[Senate Hearing 108-265]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-265
 
                          U.S.-CHINA RELATIONS
=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 11, 2003

                               __________

       Printed for the use of the Committee on Foreign Relations








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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                  (ii)










                            C O N T E N T S

                              ----------                              
                                                                   Page

Brown, Hon. Harold, counselor and member, Board of Trustees, 
  Center for Strategic and International Studies [CSIS], 
  Washington, DC.................................................    61
    Prepared statement...........................................    63
Campbell, Dr. Kurt M., senior vice president, Henry A. Kissinger 
  Chair for National Security, and director, International 
  Security Program, Center for Strategic and International 
  Studies [CSIS], Washington, DC.................................    40
    Prepared statement...........................................    42
Feingold, Hon. Russell D., U.S. Senator from Wisconsin, prepared 
  statement......................................................    13
Kelly, Hon. James A., Assistant Secretary of State, Bureau of 
  East Asian and Pacific Affairs, Department of State, 
  Washington, DC.................................................     4
    Prepared statement...........................................     6
    Responses to additional questions for the record from Senator 
      Brownback..................................................    69
    Responses to additional questions for the record from Senator 
      Allen......................................................    70
Kumar, Mr. T., advocacy director for Asia and Pacific, Amnesty 
  International USA, Washington, DC..............................    45
    Prepared statement...........................................    48
Lardy, Dr. Nicholas R., senior fellow, Institute for 
  International Economics, Washington, DC........................    28
    Prepared statement...........................................    33
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening 
  statement......................................................     3

                                 (iii)















                          U.S.-CHINA RELATIONS

                              ----------                              

                      THURSDAY, SEPTEMBER 11, 2003

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:32 a.m. in room 
SD-419, Dirksen Senate Office Building, Hon. Richard G. Lugar 
(chairman of the committee), presiding.
    Present: Senators Lugar, Hagel, Allen, Alexander, Coleman, 
Sarbanes, Feingold, and Bill Nelson.
    The Chairman. This hearing of the Senate Foreign Relations 
Committee is called to order.
    It's a pleasure to note, in our audience today, four 
Members of the Parliament of Great Britain. And I note that Mr. 
Blizzard, Mr. Holmes, Mr. Russell, and Mr. Weir are here, and 
also Mr. Paul Riderman, who's Advisor to Secretary General 
Solana. Will you rise so we will know that you are here? We 
thank you so much for coming. It's an honor to have you here 
this morning.
    The Committee on Foreign Relations today welcomes James A. 
Kelly, an old friend of the committee, and Assistant Secretary 
of State for East Asian and Pacific Affairs.
    On our second panel, we will have four distinguished 
outside experts, Nicholas Lardy, a senior fellow at the 
Institute for International Economics, Harold Brown, former 
Secretary of Defense and counselor and trustee of the Center 
for Strategic and International Studies [CSIS], Kurt Campbell, 
former Assistant Deputy Secretary of Defense for Asia and the 
Pacific, and now senior vice president and director of the 
International Security Program at CSIS, and T. Kumar, Amnesty 
International USA advocacy director for Asia and the Pacific.
    The purpose of this hearing is to review the relationship 
between the United States and the People's Republic of China. 
This relationship is one of the most complex foreign policy 
issues that we must manage today. China's economic and 
political influence is growing, and few Asian problems can be 
solved without its cooperation. In recent months, China has 
taken some helpful steps in the global war on terrorism, and 
performed an active role in seeking a diplomatic solution to 
North Korea's dangerous nuclear weapons program. Although these 
steps have led to improved political cooperation with China, we 
continue to have serious issues of concern, and sometimes sharp 
disagreements with the Beijing Government.
    The driving force in China's evolving relationship with the 
United States and the rest of the world is its record of 
economic growth. Since 1979, China has maintained an average 
annual growth rate of nearly 10 percent, lifting 200 million 
people out of extreme poverty and creating a new middle class. 
For Americans, however, the most visible aspect of this 
transformation is the large and growing trade deficit with 
China, which reached $103 billion last year. This is more than 
twice the size of our deficit with China from 1997, for 
comparison.
    China is now the third-largest supplier of imports to the 
United States, and an increasing proportion of the products 
being imported are relatively sophisticated items, such as 
computers and microwave ovens. China is now the world's largest 
recipient of foreign direct investment. A good share of this 
investment has come from American firms.
    China's economic policies require close scrutiny because of 
their implications for both U.S. national security policy and 
United States jobs. Many American workers in the manufacturing 
sector perceive their livelihoods to be threatened by China's 
ability to attract investment, its low wages, and its trade 
practices. These workers want to know that everything is being 
done to ensure that China plays fair in the international 
marketplace. In particular, there is great concern about the 
under-valued Chinese currency, about China's resistance to 
complying with WTO obligations to reduce trade barriers, about 
its failure to adequately protect copyrights on software and 
other intellectual property. Our trade representatives and 
diplomats must tirelessly pursue these issues with the Chinese, 
both in specific talks and in the context of our broader 
relationship.
    We must also pay attention to the impact of China's growth 
on economic stability in Asia. Prosperous countries, such as 
Japan, Korea, and Taiwan, are worried that their own 
manufacturing industries are being hollowed out, while many 
developing countries in Asia are complaining that China is 
absorbing much of the foreign investment that would have gone 
their way. China's smaller neighbors worry about Chinese 
influence in regional affairs, including the recurrent disputes 
over the South China Sea.
    With China's new wealth has come a major program to 
modernize its military, the world's largest. According to a 
recent Council on Foreign Relations report, the focal point of 
this military modernization is influencing Taiwan's political 
choices about reunification.
    In early 2001, after President Bush's statement that the 
United States would not remain aloof if China attacked Taiwan, 
I wrote, ``I will be one of many Americans assisting the 
President in his assertion that a forceful military unification 
of Taiwan and China will not be tolerated.'' Today, we should 
consider what China's military program means for the United 
States, its neighbors, and especially Taiwan. Given China's 
past history as a proliferator of weapons technology, does this 
modernization pose new proliferation risks?
    Finally, China's development has given millions of Chinese 
citizens new personal space to choose their jobs, start 
businesses, make money, travel, and communicate with one 
another and the outside world. These developments have produced 
more questions about democracy in China, transparency in 
government, and observance of human rights. According to 
Amnesty International's latest report, the human-rights 
situation in China has worsened. The Strike Hard Campaign, the 
handling of the SARS epidemic, actions against Falun Going, 
moves against ethnic minorities in the name of counter-
terrorism, and continuing repression in Tibet all raise 
important questions.
    We look forward to discussing these issues with our 
witnesses. We thank each of them for agreeing to appear before 
us today.
    [The opening statement of Senator Lugar follows:]

             Opening Statement of Senator Richard G. Lugar

    The Committee on Foreign Relations welcomes today James A. Kelly, 
Assistant Secretary of State for East Asian and Pacific Affairs. On our 
second panel we will have four distinguished outside experts: Nicholas 
Lardy, a senior fellow at the Institute for International Economics; 
Harold Brown, former Secretary of Defense and counselor and trustee of 
the Center for Strategic and International Studies; Kurt Campbell, 
former Assistant Deputy Secretary of Defense for Asia and the Pacific 
and now senior vice president and director of the International 
Security Program at CSIS; and T. Kumar, Amnesty International USA's 
Advocacy Director for Asia and the Pacific.
    The purpose of this hearing is to review the relationship between 
the United States and the People's Republic of China. This relationship 
is one of the more complex foreign policy issues that we must manage 
today. China's economic and political influence is growing, and few 
Asian problems can be solved without its cooperation. In recent months 
China has taken some helpful steps in the global war on terrorism and 
performed an active role in seeking a diplomatic solution to North 
Korea's dangerous nuclear weapons program. Although these steps have 
led to improved political cooperation with China, we continue to have 
serious issues of concern and sometimes very sharp disagreements with 
the Beijing government.
    The driving force in China's evolving relationship with the United 
States and the rest of the world is its record of economic growth. 
Since 1979, China has maintained an average annual growth rate of 
nearly 10 percent, lifting 200 million people out of extreme poverty 
and creating a new middle class. For Americans, however, the most 
visible aspect of this transformation is the large and growing trade 
deficit with China, which reached $103 billion last year. This is more 
than twice the size of our deficit with China from 1997. China is now 
the third largest supplier of imports to the United States, and an 
increasing proportion of the products being imported are relatively 
sophisticated items such as computers and microwave ovens. China is now 
the world's largest recipient of foreign direct investment. A good 
share of this investment has come from American firms.
    China's economic policies require close scrutiny because of their 
implications for both U.S. national security policy and U.S. jobs. Many 
American workers in the manufacturing sector perceive their livelihoods 
to be threatened by China's ability to attract investment, its low 
wages, and its trade practices. These workers want to know that 
everything is being done to ensure that China plays fair in the 
international marketplace. In particular, there is great concern about 
the undervalued Chinese currency, about China's resistance to complying 
with WTO obligations to reduce trade barriers, and about its failure to 
adequately protect copyrights on software and other intellectual 
property. Our trade representatives and diplomats must tirelessly 
pursue these issues with the Chinese, both in specific talks and in the 
context of our broader relationship.
    We also must pay attention to the impact of China's growth on 
economic stability in Asia. Prosperous countries such as Japan, Korea, 
and Taiwan are worried that their own manufacturing industries are 
being ``hollowed out,'' while many developing countries in Asia are 
complaining that China is absorbing much of the foreign investment that 
would have gone their way. China's smaller neighbors worry about 
Chinese influence in regional affairs, including the recurrent disputes 
over the South China Sea.
    With China's new wealth has come a major program to modernize its 
military, the world's largest. According to a recent Council on Foreign 
Relations report, the focal point of its military modernization is 
influencing Taiwan's political choices about reunification. In early 
2001, after President Bush's statement that the United States would not 
remain aloof if China attacked Taiwan, I wrote: ``I will be one of many 
Americans assisting the president in his assertion that a forceful 
military unification of Taiwan and China will not be tolerated.'' Today 
we should consider what China's military program means for the U.S., 
its neighbors, and especially Taiwan. Given China's past history as a 
proliferator of weapons technology, does this modernization pose new 
proliferation risks?
    Finally, China's development has given millions of Chinese citizens 
new personal space to choose their jobs, start businesses, make money, 
travel, and communicate with one another and the outside world. These 
developments have produced more questions about democracy in China, 
transparency in government, and observance of human rights. According 
to Amnesty International's latest report, the human rights situation in 
China has worsened. The ``strike hard'' campaign, the handling of the 
SARS epidemic, actions against Falun Gong, moves against ethnic 
minorities in the name of counter-terrorism, and continuing repression 
in Tibet, all raise important questions.
    We look forward to discussing these issues with our witnesses, and 
we thank each of them for agreeing to appear before us today.

    The Chairman. It's a special pleasure to have you, 
Secretary Kelly. Would you please proceed with your testimony?

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

    Mr. Kelly. Thank you very much, Mr. Chairman. And thank 
you, sir, for that statement, which I think summarizes 
exceptionally well many of the factors that I will try to touch 
on in this testimony.
    With your permission, sir, I would like to just have an 
abbreviated version of my statement, and submit the entire 
statement for the record.
    The Chairman. It will be published in full in the record.
    Mr. Kelly. Thank you, sir.
    It's a pleasure and an honor to address the Senate Foreign 
Relations Committee on one of the most important bilateral 
relationships of the 21st century, the U.S.-China relationship. 
As the world's most populous country, with a huge and rapidly 
growing economy and a permanent seat on the United Nations 
Security Council, China is well on its way to becoming a major 
force in global affairs. In some respects, it is already there. 
In others, it has aspirations to leadership that could 
complement or potentially conflict with our Nation's 
objectives. Managing our relationship with this dynamic and 
evolving country and ensuring that the U.S.-China relationship 
is a force for peace, security, and prosperity, is a task as 
critical as it is complicated.
    President Bush, Secretary Powell, and all of us in the 
administration have worked very hard over the last 2\1/2\ years 
to forge a candid, constructive, and cooperative relationship 
with China. In the spirit of dealing straightforwardly with our 
differences, and building on common interests, the President 
has met with China's leader an unprecedented four times since 
taking office. He visited China twice in his first 13 months in 
office, hosted President Jiang Zemin in Crawford last October, 
and met the new Chinese President Hu Jintao in France this 
June. I expect additional senior meetings even before the end 
of this year.
    While not minimizing the differences that remain over human 
rights, nonproliferation, and Taiwan, I can report to you, sir, 
that the administration's approach to China has resulted in a 
U.S.-China relationship that is, on some fronts, the best it 
has been in years. It is marked by complementary and sometimes 
common policies on a broad range of issues that are critical to 
U.S. national interests. The war on terrorism, and critical 
regional security issues are two examples.
    Both China and America understand that what we need, what 
is in both of our interests, is a relationship that is 
pragmatic, based on mutual respect, and focused on furthering 
peace and stability in the world. By ``pragmatic,'' I mean that 
we maintain and strengthen our core interests or values. Yes, 
we have real and important differences with China, and we must 
continue to encourage China's evolution as a responsible global 
power that contributes to the solution of global problems and 
respects its international obligations in areas such as 
nonproliferation, trade, and human rights. Our goal is to 
develop a relationship with the PRC that furthers bilateral 
cooperation on a range of critical issues while staying true to 
U.S. ideals and principles.
    I was recently in Beijing for six-party talks aimed at the 
complete, verifiable, and irreversible termination of North 
Korea's nuclear programs. China played a critical role in 
getting the DPRK to the table and arranging the talks and in 
letting Pyongyang know that North Korea's pursuit of nuclear 
weapons is not simply a bilateral issue between the U.S. and 
North Korea, but is a matter of great concern to its neighbors 
in the region.
    It bears remembering that 50 years ago the U.S. and the PRC 
were fighting on opposite sides of a war on the Korean 
Peninsula. Clearly, China and the United States do not have 
identical perspectives on world affairs. Taiwan is one example. 
Our abiding interest is in a peaceful resolution of cross-
strait differences. We continue to tell China clearly that its 
missile deployments across the strait from Taiwan and refusal 
to renounce the use of force are fundamentally incompatible 
with a peaceful approach.
    I want to highlight today the profound importance of 
China's extraordinary and ongoing economic transformation. In a 
clear move away from a moribund Communist economic system, 
China has implemented market-oriented reforms over the past two 
decades, and unleashed individual initiative and 
entrepreneurship. While substantial development challenges 
remain, the result has been the largest reduction of poverty 
and one of the fastest increases in income levels ever seen.
    China's economic relations with the United States and the 
world have also been transformed. In general, trade relations 
in East Asia are undergoing significant restructuring. For 
example, South Korean exports to China in July exceeded their 
exports to the United States for the first time. These trends 
are likely to accelerate as intra-regional trade in East Asia 
continues to expand. And I would interject that some 10 years 
ago, China was perhaps a 1-percent factor in intra-Asian trade 
throughout East Asia. It's now approaching 20 percent. This is 
incredible growth in a short period of time.
    Largely closed to foreign firms until 1980, China is now 
the world's fourth-largest trading nation, with total trade of 
over $600 billion. Trade between the U.S. and China has led the 
way, reaching more than $148 billion in 2002.
    But some of our most serious disagreements with China today 
relate to the nature of China's political system and its 
internal policies. Despite reform, China's legal system remains 
seriously flawed and often provides little or no due process to 
those accused of crimes, particularly political crimes. There 
is simply no other way to put it. Ongoing gross violations of 
human rights are a serious impediment to better relations, and 
undermine the goodwill generated by individual releases or by 
other steps.
    We have been particularly disappointed by backsliding on 
human rights this year, after a year of incremental but still 
unprecedented progress in 2002. It is important that China take 
steps to modernize its criminal and civil jurisprudence system, 
and we intend to press these issues in our bilateral meetings 
with China.
    There are also steps that need to be taken with regard to 
nonproliferation. The Chinese have expressed their desire to 
stem the proliferation of missiles and WMD, and we are 
heartened by recent steps taken in the right direction, but 
there's a long way to go.
    Perhaps, sir, I'd conclude by returning to where I started. 
The U.S.-China relationship has come a long way since just a 
few years ago, and has moved beyond some rocky moments, notably 
the accidental bombing of China's Embassy in Belgrade and the 
EP-3 crisis of April of 2 years ago, to begin to build a more 
mature relationship, one defined as much by our common efforts 
in support of shared interests as by our differences. I do not 
underestimate the challenges of our relations with China, and 
we must continue to speak frankly and forcefully on issues that 
concern us.
    A U.S.-China relationship that is candid, cooperative, and 
constructive is both necessary and possible today. It is also 
in the interest of our mutual prosperity and peace and that of 
the Asian Pacific region and the world.
    Thank you, Mr. Chairman. Sir, I'd be happy to take 
questions from the committee.
    [The prepared statement of Mr. Kelly follows:]

   Prepared Statement of Hon. James A. Kelly, Assistant Secretary of 
  State, Bureau of East Asian and Pacific Affairs, Department of State

    Good Morning. Thank you Mr. Chairman for the opportunity to address 
the Senate Foreign Relations Committee on one of the most important 
bilateral relationships of the 21st century--The US-China relationship.
    As the world's most populous country, with a huge and rapidly 
growing economy, and a permanent seat in the UNSC, China is well on its 
way to becoming a major force in global affairs. In some respects, it 
is already there; in others, it has aspirations to leadership that can 
complement--or potentially conflict with--our nation's objectives. 
Managing our relationship with this dynamic and evolving country and 
ensuring that the US-China relationship is a force for peace, security, 
and prosperity is a task as critical as it is complicated.
    Many have tried to sum up the United States' relationship with 
China in a catch phrase--friend or enemy, good or bad, strategic 
competitor or strategic partner. Such characterizations are neither 
useful nor accurate. Our relationship with the PRC and its 1.3 billion 
citizens is too complex, varied, and fast changing to be reduced to 
sound bites. And so today, avoiding broad generalizations and overly 
simplistic judgments, I want to give you specifics on where we stand on 
a whole range of issues with the PRC after the first two years of this 
Administration.
    President Bush, Secretary Powell, and all of us in the 
administration have worked hard over the last two and a half years to 
forge a candid, constructive and cooperative relationship with China. 
In the spirit of dealing straightforwardly with our differences and 
building on common interests, the President has met with China's leader 
an unprecedented four times since taking office. He visited China twice 
in his first 13 months in office, hosted President Jiang Zemin in 
Crawford last October, and met the new Chinese President Hu Jintao in 
Evian, France this June.
    While not minimizing the differences that remain over human rights, 
nonproliferation, and Taiwan, I can report to you that the 
administration's approach to China has resulted in a US-China 
relationship that is, on some fronts, the best it has been in years. It 
is marked by complementary--and sometimes common--policies on a broad 
range of issues that are critical to US national interests: the war on 
terrorism and critical regional security issues are just two examples.
    Both China and America understand that what we need--what is in 
both of our interests--is a relationship that is pragmatic, based on 
mutual respect, and focused on furthering peace and stability in the 
world.
    By pragmatic, I mean that we maintain and strengthen our core 
interests or values. Yes, we have real and important differences with 
China and we must continue to encourage China's evolution as a 
responsible global power that contributes to the solution of global 
problems and respects its international obligations in areas such as 
nonproliferation, trade, and human rights. Our goal is to develop a 
relationship with the PRC that furthers bilateral cooperation on a 
range of critical issues while staying true to US ideals and 
principles.
    I was recently in Beijing for 6-party talks aimed at the complete, 
verifiable, and irreversible termination of North Korea's nuclear 
programs. China played a critical role in getting the DPRK to the table 
and arranging the talks, and in letting Pyongyang know that North 
Korea's pursuit of nuclear weapons is not simply a bilateral issue 
between the US and the DPRK, but is a matter of great concern to its 
neighbors in the region.
    It bears remembering that 50 years ago the U.S. and the PRC were 
fighting on opposite sides of a conflict on the Korean peninsula. 
Today, by contrast, we share a common goal in preventing North Korea's 
further development of weapons of mass destruction. China's 
appreciation of the need to bring North Korea back into compliance with 
its international commitments is significant indeed. As PRC chair of 
the talks, Vice Foreign Minister Wang Yi, said at the conclusion of the 
talks, China would continue to do its part to seek a peaceful 
settlement of the nuclear issue and a lasting peace in the Korean 
peninsula. We will continue working with the Chinese and our other 
partners to find a peaceful, diplomatic solution to this complicated 
and difficult issue.
    Today marks the two year anniversary of the tragic attacks of 
September 11th. The swift Chinese condemnation of those attacks and the 
subsequent enhancing of our bilateral counter-terrorism cooperation 
have shown that we stand united in our fight against those who wish ill 
to the United States, and the security and stability of the world. The 
PRC voted in support of both UN Security Council resolutions after the 
September 11th attacks. Within two weeks of 9-11, we initiated a U.S.-
China counterterrorism dialogue to improve practical cooperation, and 
have subsequently held two rounds of those talks and are looking 
towards a third round. China supported the coalition campaign in 
Afghanistan and pledged $150 million--a significant amount measured 
against China's historical foreign aid commitments--to Afghan 
reconstruction following the defeat of the Taliban and our successes in 
disrupting and setting back al Qaeda. This July, China joined the 
Container Security Initiative, enabling joint efforts to target and 
pre-screen cargo being shipped to the U.S. from Chinese ports. This 
means that Chinese and American customs officials will be working 
together on the ground in China to keep Americans safe at home.
    We have also had a useful dialogue on Iraq. China voted for UN 
Resolution 1441 authorizing renewed weapons inspections in Iraq, and 
publicly decried Baghdad's attempts to play games with the UN Security 
Council. We are looking for ways to engage China further in 
reconstruction and stabilization efforts in Iraq.
    Clearly, China and the U.S. do not have identical perspectives on 
world affairs. Taiwan is one example. Our abiding interest is in a 
peaceful resolution of cross-Strait differences; we continue to tell 
China clearly that its missile deployments across the Strait from 
Taiwan and refusal to renounce the use of force are fundamentally 
incompatible with a peaceful approach.
    Let me assure you that this Administration takes seriously its 
obligations under the three U.S.-China communiques and the Taiwan 
Relations Act. We will continue to adhere to our ``one China'' policy. 
We will also consider the sale of defense articles and services at an 
appropriate level to allow Taiwan to maintain its ability to defend 
itself.
    However, we can say that on some of the most important 
international issues of the day, China and the United States have 
overlapping, if not identical, interests, and that the areas of shared 
interest and cooperation are growing in both scope and intensity.
    I want to highlight today the profound importance of China's 
extraordinary, ongoing economic transformation. In a clear move away 
from a moribund communist economic system, China has implemented 
market-oriented reforms over the past two decades and unleashed 
individual initiative and entrepreneurship. While substantial 
development challenges remain, the result has been the largest 
reduction of poverty and one of the fastest increases in income levels 
ever seen. China's economic growth has reportedly averaged 9% since 
1979, and is expected to remain strong in 2003 despite the setbacks of 
the SARS outbreak and a sluggish global economy.
    China's economic relations with the United States and the world 
have also been transformed. In general, trade relations in East Asia 
are undergoing significant restructuring; for example, South Korean 
exports to China in July exceeded their exports to the U.S. These 
trends are likely to accelerate as intra-regional trade in East Asia 
continues to expand.
    Largely closed to foreign firms until 1980, China is now the 
world's fourth-largest trading nation, with total trade over $600 
billion. Trade between the U.S. and China has led the way, reaching 
more than $148 billion in 2002. China is America's fourth largest 
trading partner, sixth largest export market and fourth largest source 
of imports. If current trends continue, China may pass Japan as our 
third-largest trading partner by the end of 2003. In the process, China 
has also become the world's largest recipient of FDI. U.S. firms have 
invested over $25 billion in China, in key areas ranging from energy 
development to automotive and telecommunications technology. U.S. 
economic engagement with China can--and should--promote prosperity in 
both countries and throughout the world.
    The United States is currently running a large bilateral trade 
deficit with China. We want to eliminate any and all unfair trade 
practices that contribute to this deficit and are working with China to 
open its markets further, insisting that our trade relationship be 
based on a shared commitment to open markets and to playing by the 
rules. Maintaining domestic support for open markets to China will 
become increasingly difficult without demonstrated support in China for 
open markets to U.S. goods and services. I should note some encouraging 
signs on that score: our exports to China are growing at a nearly 25% 
pace this year. Nevertheless, there is still room for improvement.
    China's full and timely implementation of its WTO commitments is 
key to expanding market opportunities for U.S. firms in China and 
ultimately creating more jobs for American workers and farmers. We are 
working with our Chinese counterparts to hasten that process, and 
believe China's WTO implementation will accelerate China's economic 
reform through the creation of a more rules-based and market-driven 
economy. While China has made great strides in reforming its economy 
and moving toward a market-based economy, lowering tariffs in the 
process, we still believe more needs to be done.
    We have serious concerns with China's WTO compliance in certain 
areas--particularly in agriculture, intellectual property rights, the 
services sector, and the cross-cutting issue of transparency--and are 
insisting that the Chinese address these concerns. I want to emphasize 
that monitoring and enforcing China's implementation of its WTO 
commitments are top priorities for the U.S. government. We also look 
forward to working with the PRC on key economic issues in the current 
Doha Round, including a move to reduce agricultural subsidies, which 
inhibit the trade of goods in which the United States and China are 
both competitive.
    I should also note that with the end of the textile quota system in 
2004 the explosive growth of China's textile industry will pose 
increasing challenges, not simply to our domestic producers, but to the 
legion of developing economies that rely on textile exports. Navigating 
this process will require some sensitivity by China as others adjust.
    I know that many members of Congress are concerned that China is 
deliberately maintaining an undervalued currency to gain an unfair 
advantage in trade. Treasury Secretary Snow, in his recent visit to 
Beijing, reiterated to Chinese officials our belief that the best 
international economic system is one based on free trade, free capital 
flows, and market-determined exchange rates. We are encouraging China 
to accelerate trade liberalization, permit the free flow of capital, 
and take steps to establish a floating exchange rate. I understand that 
you will have many questions about the currency issue and I defer to my 
colleagues at the Treasury to address this issue in more detail.
    Some of our most serious disagreements with China today relate to 
the nature of China's political system and its internal policies. 
Although access to information from outside China and the imperatives 
of economic reform have made it increasingly difficult for the 
Communist Party to control social and political thought or activities, 
China remains a one-party system where the people who rule and who make 
the rules are by and large not accountable to the general population. 
The abuses that such a system invites are manifest in China's lack of 
respect for the rights of its citizens. Any individual or group the 
regime sees as threatening--whether they be democracy activists, Falun 
Gong practitioners, Christians worshiping in home or unregistered 
churches, Tibetans, Muslim Uighurs, journalists investigating 
corruption, laid-off workers protesting, or even university students 
venting on the Internet--any of these people run the risk of detention 
or worse if they cross an ill-defined line.
    Despite reform, China's legal system remains seriously flawed, and 
often provides little or no due process to those accused of crimes, 
particularly political crimes. There is simply no other way to put it--
ongoing gross violations of human rights are a serious impediment to 
better relations and undermine the goodwill generated by individual 
releases or other steps.
    We have been particularly disappointed by backsliding on human 
rights this year, after a year of incremental, but still unprecedented, 
progress in 2002. It is important that China take steps to modernize 
its criminal and civil jurisprudence system and we intend to press 
these issues in our bilateral meetings with China.
    There are also steps that need to be taken with regard to 
nonproliferation. The Chinese have expressed their desire to stem the 
proliferation of missiles and WMD, and we are heartened by recent steps 
taken in the right direction. Under Secretary for Arms Control and 
International Security John Bolton was recently in Beijing for the 
second round of a semi-annual security dialogue aimed at--among other 
key issues--halting the spread of these deadly weapons and 
technologies. Although China recently issued updated regulations on the 
export of chemical and biological agents, as well as missile-related 
export controls, full implementation and effective enforcement are 
still lacking. We continue to see disturbing cases of proliferation 
activities by certain Chinese firms. As you know, the Administration 
has not shied from sanctioning such activities, as required by U.S. 
law. China must realize that this kind of proliferation not only 
damages its relationship with the U.S., but also ultimately hurts its 
own interests and security.
    Let me return to where I started. The U.S.-China relationship has 
come a long way since just a few years ago, and has moved beyond some 
rocky moments--notably the accidental bombing of China's embassy in 
Belgrade, and the EP-3 crisis--to begin to build a more mature 
relationship: one defined as much by our common efforts in support of 
shared interests as by our differences.
    Contrast those difficult moments with where we are today--four 
presidential meetings in two years, a common stand on some of the most 
pressing matters of the day, and a relationship that across a number of 
different dimensions is enormously robust.
    I do not underestimate the challenges of our relations with China, 
and we must continue to speak frankly and forcefully on issues that 
concern us. A U.S.-China relationship that is candid, cooperative, and 
constructive, is both necessary and possible today. It is also in the 
interests of our mutual prosperity and peace and that of Asia-Pacific 
region and the world.
    Thank you. I look forward to taking your questions.

