[Congressional Record Volume 143, Number 13 (Wednesday, February 5, 1997)]
[Senate]
[Pages S1040-S1044]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




Senator Dianne Feinstein: Trip Report--the People's Republic of China, 
           Hong Kong, Taiwan, and Nepal, November 11-26, 1996

       Following my visit to China in August 1995, I was 
     encouraged by Ambassador Liu Shuqing, President of the 
     Chinese People's Institute for Foreign Affairs, to organize 
     additional delegations of Senators to travel to China to meet 
     with senior leaders and discuss a range of issues affecting 
     the U.S.-China relationship. The first of these delegations, 
     consisting of Senator Sam Nunn, Senator John Glenn, and 
     myself traveled to China in January 1996.
       From November 11-17, 1996, I joined Senator Tom Daschle's 
     delegation traveling to Beijing, Hong Kong, and Taiwan. I 
     subsequently returned to Hong Kong for additional meetings 
     from November 17-20, and then traveled to Nepal from November 
     20-26. My husband, Mr. Richard C. Blum, and I traveled at 
     personal expense. We were accompanied throughout by a member 
     of my staff, Mr. Daniel Shapiro, whose expenses were 
     underwritten by the Committee on Foreign Relations.


                                 CHINA

       The issues we discussed with the Chinese leadership 
     included:
       The prospects for a more stable and productive U.S-China 
     relationship in the wake of Secretary of State Christopher's 
     visit to China and the meeting between Presidents Clinton and 
     Jiang in Manila;
       The prospects for reduced tensions between Taiwan and 
     China, and the role of Taiwan in the U.S.-China relationship;
       The July 1997 reversion of Hong Kong to Chinese 
     sovereignty, and the U.S. interests at stake in a stable 
     transition for Hong Kong;
       The lack of progress in resolving a number of outstanding 
     trade disputes between the United States and China;
       The human rights situation in China, with emphasis on Tibet 
     and the status of leading dissidents who have been detained 
     or imprisoned;
       Regional security issues, including North Korea and South 
     Asia, and the prospects for enhanced military-to-military 
     dialogue and cooperation between the United States and China; 
     and
       The recent progress made on U.S. nonproliferation concerns, 
     and the need for continued progress in this area.
       On the evening of Thursday, November 14, I met with 
     President Jiang Zemin privately at the Great Hall of the 
     People. We were then joined by Senators Tom Daschle, Byron 
     Dorgan, John Glenn, Dirk Kempthorne, and Patrick Leahy for a 
     one hour meeting, followed by a two and a half hour dinner, 
     also in the Great Hall of the People.
       During the rest of our visit, we conducted meetings and 
     working meals with:
       Vice Chairman of the Central Military Committee and 
     Minister of National Defense Chi Haotian;
       Vice Minister of Foreign Affairs Li Zhaoxing; and
       President of the Chinese People's Institute of Foreign 
     Affairs Liu Shuqing.
       Because I arrived before the Daschle delegation and 
     remained in Beijing after their departure, I conducted 
     separate meetings with:
       Director of the Office of Hong Kong and Macao Affairs of 
     the State Council Lu Ping;
       Executive Director of the Association of Relations Across 
     the Taiwan Straits Tang Shubei; and
       Executive Vice Premier Zhu Rongji.
       In addition to the above meetings, we received briefings 
     from the staff of the United States Embassy in Beijing, 
     including Ambassador James Sasser. We also conducted meetings 
     with representatives of American companies doing business in 
     China to learn about the current climate for U.S. firms in 
     China and how it is affected by developments in the political 
     and trade relationship between the United States and China.
     Overview of the U.S.-China Relationship
       Our discussions with Chinese leaders indicated a fair 
     degree of optimism about prospects for an improved 
     environment in the U.S.-China relationship in 1997, tempered 
     by caution with respect to a number of issues of concern to 
     China. The Chinese seem to view the reelection of President 
     Clinton as an opportunity for the U.S.-China relationship to 
     progress without being hampered by the vagaries of American 
     politics to the degree it was in 1996. In November, they were 
     optimistic about Secretary's Christopher's upcoming visit and 
     the Jiang-Clinton meeting in Manila. They are also encouraged 
     by the planned visit of Vice President Gore in early 1997 and 
     the subsequent exchange of Presidential visits. The Chinese 
     see these developments as important steps toward establishing 
     the consistent high-level dialogue that the U.S.-China 
     relationship needs to make progress on issues of common 
     interest and areas of disagreement. In the words of President 
     Jiang, ``the sky is clearer now.''
       At the same time, there are several reasons to believe that 
     progress in the relationship in 1997 will be incremental, 
     rather than dramatic. First, the 15th Communist Party 
     Congress, when Chinese leadership positions will be decided 
     for the next five years is scheduled for September 1997. In 
     the run-up to this Congress, many Chinese leaders will feel 
     pressure to display their nationalist credentials, and this 
     may take the form of challenging the United States, or at 
     least demonstrating minimum flexibility, on any number of 
     issues. Second, the transition of Hong Kong, which takes 
