almost as large. Taiwan is weaker both on the seas and below. Nor does 
it have other assets, such as sufficient numbers of high-quality anti-
submarine aircraft.
    Against this backdrop, the United States should grant Taiwan its 
request for P-3 aircraft specializing in anti-submarine warfare and sea 
control. It should also sell ships with improved anti-submarine and air 
defense capabilities, such as the four Kidd-class destroyers the U.S. 
Navy no longer needs. The United States should also seriously consider 
selling Taiwan submarines. It has desisted from such sales in the past 
out of concern that Taiwan would use them aggressively or preemptively. 
But Taiwan is too trade-dependent to provoke a game of submarine hit-
and-run in the Pacific. Given that it has nothing but four rickety 
submarines built decades ago, its subsurface fleet probably does need 
improvement.
    The hardest question is the missile issue. China has increased the 
number of short-range missiles near Taiwan to somewhere between 200 and 
300, with no signs of slowing down. In the face of this buildup, Taiwan 
and the United States should respond. In particular, Washington should 
agree to sell Taipei its improved Patriot defense system known as the 
PAC-3.
    But the United States should hold off on further sales of theater 
missile defenses--notably, the Aegis-class destroyers that could 
ultimately deploy the Navy Theater Wide defense system in 2008 or 2010. 
There are three reasons for restraint. First, China's missile threat to 
Taiwan is a terror instrument of limited utility, not a war-winning 
instrument. Second, the missiles cannot be reliably stopped anyway. As 
mentioned, Navy Theater Wide is not yet available. Even when it is, it 
will not be able to counter short-range missiles that fly within the 
atmosphere. China could also swamp virtually any missile defense system 
through sheer force of numbers.
    Finally, it is not necessarily a bad thing that Taiwan feel a 
certain vulnerability. U.S. policy continues to support the notion of 
one China. That policy in turn requires both Beijing and Taipei to show 
restraint toward each other. Taipei is most likely to avoid unilateral 
declarations of independence and other provocative actions if it 
recognizes there would be costs and risks in such behavior.
    But the United States also needs to send China a clear message: 
Continue the missile buildup and we will sell Taiwan more advanced 
theater missile defenses in the years ahead. A balance of capabilities 
across the Strait is acceptable; bullying by China is not.