    The Chairman. Thank you very much, Secretary Kelly. We'll 
have a round of questioning, and the Chair will suggest 8-
minute limits, at least for the first round. If there are 
additional questions for the Secretary, why, we'll have another 
round, and then we will have another panel.
    I'll begin the questioning. You mentioned the relations 
improving. I know, from previous testimony, you have pointed 
out the work you have been doing, personally, as well as 
through others, with the Chinese with reference to North Korea. 
Can you describe the role the Chinese are playing, how helpful 
they have been? Or has this, in fact, been a place in which the 
relationships have come together much faster?
    Mr. Kelly. Yes, Mr. Chairman. The work with North Korea 
that brought us to the multilateral talks of 2 weeks ago has 
had a significant contribution by China. Two very senior 
leaders and delegations have been sent to North Korea by China 
within the last year to urge North Korea's movement in the 
direction that we saw 2 weeks ago with the multilateral talks. 
The Chinese are, of course, always following their own 
interests, but they have made absolutely clear that the end of 
nuclear weapons on the Korean Peninsula is a very strong 
objective of China, as well, and they have made that clear, 
both verbally and I think in their actions.
    They have also, by setting up the six-party talks, made 
clear that the North Korean nuclear issue is not just something 
between the DPRK and the United States, but something that very 
much involves, of course, China, but also the other significant 
players in the region, in particular, the Republic of Korea, 
Japan, and the Russian Federation.
    The Chairman. In some newspaper articles about these 
negotiations and the ways in which they have influenced our 
domestic situation, it has been alleged that the United States 
did not press China particularly hard, during the Secretary of 
the Treasury's visit, on the currency evaluation issue, because 
we had other objectives, namely the North Korean problem. Would 
you comment on that and what we might anticipate with regard to 
currency revaluation in China in the near future?
    Mr. Kelly. As I tried to make clear in the statement, it's 
necessary for us to pursue all kinds of messages with China at 
all times. And even as we cooperate, to the extent we can, on 
North Korea, even as we cooperate in the global war on 
terrorism, there is no room for ignoring the significant trade 
and economic and human rights issues that are there, as well. 
In fact the very week we had the multilateral talks in China, I 
had a separate meeting with senior Chinese officials to go 
through a large range of difficult bilateral problems. 
Secretary Snow, in that same vein, went there, and I think that 
there is no question that he made points that are very 
significant.
    During this testimony, I'm going to play it safe. It's not 
the role of Assistant Secretaries of State to comment on 
currency valuations, but I'd be delighted, Mr. Chairman, to 
quote from, I think, the very eloquent positions that Secretary 
Snow took while he was there. And if you'd like, I would be 
happy to do that.
    But the fact is, we have a very difficult trade and 
economic situation. It is true that over the last 4 years, our 
exports to China have doubled from about $13 billion to about 
$26 billion. But the imports from China have--starting from a 
much higher base 4 years ago, about $85 billion, now we're 
looking at about $125 billion. So there is a vast and very 
difficult trade imbalance in our relations with China. It's 
very complex in its nature, and I think other members of the 
panel, later on, are going to be able to comment more 
intelligently, perhaps, than I could on that. But this was very 
much in Secretary Snow's mind when he went to China, and I do 
not believe that he was impeded in the slightest by the other 
interests we have. The President is determined that ``candid, 
cooperative, and constructive'' means that we pursue all of our 
interests with China.
    The Chairman. Frequently, Russians complain that relatively 
small American investment is occurring, private investment, in 
Russia. At the same time, they point out huge investments by 
American firms are occurring in China. And we may make 
comparisons of trade laws, of particular rights, of due process 
commercially in this situation. But at least some are surprised 
that there is such an abnormal amount of American private 
investment in China. Why is that so? And is it likely to 
continue? We may not be able to get into all the domestic 
politics of China today, but the fact is that, at the 
grassroots, a number of our constituents are calling for 
revaluation of currency. They do so perhaps in the hope that 
something can occur that would stem the tide of jobs going to 
China, sometimes jobs brought about by American investment, an 
expansion of plants there, and an imbalance of trade that they 
feel ultimately will be to our detriment because it is so 
large.
    Why the investment in China and the huge outpouring of 
American capital into that country?
    Mr. Kelly. Well, there are many reasons, obviously, Mr. 
Chairman. There are also some obvious imbalances--India, I 
think, frequently notes to us that American investment is 
considerably less in India than in China, and the same with 
Russian Federation. I think as these countries develop and 
their economies become more attuned internationally, this is 
likely to switch. Additionally, whether China can continue its 
unbroken significant growth is also a valid question to be 
asked. But obviously these are choices of businesses and 
investors that are made on an economic basis, and they have 
been made.
    One factor that I think is significant is that the largest 
amount of foreign direct investment in China has been invested 
from Hong Kong and from Taiwan. In particular, in Hong Kong I 
believe a lot of that money is what I call ``round-trip 
money.'' It's Chinese investing in their own economy. And that 
kind of confidence of the people of China in their own future, 
I think, underpins business confidence, as well. Currency 
valuation, I'm sure, is a part of the equation, as well.
    The Chairman. Thank you very much.
    Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman. As usual, you 
are holding hearings on very important issues in a very timely 
way, and I thank you for it.
    Welcome, Secretary Kelly. Let me just ask you a few 
questions.
    First, I can tell you, and I'm sure you know, that the loss 
of manufacturing jobs to China has not only been very much in 
the news, but something that is inescapable for anyone who 
would travel, at least my part of the country--in particular, 
in Wisconsin. And in the midst of this, we hear the accusations 
that Chinese workers receive extremely low wages and often work 
in abysmal conditions.
    China took an exception to article 8a, which guarantees the 
right of everyone to form and join trade unions of their 
choice, when it ratified the International Covenant on 
Economic, Social, and Cultural Rights. And the State 
Department's own human rights report catalogs the dismal state 
of workers' rights in China. Does the administration expect to 
engage China on the twin issues of collective bargaining and 
freedom of association? And what specifically is the 
administration doing to support labor rights in China? What 
consequence does the administration support in the absence of 
progress on labor rights issues?
    Mr. Kelly. Senator Feingold, that is a very serious 
question, and it's a big part of the ``candid'' part of our 
relationship with China. The inability of workers to organize 
is a serious impediment. It has restricted, for example, our 
ability to provide support to financing from the Overseas 
Private Investment Corporation [OPIC]. It is an ongoing issue 
that is raised with China, but the nature of the adversity to 
trade unions in the Chinese system is deeply ingrained, and 
it's going to be a slow slog to change this attitude. This is 
part and parcel of our work in building democratic 
institutions, building a greater commitment to a rule of law 
rather than the rule of the party. It's an ongoing issue that 
is taken up at a variety of levels by the administration with 
the Chinese.
    Senator Feingold. Can you give me a sense of what the 
administration supports if there isn't progress on this?
    Mr. Kelly. The overall relationship with China, as has been 
noted, has many, many components. There are many things in 
China that are not to our liking and that, in fact, need to be 
changed. Rather than identifying negative actions or sanctions 
that would be taken if some specific goal is not obtained, a 
bluff on which our country has been called before, we are 
preferring to emphasize the positive. We have supported, for 
example, some substantial amounts of money for programming with 
NGOs and other institutions that are aimed at strengthening 
labor rights and the ability of workers to organize in China. 
Much of the effort on rule of law is involved in strengthening 
the rights of workers.
    China, itself, recognizes the lack of a social safety net 
of any kind, as they deal with one of their greatest problems, 
the huge state-owned enterprises filled with nonproductive 
workers, and the problem of unemployment, as well.
    So we're much more focused on trying to work to improve the 
situation rather than to make threats that might be 
counterproductive if we had to carry them out.
    Senator Feingold. Well, let me urge the administration as 
strongly as I can to obviously continue the positive, but also 
to communicate to the Chinese that--in my State, there is a 
growing consensus that the problems with competition with China 
are, in many ways, destroying our manufacturing base that has 
been so important to our State, and it is repeated every day to 
me and is of great importance to the people of my State.
    Let me switch to something that the Chairman brought up, 
which is the relationship between China and North Korea. And I 
certainly acknowledge the Chinese role in the recent six-party 
talks. Let me follow on another aspect of it.
    In the past, evidence has suggested that China has 
transferred sensitive technology to North Korea, which has its 
own very problematic history of proliferation. Can we be 
assured, at this sensitive time, that China has ceased all such 
proliferation collaboration with North Korea? And what steps 
can the United States expect China will be willing to take to 
combat further proliferation attempts by North Korea? Without 
concerted Chinese cooperation, I'm wondering if we can expect 
any regime, aimed at containing North Korea's proliferation, to 
succeed.
    Mr. Kelly. I think, Senator Feingold, that you have put 
your finger on the critical component of restricting North 
Korea's ability to bring in, from outside, the technologies and 
items that are needed for not only nuclear weapons and 
ballistic missiles, but also for other weapons of mass 
destruction. We have had, and continue to have, ongoing 
discussions with China on this issue, and China has, I think, 
made a credible case that, on major end-items and on the most, 
at least, obvious forms of military technologies, that it has 
been quite restrictive. And I know that there have been 
examples in which China blocked shipments.
    But the fact is, sir, there are many North Korean companies 
and front companies operating around in China. Within the last 
2 weeks, I've had discussions with Chinese colleagues about 
this topic. China is new to export control laws, and its ways 
of enforcing them and the bureaucracy to make that meaningful 
is still in the incubator stage. So they have a long way to go. 
But I am convinced that they are making an effort. They mean it 
when they say that they do not want North Korea to be either an 
unstable military threat or to have nuclear weapons, and are 
backing that up. But I wouldn't deny that there is some leakage 
around the edges, and money does talk, unfortunately, sir.
    Senator Feingold. What about North Korean planes flying 
through Chinese airspace or even making refueling stops in 
China when these planes may well be involved in proliferation 
activities? As far as you know, does that continue? And have we 
raised this issue with the Chinese?
    Mr. Kelly. Yes, sir, we have raised that issue with the 
Chinese. It would probably be best to brief you more completely 
on that particular topic in a closed hearing, sir.
    Senator Feingold. I'll look forward to that.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Feingold follows:]

           Prepared Statement of Senator Russell D. Feingold

    I thank Chairman Lugar and Senator Biden for holding this important 
hearing, and I thank all of the witnesses for being here today.
    This hearing is an opportunity to review the totality of the U.S.-
China relationship, and there is no question that our bilateral 
relationship is extraordinarily complex and important. I certainly look 
forward to reviewing a number of issues, from cooperation on the North 
Korean crisis to progress, or the lack thereof, on critical human 
rights issues.
    But I also want to take this opportunity to pass along the concerns 
of many of my constituents. As I travel throughout Wisconsin, I see 
community after community ravaged by the loss of manufacturing jobs--
jobs that have been lost to other countries in large part because of 
the flawed trade policies of the past several years. When I opposed 
Permanent Normal Trade Relations with China, and other flawed trade 
measures, I did so in great part because I believed they would lead to 
a significant loss of jobs. But even as an opponent of those 
agreements, I don't think I could have imagined just how bad things 
would get in so short a time. This is especially true with respect to 
our current trade relationship with China, which is increasingly the 
single biggest reason our manufacturing base is eroding. Until and 
unless the fundamental inequities in that trade relationship are 
rectified we will continue to see significant hemorrhaging of 
manufacturing jobs, devastating more and more communities in Wisconsin 
and across the country.

    The Chairman. Thank you very much, Senator Feingold.
    Senator Hagel.
    Senator Hagel. Mr. Chairman, thank you.
    Secretary Kelly, thank you for appearing this morning and 
for your good work.
    Your statement covered many general areas regarding U.S.-
Chinese relations. And I'd like to delve a little deeper into 
your thoughts regarding this new fourth generation of 
leadership, your sense. For example, is it more committed to 
internal reforms, more focused on human rights than, for 
example, the Jiang administration? What do you think we will 
look forward to in regard to--if that is the case a more 
complete and universal attitude toward some of these big issues 
that have been points of contention between the United States 
and China? And I suppose I would start with this question. Is 
it, in fact, true that President Hu and his new administration, 
as it's developing, is, in fact, focused on more internal 
reform?
    Mr. Kelly. I couldn't go that far, Senator Hagel. This is a 
transition that is still going on, and I don't think we're 
going to have a full appreciation of what President Hu and 
Premier Wen Jiabao and the four new Vice Premiers and the newly 
installed party leadership do for quite awhile. It is, for 
example, sir, far from clear to me that the new leadership has 
broken any new ground on human rights. I noted some 
backsliding, in fact. Now, maybe that's just new people getting 
their brief. I think it's an open question about the commitment 
to reform.
    Above all, sir, I see caution and a ongoing desire not to 
take any false moves, that are going to shatter the kind of 
confidence that underpins the economic growth, which I believe 
is a significant part of the legitimacy that the Chinese 
leadership clings to.
    Senator Hagel. Would you say, from what you know, that the 
Jiang era of leadership has ended?
    Mr. Kelly. No, sir, I would not. Former President Jiang 
remains Chairman of the Military Commission. Individual 
leaders, associated most of their lives with former President 
Jiang, remain in perhaps even a predominant number of 
significant positions in China. There is no question that 
President Hu is establishing some patterns for himself that are 
different from his predecessor, but these differences are 
fuzzy, rather than sharp.
    Senator Hagel. As you may know, Mr. Secretary, this 
committee had an opportunity to spend some time with the Dalai 
Lama yesterday. Give me your assessment of what we need to do 
more of, less of, what are our most effective means of working 
with the Chinese regarding human rights?
    Mr. Kelly. The human rights question has many different 
facets. And, of course, His Holiness, the Dalai Lama, 
represents one of those facets. And the rights and the 
preservation of the culture of Tibetan people is very much on 
our minds. And certainly, of course, it's a central concern of 
His Holiness that he's expressed to many people here in town.
    We, of course, actively work by sending officials to Tibet 
as often as we can to see what the situation is on the ground. 
Overall, in human rights, our effort has got to be less on 
announcing--and I know this is Assistant Secretary Craner's 
view--that we're going to have some talks in a few months, but 
seeing some progress, on some individuals cases. I would note 
Fong Fu Ming, Yang Jion Li, Rebiya Kadeer, just three very 
different situations, right off the top of my head, and there 
are many others, including American citizens, such as Dr. Chuck 
Li, who are maintained as, in effect, political prisoners.
    We want to emphasize some of these individual cases, but we 
want to also emphasize the rule of law and the larger 
situation, as well, including things that have been committed 
to, such as visits of international rapporteurs on torture, for 
example, that--a part of the International Human Rights 
Committee that China had indicated very strongly to us that 
they would accept, and they have not done so. And it's very 
important, we believe, that these commitments be honored.
    Senator Hagel. What's your assessment of the current 
Chinese military modernization efforts?
    Mr. Kelly. It's certainly ongoing and troubling, as it 
seems to be particularly focused, in terms of ballistic 
missiles and some of the tactical capabilities, on Taiwan. And 
that, in turn, is something that we have to take note of, and 
should and do take note of, under our responsibilities of the 
Taiwan Relations Act, as well.
    The PLA has had to go a long way to be modernized, but 
their growth in resources is a significant one, and the 
capabilities are obviously being upgraded in many different 
areas, whether it be submarines or missiles or naval forces or 
tactical air.
    Senator Hagel. I know the chairman's covered this, as well 
as Senator Feingold, but let me come at this from a little 
different perspective, and that is our economic relationship, 
trade imbalance, with China. I know that's not in your 
portfolio, as you have suggested in answering a question 
regarding the currency issue. But in your discussions that you 
have regularly with the Chinese, do you bring up--do you often 
have opportunities to talk about the more global dynamic of 
trade, of economics, of how that impacts our relationship? I 
mean, you know what kind of pressure we are getting up here 
from our constituents, the President's getting, this trade 
imbalance issue, the job issue. How much does that play into 
your discussions with the Chinese, if any?
    Mr. Kelly. It's a big part of my discussions with the 
Chinese. I regularly see the Chinese Ambassador here. I don't 
think we ever have a conversation that these issues don't come 
up. I don't know how many times I've discussed the topic of 
soybeans with the Chinese. And the same would go up the line 
with Secretary Powell, and President Bush has raised this on a 
number of occasions. And we're hopeful on that area. There are 
also a number of individual other trade issues, including 
intellectual property rights, a number of specific 
manufacturing and financial access concerns, that we definitely 
raise.
    The relationship is a whole one, and it wouldn't do, in my 
view, for us to have anyone that would only touch on some 
items. And so we definitely, at the State Department, are much 
involved in these economic issues. I was simply referring to 
the practice that the President and the Secretary of the 
Treasury are those who comment on exchange-rate issues. But, 
beyond that issue, we're all at work very closely together. I 
met with Secretary Snow before he went to China. Secretary 
Powell and the President had discussions with him. This is very 
much a coordinated policy led by the President.
    Senator Hagel. We particularly appreciate your good work on 
behalf of soybeans.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Hagel. I commend 
you on that comment.
    Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman. Mr. 
Secretary, we're pleased to have you here.
    I want to continue on the trade issue. How are we going to 
work out of this situation? I mean, we're running our largest 
trade deficit with China. Some experts in this country estimate 
that--through the way they address the currency question, they 
gain a 30 to 40 percent advantage in trade terms. In fact, we 
have the most lopsided trading arrangement with China that we 
have with any major trading partner. The deficit now is well 
over $100 billion, and climbing. And that's on a very small 
amount of total trade. The figures I have indicate that 85 
percent of the trade relationship, U.S.-China, are imports from 
China. Only 15 percent are exports from the U.S. to China. So 
we have a relatively small total trading arrangement. In 2002, 
just under $150 billion. And yet we run deficits well over $100 
billion. So there's a tremendous imbalance in this trading 
relationship.
    Now, we have a significant trade deficit with Japan, and 
that's another question. That's not the subject of today's 
hearings. And the Japanese, of course, have been intervening us 
very substantially to maintain the currency advantage. But at 
least there the amount of trade is much larger and the amount 
of imbalance is smaller, although it still sticks out. Then 
when you look around the rest of the world, the relationships 
are much closer, in terms of the ebb and flow of trade imports/
exports.
    But it seems to me we have a chronic problem here. What are 
we going to do about it?
    Mr. Kelly. Well, sir, the first thing we needed to do was 
to get China, as a part of the international trading regime, 
into the World Trade Organization [WTO], where it has now been 
a member for two or three years. Our next steps in the process 
are holding to China's development under a rule-based trading 
system. But the fact is, the numbers you point out are, indeed, 
sobering. This is a huge imbalance. It brings some benefits, 
too. It brings lower prices to Americans on a wide variety of 
items that China exports to us. These are obviously very 
popular. It is also a displacement of items that were sold into 
the U.S. from other smaller countries and buried in other 
figures, and there's now a consolidation into China's trade 
figures.
    Senator Sarbanes. What do you think about that? What are 
the foreign-policy implications of that?
    Mr. Kelly. They're potentially very serious. The slowness 
of Southeast Asia's emerging from its 1997 economic crisis is 
very much a part of this consolidation, and yet there is an 
overall growth in trade and a growth in those economies that is 
also a significant part of this, as well.
    But the fact is, Senator Sarbanes, we have a structural 
problem, and it's going to be very slow to resolve itself with 
China, as far as the trade imbalance is concerned.
    Senator Sarbanes. Well, how will it ever resolve itself if 
they continue to deal with the currency in such a way as to 
gain a 30 to 40 percent advantage in the terms of trade?
    Mr. Kelly. The fact is, sir, that China is going to have to 
address that very issue, and that's why Secretary Snow went to 
China last week to intensify the dialog with Chinese leaders. I 
believe Secretary Snow called for flexible exchange rates. This 
is something that China is going to have to address, whether it 
be revaluation or exchange-rate flexibility.
    Senator Sarbanes. Well, which is it we're seeking of those 
two?
    Mr. Kelly. I'll quote, sir, from Secretary Snow. He said, 
``Let me turn to the subject of exchange rates, because the 
subject of exchange rates has been so much in discussion among 
us.'' This was his press conference at the Departure. ``The 
establishment of flexible exchange rates, of a flexible 
exchange rate regime, would benefit both our nations, as well 
as our regional and global trading partners. Market denominated 
floating currencies are really the key to a well-functioning 
financial system.''
    And that's the way Secretary Snow put it, and this was a 
major focus of his discussions with all of the economic and 
political leaders of China.
    Senator Sarbanes. I'm going to quote Fred Bergsten's column 
here in the Post, which I gather has been referred to earlier 
in the hearing. ``The growing storm over China is the latest 
example. Congressional leaders from both sides of the aisle, 
the business community, and labor agree that the administration 
must take forceful action to bring that country into the center 
of the international adjustment process. Remarkably, there is a 
strong consensus that this should happen by a revaluation of 
China's exchange rate, rather than new trade barriers. But Snow 
was precluded from pursuing the issue forcefully, and was even 
instructed to ask the Chinese to float their currency,'' which 
is what you quoted there, ``when everyone knew they would 
rightly reject such an approach because it requires that they 
open themselves up to the vagaries of the global capital 
markets. The inevitable result of this impasse will be new 
assaults on China's exports to the United States, badly 
undermining a Chinese leadership that overcame enormous 
domestic resistance to join the World Trade Organization. The 
President and his foreign-policy officials should recall that 
huge economic imbalances can be as destructive of relations 
among nations as traditional security disputes. Ignoring such 
problems until they reach crisis proportions will, in fact, 
inflame our domestic politics.'' And he goes on from there.
    What do you say to that comment?
    Mr. Kelly. I think Professor Bergsten's views speak for 
themselves, and the emphasis that you, Senator Sarbanes, have 
put on them also speaks for itself. There have been many 
conversations to which I've either been in the lead or a party 
to that have made that exact point to China, that it is 
possible to have a crisis in trade relations, and that is 
certainly not in China's or America's interest, and that we 
have to move along the process, as well.
    With respect to whether revaluation or flexible exchange 
rates are the solution, I'll just plead inadequate technical 
background and the desire to leave that question to the 
Treasury to speak to, sir.
    Senator Sarbanes. Well, this article suggests that the 
Treasury is being circumscribed in what it can push for by 
foreign-policy considerations.
    Mr. Kelly. Well, sir, the President's policy is that we 
have to be able to work on all of the issues with China. I do 
not believe that Secretary Snow was in any way restricted. But 
obviously he'd have to speak for himself on that.
    Senator Sarbanes. All right.
    Mr. Chairman, I know my time's up. Could I make just one 
final comment?
    In 1993, the U.S. trade imbalance with China was $23 
billion. That's 10 years ago. In 2002, it was $103 billion. And 
I understand that the estimates now are projecting that it will 
be about $120 billion, I think, for 2003. That's an incredible 
runup in this trade imbalance over a very short period of time, 
and it's obviously having a major impact here. And I think 
Bergsten's right. If it's not addressed, you're going to get 
pressure for other more direct measures to try to correct this 
situation.
    The Chairman. Thank you very much, Senator Sarbanes.
    Senator Allen.
    Senator Allen. Thank you, Mr. Chairman.
    Thank you, Assistant Secretary Kelly and other witnesses, 
for taking time today to come before this committee.
    I'm sorry I was late. This was the second anniversary in 
Virginia of the Pentagon being hit, and that's why I was late. 
And I think we all--you probably have already said it, Mr. 
Chairman, but we all very much appreciate those firefighters 
and folks here at home, as well as those in our armed services 
protecting our freedoms.
    Now, let us turn to China, a very important issue. I think 
the most challenging of all portfolios for our country, is 
dealing with China on multiple levels. We want to have positive 
statements along political lines encouraging cooperation on 
issues such as North Korea, but they have to be tempered with 
our concerns for human rights violations in China.
    On the economic side, I'd incorporate, by reference, the 
comments of Senator Sarbanes and Senator Hagel on the economic 
side. We do desire to have a productive and positive 
relationship in trade with China because of the access to their 
market provided to U.S. businesses. However, there are so many 
troubling issues with our present-day trade relationship that 
unfairly disadvantage United States workers and businesses and 
exporters. And you may not have it all in your portfolio, but 
this is an opportunity to bring this up.
    I'm very pleased, Mr. Chairman, that we're examining this 
issue of U.S.-China trade and relations. In Virginia, this 
country has lost thousands and thousands of jobs--
manufacturing-sector jobs--due, in part to the artificially 
low-priced Chinese imports. And we need to make sure that China 
complies with the WTO rules it agreed to when it joined that 
organization just a few years ago.
    Now, let's face the reality of what China is doing. They're 
cheating. They're violating these rules. In some cases, what 
they're doing may be a condonation or negligence; in other 
cases, it's willful violations of these rules.
    You take, No. 1, the intellectual property, piracy matters, 
the piracy of everything from recordings to software. And that 
may be, at best, a situation of negligence, condoning and not 
doing anything to enforce intellectual property rights.
    Several have already mentioned, and I support, Secretary 
Snow's efforts to make sure that their currency is set at 
market forces, as far as the value is concerned. In fact, I 
think that that would go a long way to correcting the imbalance 
in our trading relationship, and help save and create jobs here 
in this country.
    Third point, in regard to the dumping of below-market-price 
textiles, actions there need to be taken, as well. There are 
safeguards that we can apply, special textile safeguards, to 
stem this surge of Chinese textiles into our market, and I hope 
that the administration will do so, so that we can get markets 
to return to some reasonable balance. I have written President 
Bush urging him to take action and am hopeful that he'll 
carefully examine the situation and enact the available 
safeguards that have been agreed to by both nations.
    Fourth area of concern, domestic furniture industry. We're 
facing a similar un-level playing field with China. The U.S. 
Furniture Coalition has petitioned the International Trade 
Commission to investigate the possibility of illegal dumping of 
wood bedroom furniture by Chinese manufacturers. I, again, hope 
the ITC will look into that. It seems to me a very credible 
case of illegal dumping is not only crippling our domestic 
furniture industry, but losing, again, thousands of jobs in our 
country, and that erosion should not continue. I hope the ITC 
and the administration will be involved in it.
    Fifth, and finally, we need to hold China accountable for 
its practice of applying a discriminatory value-added tax. It's 
not just furniture, shirts, and textiles, and piracy; it's also 
semiconductor chips. China imposes a 17 percent value-added tax 
on semiconductor chips. In the event, though, that the chips 
are fabricated in China, they give them an 11 percent rebate. 
If they are designed and fabricated in China, it is a 14 
percent rebate. So, in other words, if we're trying to import--
or anyone else is trying to import--semiconductor chips into 
China, you get hit with a 17 percent tax. But if they are 
fabricated there, it's a 6 percent tax. If designed and 
fabricated or manufactured there, 3 percent tax. This is 
obviously a distinct disadvantage that limits access to the 
Chinese market. It also adversely impacts the worldwide 
semiconductor market, and this is clearly in violation. This is 
a willful and deliberate violate of China's WTO obligations. 
I'd urge the administration to seek, as quickly as possible, a 
resolution to rectify this inequity.
    So trade is good. Fair trade's something that we would 
like. But when a country cheats, when it violates the rules, 
violates the laws, violates the contracts and agreements, I 
think it's absolutely essential that our government make sure 
they comply with those laws. There are some times you have to 
put in countervailing duties. It's a last resort, but it is a 
resort and a remedy that, in some cases, are absolutely 
necessary for adherence to these contracts, to these 
agreements, and also for the saving of good-paying jobs here in 
this country.
    And so would you share with us any actions--we've already 
covered Secretary Snow and the currency matters, but on 
semiconductors, on semiconductor chips, furniture, or textiles, 
could you be so kind as to share with us the actions and 
positions of the administration in these particular areas?
    Mr. Kelly. You raise a large series of entirely valid and 
very serious problems in our trade and economic relationship 
with China, Senator Allen, and I have, in a cursory manner, 
recently discussed some of the semiconductor problems. 
Furniture, textile problems, I'm well aware that they are 
there. I think I would serve the committee best if I gave a 
more detailed response for the record of the specific actions 
that are being taken by State Department, Department of 
Commerce, U.S. Trade Representative's Office in holding China 
to its WTO commitments in those and other areas, sir.
    [The following response was subsequently received.]