     place on July 1, 1997, will be watched closely by the United 
     States and the world. If it leads to confrontations between 
     the Chinese authorities and Hong Kong democracy activists, or 
     if U.S. interests are put at risk, it could be the source of 
     considerable tension in U.S.-China relations. Finally, a 
     significant number of bilateral issues can continue to plague 
     efforts to normalize U.S.-China relations, including trade 
     disputes, nonproliferation concerns, human rights, and, most 
     importantly, Taiwan.
     Taiwan
       Taiwan remains the issue with the greatest potential to 
     seriously disrupt and inflame efforts to stabilize the U.S.-
     China relationship. The Chinese blame Lee Teng-hui for the 
     absence of cross-strait dialogue. They believe he is actively 
     casting doubt on the one-China policy, and doing so because 
     he believes he has U.S. and Japanese support. They insist 
     that for an atmosphere conducive to dialogue to resume, Lee 
     must take concrete actions: recognize the indivisibility of 
     China's territory and sovereignty; and stop seeking to expand 
     Taiwan's diplomatic presence, especially with countries who 
     have relations with China and at the United Nations. They do 
     not insist that Taiwan recognize the sovereignty of the PRC 
     government.
       China is eager to develop the so-called ``three links'' 
     with Taiwan: direct air travel, shipping, and postal service. 
     They believe Taiwan's reluctance to open them on China's 
     terms (such as not flying a Taiwanese flag in Chinese ports) 
     is a sign that Lee Teng-hui is trying to widen the divisions 
     between the mainland and Taiwan. They also cite Lee's recent 
     efforts to discourage and restrict Taiwanese investment in 
     China. On the other hand, Hong Kong's reversion to Chinese 
     rule may begin to initiate the three links, as Taiwan will 
     continue to interact with Hong Kong much as it has in the 
     past. There is some sense that if the Hong Kong transition 
     goes smoothly, it could ease the way for eventual 
     reunification between Taiwan and China on the ``one country, 
     two systems'' model.
       It is impossible to overstate the depth of Chinese feelings 
     on Taiwan's role in the U.S.-China relationship. President 
     Jiang told me clearly and directly, that the main thing he 
     needs in order to pursue improved U.S.-China relations is for 
     the Taiwan issue to remain quiet. If it is handled well, 
     everything is possible. If it is not handled well, it could 
     cause a shock to U.S.-China relations. Tang Shubei, Executive 
     Director of the Association for Relations Across the Taiwan 
     Straits, specifically mentioned two potential pitfalls: if 
     Lee Teng-hui is granted a transit visa to the United States 
     on his way to Panama in September, and uses the Panama Canal 
     hand-over ceremony to meet with President Clinton; and if 
     U.S. arms sales to Taiwan are not seen to be declining over 
     time, and avoiding offensive weapons systems, such as landing 
     craft. During my lengthy discussion with Tang Shubei, he gave 
     a comprehensive and precise presentation of China's views on 
     Taiwan, expressing a resolute firmness that I had not seen 
     before.
     Trade Issues
       Perhaps in a manifestation of pre-Party Congress stiffening 
     of views, the Chinese seemed particularly stubborn on a 
     number of the trade issues affecting U.S.-China relations. I 
     had a long discussion with Executive Vice Premier on the 
     subject of TCK wheat. China refuses to import virtually any 
     U.S. wheat at the moment, on the grounds that all U.S. wheat 
     is potentially infected with TCK by the rail cars used to 
     transport wheat around the United States. While the Chinese 
     view on TCK is, according to U.S. specialists, not backed up 
     by sound science, they maintain that China will not resume 
     U.S. wheat imports unless Chinese inspectors are allowed to 
     examine the wheat when it is loaded onto ships. This wheat 
     dispute is responsible for a significant decline in U.S. 
     agricultural exports to China.
       China's position on its application to join the WTO has 
     changed little in recent months. Beijing continues to believe 
     that it should be admitted to the WTO as a developing 
     country, and that it should try to make the necessary changes 
     to its economy over time. There has been little or no 
     response to the ``road-map'' provided by USTR to the Chinese 
     in early 1996.
       It seems clear to me that if there is not progress on these 
     trade issues, and on the expanding U.S.-China trade 
     imbalance, trade will become a major political problem in the 
     relationship, and could lead us down the road toward a 
     serious confrontation. While the Chinese seem to recognize 
     this potential, they continue to insist that they can do 
     nothing about the trade imbalance because it is caused 
     primarily by foreign-owned ventures that export out of China, 
     and by goods exported via Hong Kong. They say that neither 
     category should be counted against Chinese export totals, 
     resulting in a huge disparity between the trade figures cited 
     by the two sides (the U.S. figure: $35 billion imbalance; 
     China's figure: $8.6 billion).
       Most importantly, the one area of flexibility I saw was in 
     Zhu Rongji's willingness to set up a joint working group 
     between U.S. and Chinese trade specialists, to come up with a 
     common method of calculating the trade balance, especially 
     after Hong Kong reverts to Chinese sovereignty. This working