    Senator Thomas. OK. Thank you very much. I appreciate it. 
You have some interesting insights into what we do.
    Mr. O'Hanlon. Thank you, Senator.
    Senator Thomas. I think generally you talked about using 
trade and regular relationships to strengthen over time and so 
on. How do you react then to people who are very concerned 
about human rights? We asked the United Nations Commission on 
Human Rights to do something just recently and they shelved 
that, but that's what we hear a lot, and people are properly 
concerned about human rights.
    How do you deal with that in terms of emphasizing trade and 
relationships? What do you do about that aspect of it?
    Ambassador Lilley. Well, I will try and answer that. I 
think the experience that I've had is that you deal with it in 
constructive ways, not by sticking your tongue out at them.
    We have ways to influence the process in China in terms of 
economic interaction, more so than any amount of criticism in 
the U.N. Commission on Human Rights. What has really changed 
China for the better--and I'm not saying it's perfect by any 
stretch of the imagination--is the introduction of the rule of 
law, the introduction of the American style joint ventures with 
material incentives, our idea of a constitution. The Chinese 
actually took the ``counter-revolutionary'' clause out of their 
earlier Constitution but then of course substituted something 
that was almost as offensive.
    But one can see across the board changes happening because 
of this constructive American approach, and the new Assistant 
Secretary for Human Rights--to whatever they call it in the 
State Department now--is determined to take these constructive 
tacks, the kinds of things that the International Republican 
Institute is doing. They are a lot more effective.
    Jerry Cohen and others are working hard on expanding the 
rule of law. This is a tough proposition but the prestigious 
Yale Law School is introducing this into the Chinese system; 
such as the implied adjudication of disputes through local 
courts--there are always exceptions to the rule of law because 
of the Chinese system, but a multi-faceted approach should be 
to emphasize the positive. We have to protest the cases of 
Americans being arrested and the way they've treated our 
Chinese Americans. We have got to complain, and to object. But 
don't get mad, get even.
    What we see that doesn't work is the kind of linkage that 
was made in 1993 between human rights and most favored nation, 
an obvious open challenge to the Chinese in 1994. We had to 
back down in a rather humiliating way.
    Mr. Paal. I'd just reinforce that. I can imagine a 
Presidential speech given in Shanghai or Beijing this coming 
October which would speak to the better nature of both Chinese 
and American societies rather than finger pointing, talk about 
the moments when China has risen to justice for its own people 
and recount our own struggle in our nation's history for just 
that sort of thing.
    Moreover, practically speaking I believe we're the only 
OECD nation that does not have an economic package to support 
legal reform in China; not even a token amount of money to 
spend on legal reform, whether it's done in the name of 
processing commercial laws so the WTO procedures can be more 
effectively administered or broader principles of justice that 
can be trained into a Chinese core of judiciary and defense 
trial lawyers.
    Senator Thomas. Mr. O'Hanlon, do you think our commitment, 
which I support, to defend Taiwan encourages Taiwan to do some 
things that are inclined to increase the tension?
    Mr. O'Hanlon. That's a very delicate matter, Mr. Chairman, 
because of course I don't want to sound critical of Taiwan's 
basic political system, which I greatly admire, but I do think 
there has been a push in the last few years for Taiwan to 
increase its international visibility and autonomy with even a 
hint of an independence leaning in some of the moves.
    I don't necessarily have any great criticism in the sense 
that if I were Taiwanese perhaps I could understand--I'd want 
the same thing. On the other hand I think it's very much not in 
the United States' interest to encourage that sort of behavior. 
And I do think, for example, when Taiwanese leaders say we 
don't have to bother declaring independence because we all know 
we've already got it, to me that's perilously close to the sort 
of statement we really don't want them to make, and therefore I 
do think we should retain some flexibility to have leverage 
over them.
    It's a much different sort of leverage. It's the leverage 
of a friend in contrast to China, where we're obviously talking 
about leverage against a military competitor even if we're 
friends in another sense in a broader context.
    So I don't mean to sound too critical toward Taiwan, but I 
do think that they have been part of the cause of the recent 
tension and that we want some flexibility and leverage to rein 
them in at times.
    Senator Thomas. It seems like the talk about independence 
has slowed down a little after the election. It was kind of a 
high at that point.
    The advice I got several years ago from the senior minister 
in Singapore was that our job ought to be to help hold peace--a 
peaceful situation over time so there would probably be a 
generational change before this Taiwan issue would probably be 
settled. It seems like that was pretty good advice probably.
    Ambassador Lilley, you spoke of the impact of trade of 
course, and obviously there are some who feel like that the PRC 
has not always complied with the rules of trade and has often 
not. What is there to expect that if they're in WTO that they 
will comply with the rules of trading among partners?
    Ambassador Lilley. Well, just one comment about the Taiwan 
situation. In my experience, when Taiwan has real confidence 
they're more inclined to deal with China. I can make a very 