    The Administration is dedicated to ensuring that the U.S.-China 
economic relationship is beneficial to both parties and especially to 
U.S. workers, farmers, small and medium-size business, and consumers. 
We believe and have stressed to China that the best international 
economic system--for China and the world--is based on free trade, free 
capital flows, and market-determined exchange rates. President Bush 
emphasized these points during his meeting with Chinese Premier Wen 
Jiabao in December 2003. In addition, Treasury Secretary Snow, Commerce 
Secretary Evans, Ambassador Zoellick and other senior officials have 
visited Beijing in recent months and pressed China to move toward 
market-based exchange rates, improve market access for U.S. exports and 
accelerate domestic economic reform. Although China has made some 
progress in these areas, much more needs to be done.
    Intellectual Property Rights: China's overall protection of 
intellectual property rights (IPR) is inadequate and of serious concern 
to the United States. Administration officials have consistently 
pressed the Chinese to strengthen IPR protection and enforcement, but 
results have so far been unsatisfactory.
    China's statutory system for the protection of intellectual 
property has improved as a result of its WTO accession. In accordance 
with the WTO Trade-Related Aspects of Intellectual Property Rights 
(TRIPS) Agreement, China has revised all of its principal intellectual 
property laws and implementing regulations to strengthen administrative 
enforcement, civil remedies, and criminal penalties. However, IPR 
violations remain rampant. Bilaterally and in multilateral fora, we 
have pushed China to pursue a sustained, transparent effort to punish 
and deter IPR violations, especially by dedicating more resources to 
enforcement, setting and enforcing deterrent levels of fines and 
criminal penalties, and reducing the high thresholds for criminal 
prosecutions.
    The Administration has made numerous efforts to enhance 
coordination with U.S. IPR-related groups and to press China to improve 
IPR protection. U.S. Ambassador to China Clark Randt has held two IPR 
roundtables in Beijing with more than 100 representatives from American 
copyright industries and their trade associations as well as U.S. 
Government and Chinese officials. Subsequently, the U.S. Embassy in 
China followed up on the November 2003 roundtable by compiling an IPR 
White Paper highlighting key industry concerns and recommendations for 
presentation to Chinese Vice Premier Wu Yi, who now heads China's 
effort to strengthen IPR protection. The Embassy and our constituent 
posts in China also developed an action plan to pursue specific 
objectives ranging from the criminalization of IPR-infringing exports 
to improving market access for American films, music and books. U.S. 
Embassy efforts involve broad interagency cooperation, active 
government-to-government advocacy, outreach and capacity building, 
assistance to U.S. businesses, and diplomatic reporting on IPR 
developments.
    The United States has also cooperated with Japan and other WTO 
members to seek improvement in China's IPR enforcement. Together with 
the European Union, the U.S. has made IPR a key feature of ``Rule of 
Law'' discussions with Chinese authorities. The United States 
Government also co-sponsored with Chinese officials a successful 
training seminar on IPR Criminal Enforcement in October 2003.
    Currency Valuation: The Treasury Department has been working 
actively to encourage China to move toward a flexible exchange rate. 
China has now taken a number of steps to restructure its banking sector 
and liberalize its capital market--steps that the Chinese have said are 
necessary preconditions to adopting flexible exchange rates.
    Last October, the Treasury Department and the People's Bank of 
China signed an agreement for a technical cooperation program on 
financial sector issues. Treasury will conduct its first substantive 
meeting in Beijing later this month, and more will follow. In addition, 
Chinese Vice Premier Huang Ju has accepted Treasury Secretary Snow's 
invitation to come to Washington for a high-level discussion of these 
issues. Finally, the Treasury Department will shortly announce the 
appointment of a senior Treasury attache in Beijing to act as the U.S. 
Government's special envoy on these issues.
    Despite this progress, the Administration recognizes that more 
remains to be done. We are working closely with our Chinese 
counterparts to encourage them to implement key reforms and to move as 
quickly as possible to a flexible exchange rate.
    Textiles: In its WTO accession agreement, China agreed to a special 
textile safeguard provision that allows WTO members to address surges 
in imports of textile and apparel products from China. This provision 
applies to textile products that have been ``integrated'' (i.e., no 
longer subject to quotas) into the WTO trade regime and that are 
causing market disruption. U.S. workers and companies will have access 
to the special safeguard on textiles through 2008.
    In May 2003, the interagency Committee for the Implementation of 
Textile Agreements (CITA) published guidelines for how American 
companies and associations can file requests for consideration of 
special safeguard action. In July 2003, four textile associations filed 
petitions for safeguard relief for four product categories: knit 
fabric, gloves, dressing gowns, and brassieres. The petition regarding 
gloves was not accepted because certain gloves remain subject to 
quotas. After a period of investigation, CITA determined that imports 
of the three other products from China are causing or threatening to 
cause market disruption. In December, safeguard measures were imposed 
on these products and consultations requested with the Chinese. The 
first round of consultations were held in January.
    Furniture Imports from China: On October 31, 2004, petitions were 
filed on behalf of the U.S. industry with the International Trade 
Commission and the Department of Commerce regarding imports of wooden 
bedroom furniture from the People's Republic of China. On December 10, 
2003, the Commerce Department initiated an antidumping duty (AD) 
investigation on these products. On January 9, 2004, the International 
Trade Commission (ITC) made a preliminary affirmative determination 
that there is a reasonable indication that the U.S. industry is 
materially injured or threatened with material injury by reason of 
imports of wooden bedroom furniture from China. The Commerce Department 
is currently scheduledto issue its preliminary determination on April 
28, 2004. The Commerce Department and U.S. International Trade 
Commission will investigate this case in full accordance with U.S. law 
and regulations.
    Semiconductor VAT Rebate Policy: The Administration has repeatedly 
raised with Chinese officials our serious concerns about the 
discriminatory nature of China's application of value-added taxes (VAT) 
to imported semiconductors. Specifically, China provides VAT rebates 
for certain semiconductors produced and/or designed in China but not 
for imported semiconductors. We do not believe this practice is 
consistent with WTO rules requiring ``national treatment'' for imported 
goods. Although we have so far used bilateral channels to press China 
on this issue, we are prepared to seek WTO dispute resolution to 
address our concerns if necessary.

    Senator Allen. I'll look forward to receiving that. And you 
can imagine that you and the administration will be receiving 
further proddings and encouragement and support for efforts to 
stop them from cheating and living up to their commitments.
    Mr. Kelly. Well, we should, sir, because the fact is these 
are problems with this incredible economic growth that China 
has experienced. Bringing this huge new player into the 
international trading system in a legitimate and law-abiding 
way is a major American foreign-policy objective, and we're 
going to work on it. And this is something in which the 
spurring of the administration by the Congress is obviously a 
reality and appropriate.
    Senator Allen. Thank you, Mr. Secretary.
    The Chairman. Thank you, Senator Allen.
    Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman.
    Give us, Mr. Secretary, your analysis of the fact of 
China's influence over North Korea. For example, the 
circumstance, 6 monthsor so, I can't remember exactly when, in 
which North Korea had been particularly outspoken and 
boisterous, and suddenly the fuel was cutoff for about 3 days, 
and they seemed to change--they, the North Koreans, seemed to 
change their tune, at least publicly. Would you recount for us 
that particular incident?
    Mr. Kelly. Well, to the extent that we know about it, it 
was last February or March, and it was around the time that the 
then-Vice Premier Qian Qichen, former Foreign Minister, a very 
senior Chinese official, traveled to Pyongyang and prompted the 
first occasion of North Korea coming to the table. There was, 
we know, a shutoff of oil for some 3 days. I am skeptical, I 
think, of the official explanation of some technical failure. 
But the fact is, China is the supplier of last resort to North 
Korea of fuel, and I would say food, as well. Numbers of 
perhaps some $500 million a year turn up with some regularity. 
It's not clear how much of that is paid for by the North 
Koreans.
    That said, there is this longstanding alliance 
relationship. There is this powerful desire for China to have a 
stable relationship, a powerful desire for them not to have 
thousands, even millions of new refugees from North Korea 
crossing their border and adding to their already huge 
population. So China obviously uses that influence with a great 
deal of caution. Whether, if we were in their position, which 
we certainly aren't, we would do it in that way is very 
doubtful. But the fact is, there is a steady influence that has 
at least brought North Korea to the table, and I think, in 
general, been positive on this. But it certainly hasn't been 
decisive.
    Senator Nelson. But for the future, they clearly--it would 
be the policy approach of the U.S. Government that China is 
clearly a key, key player here, because their interest happened 
to coincide with our interest with respect to nuclearized North 
Korea.
    Mr. Kelly. I would say, Senator Nelson, that their 
interests mostly coincide with our interests, and we want to 
emphasize that. But I'm not certain that, in every instance, 
that they do. And China is always pursuing its interests as it 
defines them. We do have a big overlap, and it's very much a 
part of obtaining a regional solution and is something that is 
very much supported by our allies, Japan and the Republic of 
Korea, as a useful process of engaging North Korea and 
fulfilling the President's goal of a peaceful resolution of 
their nuclear issue. But we haven't got there yet, sir.
    Senator Nelson. You briefed the majority leader's 
delegation prior to us visiting China, as we were there on the 
eve of your arrival, and on the eve of discussions with the 
Chinese about North Korea--with North Korea present, by the 
way--in early April. It's interesting, as we would bring up 
these issues with the various leaders that we met with in 
Beijing, they all had a coordinated--it was almost like a rote 
kind of discussion--what you would think was at the top of 
their agenda was Taiwan. And they would always go through this 
litany of everything having to do with Taiwan. You would think 
that that was the more important thing to them than what we 
were there to talk about, which was primarily North Korea and, 
secondarily, owning up to stopping all of the fake information 
about the SARS epidemic, which was going on right at the time.
    Your comments about the Chinese huffing and puffing about 
Taiwan to our delegation?
    Mr. Kelly. The Taiwan issue is never far from any dialog 
that the PRC has with us, and our riposte is invariably the 
same. We cite our dedication to our unofficial relationship, 
that Taiwan must not be coerced, that our relationship with 
China is based on the three communiques and the commitment to 
peaceful resolution of that issue, in light of the difficulties 
inherent in China's military development.
    It comes up time and again. Sometimes it's given more 
prominence in Chinese interactions with visiting delegations at 
one time or another. Your visit was just after the party 
congress, and I think there must have been some judgment that 
their domestic interests were best served by giving prominence 
to that.
    There's been an increase in the tension that Chinese 
dialogs have had with North Korea since that time, but Taiwan 
is never far from hand in any of these discussions.
    Senator Nelson. In our discussions, we always brought up 
the question of human rights. Is it the government's position, 
as well as our congressional delegation's position, that we are 
as committed to discussing, with the Chinese, human rights as 
it seems to be that the Chinese are committed to discussing 
relations with Taiwan?
    Mr. Kelly. Absolutely, Senator Nelson. It invariably comes 
up in all senior and intermediate dialogs with China. As I've 
pointed out in answer to some other questions, we have a 
variety of serious issues, and we sense some deterioration in 
what we see as China's commitments and performances here, and 
this is very disturbing.
    Senator Nelson. Mr. Secretary--I'll close with this--this 
morning's Los Angeles Times--has this been brought up at the 
hearing? The Los Angeles Times, this morning, is saying that 
North Korea has halted activity at its Yongbyon nuclear 
complex, where it's been holding thousands of nuclear fuel rods 
that can be reprocessed. What can you tell us about this, Mr. 
Secretary?
    Mr. Kelly. Very little, Senator Nelson, in an open hearing. 
I think that is more appropriate to a briefing by intelligence 
or other officials, and we'd be happy to provide that to you, 
sir.
    Senator Nelson. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Nelson.
    Senator Alexander.
    Senator Alexander. Thank you, Mr. Chairman.
    Mr. Secretary, I'd like to go back to the issues that 
Senator Sarbanes and Senator Allen talked about, particularly 
the question Senator Sarbanes asked, how are we going to work 
this out? And I think it falls in your portfolio or a broad 
portfolio, because, as I see it, as we look over the next dozen 
years in this country, our biggest economic challenge, our most 
difficult one, will be how do we keep too many of our jobs from 
moving to China, or appearing to move to China. And I would 
expect China to be the symbol for job losses, which may occur 
for a variety of reasons and which may go to many countries.
    And I'm wondering, particularly given your background in 
foreign affairs, if we could look back a quarter of a century 
and learn some lessons from how we navigated this with Japan. I 
mean, we had almost the same thing. We had a richer country, 
but a smaller country. And 20 years ago, we could substitute 
China for Japan on almost all the issues that have been raised 
this morning. All the books were about how Japan was going to 
eat us alive, and there were regular unpleasant visits between 
United States representatives and Japanese representatives, 
and--almost impolite. But the lesson may be that we did some 
unusual things to make sure that, as Japan grew and fit into 
the world marketplace with us, that we could tolerate it, that 
we could tolerate the job loss that came with it.
    For example, I remember going to my first meeting of 
Governors with the President in 1979, and President Carter said 
to the Governors of American, ``Governors, go to Japan and 
persuade them to make here what they sell here.'' And, as a 
result, the biggest Japanese import to the United States became 
something produced here, and that is cars and trucks. I mean, 
that was, by far, the largest dollar figure, and it made a 
massive difference. I mean, in our State, a third of the 
manufacturing jobs 25 years ago were textiles. Today they're 
automotive. And many of those are because of Japanese auto 
parts.
    So we didn't just sit back. I mean, we insisted they follow 
the rules. We talked to the Japanese about their yen, their 
currency, all the time, it seemed like. We took actions 
involving with that. We took the extraordinary step of placing 
domestic content requirements on some of the things they sold 
here. We did--as I mentioned President Carter said, ``Japan, 
make here what you sell here.'' And in addition to that, the 
successful--what I would call the successful resolution of all 
that came partly because Japan then went into a funk, into a 
big recession and weren't able to compete as well with us. But 
eventually their wage rates got up to a level that we didn't 
worry so much about that competition.
    Now, how do we develop a broad policy, taking into account 
a variety of strategies, that looks over the next 10 or 15 
years and keeps this jobs issue from poisoning the Taiwan 
issue, the human rights issue, the North Korean issue, the 
weapons-of-mass-destruction issue? I mean, that requires a big 
strategy, it seems to me.
    Mr. Kelly. You raise a very important issue, Senator 
Alexander. But, first of all, we still have some problems with 
Japan and a big trade imbalance with Japan, despite its slow 
growth. The auto part of the trade deficit has changed in many 
respects. There are a lot of excellent Japanese cars that I'm 
sure, as you know, are made in Tennessee and sold around the 
U.S.
    The good news, I suppose, is that China is not, at the 
moment, a major factor in automobile trade. And as it tries to 
grow, it needs higher-value components that are experiencing 
some growth in sales from the U.S.
    The bad news, of course, is that China is very much 
determined to be a player, and it's going to be interesting to 
see how that goes.
    Korea has gone through a similar pattern with Korean 
vehicles establishing a presence strictly as exports from Korea 
to the United States, and now they're looking and finding plant 
destinations here, as well.
    Of course, Japan started from a much higher economic base 
of wealth of individual people than China does. And, in my 
view, that makes the China problem, not to mention the huge 
mass of the place, more troublesome. It also, of course, puts a 
burden on China, as well, because it has got to bring along 
that whole 1.3 billion population, and Japan had a much more 
streamlined problem for them to deal with.
    So I think there are lessons, but I'm not sure all of them 
are going to fit in similar ways. But obviously we need to look 
very carefully at those things.
    Senator Alexander. I would suggest, Mr. Secretary, that--in 
my experience, that maybe the most important lesson is to 
insist that the Chinese follow the rules. I would try to 
explain that to my Japanese friends during the 1980s, when I 
would try to get them to do what I thought was fair, in terms 
of buying baseballs and bats manufactured in America. We 
thought they were keeping those out. And they would say to me, 
``Well, that's such a small item. Why are you making such a 
fuss about that?'' And my answer to them was that there's 
always going to be a big trade imbalance between Japan and the 
United States, just as I suspect there will always be a big one 
between China and the United States, but it's much easier for 
us to accept if you follow the rules. And I think that's an 
important part of our administration's position that will help.
    Mr. Kelly. It is an important part of it, sir, and thank 
you for that impetus. Following the rules, bringing China fully 
under the WTO aegis, in fact as well as in aspiration, has got 
to be a part of the solution.
    Senator Alexander. Thank you.
    The Chairman. Thank you very much, Senator Alexander.
    Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman.
    I would first note, I do associate myself with the comments 
of Senator Hagel and the chairman when it comes to soybeans. 
Very, very important. I'm glad you bring that up.
    I'm not going to talk about the trade deficit issue. It's 
on all our minds. We're frustrated. Every one of us goes back 
home and talks to folks about losing manufacturing jobs, and 
they talk to China.
    I found it interesting, not too long ago--your comment 
about Mexicans concerned about the low cost of labor in China.
    And I'm wondering, one, clearly following the rules is 
absolutely essential. That's a given. But, you know, one of 
the, kind of, obvious realities we face is--and I'm not sure I 
have the numbers correct, but perhaps you can correct me--that 
the salary-per-year, wage-per-year, of the Chinese worker, 
about $1,200, versus an American worker, maybe $26,000. Is 
there any way to--how do you deal with that imbalance? How do 
you all overcome that gap?
    Mr. Kelly. At that level, it's going to be a very long 
time. Now, obviously, some more skilled parts of Chinese labor 
are starting to inch up into the $5,000 and $6,000 range. These 
salaries would be for very skilled people. So there is a huge 
structural imbalance, and I think the solution of it has to do 
with the overall structure of our economies, as manufacturing 
will always be important in America, but services have also 
become important, as well.
    But there's no way around that huge difference, and the 
solution, of course, is the power of compounding of China's 
aspiration of 8 and 9 percent economic growth. But, even so, 
under the best of conditions, it's going to take a long, long 
time to build any kind of equivalence.
    The other end of the story is, of course, of our 
productivity of our workers, which unquestionably is far ahead 
of that of Chinese, but the fact is they're making progress 
there, too.
    Senator Coleman. But I just think we have to--and I concur, 
we've got to recognize that. I mean, we've got to recognize 
that productivity and ingenuity and all those things that we 
can bring to the table are important because of that reality of 
that huge, huge gap.
    Let me, if I can, switch to one other issue. We just got 
back from a trip to sub-Saharan Africa with the majority leader 
and five of my other colleagues, looking at AIDS. A terrible 
pandemic, 40 million people in Africa are HIV positive. In 
South Africa, 5 million HIV positive, and 20,000 receiving 
anti-retroviral treatment.
    China, looking at the public-health issue--I want to touch 
on that--did a rotten job with SARS. And throughout the world, 
folks are dealing with the consequences of that--didn't deal 
with it in an honest and aggressive way. The AIDS pandemic has 
not hit China to the degree it has hit Africa, but it's coming. 
And I'm wondering if you can give me any assessment of what's 
going on in China, in terms of dealing with AIDS, recognizing 
the serious concern, and whether there is the honest and 
aggressive approach that's going to be needed to stem the tide 
of AIDS in China?
    Mr. Kelly. The AIDS story in China is a pretty sad one, 
because much of it, of course, has been spread by reuse of 
needles, and whole villages were selling blood, and almost 
everybody came down with HIV infections. And these tend to be 
very poor villages, and the actions that have been taken are 
not very good. China is slowly waking to the dangers of AIDS. 
Whether in a public sense, as has been, for example, the case 
in Thailand, the response will be adequate is in considerable 
question.
    This is a major item of dialog and interaction between 
parts of our government--particularly Health and Human Services 
Secretary Thompson has certainly made this a major issue--and 
our overall HIV/AIDS work, as well, has a considerable focus on 
China. But there's no way to minimize the threat; it is a very 
serious problem.
    The one item of hope is the Chinese started out with a 
terrible record, as you pointed out, on SARS. They got a lot 
better quickly. We hope they can get a lot better quickly on 
AIDS, as well. Though whether they're going to be able to treat 
adequately the people who are HIV infected in China is an open 
question. And to the extent these people are untreated, this 
can very much perpetuate the problem. And the spreading of HIV 
among truck drivers, and sources of that nature, can occur 
rapidly through the poorer parts of a poor and very large 
country.
    Senator Coleman. It's my understanding that the commitment 
the President's made for $15 billion is focused on 14 
countries--12 African, I believe, two in this hemisphere. Part 
of that discussion there is to look at what's happening there 
as a model so that we can then look to China and look to India 
and look to Russia to say, ``Here's what working. Here's what's 
not working.'' There are good things going on in Botswana, in 
terms of voluntary tests and confidential testing and then use 
of anti-retrovirals.
    Is there a sense that the Chinese would be open to, kind 
of, gathering--taking advantage of the knowledge of the 
experience that others--that we might have gathered from our 
experiences in Africa or in this hemisphere regarding AIDS?
    Mr. Kelly. I think clearly the cleaned-out health 
bureaucracy after the SARS event is receptive to that 
information. But whether they're going to have the kind of 
political support in local areas in China to pursue the 
solutions that are needed, I think, is an open question. I 
think this is very much a work in progress, and maybe the 
progress is pretty short now.
    Senator Coleman. You mentioned Secretary Thompson's 
efforts. What else can we do? What can this government do to 
work with China? And do you see this as an avenue of 
strengthening relations--whether it be the governmental action, 
whether it be working with the drug companies, U.S.-based drug 
companies that are developing the ARVs, do you see this as any 
avenue of opportunity for strengthening ties?
    Mr. Kelly. Yes, sir, I do. We don't, of course, have an aid 
program with China, but this is an area where funding for non-
governmental organizations, and particularly in the area of 
HIV, could be particularly fruitful. And we have had a number 
of instances and several programs for working within China on 
this problem.
    Senator Coleman. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Coleman.
    At this juncture, I suspect that it would be best to 
relieve Secretary Kelly of his role, because we have an 
excellent panel, and Senators have obligations with regard to 
memorial services. If there are impelling questions, I'll 
recognize them, but----
    Yes, Senator Sarbanes.
    Senator Sarbanes. Mr. Chairman, I just want to make one 
parting comment to the Secretary.
    I was struck by your responses to the questions, 
particularly by Senator Alexander, where he mentioned the 
China-Japan issue, and how we work it out. There was no 
reference on your part to the relevance of democratic values 
and human rights concerns with respect to the economic 
questions.
    Clearly, one of the reasons that wage rates rose in Japan 
to eliminate some of that enormous gap that existed was the 
fact that they had free political institutions and free trade 
unions. And, therefore, the society was in a position, on the 
part of ordinary working people, for pressure to be brought to 
bear, that they should have a greater share in the economic 
returns, so that the ordinary person would benefit from that. 
And that served to, in effect, to narrow that gap.
    Also, when you have dissidents and people expressing 
dissenting opinions, you have an opportunity to question public 
policy and to have it adjusted to better serve ordinary people. 
And I think that took place in Japan. I have serious questions 
whether that's happening in China, which I think is another 
explanation for the continuation of this very substantial gap. 
There's a growing body of development economists who have 
established the link between governance structures, political 
freedoms, human rights, and economic development, and have 
countered the view that existed quite some time ago that they 
were just entirely two separate categories without an 
interrelationship, one with the other.
    And I was struck by the fact that you made no reference to 
that in those responses, and I just wanted to leave that 
comment with you as you prepare to depart.
    Thank you, Mr. Chairman.
    Mr. Kelly. Senator Sarbanes, thank you. Your criticism is 
very well aimed. That's a crucial difference, and I should have 
made that point.
    Thank you, sir.
    The Chairman. Thank you very much, Secretary Kelly. We 
appreciate, as always, your testimony and look forward to 
seeing you again soon.
    The Chair would like to announce now a panel composed of 
Dr. Nicholas R. Lardy, senior fellow, Institute for 
International Economics, Washington, DC, Dr. Kurt Campbell, 
senior vice president and director, International Security 
Program, CSIS, in Washington, DC, Mr. T. Kumar, advocacy 
director for Asia and Pacific of Amnesty International USA, in 
Washington, DC, and the Honorable Harold Brown, counselor and 
member, Board of Trustees, CSIS, of Washington, DC.
    Gentlemen, we are pleased to welcome you to the hearing 
this morning. I'll ask that you testify in the order that I 
introduced you, which will be, first of all, Dr. Lardy, then 
Dr. Campbell, Mr. Kumar, and then Secretary Brown.
    If you wish to summarize your remarks, that would probably 
be helpful. And let me just say at the outset that your full 
text will be made a part of the record, so that you need not 
ask for permission that that occur.
    Let me call now upon Dr. Lardy for his testimony.