[[Page S1041]]

     group could offer a course of action that would be positive 
     and move both sides toward a resolution of this impasse.
     Hong Kong
       China seems to genuinely want to see a smooth transition 
     take place in Hong Kong, and they repeatedly voice their 
     commitment to allowing the ``one country, two systems'' 
     approach to take hold. They stress their intention to let the 
     government of Hong Kong be the final arbiter of Hong Kong 
     affairs. This standard, freely volunteered by Beijing, seems 
     to be the appropriate way to judge how the transition goes.
       The decision to appoint a provisional Legco and the method 
     of appointment of the first chief executive have led to some 
     concern over China's true intentions. Again, the measure by 
     which to judge these events is the degree to which China 
     allows the Hong Kong government to make decisions on such 
     issues as allowing a commemoration of the June 4 incidents in 
     Tiananmen Square, press freedoms, and so on. In addition, it 
     will be important to observe whether China keeps its 
     commitment to move the selection of future Hong Kong 
     governments in the direction of universal elections over the 
     next ten years.
       In my meeting with Lu Ping, Director of the Office of Hong 
     Kong and Macao Affairs for the State Council, who is 
     overseeing the transition, I asked specifically if China 
     would allow peaceful dissent, such as commemorations of the 
     June 4 incidents, after July 1, 1997. Mr. Lu, who was made 
     aware of the questions I would be asking prior to the 
     meeting, was unequivocal in his response: such protests would 
     certainly be permitted as long as they are consistent with 
     Hong Kong law. The test will be whether China tries to 
     imposes changes on Hong Kong law that would limit freedoms.
       U.S. interests in Hong Kong, such as continued ship visits 
     and the operation of the U.S. Consulate General do appear to 
     be on the Chinese radar screen and resolvable through 
     negotiations. (Later Chinese Ambassador to the United State 
     Li Daoyu reported to me that military ship visits for R&R 
     will be permitted to continue.)
     Military and Security Issues
       Interestingly, the greatest degree of cooperation appeared 
     to be in the areas of the relationship relating to military 
     cooperation and security issues. For example, while the 
     Chinese are critical of U.S. arms sales to Taiwan as a 
     proliferation matter, they do seem receptive to further 
     dialogue about nuclear proliferation. In recent months, China 
     has committed not to provide equipment to unsafeguarded 
     nuclear facilities, and it has decided against selling 
     nuclear reactors to Iran. Currently, China is considering the 
     sale of a uranium enrichment facility to Iran, but the 
     prospect of implementing the 1985 U.S.-China peaceful nuclear 
     energy agreement is a strong incentive for them to cancel 
     the Iran sale.
       On North Korea, the Chinese believe Kim Jong-Il is in 
     charge and that the food shortages are not as severe as have 
     been stated in the West. China believes the United States' 
     efforts to denuclearize the Korean Peninsula are useful, and 
     they sound like they are willing to be supportive of the 
     advancement of this process. On South Asia, there appears to 
     be a slowly growing recognition that China's own security 
     interests are at stake in preserving stability between India 
     and Pakistan, and reducing the likelihood of a nuclear 
     confrontation.
       The one area of major concern to China is the revised U.S. 
     security agreement with Japan. Defense Minister Chi Haotian 
     and Vice Foreign Minister Li Zhaoxing both raised this issue, 
     citing the history of Japanese aggression against China as 
     the source of China's nervousness. They seemed to accept our 
     assurances that the U.S. presence in Japan and throughout 
     Asia is intended to reduce tensions, ensure stability, and 
     make unlikely the military adventurism that China seems to 
     fear from Japan. Their basic trust was evident in the Defense 
     Minister's expressed desire to broaden and deepen military 
     exchanges and dialogue--including ship visits--between the 
     United States and China. Nevertheless, they are suspicious of 
     Japanese intentions. In my view, this could become an area 
     for serious concern if not handled carefully.


                              Human Rights

       Our discussions on human rights did not bear a great deal 
     of fruit. China continues to see U.S. criticism of its human 
     rights record, and particularly the six-year-old effort to 
     pass a resolution condemning China at the U.N. Human Rights 
     Convention, as interference in its internal affairs. We 
     raised the case of Nawang Choepel, a Tibetan who was arrested 
     for recording Tibetan music under a Fulbright scholarship. 
     However, we got little response, and subsequent to our visit, 
     he was sentenced to 18 years in prison for spying, with the 
     goal of splitting Tibet from China. His case is one of a 
     number of indicators that China has significantly racheted up 
     the pressure in Tibet, and that human rights abuses there 
     have increased.
       And yet, progress toward implementation of the rule of law 
     continues, slowly but surely, including the preparation of a 
     number of new laws limiting police powers and restricting the 
     use of administrative detention. More progress like this 
     remains the best long-term hope for significant improvement 
     of the human rights situation in China.
       During my meeting with President Jiang, I proposed to him a 
     joint working group on human rights, whose members would be 
     appointed by the two Presidents. The group would conduct 
     research and fact-finding in order to chart the evolution of 
     human rights in both China and the United States in the last 
     20 to 30 years. The group would also make recommendations on 
     areas still in need of improvement, presenting their findings 
     in reports to both Presidents. President Jiang said he would 
     consider this proposal, which I believe could help break the 
     deadlock we currently have with the Chinese over human rights 
     and provide a methodology for discussion.