compelling chronological case of this.
    The argument the Taiwan move for independence is tied to 
our arms sales is basically a Chinese argument. If we repeat 
that I think it weakens our case.
    Senator Thomas. Let me ask, you say when they feel 
confident they deal with them in a more peaceful way or a less 
threatening way----
    Ambassador Lilley. Taiwan opens up to China.
    Senator Thomas. I see.
    Ambassador Lilley. During the Reagan administration it was 
fantastic what Taiwan did when Taiwan had a sense of assurance. 
Yes, it was driven by economic factors too, but I can give you 
many more instances how this happened.
    Senator Thomas. So they'd feel more comfortable----
    Ambassador Lilley. Yes. And right now there is positive 
indications that the DPP, the so-called independence party, is 
beginning to talk in terms of working with the so-called PRC 
three conditions in ``one China'' on establishing political 
relations with China with cross-Strait talks. Taiwan looked at 
it but they fear China may not come through. So Taiwan seeks 
bargaining leverage through us.
    In other words, the negotiations are arcane and very 
Chinese, and maybe we'd better stay out of it in terms of 
direct participation. But it's moving in a positive direction 
commercially, economically and finacially. The fact that we've 
given Taiwan some confidence should not move them toward 
independence. Taiwan in fact has been trying to establish its 
own embassies for 40 years. The current attempts to do so which 
``irritate'' China are nothing new.
    Anyway, getting to the other question you have about trade 
and the Chinese keeping their agreements, probably the most 
effective agreement we've had with them is the one on 
intellectual property rights [IPR] where we do have teeth and 
we were prepared, as I understand it, to raise the tariffs on 
Chinese goods. Earlier, we considered a tariff raise of $2.5 
billion, which was as much as we lost through their ripping us 
off on disks and other video and audio properties.
    They got the message. They signed the agreement on IPR--I 
think most people will agree in this process that there has 
been a reduction in Chinese fabrications. It hasn't been 
perfect, but we have affected the course of events by having 
teeth in our agreement.
    In terms of the WTO that is a tough one, but let me just 
tell you something that John K. Fairbank, the great China 
scholar who was supposed to be pro-China, said in April 1969. 
``Whenever we try to negotiate China's participation 
international arrangements, whether journalistic, tourist, 
commercial, scientific, or nuclear, she will retain a 
bargaining advantage because of her size and self sufficiency 
and because of her implacable self esteem. We shall continue to 
meet righteous vituperation, arrogant incivility. In the end we 
outsiders will probably have to make many more adjustments to 
China's demands than we now contemplate.''
    John K. Fairbank, April, 1969, before we opened up to them, 
these are the problems we have in dealing with China today.
    The negotiations are going to be tough. We're going to have 
to take the problems to the Chinese. We've got other violators 
like Korea, Thailand, India and Japan who've violated IPR. 
We've got to take them all on in a measured and skillful way. 
It's much better to have them inside the tent than outside the 
tent; China should be in WTO. We need to work with our friends 
and allies who have the same problems of market access, which 
is an essential problem in China, market access for service 
industries, technological industries, and others, including 
agriculture. Agricultural subsidies I understand is the key 
issue right now that's holding it up.
    If we can resolve these in ways of mutual compromise--we're 
not going to get a perfect pie--but we should be getting a lot 
more access than we've got now, and the estimates are that our 
exports will go up substantially.
    Senator Thomas. It sounds good.
    Mr. Shambaugh, what is your evaluation of the role of the 
PLA in terms--it seems like particularly in the airplane 
incident and perhaps nationalism entirely the PLA has a 
substantial influence in government. What's your impression of 
that?
    Mr. Shambaugh. I don't think we really know for sure, 
Senator. I think that there's been a lot of premature 
conclusions about the role of the PLA in the EP-3 incident.
    It's clear that the PLA is at the hard-line end of the 
spectrum in China when it comes to views of the United States, 
but they're not alone. There are equally hard-line elements in 
the Communist Party, in the security apparatus and other parts 
of government, and indeed as I think we've seen in the society 
at large. So I'm not myself convinced that the PLA as an 
institution drove the Chinese response in the early days of the 
crisis.
    In fact, I think we might have driven the Chinese response. 
President Bush might have driven the Chinese response and 
Admiral Blair might have driven the Chinese response by their 
demands within the first 36 hours.
    I'm not saying the demands were not appropriate, but from 
the Chinese perspective it narrowed their options shall we say, 
in the demand for the release of the crew, sovereign immunity 
for the plane, and so on and so forth, as opposed to saying, 
well--picking up the hot line for example and calling President 
Jiang and saying, ``Well, apparently there's been a mid-air 
accident. You apparently have lost one of your planes and your 
pilots. We're certainly willing to help in the search and 
rescue. Our plane fortunately did not go down. It looked for a 
while like it might. It's on your air base. We appreciate your 
taking care of the crew. Let's have an exploration of this 
issue.''
    That was an alternative that was not--if it was explored 
certainly was not made by the President. Had he done that I 