 STATEMENT OF DR. NICHOLAS R. LARDY, SENIOR FELLOW, INSTITUTE 
          FOR INTERNATIONAL ECONOMICS, WASHINGTON, DC

    Dr. Lardy. Thank you very much, Senator Lugar. I very much 
appreciate the opportunity to appear before you. Of course, I 
have admired your work on this committee for many years, so 
it's a special privilege to be here.
    Your staff suggested that you'd like to hear something 
about the currency issue. That's already been raised several 
times this morning, so I will address that. I will also try to 
address a little bit the internal domestic economy, if time 
allows.
    I have prepared a number of diagrams \1\ that I think will 
be helpful in elucidating some of these complex issues as we go 
forward, and I will begin with the currency issue and just 
simply review briefly where China is in terms of its overall 
economic interactions with the rest of the world, and then 
focus particularly on the United States.
---------------------------------------------------------------------------
    \1\ The diagrams referred to appear beginning on page 34.
---------------------------------------------------------------------------
    In the first diagram, I'm simply looking at China's current 
account. As you can see, China has had a fairly sustained 
current account since it pegged its currency to the dollar at 
the beginning of 1994. It has averaged about 2 percent of GDP 
over this time period, a little under $20 billion, and it was 
about $35 billion last year. So they are running a surplus on 
their trade and related current account transactions.
    The second diagram also shows that China has run, in most 
years, a capital account surplus since it pegged its currency. 
This has averaged about 1\1/2\ percent of GDP since the Asian 
financial crisis in 1997/98.
    The third diagram takes you to the buildup of foreign 
exchange reserves. What we see is that these current and 
capital account surpluses and, more recently, substantial hot 
money inflows have added substantially to China's foreign 
exchange reserves. They have been intervening in the market to 
prevent the rate from appreciating above 8.3 to the dollar. 
Reserves went up by about $120 billion, cumulatively, in 2001 
and 2002, and they have been going up steadily by about $10 
billion a month in this year.
    Now, the purchases of dollars, which are accomplished 
through the sales of domestic currency, have added about one 
trillion RMB to China's money supply over the last 18 months. 
Although China has sterilized a substantial portion of this 
increase and almost all the increases that has occurred since 
late April, the continued buildup of foreign exchange reserves 
is beginning to pose significant problems for monetary policy. 
I will come back to that at the end, if time allows.
    I think the evidence supports the view not that China 
should float its currency, as Secretary Snow has proposed or 
has been mentioned, I think, by some members of the committee. 
We have to recognize that China's banking system is extremely 
weak, that households have the equivalent of more than one 
trillion U.S. dollars in savings accounts, and if they were 
given the opportunity to convert these into U.S. dollars or 
other foreign assets, they would certainly take advantage of 
this, and perhaps to a considerable extent. I think it is quite 
likely that if China floated its currency, that the value of 
the RMB would depreciation, not appreciate. So I think we 
should be very cautious when we recommend to the Chinese that 
they float their currency. I think it has the potential to 
cause many problems in its domestic economy, with significant 
implications throughout Asia, and that it would move the 
currency in a direction that would be contrary to our 
interests.
    I have argued that they should, instead, revalue their 
currency. And if you take a look at their overall position in 
the trade and capital flows, I think the underlying 
fundamentals suggest that they should revalue their currency 
approximately 20 percent. You could argue maybe it should be 15 
percent, maybe it should be 25 percent, but it's somewhere in 
that range. And I say that because what they really need to do 
is get their current account down to be slightly negative, 
which would be offset by their capital inflows, which have been 
about 1\1/2\ percent of GDP.
    I want to turn to diagram 5 and explain what the 
implications of this would be for the United States. This is a 
diagram that I originally prepared for Secretary Snow. It 
simply breaks China's trade balance down into what their global 
balance is, what their balance is with the United States, and 
what their balance is with the rest of the world. And, as you 
can see, the red line is their surplus with the United States, 
standing at about $104 billion last year. The bottom negative 
line, the yellow line, shows that they have a growing deficit 
in their trade with the rest of the world. And then the blue 
line shows their overall trade balance. Their overall trade 
balance is positive, but the number is not as large as some 
people imagine. Last year, it was only about 30 billion U.S. 
dollars.
    So you take into account the relative size of China's trade 
with the United States, if they were to revalue their currency 
by about 20 percent, I estimate that the effect on the 
bilateral trade with the United States would be to reduce their 
surplus by about $10 billion. This, of course, would occur over 
a period of time as the effects of the exchange-rate change 
would work their way through the system. So the likelihood is 
that a 20 percent revaluation would not lead to a shrinkage in 
our deficit with China. It might cause a slowdown in the rate 
of growth of that deficit for a period of time as the 
adjustment process worked through, but I don't think a 
revaluation, which is justified on the fundamentals, would lead 
to a shrinkage in our bilateral deficit with the United States. 
I think there's a great deal of misunderstanding about this. 
China cannot set its currency to reduce its trade surplus with 
the United States to zero, because at that point it would have 
a gigantic overall deficit.
    So we really have a very difficult problem. I think it is a 
structural problem, and not one that is going to be resolved 
through exchange-rate policy changes on the Chinese side. And 
it really stems from the fact that was alluded to by Secretary 
Kelly, that China has opened itself up for so much foreign 
direct investment and that it has become a major manufacturer 
of goods that used to be produced elsewhere in Asia.
    As a consequence, because most of this activity is assembly 
operation, China is buying huge quantities of parts and 
components, but largely from other Asian countries. China runs 
its biggest trade deficit, for example, with Taiwan. Last year, 
they had a $25 billion deficit in their trade with Taiwan, 
because all the Taiwan companies that have moved to the 
mainland are buying high-value-added parts and components from 
their traditional suppliers, bringing them into China, 
assembling them, and then selling them to the United States, 
Europe, and other high-income countries.
    The changes in the exchange rate that would be reasonable 
for China to adopt, given its surplus on both the capital 
account and the current account, would not likely have a big 
impact on the bilateral deficit that we are suffering with 
China. In effect, it stems largely from the openness that China 
has to foreign direct investment and the fact that a great deal 
of labor-intensive manufacturing has moved to China.
    Now, I want to say something next about how open the 
Chinese economy is. I think several questions today pointed out 
quite clearly, and I think for the most part, quite accurately, 
that China is not in full compliance with all of the 
commitments that it made when it joined the WTO. Nonetheless, I 
would argue that it is a remarkably open economy. And the 
diagram on page 6 simply shows, over the last 10 years or so, 
that imports as a share of GDP have increased from a little 
under 15 percent to a little under 25 percent. They have 
increased by two-thirds over this period. Their imports have 
grown from $53 billion in 1990 to about $300 billion last year.
    China is roughly three times more open than Japan. This 
year, for the very first time, China is going to import more 
than Japan does. Japan's economy is roughly 3.2 times the size 
of China's. So here is an economy that is much, much smaller 
than Japan's, but importing, actually, more as a result. In 
Japan, imports are about 8 percent of GDP. As you can see from 
the diagram, China's imports are almost 25 percent. They're 
also well ahead of the United States, for example, on this 
measure.
    In addition, I think it's useful to note that foreign 
companies in China are playing a very big role in making the 
place more open, as well. They now produce about a fourth of 
all manufactured goods, and a little over half of those goods 
are sold on the domestic market. So if you take the combination 
of what's imported into China and what's produced by foreign 
firms operating in China, by last year this was more than 40 
percent of GDP. This is an extraordinarily open economy, by 
these measures.
    Yes, they are certainly not in full compliance with several 
of their obligations, but they actually have, in comparative 
terms, a relatively open economy.
    I would say that one of the best pieces of recent evidence 
of how open the economy has become is the extremely rapid 
growth of imports this year. As China's growth has accelerated, 
particularly in the first half, their imports in the first 8 
months of this year exceeded 250 billion U.S. dollars. That's 
an increase of more than 40 percent over the import levels of 
the prior year. And if you go back and think of the first 
diagram, on the current account, the current account is falling 
very dramatically this year, because imports are growing much, 
much more rapidly than their exports.
    So, yes, they're out of compliance on some things, but I 
think they have become substantially more open and are quite 
open compared to many other economies.
    I did say, at the outset, I would try to say something 
about the domestic economy. The most important thing to 
understand now is that China is currently in a phase of 
accelerating growth based largely on an unsustainable expansion 
of domestic credit. In the first half of this year, for 
example, loans outstanding increased by 1.9 trillion RMB. Last 
year in the same period, they increased by about 900 billion. 
So there has been an absolute explosion of credit. Relative to 
gross domestic product, the increase in credit is at all-time 
high.
    So I think we are now approaching or are perhaps at a peak 
of the macroeconomic cycle. Inflation is accelerating and 
imports are growing extraordinarily rapidly relative to 
exports. The challenge China now faces is the need to rein in 
credit growth before inflation accelerates further, but without 
stepping on the brakes so hard that the economy falters, in 
terms of its underlying economic growth.
    And I would go back and argue that I think one of the most 
compelling arguments for China to revalue is that the buildup 
of foreign exchange reserves has contributed significantly to 
the excessive growth of credit over the last two to three 
quarters, and that it is in their own self-interest to revalue. 
If they don't, increasingly there will be more problems on the 
monetary policy side.
    In effect, their exchange-rate policy and their domestic 
macro policy are currently working at cross-purposes, and a 
revaluation would bring them into congruence and would help 
them with their domestic macroeconomic management.
    Thank you very much.
    [The prepared statement of Dr. Lardy follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    The Chairman. Well, thank you very much, Dr. Lardy.
    Dr. Campbell.

STATEMENT OF DR. KURT M. CAMPBELL, SENIOR VICE PRESIDENT, HENRY 
    A. KISSINGER CHAIR FOR NATIONAL SECURITY, AND DIRECTOR, 
   INTERNATIONAL SECURITY PROGRAM, CENTER FOR STRATEGIC AND 
             INTERNATIONAL STUDIES, WASHINGTON, DC

    Dr. Campbell. Thank you very much, Mr. Chairman. It's an 
honor to appear before the committee, and I thank you and your 
colleagues for your service and leadership on these and other 
issues.
    I've been asked to talk today about China's rise influence 
in the region, I think following on what we've heard earlier 
from Assistant Secretary Kelly today. And I think it's probably 
appropriate to begin 2 years ago today, on this tragic day, 
September 11, and think a little bit about how September 11, 
2001, has influenced the U.S. role in Asia and, by association, 
China.
    But before we look at that, let's look just quickly at the 
conventional wisdom about the United States on September 10, 
2001, what we expected in terms of American focus and strategic 
priorities.
    I think the belief was then that every major challenge to 
peace and stability was found, for the first time in our 
history, in Asia rather than Europe. Dangerous situations still 
exist today on the Korean Peninsula, increasing militarization 
across strait between China/Taiwan, and, of course, the very 
provocative nuclear rivalry between India and Pakistan. I think 
there was an expectation that--sort of like, Bonnie and Clyde, 
you know, this is where the bang starts, so that's where we'd 
be focused--that we would be focused like a laser on Asia.
    During the campaign, there was a lot of discussion about 
how China would be a strategic competitor of the United States, 
and we were heading toward a circumstance where you could 
really easily see long-term structural competition on a 
strategic level between the United States and China.
    September 11 changed all that, for very dramatic reasons, 
and I just want to run through a few, Mr. Chairman, that I 
think would be of interest to the committee today.
    The first and most important development since September 11 
is the United States has been preoccupied in a way somewhat 
from Asia, focused on other issues and not focused as much on 
Asia as we had anticipated--much more focused on the Middle 
East, on South Asia, on the rise of Islamic fundamentalism 
elsewhere, and I think only periodic attention to these and 
other issues in Asia.
    Second, because of changing conditions associated with the 
rise of terrorism, U.S.-China relations are the best they have 
ever been. And one of the interesting things, there was a lot 
of discussion and critique about this concept of a constructive 
strategic partnership between the United States and China with 
really tough attacks during the campaign. But the irony is, 
having come to power, the Bush administration has actually 
built a constructive strategic partnership with China. U.S.-
China relations are probably stronger today than they ever have 
been. This is probably the first administration in history, if 
anything, that under-exaggerates how strong U.S.-China 
relations, where every other administration in the past, if 
anything, has exaggerated it.
    The third reason that we've seen big development, and as a 
consequence of these first two, is the rise of substantial 
prominence of China in Asia, and you see that everywhere. It's 
felt in Japan. It's felt in Korea. And it's particularly felt 
in Southeast Asia. Even though, by every measure, the United 
States is the greatest power on the globe today, if you walk 
the hallways and the business corridors of Asia, the dominant 
power in the region is China--in many respects, stronger in 
certain circumstances, than even the United States.
    There are many reasons for China's gain in prominence, and 
I'm just going to review three of them for you quickly, Mr. 
Chairman, today. First, although many of the goals of China and 
its leadership have not changed in Asia--I think we still have 
some concerns about Taiwan--we've discussed this--we have 
concerns about the Spratlys in the South China Sea--their style 
has changed notably. I used to remember when I was in 
government, a few years ago, you could always count on the 
Chinese diplomat or military representative either to sit in 
stony silence or to make a scene--you know, sometimes, you 
know, throwing up arms, knocking over things. That's changed 
dramatically. China is much smoother, much more careful, much 
more sophisticated. They've come up substantially on the 
learning curve, in terms of how to deal in international 
circumstances. And nowhere is that more clear than in complex 
situations in Asia, as a whole.
    On disputatious issues, like China, like Taiwan, and the 
South China Sea, they're taking the longer view. And I think 
what you hear more and more is that time is on our side. You 
hear that reflecting throughout discussions in Asia, as a 
whole.
    Second, as a result of some of the things that Nick has 
talked about, there is almost a China fever, in terms of 
investment and interest. If you talk to most European 
companies, American companies, and, indeed, most Asian 
companies, there is a rush to get into the China market, both 
in terms of investments and manufacturing. And many countries 
in Southeast Asia look at the geography and think, ``China's 
going to be our neighbor for a thousand years. I'd better cut 
my best deal now.'' And so the smart countries in Southeast 
Asia who see China moving rapidly up the ladder, in terms of 
the sophistication of their manufacturing, have decided to try 
to cut their deal as quickly as possible.
    The third reason--and this is interesting--is I think the 
United States, in many respects, has facilitated China's rise 
in a way that perhaps is occasionally unintentional. Just a few 
years ago, I think we had some misgivings about ceding to China 
a really dramatic and important role in certain Asian affairs. 
But, for instance, on the Korean Peninsula, we have welcomed 
it, we've encouraged it, and we've actually opened the door. 
They key player in the six-party talks, in many respects, is 
not the United States; it's China. China is the convener, the 
cajoler. They are playing the role as the major diplomatic 
power in Asia on the Korean Peninsula, not the United States. 
And we have asked for that.
    Now, let's just look quickly into the future. What are the 
challenges that China will face in the region as we go forward? 
I think the first and most important challenge that they're 
going to face is on the Korean Peninsula, itself. I think 
they're coming to the realization that, over the long term, the 
current leadership and the structure of the situation on the 
peninsula is unsustainable. In the short term, they're trying 
to both sustain the North Korean leadership and try to prevent 
North Korea from acquiring a substantial nuclear capacity. I 
think North Korea's becoming so inconvenient that they're 
starting to think about developments on the Korean Peninsula 
that will take us beyond the current leadership. And they are 
building relations, very close relations, with our allies in 
South Korea at a time that our relationship with Seoul is 
particularly strained.
    Second, Japan. Japan is simultaneously a partner of China 
in many areas, a big investor in China, and it's also a 
historical nemesis. It's probably the most complex relationship 
in Asia. If the rise of China is challenging for the United 
States, double that and that's what you've got in Japan. Japan 
feels that China's rise, in many respects, comes at its 
expense, and the notion of Japan passing is now part and parcel 
of the Japanese psyche when it thinks about developments in the 
region, as a whole.
    Third, the rise of Muslim/Islamic movements in Southeast 
Asia. When we talk about the challenge of Islamic terrorism, we 
often think elsewhere. We think about Iraq now, Iran, the 
Middle East. But the reality is that the largest population, 
sort of, the hearts-and-minds problems that we'll face, will be 
in Southeast Asia. Indonesia, in particular. If you made a list 
of those countries that were important to the United States 
that the United States didn't realize were important to it, 
Indonesia would be No. 1. China also feels threatened by 
Islamic fundamentalism, both at home, in terms of their groups 
in the West, which they have ruthlessly suppressed, but also in 
the region, as well, and they want to work with the United 
States and also reach out to moderate countries in the region 
as they go forward.
    Last, the situation in Taiwan. This situation, in terms of 
the increasing militarization does not serve China's long-term 
interests. And with their gathering power and influence, the 
hopes are that they will find a better and different way to 
deal with this democratic island in the Pacific.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Campbell follows:]