                                 TAIWAN

       The issues we discussed with Taiwanese leaders included: 
     the prospects for a resumption of the Cross-Straits Dialogue 
     with China; the U.S.-China relationship and its implications 
     for Taiwan, including Taiwan's security; Taiwan's efforts to 
     expand its international role, or its ``pragmatic 
     diplomacy''; Taiwan's democratic progress; and lobbying 
     efforts in Washington on behalf of Taiwan.
       I joined with Senators Daschle, Dorgan, Glenn, and Leahy 
     for meetings with:
       President Lee Teng-hui; Vice President/Premier Lien Chan; 
     and Foreign Minister John Chang, who also hosted the 
     delegation for dinner.
       Separately from Senator Daschle's delegation, I had several 
     additional meetings, including: a visit with Dr. Koo Chen-fu, 
     Chairman of the Straits Exchange Foundation, in his home; a 
     private meeting with Foreign Minister John Chang; a 
     breakfast with Chang King-yuh, Chairman of the Mainland 
     Affairs Council, and Dr. Koo Chen-fu; a meeting with 
     Chiling Tong, Director of the California Office of Trade 
     and Investment; and a luncheon hosted by the American 
     Chamber of Commerce in Taipei.


                       The Cross-Straits Dialogue

       Taiwanese leaders feel that, with respect to prospects for 
     restarting the Cross-Straits Dialogue, the ball is in China's 
     court. They accuse China's leaders of claiming to place no 
     conditions on resumption of a dialogue, while in fact 
     demanding an important concession in advance: Taiwan's 
     agreement to China's interpretation of the One China policy. 
     The PRC's demand that Taiwan acknowledge that the sovereignty 
     and territory of China are indivisible is interpreted by the 
     Taiwanese leaders as denying the existence of the Republic of 
     China on Taiwan.
       According to Foreign Minister John Chang, the Taiwanese 
     leadership would rather acknowledge the existence of One 
     China, but say that it is currently divided, and that it has 
     two governments--the People's Republic of China government in 
     Beijing, and the Republic of China government in Taipei. 
     Foreign Minister Chang says that Beijing's version of the One 
     China policy would require Taiwan to accept the communist 
     system of government, which the people of Taiwan would never 
     accept. He said that such a move would actually increase pro-
     independence sentiment in Taiwan, which his government says 
     it opposes.
       But it is sometimes difficult to distinguish Minister 
     Chang's description of Taiwan's version of the One China 
     policy from a Two Chinas policy, which he says his government 
     rejects. He speaks of two co-equal Chinese governments, the 
     PRC and the ROC, each with its own sovereignty and conducting 
     its own international affairs. Reunification is mentioned as 
     a lofty, but currently unrealistic goal, and one that can 
     never happen without the collapse of the PRC government in 
     Beijing. In our meeting with President Lee, he suggested that 
     One China is not the current reality, but rather a future 
     goal. It is certainly possible that such a policy causes 
     confusion in Beijing about Taiwan's true intentions.
       The Taiwanese leadership blames the PRC for its breaking 
     off the Cross-Straits Dialogue following the promising talks 
     between Koo Chen-fu of Taiwan's Straits Exchange Foundation 
     and Wang Daohan of China's Association for Relations Across 
     the Taiwan Straits in May 1995. In so doing, Taiwanese 
     leaders draw no explicit connection between Lee Teng-hui's 
     visit to Cornell University and the Chinese decision. 
     Nevertheless, the Taiwanese leadership does seem to have 
     internalized the need to proceed cautiously and avoid 
     provocative actions to which the Chinese leadership will feel 
     forced to respond. President Lee maintains that he is eager 
     to meet with President Jiang Zemin, but expects that any 
     movement will be impossible before the 15th Communist Party 
     Congress takes place in the fall of 1997.
       At the same time, there are signs that President Lee is 
     encouraging a loosening of ties with the mainland. Taiwanese 
     interests have $30 billion worth of foreign investment in 
     China, and two-way trade across the strait stands at $20 
     billion annually. In recent months, President Lee has 
     admonished the business community ``not to put all its eggs 
     in one basket'' and to diversify its markets for exports and 
     investment. There is even talk of more formal restrictions on 
     large investment projects in China. It is not clear whether 
     this trend is a sign of a weakening of Lee Teng-hui's 
     commitment to reunification, or an indication that he feels 
     that the deepening of economic ties across the strait will 
     decrease Taiwan's bargaining power over political issues. 
     Either way, it is a source of concern to the business 
     community and reunification advocates on both sides of the 
     strait.
       A similar question could be posed about Lee's reticence to 
     agree to the three direct

[[Page S1042]]

     links (air, shipping, and postal) that China is eager to 
     establish. The shipping link is ostensibly stalled over which 
     flag the ships will fly in which ports. But these questions 
     will essentially become moot after the transition of Hong 
     Kong to Chinese rule. At that point, Taiwanese ships sailing 
     to Hong Kong will be conducting a direct link with China. 
     There is some debate on this point within the Taiwanese 
     leadership--Minister Chang denied that direct links would be 
     established via Hong Kong, which Dr. Koo suggested that Hong 
     Kong's transition could provide an opening to formalize such 
     links. Whatever reluctance the Taiwanese leadership may have 
     about establishing such links, there seems little doubt that 
     they will need to do so eventually. Taiwan's business 
     community strongly favors the links. But beyond that, 
     considering China's increasingly important role in Asia's 
     economy, the Taiwanese leadership's stated desire to develop 
     Taiwan into an Asian-Pacific Regional Operations Center for 
     business, finance, media, entertainment, and other sectors 
     seems hopelessly unrealistic unless companies that base 
     themselves in Taiwan can interact directly with China.
       I was particularly impressed by my discussions with Dr. Koo 
     Chen-fu. He appears to have a keen understanding of the 
     constraints under which the Chinese leadership is operating, 
     and is apparently thinking creatively about ways to break the 
     impasse. In contrast to some of his colleagues, who seem 
     content to restate Taiwan's position and explain why China is 
     to blame for the talks not restarting, Dr. Koo takes a 
     nuanced approach to the problem and is probing for solutions. 
     Taiwan would benefit from his ability to influence their 
     internal policy debates.