think the Chinese response may not have been as hard-line as it 
was.
    My point is I think there is a consensus in China about the 
United States that is not just driven by the PLA. Indeed, it's 
broader, and what particularly worries me is its existence 
broadly in society today, and it's come along for a variety of 
years and a variety of issues: the Belgrade bombing, the 
Olympics, the Yinhe Affair, so on and so forth, so I think that 
in the West we have this tendency to simply put the PLA in this 
corner, and that's not empirically the whole case.
    But I would also say that the PLA, if anything, has 
withdrawn from politics in China in recent years rather than 
becoming more involved in politics. They're becoming much more 
professional in their mission and they're not as 
interventionist, shall we say, in the Chinese political system 
as they once were.
    Senator Thomas. That's interesting that they've apparently 
withdrawn from some of the commercial activities that they've 
been in, but some people believe that there's still a big 
question over whether they're responsible to the government or 
not.
    Mr. Shambaugh. Right.
    Senator Thomas. Which I suppose will always be a question.
    You mentioned I think that the people really have a more 
condescending view than does the government. I was on a program 
this morning when they asked--they felt as if as opposed to the 
time of Tiananmen Square and so on that young people were less 
sympathetic toward working with the United States than they 
used to be, and the young people had become a little more 
nationalistic.
    What's your reaction to that?
    Mr. Paal. I think there's a lot of schizophrenia in China. 
A lot of young people want to come to America and study. They 
want to wear the American style clothes and participate in 
American style culture, but they also feel very strong pride.
    And as I said in my remarks earlier, the people who are in 
their 20's have no recollection really of Tiananmen or other 
disputes with other powers. The United States has loomed as the 
large shadow across China's future in the last decade in their 
minds, and these are the people who will go to the streets and 
will fill up the Web sites with their commentary.
    The Washington Post Web site shows where you are exposed to 
people from Beijing universities and Chinese universities 
generally sending in their questions on e-mail, and it's really 
harsh stuff and it comes at you fast and furious. We need to 
target them better. We need to speak to them more directly and 
find ways of addressing their concerns but don't drive them 
together with a regime that they find quite unpopular at home.
    Don't give that regime a chance to hide behind nationalism 
as it tries to hold on to power for as long as it can without 
conducting internal reform. We should speak to their internal 
agenda for reform in a friendly and encouraging way whenever 
that's possible.
    Ambassador Lilley. Can I add something here, Mr. Chairman?
    Senator Thomas. Sure.
    Ambassador Lilley. One of the ironies is occuring now. When 
I was in China in 1989 there was this outbreak of protest 
demonstrations in the cities, in the urban areas--of pro-
democracy, anti-corruption, anti-nepotism all over urban areas 
in China, not in just Beijing. There were seventy-seven cities 
when we tracked it. The Tiananmen papers say there were twice 
as many outbreaks. There was a huge outpouring of urban feeling 
against the government, whereas at that time the 70 percent of 
the population in the countryside thought that the 
demonstrators were a bunch of wild unruly young kids who should 
be disciplined.
    Professor Zweig of Fletcher had written a piece on this 
processing the countryside. The rural Chinese had no time for 
these demonstrations.
    What you have today is a reverse of that process. You have 
the urban areas steamed up with the nationalism, and much more 
hostile to us. When you go to the countryside--and a friend of 
mine who was recently in Guizhou Province for 4 years and 
speaks beautiful Chinese said that when he got out of the city 
and into the rural areas the complaints were against the 
government. They basically had problems with the government, 
particularly local cadres. The rural exploitation by the 
arrogant and corrupt cadres, the excessive taxes, the stealing, 
all contributed to their arguments against the government.
    Many of the difficulties occurring in China today are 
largely in rural areas, and it's an interesting change in the 
atmosphere in China.
    Senator Thomas. It is interesting, isn't it?
    Ambassador Lilley. Yes.
    Senator Thomas. You think when you go there the Shanghais 
and so on are the--seem to be the advanced ones, and west China 
still way behind, and you think maybe the attitude would be the 
reverse of that.
    Ambassador Lilley. Again, I'm not as pessimistic as some 
about this. Yes, I think Doug Paal is absolutely right that 
there is this violent, strident commentary by these young 
Chinese.
    Senator Thomas. Yes.
    Ambassador Lilley. But they lose nothing from doing that. 
It makes them feel good. They're thumbing their nose at us.
    Senator Thomas. We were in the classroom at Beijing 
University right after the bombing of the embassy, and the kids 
were very strident about it. Well, gentlemen, thank you. I 
appreciate it very much.
    I think we have a real challenge before us now, and I'm a 
little more sympathetic to the administration than some. I 
think it's reasonable for them to take a look at what they're 
doing and get their plans together and so on, and they walked 
in at kind of a tough time too as a matter of fact.
    But at any rate, I appreciate your input and your 
statements will be part of the record, and thank you so much 
for being here.
    [Whereupon, at 3:46 p.m. the hearing was adjourned.]
                              ----------                              