  Prepared Statement of Dr. Kurt M. Campbell, Senior Vice President, 
     Henry A. Kissinger Chair for National Security, and Director, 
International Security Program, Center for Strategic and International 
                                Studies

                     china's new prominence in asia
    China's rise in regional prominence in geostrategic, political, 
commercial, and indeed, cultural terms has been felt throughout Asia 
and has been one of the most significant developments of the early 21th 
century, rivaling in many respects the change of international 
circumstances associated with the new realities brought about by the 
global war on terrorism. China has always been a latent or prospective 
power player in Asia but recently its influence has been felt across a 
broad front. Signs of China's new found influence are evident in the 
delicate diplomacy on the Korean peninsula, in China's high stakes 
currency valuation deliberations with key western monetary officials, 
and on crucial transnational issues such as global environmental 
concerns and health matters. It was only a few years ago that many in 
the United States openly worried about the prospect of China playing a 
larger regional and military role in Asia. Indeed, the Bush campaign 
was critical of the very notion of a ``constructive strategic 
partnership'' between Washington and Beijing and was wary of the rise 
of Chinese power in the East. Strategic competition was to be the 
watchword for coming U.S.-China interactions. However, having come to 
power, the Bush administration has actually built a constructive 
strategic partnership with China, a relationship the likes of which has 
never existed between our two countries. While there continues to be 
considerable uncertainty and suspicion among conservative elements in 
both societies, the United States and China are cooperating more 
closely than ever before--in the intelligence arena, diplomatically, 
and in larger global political pursuits--and the U.S. has even helped 
provide the context and conditions for China's recent ascent.
    Since September 11th, 2001, American foreign policy has been 
understandably preoccupied with immediate challenges posed by 
fundamentalist Islam and the security problems in the Middle East. 
While there was an expectation in the waning years of the 1990's that 
Asia would be the next major focal point of strategic preoccupation for 
the United States--with a still divided and militarized Korean 
peninsula, tense cross Strait dynamics, and dangerous nuclear rivalry 
between India and Pakistan--9/11 changed all that. Instead, U.S. focus 
and resources are increasingly directed towards the Middle East and 
South Asia, and Asia has received only periodic high-level attention, 
most recently during the increasingly tense diplomacy over North 
Korea's nuclear status and ambitions. But while 9/11 diverted American 
attention away from Asia in some respects, it has also created the 
context for China's new profile as well as for greater cooperation 
between the two powerful states of the Pacific. China has provided 
consequential assistance in the intelligence and diplomatic arenas in 
the ongoing war on terrorism and the very tenor of the relationship as 
a consequence has changed markedly and for the better. The period when 
a U.S. military plane crew was held against its will on a Chinese 
island amid escalating tensions between Washington and Beijing seems a 
distant memory. Conservative commentators who were very publicly 
concerned over China's military buildup across the Taiwan Strait, and 
of Beijing's larger ambitions in the region, are now curiously silent 
(even though worrisome military trends continue) and as Secretary of 
State Colin Powell said the other day, U.S.-China relations are ``the 
best they have been since Nixon''. Indeed, it has been a shared 
bipartisan tendency to exaggerate the health of U.S.-China relations 
once at the helm of the diplomacy, but if anything, the Bush 
administration has downplayed the significance and depth of the recent 
closeness between Beijing and Washington.
    China's rise to prominence has other important dimensions as well. 
Partly because of domestic preoccupations associated with the 
leadership transfer and partially because of an undeniable learning 
curve in the handling of delicate international matters, China's manner 
of diplomacy has evolved considerably in recent years. While in the 
past, China's diplomats and military representatives were noted both 
for their lack of candor and publicly staged tantrums, current 
representatives of the People's Republic are handling a host of 
challenging problems with a surer touch and a much more effective 
approach. China's has been far more subtle in its recent international 
interactions and much more adept in multilateral dialogues, taking 
pains to seem in tune with regional interests and sensibilities. For 
instance in the past, it was often China that resisted multilateral 
efforts at cooperation and institutionalization in regional dialogues 
such as the ASEAN forum, the cornerstone clustering of the Southeast 
Asian community. Now, however, it is not uncommon to find China taking 
a leading role in such gatherings, sometimes offering up ambitious and 
creative initiatives, to promote regional dialogue and discourse. China 
appears to recognize the political value of working through regional 
forums as a confidence-building measure and as part of its ``charm 
offensive'' strategy, particularly in Southeast Asia, to help allay 
concerns about its rising power and influence, even while it is 
profoundly changing the dynamics of regional economies and politics.
    Ironically, in many circumstances it is now the United States that 
is resisting or demurring from active participation in these 
multilateral venues, preferring instead to deal with many complex 
matters through traditional bilateral avenues (except of course on 
North Korea). Indeed, when it comes to multilateral 
institutionalization and cooperation in Asia, it is as if the United 
States and China have changed places. China now appears much more 
comfortable in many multilateral forums, while the United States 
sometimes appears to be a powerful, but solitary actor, hesitant to 
engage in deeper institutional discussions.
    While there are complex reasons for this change in course in both 
the United States and China, China's new found enthusiasm for closer 
dialogue and ties--with Southeast Asia in particular--have won it 
substantial kudos and more benign regional assessments. In the past, 
most of Southeast Asia was deeply ambivalent about China's rise, 
fearing that an increase in Beijing's power would invariably lead to 
greater belligerence and bullying. However, at least the early 
experience of China's recent ascension suggests a greater degree of 
comfort among most of the key Southeast Asian players, particularly at 
the level of strategic interaction. China's military representatives 
and diplomats are much more aggressive in their regional politicking 
than ever before, and this sustained regional engagement reveals a much 
more sophisticated approach from Beijing than we have seen in the past.
    However, it is on the issue of North Korea that China's newly 
acquired significance is clearly revealed. The Bush administration has 
made very clear both publicly and privately that the key to the 
resolution of the North Korean matter lies in China playing a much more 
robust and public role in the multilateral diplomacy with Pyongyang. 
The recent Chinese hosting of the six party dialogues in Beijing, while 
unsuccessful at least initially in eliciting North Korean concessions, 
was a manifest demonstration of China's new role as power broker. The 
United States in the past has been either deeply ambivalent or opposed 
to China playing such a prominent role, potentially at America's 
expense, but this time the United States helped engineer and encourage 
the session to take place. This undoubtedly reflects the 
Administration's confidence in American power and reach in Asia and 
while this is undoubtedly true, many nations believe that they are 
witnessing the arrival of the next great power in Asia before their 
eyes.
    The commercial dimension of China's rise poses more complex trade 
offs for all of Asia and indeed for the entire industrialized as well 
as developing world. Its rapidly expanding manufacturing base provides 
enormous temptations for industries both high tech and low to relocate 
and there are associated investment opportunities that are virtually 
unparalleled in the world. There has been a massive increase in foreign 
direct investment in China and increasingly, global business 
enterprises based in Europe or the Untied States will look at China as 
an Asian outpost before they will consider hubs in either Southeast 
Asia or Japan and Korea. These trends are reshaping the commercial, 
manufacturing and investment maps of Asia and with it, the very nature 
of economic interaction within and across the Pacific. In the last few 
years, inter-Asian trade and investment--largely spurred by the growing 
opportunities in China--has surpassed commercial interaction across the 
Pacific with the United States.
    While currently the United States is the only true engine of growth 
in the global economy, there are signs that China has the potential to 
play a similar pivotal role, at least in Asia. Most commercial groups 
and governments in Southeast Asia have a deep and profound sense of 
these trends and regard them with some foreboding. Many key Southeast 
Asian business groups in the midst of a complex process of striking 
long-term bargains with Beijing that will have long lasting political 
and commercial significance. China's economy is a potential Colossus 
and smart south Asian countries like Singapore, are thinking creatively 
about the best ways to strike enduring partnerships that are 
sustainable even with mounting Chinese gains in productivity and 
wealth.
    This is not to say that there are not real worries about China's 
ambitions and intentions in the region. Although China has handled many 
recent diplomatic issues, such as the increased Japanese security role 
in world affairs, with greater grace than in the past, there are still 
clear examples of the traditional clumsy approach to crises that we 
associate with a harder line, communist China. For instance, the cover-
up of the spread of the SARS epidemic cost thousands of lives and 
billions of dollars for China and Asia as a whole, and could have been 
dealt with much more effectively with greater and earlier Chinese 
transparency and diplomatic engagement. So to, the continuing military 
buildup across the Taiwan Strait is an ominous forewarning of trouble 
ahead unless Cross Strait issues can be dealt with through more 
peaceful and diplomatic means. While China has largely suspended its 
very public threats and condemnations of Taiwan, there can be no doubt 
that Taiwan occupies a unique place of import among China's policy-
making elite. There are clear anxieties throughout Asia that either 
through miscalculation or provocation, the Cross Strait situation could 
spin out of control, and while most are reluctant to openly criticize 
China's continuing military buildup here, it is a source of anxiety 
throughout the region.
    China has also been seemingly more patient recently when it comes 
to the handling of the periodically tense issues surrounding the legal 
and territorial status surrounding the South China Sea and Spratlys, 
favoring a kind of code of conduct to facilitate joint use and to 
prevent military clashes. China has not changed its essential position 
on sovereignty, but on this matter, as on other issues, Beijing--with a 
full appreciation of its accumulating power and influence throughout 
the region--is taking a longer view with a sense that time is on 
China's side.
    China faces three enormous regional challenges in the years ahead 
in East Asia alone. One is dealing with the clearly untenable situation 
on the Korean peninsula. Its erstwhile ally in North Korea is 
continuing to act in ways that undermine China's own long term 
interests and Beijing must begin to think hard about political outcomes 
on the peninsula that involve regime change in North Korea, as 
difficult and unpalatable as that prospect is. China has taken pains to 
cultivate a closer relationship with South Korea, to a great effect, 
and is well positioned to have a prosperous and stable relationship 
with a successor political arrangement on the Korean peninsula. Yet, 
North Korea shows no sign of political collapse nor real internal 
reform and China must now consider more intrusive options to help 
determine the fate of Pyongyang's current rulers.
    China's second greatest challenge is in developing a better 
relationship with Japan, simultaneously a regional rival, commercial 
partner, and historical nemesis. While China's rise provides very 
obvious challenges for the United States, there are probably more 
urgent anxieties in Japan associated with Beijing's greater regional 
prominence. Many in Japan fear that China's rise has come at Japan's 
expense, and there is a real sensitivity to a growing and pervasive 
regional pervasive regional mindset that is best captured with the term 
``Japan passing''. While Japan and China have recently taken pains to 
portray their relationship as on the upswing, there are clear and 
undeniable tensions just beneath the surface.
    The third challenge is in relation to the rise of Islamic 
fundamentalism, both inside China's borders in the western hinterland 
and in the surrounding region, particularly in Indonesia. China fully 
appreciates that it too is a target of militant Islam and that regional 
stability in Southeast Asia in many senses hinges on how this most 
delicate issue is handled both by the region's ruling elite and outside 
actors. China's main strategy at home has been to practice brutal 
repression against Muslim minorities but there are recent signs of 
closer Chinese ties with a range of states in Southeast Asia with 
substantial Muslim populations, including Malaysia and Indonesia.
    There is a tendency in Asia to make bad judgments when it comes to 
power predictions and hegemonic transitions. For instance, it was in 
1986 that Soviet Premier Mikhail Gorbachev traveled to Vladivostok to 
give a speech about a new Soviet strategy for Asia. Many commentators 
in Asia subsequently surmised that we were heading into a new era of 
Russian dominance in the Pacific. Laughable as that seems in 
retrospect, the notion of more dominant soviet position in the Pacific 
dominated discourse for several years following. Further, in the late 
1980's and early 1990's, it was a common refrain to hear that the Cold 
War was over and Japan had won. It was commonly expected that Japan's 
remarkable economic rise would continue unabated and the country would 
acquire greater political and military power, potentially rivaling the 
United States. There was also the profound belief in the very idea of 
an American decline and anxiety throughout Asia that the United States 
was a spent force, humiliated in Vietnam and exhausted by the Cold War. 
Obviously the United States is back with enormous influence springing 
from our continuing commercial prosperity, our unparalleled military 
power, and our ability to harness the forces of globalization.
    The same kind of gold rush mentality also influences our 
calculations on the course of China's rise. It has become the common 
conventional wisdom that China's rise is inevitable and that 8\1/4\ a 
year growth figures will continue into the future as far as the eye can 
see. The reality, of course, is China faces enormous domestic pressures 
and problems, and there are daunting challenges ahead that could well 
stymie China's modernization and rise to regional prominence. Although 
it is wise to plan and prepare for China's rise, it is also prudent to 
consider its potential failings, either politically or economically. 
Either way, the course of and prospects for China in the world will be 
one of the most important and multifaceted challenges facing the United 
States in the 21st century, with enormous stakes for both success and 
failure. The United States has a deep interest in China's success, but 
our overriding objective must be to see that China's ascent does not 
come at our expense, or at the expense of our regional friends and 
allies.

    The Chairman. Well, thank you very much, Dr. Campbell.
    Mr. Kumar.

   STATEMENT OF MR. T. KUMAR, ADVOCACY DIRECTOR FOR ASIA AND 
       PACIFIC, AMNESTY INTERNATIONAL USA, WASHINGTON, DC

    Mr. Kumar. Thank you very much, Mr. Chairman.
    Amnesty International is extremely pleased to be here to 
testify on this important topic and also on an important 
country.
    As far as Amnesty International is concerned, the human 
rights situation in China has gone from bad to worse. Our 
opinion is not only shared by other human rights organizations, 
it's also shared by the administration, itself. Even today, we 
heard Secretary Kelly give testimony to that effect.
    Before I go into details, I just want to give you a list of 
human rights abuses that are taking place in China. The list is 
pretty long, so I will summarize the important ones. And the 
list is growing by the day there.
    First, the Chinese are holding tens of thousands of 
political prisoners. Tens of thousands. They have been 
imprisoned without charge or trial. If there are any trials at 
all, they are unfair, and sometimes they are closed-door 
trials. Most of the time, the admission of evidence is obtained 
through torture.
    As for the human rights perspective on religion, every 
religious group that operates in China which doesn't have the 
government's authority or permission gets persecuted. 
Christians are number-one on the list, Tibetan Buddhists, 
second, then Muslims in the West.
    The death penalty is practiced on a routine basis. China 
executes more people than all other countries combined. And we 
also have reports that China is harvesting organs from executed 
prisoners for transplant purposes. This has become a trade in 
China.
    Forced abortion and sterilization is another issue of 
concern to us. As you are aware, Mr. Chairman, China has a one-
child policy. The Chinese Government allows forced abortion and 
sterilization to take place as one of the methods of 
controlling the population growth in China.
    Last, but not least, is the North Korean situation. There 
were a lot of questions that were asked of Secretary Kelly 
about North Korea. We are concerned about the refugees from 
North Korea residing in China. There are at least 100,000 to 
150,000 such refugees in China at this moment, and the Chinese 
are not treating them well, and they are forcing them back, 
against their wishes. And, above all, the Chinese are not 
allowing the United Nations High Commission authorities to have 
access to these North Korean refugees in China.
    Coming back to the main issue of political prisoners, there 
is one political prisoner I would like to single out. Her name 
is Rebiya Kadeer. She was arrested for meeting with--trying to 
meet with--congressional staffers. She was sentenced to 8 years 
in prison for providing secret information to foreigners. And 
when Human Rights Secretary Craner visited Xinjiang, the Muslim 
province of China, everyone expected that Rebiya Kadeer would 
be released at that time. But, to our dismay, not only was she 
not released, they arrested three of her children the day 
before Secretary Craner arrived, and detained them for a couple 
of hours and warned them not to talk to anyone about their 
mother's case.
    The other case is Tibet. There is a case of a 6-year-old 
child who was selected by the Dalai Lama as the Panchen Lama, 
the second hierarchy in Tibetan Buddhism. This happened about 8 
years ago. The Chinese immediately detained the 6-year-old 
child and his parents, and, for the last 8 years, we don't know 
what has happened to that child and/or the parents.
    These are two glaring examples of the contempt the Chinese 
have for human rights and also religious persecution and the 
denial of rights to minorities in China.
    I will quickly move on to the U.S. policy aspect of the 
human rights situation in China. As Secretary Kelly mentioned, 
China is backsliding in terms of human rights. We also see that 
the United States is backsliding in terms of dealing with the 
human rights abuses in China. The United States failed to 
sponsor a resolution at the last United Nations Human Rights 
Convention. Whatever excuses the administration may give, they 
have given the green light to the Chinese to believe that they 
can get away with by abusing the rights of their civilians, and 
no one in the world, including the most powerful country in the 
world, the United States, is going to stand up to them. That's 
why we are urging the administration to sponsor a resolution at 
the upcoming 2004 Human Rights Convention.
    Today is the second anniversary of the 9/11 tradegy. The 
Chinese have turned the tragedy into a weapon of human rights 
abuse. Since 9/11, they have created numerous anti-terrorism 
laws. And they are not only cracking down on the Muslim 
province of Xinjiang. They are now also expanding it to 
Tibetans and to others. For the first time ever, a Tibetan 
political prisoner was executed under those laws a couple of 
months ago. So what we see is the tragedy of 9/11 being used as 
a weapon of terror by the Chinese against their own citizens.
    We also want the administration, especially President Bush, 
to take human rights to his heart when he meets with Chinese 
leaders this October, when he is going to have a meeting with 
the President of China at the APEC conference. We would urge 
him to specifically request that Rebiya Kadeer be released 
before that meeting or immediately after the meeting.
    As a final note, Mr. Chairman, I would like to highlight 
the importance of congressional leadership on this issue. Given 
China's contempt for human rights, and given the Bush 
administration's unwillingness to deal with human rights in a 
meaningful way, the burden comes to you, as the main committee 
that deals with foreign policy. It's your responsibility to 
ensure that the administration does not undermine the need to 
secure human rights for Chinese civilians--I mean, to make sure 
that human rights is raised in a meaningful way with the 
Chinese. And also as a committee you can deal with Chinese 
directly and ensure that there is some progress made regarding 
human rights before any other developments take place, in terms 
of trade or anything else.
    One of the downsides of what has happened to U.S.-China 
relations during the last couple of years was the granting to 
China of PNTR, of permanent normal trade relations. We, as an 
organization, did not take a position on that, but we are 
concerned that the annual debate surrounding human rights in 
China that took place during that time is not there anymore. So 
the Chinese know that there is no spotlight on their human 
rights abuses. That is also giving them an added incentive to 
abuse the rights of their own civilians.
    So, in closing, Mr. Chairman, as a human rights 
organization, we are extremely pleased that you are holding 
this hearing today and keeping human rights as part of the 
discussion. And we expect that you will keep this human rights 
agenda as part of your deliberations with the administration 
and the Chinese.
    Thank you very much.
    [The prepared statement of Mr. Kumar follows:]

Prepared Statement of T. Kumar, Advocacy Director for Asia and Pacific, 
                       Amnesty International USA

    Thank you Mr. Chairman, and distinguished members of this 
committee. Amnesty International is pleased to testify at this hearing. 
The human rights situation in China has been of consistent and grave 
concern to Amnesty International and, indeed, to Members of this 
Senate, for years. In 1996, Amnesty International launched an 
international campaign to increase awareness of China's horrible human 
rights record. Over the years we have released numerous reports to 
highlight the deteriorating conditions.
    It would be impossible to cover the vast scope of human rights 
violations in China in my testimony, so I will summarize some of our 
major concerns. The scale of China's human rights violations is 
staggering. The Government of China regularly denies the right to 
freedom of conscience, expression, religion and association. China 
holds thousands of political prisoners, executes more people than the 
rest of the world combined, regularly practices torture resulting in 
numerous deaths, persecutes religious groups of all persuasions, has 
forced mothers to endure forced abortions and sterilizations, and 
perpetrates countless other human rights violations. Tibetans, Uighers, 
``unofficial'' church members, Falun Gong practitioners, democracy 
activists, and political dissidents bear the brunt of abuses. Other 
groups targeted for repression include trade union organizers, 
advocates of reform, and people using the Internet to disseminate 
information deemed to be ``politically sensitive.'' North Korean asylum 
seekers also have faced an intense crackdown in China leading to large-
scale forcible repatriation to North Korea.
           bush administration's human rights policy on china
    The Administration's policy of over the last three years of 
appeasing China and compromising on fundamental human rights issues 
have emboldened Chinese authorities to continue committing human rights 
abuses. Secretary Powell recently stated that ``U.S. relations with 
China are the best they have been since President Nixon's first visit 
in 1972.'' Given Secretary Powell's statement, one wonders whether the 
positive relationship with China comes at the expense of human rights. 
If the relationship is so positive, why has the Administration failed 
to secure the release of Rebiya Kadeer, who is imprisoned for 
attempting to meet U.S. Congressional staff? And why do so many 
continue to languish in prison for exercising their right to freedom of 
conscience, expression, religion and association?
    The Administration's failure to sponsor a resolution at last year's 
United Nations annual Human Rights Commission meeting in Geneva and the 
Administration's failure to comprehensively integrate human rights in 
its dealing with the Chinese authorities are reprehensible and are 
marks of short-sighted policy. Amnesty International urges the 
Administration to declare its intention to sponsor a resolution at next 
year's UN Human Rights Commission meeting and to put real diplomatic 
muscle behind this effort. We also urge the Administration to 
incorporate meaningfully human rights requirements in all its dealing 
with the Chinese authorities.
    Secretary Powell's up-beat assessment is in sham contrast with the 
Department of State's own admission of a failed U.S. human rights 
policy towards China. The failure of the Administration's human rights 
policy was displayed in public at the State Department's press briefing 
on July 2, 2003. Following is the statement:

Taken Questions
Office of the Spokesman
Washington, DC
July 2, 2003
Question Taken at July 2, 2003 Press Briefing

China: Human Rights Deterioration (Question Taken)

    Question. Can you elaborate on your comment that there has been a 
``deterioration in human rights'' in China recently?

    Answer. During much of 2002, we saw incremental, but unprecedented 
steps in the right direction on human rights, including the release of 
a number of prominent prisoners of conscience, the visit of 
representatives of the Dalai Lama to China for the first time in two 
decades, and numerous commitments undertaken by the Chinese government 
at the U.S.-China human rights dialogue last December aimed at systemic 
human rights reform. We were hopeful that these were signals of a new 
commitment by the Chinese government to cooperate with the United 
States on human rights issues.
    We have been disappointed, therefore, to see negative developments 
in 2003. The commitments to make progress on human rights concerns made 
by China at the conclusion of the December human rights dialogue have 
not been met, and there have been a number of troubling incidents since 
the beginning of the year. For example:

   The execution of a Tibetan without due process and despite 
        assurances that his case would receive a review by the Supreme 
        People's Court;

   The arrests of a number of democracy activists;

   Harsh sentences handed down to Internet essayists and labor 
        protesters;

   The forced repatriation of 18 Tibetans from Nepal in 
        contravention of UN practices;

   The failure of PRC authorities to respect due process rights 
        of those accused of political crimes; and

   Lack of access for us diplomats and family members to trials 
        of those detained for political activities.

    This backsliding on human rights is of great concern to the United 
States and the international community.
    Our decision not to raise a China resolution at the Geneva Human 
Rights Commission this year was based on assurances by the Chinese 
government that human rights cooperation would get back on track. This 
was a good faith effort to try to find a new way forward on improving 
human rights in China.
    We urge the Chinese government to take steps to ensure that its 
citizens are not persecuted for the peaceful expression of their views, 
and to release all prisoners of conscience.