                           Taiwan's Security

       The Taiwanese leaders we met all expressed their extreme 
     gratitude for the U.S. decision to deploy two aircraft 
     carriers near the Taiwan Strait during the March 1996 Chinese 
     missile tests and military exercises in the Strait. They also 
     expressed appreciation for U.S. arms sales to Taiwan which, 
     according to the Taiwan Relations Act, are supposed to ensure 
     Taiwan's ability to defend itself. The United States, they 
     said, has lived up to its commitments in the Taiwan Relations 
     Act.
       Premier Lien Chan and Foreign Minister John Chang, however, 
     emphasized that China's purchase of Russian Su-27s and the 
     presence of Russian military advisers in China underlined the 
     need for Taiwan to begin to take delivery of the 150 F-16s 
     from the United States in 1997. Taiwan has also purchased 70 
     Mirages from France. These two purchases, they feel, will 
     combine to bolster Taiwan's air defense capabilities.
       In addition, Taiwanese leaders clearly understand the 
     impact of diplomatic events on their security. Therefore, Lee 
     Teng-hui himself said plainly that he is very supportive of a 
     healthy U.S.-China relationship, including regular dialogue 
     at the highest levels. While Foreign Minister Chang said that 
     he would not want the U.S.-China relationship to improve at 
     the expense of Taiwan, there is clear recognition among 
     Taiwanese leaders that there security is enhanced, rather 
     than threatened by improved relations between the United 
     States and China.


                     Taiwan's International Efforts

       Although fully aware of Beijing's objections, Taiwanese 
     leaders plan to continue their efforts to forge international 
     ties through what they call ``pragmatic diplomacy.'' In an 
     effort to expand Taiwan's ``breathing space,'' Lee Teng-hui 
     will continue to conduct what he considers to be private 
     visits abroad, and Taiwan will seek to maintain its 
     diplomatic ties with those countries who recognize it and to 
     gain entry into the United Nations. Taiwan is also placing a 
     high priority on its application to the World Trade 
     Organization, which it wants considered on its own merits, 
     with no connection to China's application. Both of these 
     pursuits could present serious problems should the United 
     States once again become entangled.
       In light of South Africa's decision to sever its ties with 
     Taiwan and establish diplomatic relations with Beijing, 
     Taiwanese officials are increasingly concerned that they may 
     be slipping in their competition with Beijing for 
     international recognition. Besides believing that Taiwan, as 
     the world's 14th largest trading nation, is entitled to the 
     aspects of a sovereign nation (such as diplomatic relations), 
     they believe that surrendering this position would only 
     increase sentiment for independence in Taiwan. Lee's ruling 
     Kuomintang Party estimates that the pro-independence 
     Democratic People's Party would win the next elections if 
     Taiwanese voters perceived their government to be abandoning 
     its sovereignty.
       Lee and his advisers say they understand Beijing's 
     sensitivities on this issue, but they claim to be surprised 
     by China's reaction to Lee's visit to the United States. He 
     does not see Taiwan's international efforts as posing any 
     threat to China's view of the One China policy. Nevertheless, 
     for the past year and a half, Lee has somewhat moderated his 
     own personal role in Taiwan's international efforts. Whether 
     he continues to eschew an overt challenge to China's concerns 
     will help determine whether or not there is a repeat of the 
     cross-straits crisis of 1995-96.


                               Democracy

       Taiwan's leaders are justifiably proud of the progress of 
     Taiwanese democracy in the March 1996 elections. Lee 
     pointedly rejects the concept of ``Asian values'' championed 
     by Singapore's Lee Kwan Yew and others, which suggests that 
     Asian societies are not conducive to democracy. Lee Teng-hui 
     and his colleagues say they have learned from this experience 
     to be responsive to the electorate, and hence, they feel 
     justified in their international efforts. But they also 
     recognize the need to maintain stability: Lee estimates that 
     Taiwan needs 30 years of stability to consolidate its 
     democratic institutions. This realization could inject a note 
     of caution into their relationship with China.


                            Lobbying Efforts

       During our discussion with Premier Lien Chan, he made an 
     unsolicited assertion that the Taiwanese government does not 
     spend any money on lobbying efforts in Washington. He said 
     that some individuals and groups--and when prodded, agreed 
     that such groups could include the ruling KMT Party--might 
     lobby in Washington for causes that coincide with the 
     policies of the Taiwanese government, such as Taiwan's 
     efforts to gain entry into the United Nations. He asserted in 
     no uncertain terms that any firm or individual that claims to 
     be lobbying on behalf of the government of Taiwan is 
     misrepresenting itself. However, he did concede that in the 
     final analysis, the positions adopted by lobbying 
     organizations (and whether or not they coincide with 
     Taiwanese policies) are more important than the actual source 
     of funding of that lobbying activity.