             Additional Questions Submitted for the Record


   Response of Hon. James A. Kelly to an Additional Question for the 
                Record Submitted by Senator Jesse Helms

    Question. The 1951 Allied Peace Treaty with Japan does not bar 
Prisoners of War (POWs) forced to work as slave laborers from suing the 
Japanese corporations for their wages and damages. This is according to 
leading treaty and legal scholars as well as the other countries who 
signed this treaty. Our State Department, however, has chosen in the 
past to oppose U.S. POWs and support Japanese corporations in U.S. 
courts. Will you agree to take a fresh look at this issue once in 
office, and, if the facts warrant, recommend a change to the U.S. 
government's position of the past few years?

    Answer. All Americans owe a great debt to those who served so 
valiantly during World War II. The treatment of our soldiers by the 
Imperial Japanese Government was appalling and morally abhorrent by any 
standard. We sympathize deeply with the POWs and all veterans who 
suffered as a result of their service.
    The 1951 multilateral Treaty of Peace with Japan, to which the U.S. 
is a party, contains a very specific provision in Article 14 that 
settled all war-related claims against both the Government of Japan and 
its nationals, including U.S. nationals who were victims of Japanese 
forced labor were eligible for compensation pursuant to the amended War 
Claims Act of 1948, from the proceeds of liquidated Japanese assets in 
the U.S., including, principally, the assets of Japanese commercial 
interests. American POWs who were held by Japanese forces for the 
duration of the war and who applied for such compensation received, on 
average, over $3,000 pursuant to this statute in the 1950s 
(approximately $20,000 in today's dollars.)
    The Bush Administration--like previous administrations--has 
executed its lawful responsibilities by informing the courts concerning 
the correct interpretation of the 1951 Treaty. The Executive branch has 
not in any way blocked or impeded the POWs access to the courts nor has 
it made any attempt to defend the corporations named in these lawsuits. 
As a matter of law, it is ultimately for the courts to decide exactly 
what the Treaty means. The POWs are represented by able legal counsel 
and are fully exercising their right to have their day in court.
    The U.S. government's position is a long-standing one. No U.S. 
administration has ever taken the view that the Treaty permits a 
private right of action in U.S. courts against Japanese nationals. This 
position is based upon a careful analysis of the text of the 1951 
Treaty, its negotiating record, U.S. Senate debate at the time of 
advice and consent, and relevant decisions of the U.S. courts regarding 
the Treaty and related issues.
    U.S. government officials, including Secretary Powell, have 
discussed the POWs' claims with Japanese government officials on 
several occasions, stressing the strong feelings that this issue 
generates in the U.S. Partly as a result of our representations, 
Foreign Minister Tanaka on September 8, made the Japanese Government's 
first-ever explicit apology to the POWs for their wartime treatment.
                                 ______
                                 

 Responses of Hon. James Kelly to Additional Questions for the Record 
               Submitted by Senator Joseph R. Biden, Jr.

           INDONESIA: VIOLENCE AGAINST HUMAN RIGHTS DEFENDERS

    Question. The current political crisis in Indonesia has exacerbated 
existing conflict and tensions in the outer regions, particularly Aceh 
and Irian Jaya/Papua. Of particular concern is the increasing number of 
violent attacks on human rights defenders, humanitarian workers, and 
non-violent activists and community leaders. How can U.S. policy toward 
Indonesia address these concerns more effectively?

    Answer. We will continue to urge the Indonesian government to 
address problems in Aceh, Irian Jaya and other troubled areas by 
engaging in dialogue to address legitimate local grievances with 
comprehensive political and economic solutions, rather than by 
repressive means. At the same time, we will continue to caution both 
the Indonesian security forces and those opposed to the Indonesian 
government against the use of violence. In Aceh, for example, both 
security forces and the Free Aceh Movement (GAM) have committed serious 
human rights violations against civilians. In Irian Jaya, security 
forces and to a lesser extent Papuan separatists have also committed 
human rights violations.
    In cases of violence against human rights defenders and 
humanitarian workers, we have and will continue to press the Indonesian 
government to investigate abuses thoroughly and bring perpetrators to 
justice. We encourage the continued development of the Indonesian 
justice system, and would support the Indonesian government's creation 
of ad hoc human rights tribunals to consider such cases if appropriate.
    Our assistance program for Indonesia is another tool to assist in 
peaceful resolution of conflict. U.S. assistance is focused on the 
development of civil society and democratization, strengthening the 
rule of law and civilian control over the military. We will continue to 
work with locally based NGOs on good governance, human rights and 
conflict prevention and resolution. We also coordinate our aid with the 
international community to ensure the most leverage for our assistance. 
As Indonesia's democracy evolves, the central government is devolving 
political and fiscal powers to the provinces. As decentralization 
proceeds, for example, we are shifting our police training programs, 
designed to create democratic, community-based police forces to the 
provinces.