[End]

    Mr. Chairman, Amnesty International is keenly watching the 
Administration's steps with regard to China policy. And we sincerely 
hope for a China policy that will depart from the policy of the last 
three years, and one that will begin to secure real human rights gains 
in China.
    I would now like to bring your attention to a number of cases that 
exemplify the vast array of human rights violations occurring in China 
today that need immediate attention.
                   the imprisonment of rebiya kadeer
    Mr. Chairman, Amnesty International would like to bring to your 
attention the case of Rebiya Kadeer. Ms. Kadeer, a successful 
businesswoman from the Xinjiang Uighur Autonomous Region (XAUR) in 
China, was arrested while trying to meet with members of the United 
States Congressional Research Service and Congressional staff. 
Following a trial held in secret, a Chinese court sentenced her to 
eight years' imprisonment for ``providing secret information to 
foreigners''. Her continued imprisonment is a slap in the face to those 
in the United States who would investigate human rights conditions in 
China.
    Ms. Kadeer was widely expected to be released when Assistant 
Secretary of State for Human Rights Lorne Craner was given permission 
to visit the XUAR in December 2002. Not only was Ms. Kadeer not 
released, but her three children were taken into custody on the day 
before Secretary Craner's arrival. The children were released the 
following day with strict instructions not to meet with anyone about 
their mother's case. Ms. Kadeer's health is reportedly deteriorating, 
resulting in her inability to perform prison labour.
    Amnesty International would urge you to take appropriate steps to 
secure her immediate release. Mr. Chairman, President Bush is planning 
to meet Chinese President Hu Jintao at the APEC Conference in Thailand 
in October. We urge you to contact President Bush to ask that he 
raiseRebiya Kadeer's case with the Chinese President during this 
conference.
                          where is the child?
    Gendun Choekyi Nyima was only six years old when he was selected as 
the 11th Panchen Lama by the Dalai Lama. He has not been seen for eight 
years. It is believed that the Chinese authorities are holding him in a 
secret location. Amnesty International considers this child as a 
political prisoner.
    On May 14, 1995 the Dalai Lama, Tibet's exiled leader, announced 
that Gendun Choekyi Nyima was the reincarnation of the 10th Panchen 
Lama. The Chinese authorities have disputed the Dalai Lama's authority 
to announce the discovery of the reincarnated Panchen Lama and rejected 
the Dalai Lama's choice and choose another six-year-old boy to be the 
reincarnate.
    It is reported that the Chinese authorities took the Panchen Lama 
selected by the Dalai Lama to Beijing along with his parents. Eight 
years have passed and there is no information on this missing child. 
The Chinese authorities have refused to allow any independent observers 
to meet the boy or his parents. They also refused to share any 
information about his whereabouts.
    A number of Buddhist monks who assisted the Dalai Lama in the 
search for the 11th Panchen Lama were also arrested and imprisoned. For 
example, Chadrel Rinpoche, the imprisoned abbot of Tashi Lhunpo 
Monastery, who is believed to have been released in January 2002 
following the completion of his sentence, is now reported to be under 
house arrest.
    There is no independent information on the status of Gendun Choekyi 
Nyima's health or living conditions. Chinese authorities assured a 
delegation of European Union Ambassadors visiting Tibet in 1998 that 
the ``boy was in good health and living a normal life''. The 
Ambassadors' request to visit the boy was refused on the grounds that 
the boy and his parents wished to lead a normal life, which was not 
compatible with receiving visits from foreigners.
    Amnesty International is seriously concerned about the welfare of 
the child and that of his parents and urges the Chinese authorities to 
lift the restrictions and allow the boy and his parents to return to 
their village and live without restriction or harassment.
                      crackdown on internet users
    In China, individuals can be sentenced to death for publishing 
information on the Internet that the government considers a ``state 
secret''. Scores of people have been imprisoned in China for using the 
Internet; of those arrested at least three have died as a result of 
torture by police. Those detained to date range from political 
activists and writers to Falun Gong practitioners and members of other 
religious groups banned by the authorities.
    With the introduction of the Internet, news reaches China from a 
multiplicity of sources enabling people to form opinions, analyze and 
share information and to communicate in ways previously unknown in 
China. Lively on-line debate flourished in China. However, the 
potential of the Internet to spread new ideas has led the authorities 
to take measures to control its use.
    The Chinese government has introduced numerous regulations, closed 
Internet cafes, and blocked e-mails, search engines, foreign news and 
politically sensitive websites. Recently, it has introduced filtering 
systems for web searches and has even created a special ``Internet 
police'' to enforce these restrictions. The Ministry of State Security 
has reportedly installed tracking devises on Internet service providers 
to monitor individual e-mail accounts and all Internet cafes are 
required to register and inform the police about their customers.
    The Chinese government has also forced Internet companies to take 
on the responsibility of policing the web. A ``Public Pledge on Self-
Discipline'' was introduced in August 2002 requiring Internet companies 
to agree not to allow the posting of ``pernicious'' information that 
may ``jeopardize state security, disrupt social stability, contravene 
laws and spread superstition and obscenity''. Yahoo also signed to this 
pledge to police Internet users. After a fire in an Internet cafe in 
Beijing last year, authorities closed thousands of Intemet cafes and 
demanded that those allowed to re-open do so only after installing 
filtering software to block web sites considered ``politically 
sensitive'' or ``reactionary''. The software prevents access to 500,000 
various websites.
                    1989 tiananmen square prisoners
    Fourteen years after the 1989 pro-democracy demonstrations in 
Tiananmen Square, we again call upon the Chinese authorities to account 
for all those killed and injured in the crackdown and to offer 
compensation to the families.
    Those who lost their lives or were imprisoned in 1989 were calling 
for transparent and accountable government and an end to corruption--
core building blocks for genuine stability and development. The new 
Chinese leadership has recently given prominence to these watchwords 
with its efforts to combat the spread of SARS.
    Amnesty International reiterates its appeal to the Chinese 
authorities to release all prisoners still held in connection with the 
1989 pro-democracy protests. AI has records of 82 people that it 
believes are still imprisoned following swift and unfair trials. Cases 
continue to come to light, indicating that the true figure is likely 
much higher.
                   forced abortion and sterilization
    Birth control has been compulsory in China since 1979 and the 
official government line that ``coercion'' is not permitted is flatly 
contradicted by the facts. Birth control is enforced through quotas 
allocated to each work or social unit (such as schools factories or 
villages) with local officials directly responsible for monitoring and 
enforcement. At a minimum, couples who have ``above quota'' face 
punitive action, including heavy fines and loss of employment. ln 
reality, many local authorities resort to much more severe action, 
including forced abortions and forced sterilizations. Relatives of 
those accused of having too many children have been held as hostages 
until fines are paid or the pregnant woman agrees to have an abortion. 
``Above quota'' newborn babies have reportedly been killed by doctors 
under pressure from officials and at least one doctor who issued false 
sterilization certificates was given the death penalty.
                     rape and other sexual torture
    There have been many reports of the use of electric batons and 
sticks to rape or sexually violate and torture women in custody. One 
Tibetan nun described how on arrest in mid-1988, she and 11 other nuns 
were forced to stand in line as one by one they were stripped naked. 
Two policewomen with sticks then beat the naked women as male prisoners 
looked on. One of the nuns later reported: ``I felt humiliated in the 
beginning, but later I forgot everything but the terrible pain.'' The 
policewomen then twice poked them with an electric baton and pushed it 
into their vaginas. By the time the nuns returned to their cells, they 
were ``not aware of what was happening'' around them.
                     torture and deaths in custody
    Zhou Jianxiong, a 30 year-old agricultural worker from Chunhua 
Township in Hunan province, died under torture on May 15, 1998. 
Detained on May 13, he was tortured by officials from the township 
birth control office to make him reveal the whereabouts of his wife, 
suspected of being pregnant without permission. Zhou was hung upside 
down, repeatedly whipped and beaten with wooden clubs, burned with 
cigarette butts, branded with soldering irons, and had his genitals 
ripped off.
    This horrific case of abuse is not an isolated case. Every year 
many people die due to torture in China. Others survive the torture but 
continue to suffer the long-term effects of the physical and mental 
traumas they have endured.
    Torture and ill treatment of detainees and prisoners is widespread 
and systemic in China. Such abuses have been reported in the full range 
of state institutions, from police stations, detention centers, 
prisons, to administrative ``re-education through labor'' camps, 
internal migrant ``custody and repatriation centers'', and enforced 
drug rehabilitation centers. Torture is also frequently reported as an 
integral part of the abuse of ``non-custodial'' control measures such 
as ``residential supervision'' and during ``special isolation'' of 
officials during investigations into allegations of corruption.
    The common forms of torture reported by prisoners are the use of 
electric shock batons, particularly on sensitive areas such as mouth 
and genitals; being forced to stand in awkward positions for long 
periods and being suspended from the ceiling by their arms. Prisoners 
reported being tied in agonizing positions with ropes and also being 
forced into awkward positions with the use of ankle cuffs, handcuffs 
and thumb cuffs.
    Kidney and liver ailments are common among prisoners as a result of 
kicking and beatings by prison guards aimed specifically at these 
sensitive organs. Many report being beaten with whatever implement a 
guard or interrogator can find at hand, such as a log, a gun butt or 
even in one case, a tire pump.
                           prison conditions
    Prison conditions remain harsh and many prisoners are forced to 
work for long hours in unacceptable conditions. Prisoners receive 
inadequate food of a very poor standard. Prisons have poor sanitation 
and many prisoners suffer health problems as a result, particularly 
diarrhea and digestive problems.
    Medical care for prisoners is reported to be insufficient and to be 
administered only at a late stage. One former prisoner's account 
indicates that there is a small clinic at Drapchi prison in Tibet with 
a resident nurse but no doctor. These facilities are not well equipped. 
Serious illness, such as tuberculosis, liver disease, and kidney 
problems, are dealt with in hospitals outside the prison, but many 
prisoners distrust the medical system. There is no preventive health 
care for prisoners. Some prisoners report that there are instances of 
tuberculosis in prison and that this particularly affects elderly or 
physically weak prisoners. It reportedly spreads easily as several 
prisoners are kept in one cell.
                         psychiatric hospitals
    Many prisoners in China are confined to state run psychiatric 
hospitals for simple acts of expressing their thoughts on political 
issues. Take the example of veteran human rights activist and prisoner 
of conscience Wang Wanxing. He was forcibly removed from his home by 
eight public security officers and returned to Ankang psychiatric 
hospital in Beijing on November 23, 1999. There has been no further 
news of him.
    Wang Wanxing was first detained in the hospital in June 1992 for 
unfurling a banner in Tiananmen Square to commemorate the anniversary 
of the pro-democracy protests of June 1989. On that occasion his wife 
was informed that he was suffering from ``political monomania'', which 
is not an internationally recognized medical term and would appear to 
imply political obsessiveness.
    In August 1999, Wang Wanxing was released for a three-month trial 
period during which he was prohibited from contacting the media or pro-
democracy activists. At the end of this trial period, on November 18, 
1999, Wang Wanxing asked the authorities if he could hold a press 
conference to discuss his confinement. A week later, he was forcibly 
returned to Ankang psychiatric hospital, which is managed by the 
Beijing National Security Bureau. There is no evidence that Wang 
Wanxing has any form of mental illness and AI believes that he is being 
confined to a psychiatric institution in order to suppress his right to 
freedom of expression and belief.
                           the death penalty
    The death penalty continues to be used extensively, arbitrarily, 
and frequently as a result of political interference. Its use increased 
dramatically after the launch of the ``strike hard'' campaign against 
crime in April 2001. Following the start of the campaign, a record 
number of people were sentenced to death and executed, reportedly 1,921 
death sentences and 1,060 executions, many after apparently summary 
trials for crimes ranging from tax fraud and drug trafficking to 
pimping. Official reports on the campaign reveal a total absence of 
concern for international norms, which require that the most careful 
judicial procedures be followed in death penalty cases.
    While the campaign was initially targeted at organized violent 
crime, national and provincial authorities have greatly expanded its 
scope, including the expansion of the campaign in the Xinjiang Uighur 
Autonomous Region (XUAR) to ``deal a decisive blow to separatist 
forces, eliminating separatism and illegal religious activities''. 
Until early 2003, the XUAR has been the only place in China where 
Amnesty International has monitored reports of public executions and 
the executions of political prisoners. In January 2003, Tibetan Lobsang 
Dhondup was executed following his conviction in a secret trial for 
involvement in a series of bombings in Sichuan province. There are 
serious concerns that Lobsang Dhondup's trial was unfair. He was held 
for several months incommunicado, he was not given full and adequate 
legal representation and his trial was held in secret. According to 
official sources, this was because the case involved ``state secrets'', 
but the authorities never explained how this related to charges against 
the defendant. This case could signal a move by the Chinese authorities 
to extend the use of the death penalty to those branded as political 
opponents, ``separatists'' or ``terrorists'' beyond the XUAR.
    Despite official reports suggesting that the national ``strike 
hard'' campaign has been of limited success, its extension for a 
further year was announced on March 26, 2002. On August 30, 2002 it was 
reported that the ``strike hard'' campaign would be intensified to 
eliminate crime and ``deepen and consolidate the results of the `strike 
hard' campaign'' in the run up to the 16th Chinese Communist Party 
Congress to be held in November 2002 in Beijing. It was further 
reported that the Beijing authorities' have initiated a move towards 
holding local administrative organs responsible for the crime rate in 
their jurisdictions. Amnesty International is concerned that this could 
signal an increase in the number of cases of torture, unfair trials or 
summary trials as police and other authorities struggle to show 
results.
    In 2002, as in previous years several reports have come to light of 
miscarriages of justice based on confessions extracted by torture. The 
use of torture to extract confessions from suspects is common and such 
incidences escalate during a ``strike hard'' campaign. In the majority 
of cases, the miscarriage of justice has only come to light after the 
real culprit was found.
                         mobile execution vans
    In an effort to improve cost-efficiency, Chinese provincial 
authorities are beginning to introduce so-called mobile execution vans. 
These are intended to replace the method of execution by firing squad 
in which prisoners are taken to an execution ground and made to kneel 
with hands cuffed before being shot in the head. Officials in Yunnan 
province explained that only four people are required to carry out the 
execution in the mobile vans; the executioner, one member of the court, 
one official from the procuratorate and one forensic doctor.
    Eighteen mobile execution vans, converted 24-seater buses, are 
being distributed to all intermediate courts and one high court in 
Yunnan province. The windowless execution chamber at the back contains 
a metal bed on which the prisoner is strapped down. Once the doctor 
attaches the needle, a police officer presses a button and an automatic 
syringe inserts the lethal drug into the prisoner's vein. The execution 
can be watched on a video monitor next to the driver's seat and can be 
recorded if required.
    The newspaper Beijing Today reported that use of the vans was 
approved by the legal authorities in Yunnan province on March 6th, 
2003. Later that same day, two farmers, Liu Huafu and Zhou Chaojie, who 
had been convicted of drug trafficking, were executed by lethal 
injection in a mobile execution van. Zhao Shijie, president of the 
Yunnan Provincial High Court, was quoted as praising the new system: 
``The use of lethal injection shows that China's death penalty system 
is becoming more civilized and humane.'' However, members of China's 
legal community have voiced their concerns that it will only lead to an 
increase in the use of the death penalty.
               harvesting organs from executed prisoners
    It has been known for some time that organs taken from executed 
prisoners are used for transplants in China. Amnesty International 
reported this practice in 1993 and called at that time for the Chinese 
government to ban the use of organs from executed prisoners without 
their free and informed consent. However, the use of organs from this 
source continues in China, reportedly on a widespread scale. In the 
absence of a system of voluntary death-related organ donation, the main 
source of organs in China is reported to be executed prisoners. The 
percentage of transplant kidneys estimated to be derived from executed 
prisoners has been put as high as 90%. Organs reported to be harvested 
from this source include corneas, kidneys and hearts. A number of 
reports indicate that it is also possible for foreigners to travel to 
China and buy transplants using organs of executed prisoners.
          ``rule by law'' versus rule of law and human rights
    In addition to human rights violations resulting from political 
repression, lack of respect for the law and arbitrariness in its 
enforcement are at the basis of gross human rights violations in China. 
Every year, countless numbers of people are detained without charge or 
trial. For those who are charged, sentences are frequently imposed 
after unfair trials. In many cases the verdicts passed at such trials 
include the death penalty.
    Rule of law is still understood in China to mean ``rule by law'', 
reflecting a system in which the law is subordinate to political goals, 
including the defeat of perceived political threats. The judiciary 
lacks independence and the judicial process is subject to interference 
by political authorities. The vague and contradictory provisions of the 
law lead consistently to its arbitrary use and provide wide scope for 
abuse of power. The combined effects of repressive and vaguely worded 
criminal legislation, impunity for officials who abuse their power, and 
the use of a system of administrative detention mean that anyone can be 
detained at the whim of individuals in a position of power.
    During the 1990s, the Chinese government took steps to address some 
of these issues, including, for example, its amending of the Criminal 
Procedure Law (CPL). However, the measures taken were far too limited 
to significantly change the law enforcement and justice system. In 
practice, they have failed to protect individuals in China against 
arbitrary detention, unfair trials, torture and other human rights 
violations. Widespread illegal practices by law enforcers, such as the 
use of ``torture to extract confessions'', which has been explicitly 
prohibited by law since 1980, continue unabated, and in many cases 
remain unpunished.
         administrative detention--re-education through labour
    The system of ``re-education through labour''--a form of 
administrative detention imposed as a punishment--is based on a 
Decision passed by the National People's Congress in 1957, which was 
later updated with new regulations. This legislation remains in force. 
According to a definition given by an official legal newspaper, ``re-
education through labour'' is a punishment for actions, which fall 
``somewhere between crime and error''.
    ``Re-education through labour'' involves detention without charge 
or trial for up to three years, renewable by one year, in a forced 
labour camp. It is imposed by local government committees usually 
presided over by police officials. It applies to people who are 
regarded as troublemakers or those accused of committing minor offences 
which are not regarded as mounting to ``crime'' and which therefore are 
not prosecuted under the criminal justice system. Detainees liable to 
receive terms of ``re-education through labour'' have no right of 
access to a lawyer. Under the regulations on ``re-education through 
labour'', people who can be subjected to this punishment include those 
who are classified as being ``counter-revolutionary'', ``anti-Party'' 
or ``anti-socialist'', as well as people who ``behave like hooligans'', 
such as by engaging in fights, smuggling or prostitution, or by 
disturbing public order or ``the order of production'' in other ways.
    According to official statistics, in 1996 there were 200,000 people 
in ``re-education through labour'' camps in China. By early 2001, the 
number had increased to 310,000, the latest official figure. The figure 
was thought to be substantially higher in 2002 as a result of the 
government's crackdown on the Falun Gong and the ``strike hard'' 
campaign against crime. Over the past two years, the use of this form 
of detention has increased particularly against Falun Gong 
practitioners and during the ``strike hard'' campaign against crime 
launched by the Chinese authorities in April 2001. Other victims 
include political dissidents, members of religious groups and a wide 
range of people accused of ``disturbing public order'', including 
prostitutes.
                brutal suppression of religious freedom
    Freedom of religion and belief is not tolerated by the Government 
of China and has led to an increase in crackdowns against those who 
choose to practice their religion freely. Ill-treatment and torture is 
used against Tibetan Buddhists, Uighur Muslims, Christians, Falun Gong 
practitioners and Catholics. Tens of thousands are detained for their 
religious activities and are languishing in prisons for an indefinite 
period of time without any charge or trial. Some are sentenced to death 
after unfair trials, where confessions were extracted under torture. 
Religious persecution is widespread in Tibet and the XUAR. Unauthorized 
religious groups of all persuasions can face heavy fines, harassment, 
and imprisonment. Many peaceful but unregistered religious gatherings 
have been raided by police and those attending have been beaten, 
threatened and detained.
                               christians
    Members of evangelical Protestant groups and Roman Catholics who 
worship outside the official ``patriotic'' church are victims of the 
intense Chinese crackdown and are subjected to imprisonment, torture, 
harassment and fines. Five Chinese Protestants are currently undergoing 
a retrial on charges that carry the death penalty; in their original 
trial, the defendants appear to have been convicted based on evidence 
obtained through torture.
    Gong Shengliang and four others were sentenced to death in December 
2001 in connection with their membership of an unofficial Christian 
organization, reportedly after witnesses were tortured. Three women 
said they were tortured by police to make them confess to having had 
sexual relations with Gong Shengliang, whose convictions included rape. 
The allegations of torture included being shackled, whipped and kicked, 
and being beaten on the bare chest with electroshock batons. In October 
2002 the sentences were commuted to long prison terms after a retrial 
was ordered because of ``insufficient evidence and unclear facts''. 
However, the verdicts still appeared to be partly based on confessions 
obtained through torture.
                     tibet autonomous region (tar)
    Despite the recent meetings between representatives of the Tibetan 
Government In Exile and Chinese officials in China and the release of 
seven Tibetan prisoners of conscience over the last two years, freedom 
of expression, religion, and association is still severely curtained by 
the Chinese government. The Chinese government continues to use the 
``Patriotic Re-Education Campaign'' to target Tibetan Buddhist 
followers of the exiled Dalai Lama. Tibetans have been detained for 
having a picture of the Dalai Lama. The whereabouts of the Dalai Lama's 
choice of the 11th Panchen Lama, the second-ranking Tibetan religious 
leader, has remained unknown for the last eight years. The third-
ranking Tibetan religious leader, the Karmapa Lama, fled to India 
citing lack of religious freedom in Tibet. Thousands of Tibetans flee 
to India every year to practice their religion freely. The activities 
of religious institutions continue to be severely restricted, many 
Buddhist monasteries and nunneries have been destroyed, and hundreds of 
monks and nuns have been expelled.
    Many former Tibetan prisoners find life after prison too difficult 
and, rather than suffer harassment and potential retribution, they, 
along with lay people, leave Tibet for a life in exile in India. It is 
dangerous and difficult to leave Tibet; the majority of exiles walk 
across the Himalayas to Nepal--a journey that can take up to 30 days. 
Children often make the trip unaccompanied. In recent months, the 
Nepalese government has stopped Tibetans escaping to India and returned 
them to the Chinese government. The latest operations appears to 
confirm widely held suspicions that China has increased its pressure on 
other countries to return its nationals over recent months. Last year, 
three ethnic Uighur asylum seekers from China's Xinjiang Uighur 
Autonomous Region are believed to have been forcibly returned to China 
from Nepal even after they had been granted refugee status by the 
United Nations High Commissioner for Refugees (UNHCR).
    In a recent incident, a group of 18 Tibetans were sent back to 
China at around 6 a.m. in a joint operation carried out by officials 
from Nepal and China. Eyewitnesses described them as being carried 
crying and screaming into vehicles before being dnven in the direction 
of the border. The operation was carried out in the face of widespread 
international concern expressed by the UNHCR, governments, and NGOs.
    Until now, the Nepali authorities have allowed UNHCR to assess the 
claims of Tibetan asylum seekers and facilitate their resettlement or 
transit to third countries, usually India. UNHCR described the 
deportations as an ``alarming departure'' from that practice.
    While it is not a party to the UN Convention relating to the Status 
of Refugees, Nepal is party to the Convention against Torture and Other 
Cruel, Inhuman or Degrading Treatment or Punishment which prohibits the 
return of anyone to a country where they are at risk of torture, and 
the Convention on the Rights of the Child which obliges States to 
ensure that a child who is seeking refugee status receives appropriate 
protection.
    In August 2003, Nepal officially adopted a new policy of protection 
for Tibetan refugees. Full implementation of this policy by the 
Nepalese government will ensure that Tibetans can safely enter Nepal en 
route to India.
    It is extremely difficult to discover the fate of those returned to 
Tibet due to the tight controls on information imposed by the Chinese 
authorities. However, at the very least, Tibetan asylum seekers and 
refugees who are returned to China face detention for interrogation, 
where they are at serious risk of torture and ill-treatment.
                xinjiang uighur autonomous region (xuar)
    In the Xinjiang Uighur Autonomous region, the crackdown on ethnic 
Uighur Muslims has intensified.
    Thousands of Uighurs have been detained under the new ``Anti-
Terrorism'' law and political prisoners have been executed after unfair 
trials. Chinese authorities have arrested numerous Muslim preachers and 
religious leaders, destroyed several Mosques, and closed down many 
Muslim religious schools. Muslims working in government offices and 
other official institutions are prohibited from practicing their 
religion, or risk loosing their jobs. Chinese authorities in the XUAR 
practice various forms of torture, including the use of an unidentified 
injection which causes the victim to become mentally unbalanced and, 
for mate prisoners, the insertion of horse hair or wires into the 
penis.
    Amnesty International remains concerned at China's apparent use of 
the attacks in the USA on September 11, 2001 to justify its ongoing 
repression of Uighur culture and religion and the curtailment of other 
fundamental freedoms in the XUAR. The authorities have imposed new 
restrictions on freedom of religion, closed down mosques that were 
deemed to have a ``bad influence'' on young people, and subjected the 
Islamic clergy to intensive scrutiny and ``political education''. 
Official sources have made clear that the ``struggle against 
separatism'' is wide-ranging and encompasses repressing all potential 
dissent and opposition activities, including the peaceful expression of 
views via poems, songs, books, pamphlets, letters, or the Internet. 
Such policies have resulted in serious human rights violations, 
including the arrest and detention of thousands of Uighurs. Those 
detained for political offences in the XUAR are at serious risk of 
torture or ill treatment.
    In December 2001, the Criminal Law was amended to strengthen 
provisions relating to ``terrorism''. Amnesty International is 
concerned that the amendments enlarge the scope of the application of 
the death penalty and may criminalize peaceful activities, freedom of 
expression and association. For example, the law makes it a criminal 
offence to be a member of a ``terrorist organization'' but as there is 
no definition for such an organization. The law could be interpreted as 
referring to political opposition or religious groups.
    Amnesty International's concerns have been heightened following the 
announcement by the USA that it has placed the East Turkestan Islamic 
Movement (ETIM) on its list of so-called ``terrorist'' organizations. 
This listing, which was confirmed by the United Nations Security 
Council on September 11, 2002, appears to corroborate China's previous 
condemnation of the group. While Amnesty International is unable to 
confirm or deny reports that ETIM has been responsible for acts of 
violence, it is clear that the group is relatively small, little known 
and unrepresentative of many within China's Uighur community who have 
advocated respect for fundamental rights and freedoms or tried to 
exercise these rights peacefully. It is feared that China will 
interpret this move by the USA and the UN as an endorsement of its 
crackdown on all forms of dissent in the XUAR, resulting in further 
human rights violations against the mainly Muslim Uighur community.
    Thousands of people remain imprisoned in the region in violation of 
their fundamental human rights. Amnesty International continues to call 
for the immediate and unconditional release of all prisoners of 
conscience in the XUAR, including Uighur businesswoman, Rebiya Kadeer, 
and the academic, Tohti Tunyaz (who writes under the pen-name Tohti 
Muzart). Rebiya Kadeer continues to serve an eight-year prison sentence 
after being found guilty in March 2000 of ``providing secret 
information to foreigners''. The information in question was nothing 
more than freely available public newspapers which she sent to her 
husband in the USA. She is being held in Baijiahu Prison in the 
regional capital, Urumqi, where her health has reportedly deteriorated 
over recent months.
    Tohti Tunyaz was also detained on ``state secrets'' charges after 
being arrested while conducting academic research into Uighur history 
in the XUAR in February 1998. He was sentenced to 11 years in prison 
for ``inciting separatism'' and ``illegally acquiring state secrets'' 
in March 1999 and continues to serve his sentence in XUAR No.3 Prison 
in Urumqi. In May 2001, the UN Working Group on Arbitrary Detention 
concluded that his imprisonment was arbitrary and in violation of his 
right to freedom of thought, expression and opinion.
                    1997 crackdown in gulia (yining)
    Dozens of people were killed or injured when the Chinese security 
forces reportedly opened fire on ethnic Uighur demonstrators in Gulja 
(Yining) City, on February 5 and 6, 1997. The initially peaceful 
demonstration on February 5, was followed by several days of sporadic 
rioting in which both civilians and members of the security forces were 
killed or injured. Thousands of people were detained as the security 
forces went systematically through the streets, arresting suspected 
protestors and supporters, including their relatives. Many of those 
detained were reportedly tortured. Amnesty International calls for an 
independent inquiry into allegations of serious human rights violations 
that took place during and after the demonstration and requests further 
information about those who remain in prison.
                             inner mongolia
    The situation in Inner Mongolia is quite similar to that of the 
XUAR and Tibet. A large influx of Han Chinese immigrants has made the 
Mongolian people a minority in their own territory. Their rights to the 
use of their own language and to the practice of their own religion--
most are Buddhists who look to the leadership of the Dalai Lama, as 
well as to their own ``living Buddhas''--have been seriously abridged.
    Since 1995-96, the Beijing government has taken severe repressive 
measures against any manifestations of Mongolian nationalism, including 
the selling and distribution of books in the Mongolian language and 
script. For example, the Mongolian bookstore operated by Hada and 
Xinna, his wife, has been closed; Hada is still in prison and Xinna has 
been subjected to intrusive questioning and police harassment. Although 
Tegexi, another prominent Inner Mongolian prisoner, has been released, 
he remains under restriction and his status is unclear.
    Despite the new leadership in Beijing, so far there has been no 
sign that these policies will change. Amnesty International calls for 
the immediate and unconditional release of Tegexi and Hada, and also 
calls on the Chinese government to accord the ethnic Mongols in the 
Inner Mongolian region their full rights to social, cultural, and 
linguistic development.
    In addition to these instances, the treatment of North Korean 
refugees in this region has become increasingly harsh, with detentions 
and long-term imprisonment more common in the past two years.
           the crackdown on the falun gong spiritual movement
    The Chinese authorities have made it clear that one of the main 
targets of the ``strike hard'' campaign is the Falun Gong spiritual 
movement which has been banned in China since July 1999 along with 
other so-called ``heretical organizations''. There are serious concerns 
that the Chinese authorities have sanctioned the use of violence as one 
of the means to eradicate the group.
    Falun Gong practitioners have suffered severe repression, with tens 
of thousands of practitioners arbitrarily detained since Chinese 
authorities banned this group in July 1999 and sent the vast majority 
of them to labor through re-education camps. Alleged Falun Gong leaders 
and organizers have been sentenced to lengthy prison terms or sent to 
psychiatric hospitals. Over 500 Falun Gong practitioners have 
reportedly died in custody.
    Tens of thousands of Falun Gong practitioners continue to be 
detained in China where they are at serious risk of torture or ill-
treatment, particularly if they refuse to renounce their spiritual 
beliefs. The vast majority of them are believed to be held in labor 
through re-education centers, a form of administrative detention 
imposed without charge or trial. Amnesty International considers all 
those detained in violation of their rights to freedom of belief, 
expression and association, and who have not used or advocated 
violence, to be prisoners of conscience.
    One example is Yoko Kaneko (also known as Luo Rong), a Chinese 
citizen with permanent residency in Japan, who was detained while 
handing out Falun Gong leaflets to passersby in Beijing on May 24, 
2002. One month later, on June 24, 2002, the Beijing People's 
Government Committee for the Administration of Re-education through 
Labor concluded that Luo Rong (Yoko Kaneko) had ``resisted the 
enforcement of national laws'' and ``disrupted the order of social 
administration'' by distributing Falun Gong ``propaganda material''. 
She was assigned to one-and-a-half years' re-education through labor. 
Amnesty International considers her to be a prisoner of conscience and 
is calling for her immediate and unconditional release.
    Amnesty International continues to receive regular reports of Falun 
Gong members being tortured or ill-treated in custody. They include 
Zhao Ming, a Falun Gong practitioner from Changchun City, Jilin 
Province, who stated after his release that he had been subjected to 
beatings with fists and electric shock batons, sleep deprivation, 
force-feeding and other forms of torture during his detention in Tuanhe 
Re-education through Labor Camp in Beijing between June 2000 and March 
2002. According to Falun Gong sources, over 500 Falun Gong 
practitioners have died in custody (or shortly after their release), 
most as a result of torture.
                   workers and labor rights activists
    Over the last year, the number of labor disputes and protests 
involving large numbers of workers has risen dramatically in China. 
Workers have been protesting about conditions of employment, low or 
missing wages, corrupt management, illegal working conditions, mass 
lay-offs, industrial accidents and deaths, poor safety, restrictive 
working practices, and physical ill-treatment from factory bosses. Such 
protests are generally deemed illegal, as are independent trade unions.
    Many protests have been met with excessive use of force by the 
police and participants have been detained, harassed or imprisoned for 
taking part in such protests or publicizing them. Journalists and 
lawyers have also been targeted by the authorities and have faced 
intimidation or arrest for speaking out in defense of protesters.
    Yao Fuxin, Xiao Yunliang, Pang Qingxiang and Wang Zhaoming were 
detained after taking part in massive demonstrations by laid off 
workers in Liaoning City, Liaoning Province in spring 2002. The 
protests were against corruption, insufficient severance pay and 
unemployment. The four remain in detention and are reported to have 
been charged with organizing ``illegal demonstrations''. Yao Fuxin is 
believed to be seriously ill, possibly due to ill treatment. Several 
other demonstrators were reportedly detained and beaten. Gu Baoshu, who 
was detained and released after several hours of interrogation, was 
reportedly covered in bruises and suffering from severe chest pain and 
blood clots in his eyes when he was released. He has subsequently been 
threatened and harassed by the police, following his demands for those 
responsible for his beatings to be investigated.
    Many labor activists are also imprisoned on charges of 
``subversion'', for revealing ``state secrets'' (which may simply refer 
to reporting labor unrest), or for organizing an ``illegal 
demonstration''. They include Zhang Shanguang who is currently serving 
a ten year sentence for ``illegally supplying intelligence to hostile 
organizations and people abroad''. One of the charges against him was 
based on an interview he gave to a foreign radio station during which 
he spoke, among other things, about peasant demonstrations in Hunan 
Province. He has reportedly been tortured in prison and is believed to 
be seriously ill.
    In October 2001, extensive amendments to the Trade Union law of the 
People's Republic of China were ratified by the National People's 
Congress. While the amendments brought some improvements, the revised 
law still severely restricts workers' rights to freedom of association 
and expression. Some revisions also represent a step backwards in the 
promotion of workers rights. For instance, the revisions reinforce the 
existing monopoly of the ACFTU and affirm the subordination of Chinese 
Trade Unions to the Chinese Communist Party (CCP). There continues to 
be no explicit reference to the right of workers to ``strike'' (ba 
gong) and independent trade unions are still not permitted.
                    abuses against hiv/aids patients
    In June 2003, around 600 police and other unidentified men carried 
out a violent raid of Xiongqiao village in Shangcai County, Henan 
Province. The raid is believed to have been provoked by an earlier 
incident in which up to 100 HIV-positive villagers visited the 
provincial capital Zhengzhou to protest the lack of adequate health 
care in Xiongqiao. Sixteen unarmed people thought to be HIV-positive 
and possibly suffering from AIDS were detained. There are unconfirmed 
reports that at least some of them were beaten in police custody. One 
of those released has claimed that the detainees were beaten to force 
them to confess to crimes of ``robbery'' and ``attacking government 
offices.''
    An estimated one third to one half of the 500-600 residents of 
Xiongqiao are reported to be HIV positive after becoming infected 
through the sale of their blood to government-sanctioned blood-
collecting stations in the 1990s. The blood-collection schemes became a 
useful source of income for villagers, but were often poorly managed 
and unsafe. It is estimated that up to one million people may have been 
infected with the HIV virus in this way in Henan and other provinces.
    The cost of medical treatment in China has increased sharply over 
recent years due to economic restructuring. Few villagers in Henan and 
other infected provinces have been given antiretroviral drugs or other 
specialist care.
    The extent of the spread of HIV/AIDS in Henan became better known 
last year after the most prominent HIV/AIDS activist in China, Dr Wan 
Yanhai, head of the Beijing-based Aizhi Institute, published on his 
website lists of people who died in Henan province of HIV/AIDS related 
illnesses. He was arrested in August 2002 on suspicion of ``leaking 
state secrets,'' but released around one month later after widespread 
international protests at his detention.
    In July, the Aizhi Institute reportedly wrote to the Health 
Minister of the Chinese government, calling for greater transparency 
and urging the government to release statistics detailing the number of 
people infected with the HIV virus through use of government-sanctioned 
blood collection centers and the provinces in which they were infected.
    According to Dr Wan Yanhai, the deputy director of the Henan Center 
for Disease Control, Ma Shiwen, was arrested in August for allegedly 
leaking documents on the Henan epidemic to the Aizhi Institute. Amnesty 
International is particularly concerned that Ma Shiwen appears to have 
been detained under vaguely-worded state secrets legislation, which 
continues to be used widely in China to detain individuals in violation 
of their fundamental human right to freedom of expression.
                hong kong special administrative region
    Amnesty International welcomes the withdrawal of Article 23 
legislation proposed by the HK SAR. This legislation would have allowed 
Hong Kong to enact its own laws to prohibit acts of treason, secession, 
sedition and subversion. It was feared that the proposals could be used 
to suppress the rights to freedom of expression and association as well 
as the legitimate activities of nongovernmental organizations and the 
media.
    Police reportedly used excessive force in response to protests on 
economic issues and the right of abode. Three prominent activists were 
arrested and charged with organizing an unlawful assembly under a 
revised Public Order Ordinance that had never before been invoked. In 
November, two other well-known activists were arrested and charged with 
the same offence after holding a demonstration in May in protest 
against the arrests of the three activists.
    Members of the Falun Gong, a registered society in Hong Kong, were 
arrested at peaceful demonstrations and alleged that they were victims 
of police violence. On August, 16, 2002 Falun Gong members were 
convicted of obstruction during a demonstration in March. There were 
claims that the trial was politically motivated.
                  macao special administrative region
    There were continuing reports of beatings and torture in police 
custody at least one detainee died in suspicious circumstances. Police 
reportedly used excessive force during labor protests. Investigations 
into complaints about police violence continued to be slow and 
unsatisfactory. Members of the Falun Gong, which was neither registered 
nor banned in Macao, were reportedly ``harassed by police and foreign 
practitioners were denied access to Macao.''
                  north korean asylum seekers in china
    In the face of serious food shortages and political repression, 
thousands of North Koreans have fled across the border to China where 
many live in fear of arrest and possible repatriation. The Chinese 
authorities claim that all North Koreans who illegally come to China 
are economic migrants, and have consistently denied them access to any 
refugee determination procedure, in violation of China's obligations 
under the 1951 Refugee Convention and despite evidence that many among 
them have genuine claims to asylum.
    Their desperate plight has been brought into sharp focus over 
recent months by a series of diplomatic incidents in which over 100 
North Koreans have entered foreign diplomatic facilities in several 
Chinese cities in an attempt to claim asylum. China has responded to 
these incidents by stepping up its crackdown on North Koreans, 
particularly in the provinces of Liaoning and Jilin which border North 
Korea. Hundreds, possibly thousands, of North Koreans have been 
detained and forcibly returned across the border where they meet an 
uncertain fate. Amnesty International fears that they could be 
subjected to serious human rights violations, including arbitrary 
detention, torture or even summary execution.
    The renewed crackdown in northeast China has also extended to 
people suspected of helping North Koreans, including members of foreign 
aid and religious organizations and ethnic Korean Chinese nationals 
living in the border area, many of whom have been detained for 
interrogation. In December 2001, a South Korean pastor, Chun Ki-won and 
his assistant, Jin Qilong, an ethnic Korean Chinese national, were 
arrested in Hulunbeier City in China's Inner Mongolia Autonomous Region 
while leading a group of 13 North Koreans through northeast China 
towards the neighbouring state of Mongolia. On March 3, 2002, Chun Ki-
won and Jin Qilong were charged with ``organizing other people to 
illegally cross the national border''. They were tried by the 
Hulunbeier Municipal People's Court in Inner Mongolia in July, found 
guilty and sentenced to pay fines of 50,000 and 20,000 Yuan 
respectively (US$6,000/US$2,400). They were subsequently released, and 
Chun Ki-won was deported to South Korea on August 22, 2002.
    The 13 North Koreans were detained in Manzhouli Prison in Inner 
Mongolia. Three of them, including a newly-born baby, were reportedly 
returned to North Korea in late January or early February 2002, but 
there were no further details about their status or whereabouts. The 
others, including four children, were reported to have been moved from 
Manzhouli Prison in July 2002, but their current whereabouts remains 
unknown.
    The Chinese authorities' have often failed to distinguish between 
peaceful acts of protest and ``terrorism''. For example, in its report 
of January 21, 2002 (mentioned above), the Chinese authorities accused 
ETIM (otherwise known as the ``East Turkestan Islamic Party of Allah'') 
of being behind the ``Yining Incident'' of February 5-8, 1997, which 
was described as a ``serious riot during which the terrorists shouted 
slogans calling for the establishment of an Islamic Kingdom.'' However, 
eyewitness accounts indicated that this unrest started with a peaceful 
demonstration by Uighurs which was brutally suppressed by the security 
forces, leading to sporadic rioting and violence over two days.
                        u.s. government response
    Mr. Chairman, as my testimony has demonstrated, Amnesty 
International sees no signs of improvement with regards to human rights 
in China. Chinese authorities continue to detain political prisoners 
without charge, and to torture and ill-treat prisoners in custody, 
often resulting in the prisoners' deaths. Thousands remain incarcerated 
simply for exercising their right to freedom of conscience, expression, 
religion and association.
    It is crucial that the United States continue to play a leadership 
role in demanding fundamental improvements in the Chinese government's 
respect for human rights. We should not allow the Chinese government to 
take advantage of our wish that they cooperate in the war on terrorism. 
Such requests must not result in giving Beijing a blank check to 
crackdown on human rights at home. Peaceful political dissent is not 
terrorism.
    We appreciate the steps taken by the Assistant Secretary of State 
for Human Rights Lorne Craner to secure fundamental human rights to 
Chinese civilians. His efforts have to be backed up by President Bush.
    The President and other senior Administration officials must 
articulate a strong, clear, and consistent human rights policy on 
China. The international community is unlikely to take firm action when 
the world's leader is engaged in a policy of appeasement which gives 
priority to trade over human rights. The Chinese Government's policy of 
dealing with dissent has not changed over the years. It is the U.S. and 
international community's response that has changed.
                             u.s. congress
    Mr. Chairman, historically the United States Congress has played a 
crucial role in shaping U.S. human rights policy towards China. Through 
persuasion and legislation, Congress members fought to keep respect for 
human rights at the forefront of U.S.-China policy. Congressional 
oversight countered Administration tendencies to overlook abuses and 
tendencies by the Administration to buy into trade at any cost.
    The spotlight that Congress provided helped lessen the abuses from 
China's repressive regime, and led to countless releases of prisoners 
of conscience. Until recently, Congress debated the human rights 
situation in China on an annual basis during the debates about the re-
granting of Most Favored Nation (MFN) status. Such debates helped keep 
the excesses of abuses in check. The debate was elevated in importance 
because of the financial concerns involved.
    Since Congress granted Permanent Normal Trade Relations (PNTR), 
however, the attention to human rights in China has all but withered. 
While some individual Members of Congress have gallantly confronted the 
abuses on behalf of the citizens in China, the lack of an annual debate 
has muted Congress' voice.
    Mr. Chairman, abandoning one-fifth of the world's population is not 
a smart U.S. policy. I urge that the Congress resume reinvigorated 
debate on human rights in China and that the Congress re-think 
engagement without results.
                            recommendations
    President Bush should raise Rebiya Kadeer's impnsonment with 
China's President Hu Jintao when he meets with him at the APEC 
Conference in Thailand in October and he should abandon the current 
quiet U.S. human rights policy towards China, which fails the Chinese 
people now, and in the long-term fails the U.S.
The Administration should:
   Develop a comprehensive strategy to address human rights 
        issues in China.