                               HONG KONG

       The issues we discussed with Hong Kong leaders included the 
     appointment of a new Chief Executive; the induction of a 
     Provisional Legislative Council; the prospects for the 
     maintenance of Hong Kong's freedoms and civil liberties after 
     the transition to Chinese rule; Hong Kong's economic outlook 
     after the transition; and what role the United States should 
     play as the transition moves forward.
       On the evening of Friday, November 15, I joined Senator 
     Daschle's delegation for a dinner hosted by U.S. Consul 
     General Richard Boucher at his home. In attendance were a 
     cross-section of members of the Hong Kong community, 
     representing a variety of political and other views, 
     including Democratic Party leader Martin Lee and Preparatory 
     Committee Member Nellie Fong. During the rest of our stay, I 
     conducted meetings and working meals with Chief Executive-
     Designate Tung Chee-hwa (C.H. Tung); Members of the American 
     Chamber of Commerce in Hong Kong (with Senator Daschle's 
     delegation); Governor Chris Patten (with Senator Daschle's 
     delegation); Members of the Better Hong Kong Foundation, 
     including Henry Cheng, Edgar Cheng, and Leonie Kie; U.S. 
     Consul General Richard Boucher; William Overholt, Managing 
     Director of Banker's Trust and a leading Hong Kong watcher 
     and author; Nellie Fong, Member of the Preparatory Committee 
     and Executive Director of the Better Hong Kong Foundation.
       I also attended the opening dinner of the World Economic 
     Forum 1996 Europe/Asia Economic Summit, at which Chief 
     Secretary Anson Chan was the keynote speaker. On Tuesday, 
     November 19, I participated in a panel discussion on Hong 
     Kong's future at a session of the World Economic Summit, at 
     which C.H. Tung was the main speaker and I responded to his 
     remarks.


                    Selection of the Chief Executive

       We arrived in Hong Kong the day that C.H. Tung won a 
     majority of votes from the Preparatory Committee in the first 
     round of voting for Chief Executive, catapulting him to 
     victory in the final round of voting three weeks later. The 
     general assessment of Mr. Tung is positive: he is considered 
     to be intelligent, fair-minded, and concerned about the best 
     interests of Hong Kong. Gov. Chris Patten, is highly 
     complimentary of Mr. Tung's abilities. But there is obvious 
     concern in some quarters --voiced by Gov. Patten, Martin Lee, 
     and others--about the degree of independence from Beijing he 
     will be able to demonstrate in his governance.
       In his public statements, Mr. Tung has been attentive to 
     the concerns expressed by various members of the Hong Kong 
     community. He explains that he intends to consult widely and 
     deeply among Hong Kong's citizenry, and that he intends to be 
     protective of Hong Kong's interests when dealing with 
     Beijing. At the same time, he makes clear that Hong Kong's 
     relationship with China is about to become much closer, and 
     that this change is not something to dread; indeed, it can 
     bring significant mutual benefit.
       My own view of Mr. Tung, whom I know reasonably well, is 
     that he is unquestionably qualified for the post of Chief 
     Executive, having shown impressive administrative skills as a 
     shipping magnate, and having been a leading promoter of Hong 
     Kong. I am hopeful that he will display the right instincts 
     about how to maintain a significant degree of autonomy for 
     Hong Kong while managing what will inevitably be a closer 
     relationship with Beijing. His challenge will be to reassure 
     the people of Hong Kong that he can and will stand up for 
     Hong Kong's interests when challenged, and do so in such a 
     way that the Beijing authorities will respect. His excellent 
     reputation in both Hong Kong and Beijing is a crucial asset 
     as he sets out to achieve this challenging balancing act.
     The Provisional Legco
       Beijing's decision to follow through on its decision to 
     establish a provisional legislature (Legco) and abolish the 
     existing Legco on July 1, 1997 is unfortunate. While the 
     Provisional Legco grows out of China's (accurate) sense that 
     the British changed the rules in Hong Kong after the signing 
     of the

[[Page S1043]]