                         VIETNAM--HUMAN RIGHTS

    Question. The human rights situation in Vietnam is of great 
concern. According to the State Department's 2000 Country Report on 
Human Rights Practices, the government of Vietnam ``continued to 
repress basic political and some religious freedoms and numerous abuses 
by the Government continue.''
    What steps do you propose to take to address the human rights 
situation in Vietnam?

    Answer. The Department, our Embassy in Hanoi, and our Consulate 
General in Ho Chi Minh City have all urged the Vietnamese Government on 
repeated occasions to respect the human rights of all Vietnamese 
citizens. We will continue to press this issue at every opportunity. We 
will also continue to engage Vietnam on human rights issues through our 
annual Human Rights Dialogue. This dialogue provides a forum for 
expressing our concerns about human rights violations through frank 
discussions with the Vietnamese Government and serves as a vehicle for 
demonstrating to Vietnam that the recognition of international human 
rights principles is a cornerstone of U.S. foreign policy.

                       DEMOCRACY AND HUMAN RIGHTS

    Question 1. Will you commit to assisting RFA obtain necessary 
permission to transmit its broadcasts from nations in the region?

    Answer. I support RFA broadcasting in the area and am prepared to 
continue to assist RFA in seeking permission to transmit in the region.
    RFA keeps my bureau informed of its plans for trying to expand 
broadcasting in East Asia and the Pacific. Our embassies in Mongolia, 
Tajikistan, Kazakhstan and Armenia have assisted RFA in successfully 
arranging for transmitter time in those countries. Our embassies in 
Korea, the Philippines and Thailand also have worked extensively with 
RFA to seek transmitter time. Unfortunately, efforts in these countries 
have not been successful to date.

    Question 2. Will you commit to undertaking a serious diplomatic 
effort to persuade the PRC government to cease jamming of U.S. 
international broadcasting?

    Answer. We will continue to press the Chinese on this issue.
    Through the years we have pressed the PRC government to cease 
jamming of VOA and RFA broadcasting. Jamming of the broadcasts and 
blocking of the VOA and RFA websites are also mentioned every year in 
the Human Rights Report on China. Although the Chinese deny that they 
jam, we have daily monitoring reports that show that they consistently 
jam some Mandarin and Tibetan, though not English-language 
broadcasting. Despite our efforts, the jamming of Tibetan language 
services has increased in the past twelve months.

    Question 3. Describe the role that you believe promoting human 
rights and democracy should play as a goal of U.S. foreign policy.

    Answer. We support democracy abroad because it embodies our 
fundamental ideal of government by and for the people and because it is 
the best guarantor of human rights. Democracy also serves our strategic 
interests. Democracies are far superior to authoritarian systems in 
producing long-term economic growth and social and political stability. 
Democracies are less likely to fight wars with each other and more 
likely to cooperate on security issues.
    Writing new constitutions and holding elections are critical steps 
in the process of democratization. But genuine democracy also requires 
protection of human rights including in particular freedom of political 
expression, functioning political institutions acting under the rule of 
law, respect for the rights of minorities, representative and inclusive 
political parties, an active civil society and free press, and a 
culture of political tolerance and openness to dissenting views.
    The United States promotes democracy through our diplomacy and 
programs, both bilaterally and multilaterally. In the East Asia and 
Pacific region, we support activities promoting democratic institution 
building in key countries where transition to democracy is in progress. 
We have funded programs to advance judicial professionalism and respect 
for human rights in Indonesia. U.S. funding will also support Cambodian 
NGOs engaged at all levels of government and society to help plan, 
monitor, and implement Cambodia's first-ever local elections in 
February 2002. Another high priority is the promotion of rule of law in 
China.

                                  
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