   Vigorously seek the release of prisoners of conscience held 
        in China for peacefully expressing their beliefs, particularly 
        Tibetan POCs, Phuntsog Nyidron, Ngawang Phulchung, as well as 
        all prisoners still held in connection with the 1989 pro-
        democracy protests.

   Announce its intention to sponsor a resolution condemning 
        China's human rights practices at the 2004 United Nations Human 
        Rights Commission in Geneva, and begin now to seek 
        cosponsorship from other countries.

   Take advantage of the 2008 Olympics in Beijing to demand 
        concrete benchmarks from the Chinese authorities for human 
        rights progress in China.

   Seek information on the whereabouts and secure the freedom 
        of movement of Gedun Choekyi Nyima, the Dalai Lama's choice as 
        the 11th Panchen Lama.

   Demand the revocations of all forms of administrative 
        detention that are imposed without charge, trial, or judicial 
        review.

    Thank you for inviting Amnesty International for this important 
hearing.

    The Chairman. Well, thank you very much, Mr. Kumar. As you 
noted, many Senators do take these human rights issues very 
seriously.
    Mr. Kumar. Thank you.
    The Chairman. I would just say, parenthetically, before 
moving on to the next witness, that the committee is preparing 
a sense of the Senate resolution to the Chinese with regard to 
Miss Kadeer, encouraging her release, encouraging President 
Bush to raise the issue at APEC if she has not been released 
before that point. So we appreciate your highlighting the 
circumstances which would undergird our resolution.
    Mr. Kumar. Thank you very much.
    The Chairman. It's a pleasure to have Secretary Harold 
Brown here. He has testified before many, many committees over 
the years and has offered distinguished service to our country, 
and it's a personal privilege to have you here today, sir. And 
will you please proceed?

STATEMENT OF HON. HAROLD BROWN, COUNSELOR AND MEMBER, BOARD OF 
   TRUSTEES, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES, 
                         WASHINGTON, DC

    Mr. Brown. Thank you very much, Mr. Chairman, for those 
kind words. I reciprocate your high regard.
    Mr. Chairman, members of the committee, I'm grateful for 
the chance to appear today to talk to you about Chinese 
military capability.
    China clearly is a rising power. And in the past, conflicts 
have often occurred between such a power and the existing 
leading power. In fact, as was pointed out 2,500 years ago, in 
the competition for the power nations go to war for reasons of 
honor, fear, or interest. And the fear, of course, is often 
engendered by the military capability of other powers. Thus one 
element in the events and perceptions that lead to such 
conflict is the growth of the military capability of the rising 
power.
    With that in mind, the Council on Foreign Relations 
sponsored an independent task force that looked at Chinese 
military power and how it may evolve over coming decades. I 
chaired it, and retired Admiral Joe Prueher, who had been 
CINCPAC and also had been Ambassador to China, was Vice 
Chairman. We looked at Chinese military power, but also looked 
at the political, economic, and technological factors that 
affect that power.
    You have a copy of the report. I won't try to summarize it. 
The executive summary is 31 pages long. But I'll make a few 
remarks about where I think the group came out.
    The first conclusion is that China is modernizing its 
military capabilities--unevenly, but across the board. And it's 
doing so for several purposes. One is maintaining domestic 
stability and ensuring regime security. The second is to 
develop limited power projection capabilities for conflict 
scenarios along China's periphery, especially beyond the Asian 
land mass and, in particular, toward Taiwan, which the PRC, of 
course, regards as a matter of Chinese sovereignty. And, in 
addition, China sees, as a rising power, that an improved 
military capability is a natural concomitant of and increases 
its international prestige and influence. That's the honor 
segment.
    China's Armed Forces are at least two decades behind the 
United States in military capability. That's a key conclusion 
of our examination. And by that measure, the U.S. outclasses 
the PRC, not only globally, but in East Asia. And given the 
important condition of continued allocation of resources by the 
United States, the U.S. will continue to outclass the PRC in 
military capability for decades to come. However, if you look 
at present trends--that is, for example, if you assume Japan 
continues to forego a role as a major regional military power--
China will, during that period, become the predominant military 
power among the nations of East Asia.
    In addition, although the United States will outclass 
Chinese military capability, we could get some nasty surprises, 
especially if we don't pay enough attention to PLA capabilities 
and the PRC strategy or if we don't track their development 
carefully. As has been suggested earlier, the Taiwan Strait is 
the area of greatest military concern in the bilateral balance. 
During the next decade, and during the past decade, the main 
focus of Chinese military capability has been and is focused on 
the possibility that the political situation develops so that 
the PRC decides to use military force to intimidate or attack 
Taiwan in order to obtain a favorable political outcome or 
political control. The Chinese are aiming at having the 
military capabilities and tactics that will enable them to 
achieve that result.
    In order to do so, China would have to prevent effective 
U.S. intervention, either by acting very quickly or by using 
its anti-ship missiles and submarines to slow and to interfere 
with operation of U.S. naval forces. I have no doubt as to the 
military outcome of such a conflict. It would be victory for 
the United States. But it would be a disaster for everybody 
concerned, and there would be serious risks and costs to the 
U.S. military. Moreover, what we might regard as a military 
victory, they might well regard as a political victory, 
depending on the effect on the political outcome in Taiwan.
    The Council on Foreign Relations task force, and I myself, 
feel that Taiwan is essentially a political situation and needs 
to be met politically. The Taiwanese, of course, depend on a 
U.S. commitment to prevent military disaster to them. And that 
they regard it as an issue of political commitment rather than 
a matter of defending themselves militarily is shown, I think, 
by the following. The Taiwan Government pushes the United 
States very, very hard to make a commitment to sell them 
advanced military equipment. But once they have the commitment, 
they're not very eager to actually make the purchases.
    Let me now turn to some more specific PLA programs. The 
most successful ones are in the area of ballistic missiles and 
nuclear weapons. For example, the short-range ballistic missile 
that's been mentioned before constitutes a major part of the 
PRC's threat to Taiwan. Their nuclear-armed long-range missiles 
are rather few in number--maybe a couple of dozen ICBMs, a 
ballistic missile submarine that seldom goes to sea--and that's 
their nuclear deterrent vis-a-vis the United States. They 
appear to have been satisfied with a minimal deterrent of this 
sort. I believe, though, that they could and would buildup 
their long-range ballistic-missile force to whatever level is 
necessary to preserve that deterrent in the face of a future 
U.S. ballistic-missile system.
    They've also been improving their ground-force equipment. 
But their personnel are not really up to modern standards. The 
bulk of their enlisted force is poorly educated and poorly 
trained conscripts.
    To take another example, they can't themselves indigenously 
produce advanced aircraft and maritime forces. That's why they 
have to buy much of their equipment from foreign suppliers. 
They have little or no joint-force training. Their pilots fly 
few hours a month, and even fewer over water. Their 
organization is in the obsolete Soviet-style military-region 
style, rather than in unified commands. And the Chinese 
industrial production base for conventional arms, unlike their 
civilian manufacturing industry that's so successful in 
international and even in high-tech trade, on the military-
production side is still part of the state-owned enterprise 
system that drags down Chinese economic growth. So it's not 
efficient, and its products aren't of the best.
    As I said at the beginning, China is pursuing a deliberate 
and focused course of military modernization aimed at shifting 
from a military with a continental orientation--large land 
forces, in-depth defense--to a military with combined 
continental and maritime orientation--smaller, more mobile, 
more technologically advanced. So we have to watch for 
development of key areas in order to help gauge the pace at 
which that modernization is proceeding.
    We identified five categories: command control 
communications, computers, intelligence, surveillance, and 
reconnaissance--that is, C4ISR, as it's called; joint 
operations; precision strikes; combat support; and training. 
And we have some indicators that would represent major shifts 
from the current priorities: a crash program to build more 
amphibious warfare ships, expanded acquisition of more advanced 
fighter aircraft by the PLA's naval air force, or a dramatic 
increase in the pace of submarine force modernization. All 
those would be indicators of a shift in Chinese military 
strategy.
    And we have some recommendations, which I support. One is a 
broader military-to-military dialog, but one designed to 
achieve specific goals. Greater transparency in the PLA budget 
process and a strategic dialog over missile defense and nuclear 
modernization would be two of them. And we also think that 
there should be so-called track two--that is, private but with 
government knowledge--talks on crisis-management issues, 
recognizing that in the past such events as the accidental 
bombing of the Chinese Embassy in Belgrade and the collision of 
U.S. and PRC military aircraft near Hainan Island, in 2001, 
weren't handled very well, especially on the Chinese side. In 
that manner, we should seek improvement in how such political 
and military crises are addressed.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Brown follows:]