     1984 Sino-British Joint Declaration, its ultimate impact will 
     be difficult to judge until we know what comes after it.
       Some hold out hope that China may reverse itself and decide 
     not to disband the elected Legco after all, but as the 
     Chinese say, ``the rice is cooked'' on that decision. Indeed, 
     the Provisional Legco has already begun meeting. However, 
     Beijing, and its supporters in Hong Kong, insist that the 
     Provisional Legco will be replaced by a popularly elected 
     Legco within one year of the handover.
       If the Provisional Legco is replaced within a year by a 
     genuinely elected body, and if it restrains itself during its 
     tenure from dismantling many of the basic freedoms enjoyed in 
     Hong Kong, the current battle over the Provisional Legco will 
     in retrospect look excessive. But if the Provisional Legco 
     enacts far-reaching changes in Hong Kong law, or if its 
     tenure is arbitrarily extended, or if the elections for its 
     successor are rigged to produce a pro-Beijing result, the 
     Provisional Legco will have proved to be a harbinger of a 
     serious deterioration of the autonomy of Hong Kong. Above 
     all, neither the Provisional Legco nor its successors can be 
     allowed to be forced to take orders from Beijing.
       The appointment of the Provisional Legco poses a 
     significant risk of confrontation during the days surrounding 
     the transition. Martin Lee and other legislators from the 
     Democratic Party and its allies have raised the possibility 
     of refusing to vacate the Legco building on July 1. If they 
     were removed by force, or a conflict erupted, it would cast a 
     pall over the entire transition and set an ominous tone for 
     what would follow. It is imperative that the Democratic Party 
     and the authorities in Beijing engage in a dialogue now to 
     find areas where they can agree to work together amid their 
     broader disagreements, and to avoid a confrontation after 
     July 1.
     Overall Freedoms
       The mood in Hong Kong is mixed. Few people that we talked 
     to predicted a disaster after July 1, but among some 
     observers, there was undeniable anxiety about certain aspects 
     of the transition.
       Among members of the Preparatory Committee, like Nellie 
     Fong, there is considerable optimism. She argues that China 
     will find it very much in its own interests to avoid imposing 
     a harsh new order on Hong Kong. She predicts that after a few 
     fairly minor adjustments, Hong Kong will emerge from the 
     transition with its autonomy very much intact.
       Others are less sure. Governor Patten described the anxiety 
     of many at China's threatened revisions of the Hong Kong Bill 
     of Rights; at China's unwillingness to apply international 
     covenants on human rights to Hong Kong; and at the statements 
     of Foreign Minister Qian Qichen that commemorations of the 
     Tiananmen Square tragedy will not be allowed. At a time when 
     virtually all leading dissidents in China are in prison, 
     these indications have caused considerable nervousness in 
     Hong Kong.
     Economic Outlook
       Notwithstanding the mixed views about Hong Kong's political 
     future, there is significantly more unanimity about its 
     economic future. With few exceptions, our interlocutors 
     expect Hong Kong's flourishing economy to continue its solid 
     performance after the transition.
       As Governor Patten points out, Hong Kong continues to post 
     solid economic growth figures of 6-8 percent year after year, 
     while unemployment is at 2.5 percent and inflation is under 5 
     percent. There have been no tidal waves of emigration, and 
     none are expected. Since 1992, the Hang Seng index has more 
     than tripled in value.
       Surveys conducted by the American Chamber of Commerce and 
     others consistently show that business confidence remains 
     well in excess of 90 percent. A negligible number of 
     businesses have left Hong Kong, while new ones arrive 
     every month. For many, the knowledge that Hong Kong will 
     remain after the transition the gateway to the vast 
     Chinese market that it has always been is all the 
     encouragement they need. But there is also a fairly 
     relaxed attitude about the approach to business that China 
     will take. While there are concerns about attempts by the 
     Chinese authorities to restrict the free flow of economic 
     information or stifle the press, for the short term at 
     least, Hong Kong's economic prospects appear very 
     positive.
     The U.S. Role
       The United States has clear interests in the continuation 
     of Hong Kong's prosperity and autonomy. We need to regularly 
     make clear to the Chinese authorities that we would oppose 
     any attempt to significantly roll back the freedoms enjoyed 
     by the people of Hong Kong, whether through the repeal of the 
     Bill of Rights, or a crackdown on free expression in the 
     press. We should express these views forcefully but 
     carefully. A combination of public statements and private 
     communications with both Chinese and Hong Kong officials is 
     most likely to be effective. At all times, we should 
     highlight China's own commitments to allow Hong Kong to 
     govern itself with a ``high degree of autonomy'' and use that 
     as the standard by which to judge Chinese actions.
       Besides our commitment to Hong Kong's autonomy, we must 
     also be vigilant about protecting our economic and strategic 
     interests in Hong Kong. But vigilant need not mean 
     confrontational. Through dialogue and negotiations, we can 
     remind China about our need to maintain a fully functioning 
     Consulate General in Hong Kong; the importance of being able 
     to base our regional law enforcement operations in Hong Kong; 
     the significance of allowing continued ship visits; and the 
     importance to U.S. businesses of Hong Kong continuing to 
     allow business to be conducted on a level playing field, 
     without corruption and with a free flow of information. If we 
     are firm about these interests without causing a 
     confrontation before it is necessary, we are likely to be 
     successful in protecting them.
     Nepal
       The issues I discussed with Nepalese officials included: 
     the stability of Nepal's government and its still fledgling 
     democracy; prospects for Nepal's economic development and 
     role of foreign aid in that development; Nepal's contribution 
     to international problems such as peacekeeping, arms control, 
     narcotics, terrorism, and refugees; regional issues, 
     including Nepal's relationships with its key neighbors, India 
     and China; and the need and prospects for the development of 
     Nepal's hydropower industry.
       I had the opportunity to meet with virtually all the 
     leading figures in Nepal, including His Majesty King Birendra 
     Bir Bikram Shah; Prime Minister Sher Bahadur Deuba; Foreign 
     Minister Prakash Chandra Lohani; Members of the Nepali 
     Congress Party, the ruling party in the parliament; Members 
     of the United Marxist/Leninist, or Communist party, the 
     largest party in the parliament; Members of the Federation of 
     Nepali Chambers of Commerce and Industry; and Minister of 
     Water Resources Pashupati Rana.
       I met many additional leading Nepali citizens at dinners 
     hosted by U.S. Ambassador Sandy Vogelgesang and our host, Mr. 
     Prabhakar Rana, a leading industrialist. I also traveled 
     extensively through the country, getting a sense of living 
     conditions, and observing aid projects run by the U.S. 
     government and others. In particular, I focused on projects 
     financed by my husband's American Himalayan Foundation, 
     including a Tibetan refugee center. At the conclusion of the 
     trip, I had the opportunity to discuss with Ambassador 
     Vogelgesang and the Prime Minister's wife, Ms. Arzu Deuba, 
     plans for establishing a public-private partnership to fund a 
     women-to-women nutrition program for Nepali pre-school 
     children.
       In addition, Dan Shapiro of my staff conducted separate 
     meetings with the U.N. High Commission for Refugees 
     representative in Nepal, Erkki Heinonen, and Anil Chitrakar 
     of the International Union for the Conservation of Nature for 
     a discussion of the environmental impact of new large 
     hydropower dams. He also attended several sessions of a 
     conference on export and investment opportunities for U.S. 
     firms in the renewable energy sector in Nepal. The conference 
     was sponsored in part by the U.S.-Nepal Chamber of Commerce.
     Political Stability and Democracy
       Nepal has only been a democracy since 1991, but already it 
     has developed a lively political culture. Nepalis are engaged 
     in the political process and conduct an active dialogue with 
     their political leaders. In meetings with leaders of the two 
     largest parties in the parliament, the Nepali Congress Party 
     and the United Marxist-Leninist Party, it became clear that 
     there is widespread support for maintaining the multiparty 
     democracy that has been established.
       There is a surprising degree of consensus across the 
     political spectrum about what the nation's overall priorities 
     and needs are. When asked to identify Nepal's priority 
     economic sectors, both parties came back with an identical 
     list--agriculture, hydro-power, and tourism. The Communists 
     seem to be communist in name only--their economic agenda 
     seems to differ little from that of the Congress party, 
     calling for somewhat slower privatization of state-owned 
     industries and placing greater emphasis on maintaining the 
     social safety net. But the differences are of degree, rather 
     than kind.
       Unfortunately, near-consensus on national priorities has 
     not translated into the kind of progress one would have hoped 
     for, on account of particularly bitter political infighting. 
     The Congress party suffers deep divisions based largely on 
     personal rivalries, with former leader G.P. Koirala rumored 
     to be planning a challenge to Prime Minister Sher Bahadur 
     Deuba. Its struggles with its coalition partners has forced 
     it to expand the government to include over 40 ministers just 
     to remain in power.
       The Communists, while more united internally, are waiting 
     in the wings for a coalition crisis that they can exploit and 
     possibly regain power. Former Prime Minister and party leader 
     Manmohan Adhikary was quite open on this point. Last fall, 
     the Communist party nearly brought the government down by 
     threatening to oppose a key hydro-power treaty with India--
     even though it was negotiated when the Communist party was in 
     power--before ultimately deciding to support it. While all 
     sides often talk about consensus and cooperation, it is clear 
     that their actions are often dictated by short-term political 
     calculations.
       If both groups were to put aside their political rivalries 
     and emphasize the large degree of agreement in their 
     positions, they would easily be able to work together on a 
     common agenda for the benefit of Nepal. Unfortunately, that 
     does not seem likely at the