Prepared Statement of Hon. Harold Brown, Counselor and Member, Board of 
        Trustees, Center for Strategic and International Studies

    Mister Chairman and members of the Committee, I am grateful for the 
opportunity to appear before you today to talk about Chinese military 
capability. China is clearly a rising power. In the past, conflicts 
have often occurred between such a power and the existing leading 
power. One element in the events and perceptions that have led to such 
conflicts is the growth of the military capability of the rising power. 
With that in mind, the Council on Foreign Relations sponsored an 
independent Task Force that looked at Chinese military power and how it 
may evolve over coming decades. I chaired that Task Force and Admiral 
Joseph Prueher, formerly Commander in Chief of Pacific Forces was Vice 
Chairman; the group met half a dozen times over a period of a year and 
there were meetings of sub groups that dealt respectively with 
political, economic and technological factors. You have a copy of the 
report, but I will take a few minutes to summarize where I think the 
group came out.
    1. China is modernizing its military capabilities, unevenly but 
across the board. The capabilities sought have several purposes. The 
first is to help maintain domestic stability and ensure regime 
security. The second is to develop limited power projection 
capabilities for possible conflict scenarios along China's periphery, 
especially beyond the Asian land mass, and in particular towards 
Taiwan, which the PRC regards as a matter of Chinese sovereignty. 
Elsewhere along its periphery it is intended to defend what it sees as 
its territorial interest. And as a rising power, China sees an improved 
military capability as a natural concomitant, increasing its 
international prestige and influence.
    2. The PLA (which is China's name for all of its armed forces) is 
at least two decades behind the US in military capability, by which 
measure the US outclasses the PRC not only globally but in East Asia. 
Moreover, given continued allocation of resources, the US will continue 
to do so for decades to come. On present trends, however (for example, 
assuming Japan continues to forego a role as a major regional military 
power) China will during that period become the predominant military 
power among the nations of East Asia.
    3. That said, we could get some nasty surprises, especially if we 
don't pay sufficient attention to PLA capabilities and PRC strategy, or 
if we don't track their development carefully.
    The Taiwan Strait is the area of greatest military concern in the 
bilateral balance. During the next decade, a main focus of Chinese 
military development is, if the political situation develops so that 
the PRC decides to use military force to intimidate or attack Taiwan so 
as to obtain a favorable political settlement or political control, to 
have the military capabilities and proper tactics to achieve that 
result. To do so China would have to prevent effective US intervention, 
either by acting very quickly (a challenge to US intelligence 
capabilities) or by using its anti-ship missiles and submarines to slow 
and interfere with the operation of a US naval task force. There is no 
doubt in my mind as to the military outcome of such a conflict--victory 
for the US. But there could be serious risks and costs to the US 
military and what we would regard as a military defeat for the Chinese 
they might well regard as a political victory, depending on the effect 
on the political situation in Taiwan.
    4. If I could now turn to some more specific PLA programs, I would 
note that their most successful ones are in the area of ballistic 
missiles and nuclear weapons. Short-range ballistic missiles constitute 
a significant part of the PRC's threat to Taiwan. Nuclear-armed long-
range missiles, rather few in number--a couple of dozen ICBMs and a 
ballistic missile submarine which seldom goes to sea--constitute their 
nuclear deterrent visa-vis the US. They appear to have been satisfied 
with a minimal deterrent of this sort. My own judgment is, however, 
that they could and will build up their long-range ballistic missile 
force to whatever level is necessary to preserve that deterrent in the 
face of a future US ballistic missile defense system.
    The PLA also has been improving its ground-force equipment. But, as 
PRC military commentators themselves observe, the bulk of its enlisted 
force consists of poorly educated and trained conscripts. Moreover, 
indigenous production capability for advanced aircraft and maritime 
forces is unsatisfactory, which is why they have to purchase much of 
such equipment from foreign suppliers. There is little or no joint-
force training; their pilots fly few hours per month and even fewer 
over water. PLA organization is by military region rather than in 
unified commands. Their C4ISR (Command Control Communications, 
Intelligence, Surveillance and Reconnaissance) capabilities are still 
relatively primitive. And the Chinese industrial production base for 
conventional arms, unlike their civilian manufacturing industry that is 
so successful in international--including high tech--trade, remains 
part of the state-owned enterprise system that drags down Chinese 
economic growth; correspondingly, it is inefficient and its products 
not of the best.
    5. One way to look at the PLA is to compare resources devoted to it 
with those devoted elsewhere. By that measure, China is in a class with 
the UK, France, Japan and Russia. It is behind them technologically, 
but fields a larger force. It is probably less able to project power 
outside of its contiguous landmass, but could be formidable on the 
Asian landmass.
    6. China, as I said at the beginning, is pursuing a deliberate and 
focused course of military modernization, aimed at shifting from a 
military with a continental orientation requiring large land forces for 
in-depth defense to a military with a combined continental and maritime 
orientation that requires a smaller, more mobile and more 
technologically advanced ``active peripheral defense'' capability. It 
is therefore important for the US to watch for development of key areas 
to be used to help gauge the pace at which that modernization is 
proceeding. These fall into five categories: C4ISR; joint operations; 
precision strikes; combat support; and training. And there are some 
indicators that would represent major shifts away from the current 
priorities, greatly changing the nature of the Chinese modernization 
program, such as crash programs to build more amphibious warfare ships, 
expanded acquisition of more advanced fighter aircraft by the PLA naval 
air force or a dramatic increase in the pace of submarine force 
modernization.
    Finally, the Task Force made a few other recommendations. One is 
that there should be a broader military-to-military dialogue. But it 
should be designed to achieve specific goals, including greater 
transparency in the PLA budget process and a strategic dialogue over 
missile defense and nuclear modernization. There should also be so-
called Track Two talks on crisis management issues. In the past such 
events as the accidental bombing of the Chinese embassy in Belgrade and 
the collision of US and PRC military aircraft near Hainin Island in 
2001 were not handled very well, especially on the Chinese side. We 
should seek improvement in the manner in which such political-military 
crises are addressed.
    Thank you Mister Chairman.

    The Chairman. Well, thank you very much, Secretary Brown.
    Let me say each one of you, in your testimony, has offered 
remarkable information for the committee, but, likewise, for 
the American people, and we appreciate your preparation.
    Let me just say, as I've already mentioned to you, Mr. 
Kumar, that the committee takes seriously the human rights 
issues, and I have indicated at least one way in which we'll be 
progressing in a fairly conspicuous resolution.
    I would say to you, Dr. Lardy, that there are at least two 
pieces of legislation that I'm aware of in the Senate, 
introduced by people outside of our committee, but obviously of 
deep interest to us, affecting the currency situation in China. 
The net of them is to express alarm, with regard to the fact 
that our Secretary of the Treasury was not given what he wanted 
and is threatening retaliation of various sorts. So this 
debate, I think, as reflected in many of our committee members' 
anxiety about ongoing constituent meetings in our States, has 
become a very hot issue.
    Now, it may be, as you have pointed out, that this is too 
easy or fast a fix, or, even if we got our wish, that the 
effects might not be very good, either for us or for the 
Chinese. Yet it reflects a profound feeling of wanting some 
leadership, at least in the Congress and the administration and 
academic America, as to how we proceed. And that question kept 
arising with Secretary Kelly earlier on.
    In other words, there is a perception in my State, as in 
most, that a large number of jobs that were performed by people 
in Indiana a short time ago are now being performed by people 
in China.
    Now, some academics are advising us to get used to this 
fact, because manufacturing is a part of the American economy. 
It was 16 percent last year; it's still 16 percent this year. 
Productivity increases of 5 and 6 percent are dramatic, but 
they imply that you need fewer people doing that manufacturing 
work. So, as a result, we have been advised to get used to the 
fact that there are going to be fewer and fewer manufacturing 
jobs. Now, that might be the way history finally settles it, 
but people are not yet used to this fact at all.
    Now, in fact, in the past, the usual problem was with NAFTA 
and the thought that jobs were proceeding to Mexico. Mexican 
friends come to us and point out that jobs have proceeded right 
on through Mexico to China. And as you mentioned, maybe this is 
a problem of Asian nations, which also are lamenting the fact 
that the Chinese, because they have better capitalization, do 
it better. Huge amounts of capital have been coming in from 
many, many countries. We saw today, for example, that in 
certain standards of electronics or communication, the Chinese 
may decide to set their own standards, not to utilize ours. 
China may try to pay royalties or try to hue to the mark of 
what was an international situation at that point. So the issue 
will not go away.
    Now, the question that you have raised is an important one, 
and that is that--and I think this is news for most of us on 
the committee--the imports of China are very, very substantial. 
If you subtract those from the problems that we have, the 
Chinese still have a balance, but it's not a big one. On the 
other hand, critics might say, ``Well, the Chinese are 
importing from other Asian nations. These nations are poor, and 
they have low wage rates, too.'' We deserve the same conditions 
with regard to workers that we would charge that the Chinese 
have, which would not be very good, at least in our viewpoint. 
They are getting all this cheap input. Even though they're 
paying for it with money, they're selling it to the rich 
nations--namely, to us--and so the flow still is not very 
salutary.
    Let me just ask you, as an economist, in historical 
perspective, sometimes these things never go in one direction 
for a long time. You've pointed out in your testimony a 
potential banking bubble, or at least crisis, of loans that 
might be repaid. Some have argued that this is one reason that 
our Secretary of the Treasury was initially rebuffed, that the 
Chinese made too abrupt a change here. It could create havoc 
with regard to their banking system. It could lead to all kinds 
of financial difficulties, with repercussions that are 
profound, beyond those that we know. Can you give us any 
roadmap that may offer comfort to people in the United States, 
who are deeply concerned about the loss of jobs and what they 
fear is an unfair playing field? What should our Secretary of 
the Treasury's policy be? What should be the policy of the 
Secretary of State or anybody else who is dealing with the 
Chinese on these economic issues presently?
    Dr. Lardy. Well, as I suggested, I do think the Secretary 
of the Treasury should be pushing China to revalue. I think 
there's a good chance that, over time, they will increasingly 
see that this is even in their own interest.
    I didn't have a chance to say, in my opening remarks, but I 
would say now, I do believe there's a fairly widespread view 
that if the Chinese were to move on their currency, we would 
see other Asian countries move, as well. Korea, Taiwan, maybe 
even Japan would move significantly. They are very reluctant, 
given China's rise as a major manufacturing power, to move in 
advance of China's move.
    I mentioned I thought simply a Chinese revaluation wouldn't 
take more than $10 billion off our deficit with them, which is, 
you know, trivial in the context of a current account deficit 
of almost 600 billion U.S. dollars. But if the other Asian 
countries moved, as well, which is a possibility as I just 
mentioned, the cumulative weight in our trade is something 
closer to 30 percent. And that would have a much more 
significant effect on our overall current account balance. It 
still would not change the bilateral balance, and I think we 
ought to be giving more attention to our global position rather 
than simply to our position with China.
    The Chairman. So we ought to be having a multilateral talk, 
as opposed to simply approaching the Chinese, on the currency 
issue.
    Dr. Lardy. Yes. That would be my view.
    The Chairman. Secretary Brown, was there a hint in your 
testimony that if the United States proceeds with missile 
defense in a big way, this could lead China from at least a 
fairly modest number of ICBMs to a larger number? In other 
words, is it fair to say they're just simply going to leave 
things as it stands, whether we do missile defense or not?
    Mr. Brown. My own judgment would be that the Chinese are 
going to increase the number of their long-range ballistic-
missile force in any event. But I think that the pace would be 
substantially affected. The pace and the total size, both, 
would be substantially affected by the size of a U.S. 
ballistic-missile defense, that is, our national missile 
defense program.
    The Chairman. Dr. Campbell, you mentioned an important 
point about which many of us are reading. Especially younger 
South Koreans, in the 30s generation and what have you, are 
finding a very strong tie with China. Some even are knotting a 
strong tie with North Korea. That is, South Koreans are 
rediscovering the North. They have much more in common than we 
would think that they would find.
    At the same time, the Chinese, in the negotiations we're 
having, are very reticent to impose any further economic 
sanctions. And again and again we keep hearing, simply because 
they want North Koreans to stay in North Korea, that to impose 
economic sanctions at this point, they believe, would be to 
lead to some flight of desperation of North Koreans before they 
starve coming into China or elsewhere. This is difficult for 
Americans to follow, and this is why your testimony is very 
important, to educate us as to the nuances of these 
relationships.
    What should be our advice to the Chinese in this respect? 
They share our thought that nuclear development is unhealthy in 
that area and that this is a genuine threat, and yet, at the 
same time, the North Koreans have not been particularly 
responsive thus far to whatever has been said to them. Clearly, 
most observers of this point out how awesome military activity 
would be for everybody involved. So if that was taken off the 
table, we get back to some economic sanctions or some 
disapproval of that sort of which the Chinese are the major 
instrument. What is likely to be their reaction down the trail 
to these sorts of pressures?
    Dr. Campbell. Thank you, Senator. You raise a host of 
extraordinarily important and difficult questions on the Korean 
Peninsula.
    I would just say that oftentimes with Chinese friends, they 
will say one thing publicly and then occasionally do some 
things differently privately. I think that, for a variety of 
reasons, they are ramping up privately very substantially the 
pressure on Pyongyang. And I wouldn't be at all surprised if 
the reports that you and others referred to in the Los Angeles 
Times today, and elsewhere, that suggest that there may be some 
slowing down of activities at various nuclear facilities in 
North Korea, turn out to be true. And I think that will largely 
be because of China putting a very stiff arm on them.
    What's animated Chinese pressure, I think, is not only 
concern about North Korea--and I think they're very worried 
about quite a provocative leadership there--China is also a 
little bit worried about the United States. They look at our 
activities on the peninsula, and they're not completely clear 
where we're coming down. We're very reluctant to have bilateral 
dialogs. It seems almost to be, sort of, an issue of principle 
for us, where it really should be just a tactical concern. And 
they don't want us to do anything that's unpredictable either. 
And I think part of that's tactically motivated by the 
administration.
    So I think China will play a more powerful role, not in the 
United Nations, not formal sanctions, but behind the scenes.
    The first issue that you referred to is the one that I 
worry the most about. I think our natural ally, the nation in 
Asia, in fact, that I think we have the closest spirit to, in 
many respects, is South Korea. The most worrisome thing that 
we've really witnessed in the last year is a very substantial 
degradation of our relations. It's not a crisis between 
Washington and Seoul, but there is a mounting anti-Americanism 
in South Korea. I think South Korean politicians have played 
this in a most unfortunate way. And if I were, you know, sort 
of, thinking about the future, one of the things that we have 
to keep in mind is the long game on the Korean Peninsula. And 
our interests are to have a close relationship with the 
successor regime on the peninsula. And that will be dominated 
by the political power in South Korea. And keeping that 
foremost in mind is absolutely essential, and I think we've 
lost a little bit of sight of that in recent months, and it's 
very important to keep that clearly understood.
    The Chairman. Well, thank you for your alert and your 
analysis.
    I would love to be given the opportunity to ask questions 
of you for quite awhile, but I'm going to observe that the 
Senate has gone into recess. We'll be having a memorial service 
at noontime.
    And so, in respect, obviously to that and to my colleagues, 
at this time I will bring the adjournment gavel down. But I 
thank each one of you very much for your papers, and we will 
try to make use of the wisdom you've given to us.
    Thank you very much. And the hearing is adjourned.
    [Whereupon, at 11:55 a.m., the committee adjourned, to 
reconvene subject to the call of the Chair.]
                              ----------                              


       Responses to Additional Questions Submitted for the Record


Responses of Hon. James A. Kelly, Assistant Secretary of State, Bureau 
  of East Asian and Pacific Affairs, to Additional Questions for the 
               Record Submitted by Senator Sam Browaback

    Question 1. What is the Department proposing to do to ensure that 
the Bridge Fund has adequate and consistent funding during this 
critical time so that it can carry out its important work in the 
priority areas identified by the Dalai Lama?

    Answer. The Department's Special Coordinator for Tibetan Issues and 
the Bureau of East Asian and Pacific Affairs, in coordination with 
USAID, are looking forward to continuing to work with the Bridge Fund 
in carrying out cultural preservation, environmental conservation, and 
sustainable development programming in Tibetan regions in China. It has 
always been our goal to disburse funds in a timely way, while at the 
same time fulfilling the Department's and USAID's internal regulations 
and due diligence requirements.

    Question. 2. Has the Department, together with other agencies of 
the U.S. Government, formulated a policy for U.S. public and private 
investment in the Lhasa-Golmud railroad? Have you or other U.S. 
officials raised concerns about this railroad with Chinese officials?

    Answer. We are closely monitoring the social and environmental 
impact of China's Western Development Initiative currently underway in 
Tibetan regions, including the railroad. We are concerned that the 
construction of the railway could accelerate the movement of Han 
Chinese into the Tibet Autonomous Region, impact the Tibetan culture 
and way of life, and have a deleterious effect on the fragile ecosystem 
of the Tibetan plateau. In addition, as noted in the Department of 
State's Human Rights Reports, we are concerned about the economic 
marginalization associated with non-Tibetans benefiting 
disproportionately from government-funded infrastructure and 
development projects in Tibetan regions and have made our views known 
to the Chinese government.

    Question 3. What is the administration doing to let the Chinese 
Government know that the case of Yang Jianli needs to be resolved 
swiftly and that this type of treatment is unacceptable?

    Answer. As I noted during my testimony, Dr. Yang Jianli's case is a 
priority for this administration. Dr. Yang's incommunicado detention 
for over a year is in blatant violation of China's own laws, as well as 
international law, as evidenced by the findings of the United Nations 
Working Group on Arbitrary Detention. His treatment during detention is 
also troubling.
    Since his detention in China in April 2002, we have raised Yang 
Jianli's case publicly and privately on an almost weekly basis. U.S. 
Ambassador to China Clark Randt, other senior members of the 
administration, and I personally have raised Dr. Yang's case with our 
Chinese counterparts repeatedly, conveying our serious concerns over 
denial of his due process rights. For example, I raised Dr. Yang's case 
with Chinese Ambassador Yang Jiechi the afternoon of the September 11 
SFRC testimony, urging Dr. Yang's release. Assistant Secretary of State 
for Human Rights, Democracy and Labor Lorne Craner has called for Dr. 
Yang's release, and discussed the case at length during the December 
2002 session of the U.S.-China Human Rights Dialogue in Beijing. In 
addition, our Embassy in Beijing requested to observe Yang's August 4 
trial. Although that request was denied, Embassy officers have 
continued to urge the PRC to bring Yang's case to an expeditious 
conclusion and return him to his wife and family in the U.S. We will 
continue to raise his case at every opportunity.
    Administration officials are also in regular contact with Dr. 
Yang's wife, Christina Fu, and other family members in the United 
States and China, and share with them any developments. Over the past 
few months, Ms. Fu has met with various State Department officials, 
including Under Secretary for Global Affairs Paula Dobriansky and 
Assistant Secretary Craner, to discuss her husband's situation.
    I want to assure you again that we will continue to do everything 
possible to ensure that Dr. Yang is treated fairly and humanely and 
will urge that his case be resolved speedily.

                                 ______
                                 

Responses of Hon. James A. Kelly, Assistant Secretary of State, Bureau 
  of East Asian and Pacific Affairs, to Additional Questions for the 
                Record Submitted by Senator George Allen

    Question 1. As you are aware, in January this year I introduced S. 
243. The bill authorizes the administration to initiate a United States 
plan to endorse and obtain observer status for Taiwan at the WHO 
meeting. This bill was passed by both Houses of Congress and signed 
into law by President Bush. Even with the SARS situation, Taiwan was 
not able to become an observer in WHO. Could you tell me more about 
what the State Department will do in addition to the report you 
submitted to Congress?

    Answer. The Department of State fully supports the overall goal of 
Taiwan's participation as an observer in the World Health Organization 
(WHO). Taiwan can make important contributions to improving global 
health and its participation as an observer is in the interests of the 
international community. We have therefore urged the WHO and its 
members to find appropriate ways for Taiwan to participate, including 
observer status, and we will continue to do so. Under the World Health 
Assembly's (WHA) rules of procedure, however, a majority of the 192 
member states would have to approve a resolution to confer observer 
status on Taiwan. The majority of WHO member states have not yet been 
willing to approve a new agenda item at the WHA on observer status for 
Taiwan. This step is necessary before a resolution could be considered.
    Our longstanding policy is to support finding ways for Taiwan's 
voice to be heard in organizations in which Taiwan cannot participate 
as a member. In 2001 and again last year, we worked intensively with 
Taiwan representatives in Washington, Taiwan, and Geneva in order to 
advance the goal of participation by Taiwan in the WHO. We have held 
annual strategy meetings to determine how best to advance Taiwan's 
legitimate interest in contributing to the work of the WHO.
    Taiwan's problem obtaining observer status is not due to a lack of 
U.S. commitment. We have a realistic appreciation for the challenges 
ahead, however.

    Question 2. When President Bush said the United States will take 
whatever it takes to help Taiwan defend itself, it sends a very clear 
message to the PRC that our policy toward both sides of the Taiwan 
Strait is based on peaceful resolution embodied in the Taiwan Relations 
Act of 1979 and the Six Assurances of 1982 (please see note). This 
clarity strategy reduces miscalculation and recklessness. While United 
States needs cooperation from China to tackle North Korea and Iraq 
issues, can you, Secretary Kelly, reiterate that the TRA and the Six 
Assurances remain the comerstone of our policy towards Taiwan and the 
PRC?

    Answer. The U.S. has a ``one China'' policy, first articulated in 
the Normalization Communique of 1979. ``The Government of the United 
States of America acknowledges the Chinese position that there is but 
one China and Taiwan is part of China.'' The Taiwan Relations Act (TRA) 
has provided the foundation for our unofficial relationship with Taiwan 
since normalization of diplomatic ties with the PRC in 1979. We remain 
committed to our obligations under the TRA to make available defense 
articles and services to enable Taiwan to maintain a sufficient self-
defense capability and provide for Taiwan's legitimate defensive needs. 
In doing so, the United States is careful to provide weapons that are 
defensive in nature and which would not destabilize the cross-Strait 
situation.
    Our position continues to be embodied in the ``six assurances'' 
offered to Taiwan by President Reagan. We will neither seek to mediate 
between the PRC and Taiwan, nor will we exert pressure on Taiwan to 
come to the bargaining table. The United States does not consult with 
the PRC on arms sales to Taiwan. No timeframe has been set for 
reductions of U.S. arms sales or for their termination.
    The U.S. has an abiding interest in the peaceful resolution of 
cross-Strait differences. Our policy has been consistent for over 20 
years. It is articulated in the Taiwan Relations Act, the three 
Communiques, and the Six Assurances.

    Question 3. As the PRC deploys hundreds of missiles across the 
Taiwan Strait, have you discerned any significant differences or 
changes in the military balance in the region that might affect the 
U.S. interest?

    Answer. Modernization and training developments in recent years 
highlight China's continuing effort to improve quantitatively and 
qualitatively the capabilities of its conventionally-armed SRBM force. 
There are approximately 450 SRBMs already in the deployed inventory; 
this number is expected to increase by over 75 missiles per year over 
the next few years. The accuracy and lethality of this force also is 
expected to increase through the use of satellite-aided guidance 
systems. As China increases the accuracy and lethality of its 
conventional ballistic missile arsenal, a growing and significant 
challenge is posed to U.S. forces in the Western Pacific and to Taiwan.
    We seek the reduction of cross-Strait tensions. We have called on 
the PRC to renounce the use of force and reduce military deployments 
targeted against Taiwan. We encourage the PRC to show more transparency 
in this area to build trust and reduce tensions across the Taiwan 
Strait. We are convinced we can do this as we pursue with the PRC a 
broad range of U.S. strategic interests ranging from human rights, 
counter-terrorism and non-proliferation to regional stability and 
trade.
    Our interaction with the PRC on these matters serves global 
interests. We believe that it also strengthens mutual understanding 
between our two countries and supports U.S. and Taiwan interests in 
security, stability, and prosperity.

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