[[Page S1044]]

     present time. Corruption continues to plague the government 
     as well. Nevertheless, Nepalis are rightfully proud of the 
     democracy they have established and, apparently, 
     consolidated.
     Aid and Development
       Nepal is one of the poorest countries in the world. 
     Especially as one travels outside of Kathmandu, the poverty 
     is visually evident and jarring. In part, the political 
     stalemate caused by inter- and intra-party rivalries has 
     stalled economic liberalization efforts that would begin to 
     alleviate some of the economic difficulties. But Nepal's lack 
     of natural resources, poor infrastructure, and high birth 
     rate will all make raising the standard of living in Nepal 
     extremely difficult.
       Nepal does have the benefit of a well-educated and 
     sophisticated private sector, as exemplified by our 
     discussion with members of the Federation of Nepali Chambers 
     of Commerce and Industry (FNCCI). They have actively promoted 
     economic reform, working closely with the government on the 
     privatization of public industries and on efforts to attract 
     foreign investment, particularly in high-value products in 
     Nepal's agricultural sector. In addition, FNCCI has worked 
     hard to advance reform of the administration of Nepal's tax 
     system, which they described as arbitrary and corrupt.
       FNCCI has also been deeply involved in Nepal's economic 
     diplomacy. Because of their expertise, FNCCI members 
     participated in negotiations with India on trade and transit 
     agreements, and a new air transport agreement. FNCCI has also 
     reached out to its counterparts in China and in other South 
     Asian countries through the SAARC Business Council.
       U.S. assistance is making a significant difference in the 
     lives of many Nepalis, although cuts are beginning to reduce 
     its impact. In Fiscal Year 1997, the USAID program budget is 
     $26 million. While that number is not expected to drop 
     precipitously in the near future, USAID staff is being 
     reduced, with the current 10 direct hires being reduced to 
     5 in 1998. The three main areas of USAID's program are 
     promotion of high value-added agricultural production; 
     empowerment of women; and health, population, and family 
     planning programs. Family planning programs are 
     particularly important because the standard of living in 
     families that have spaced their pregnancies is 
     significantly higher than those who have not.
     Nepal's International Role
       Nepal has emerged as responsible international citizen, 
     making important contributions to a number of transnational 
     problems. Despite pressure from its neighbor, India, Nepal 
     stood by its support of arms control agreements generally 
     when it supported the Comprehensive Test Ban Treaty at the 
     United Nations in September. Nepal has also been very 
     cooperative with U.S. anti-narcotics efforts. As a transit 
     point for heroin from the Golden Triangle and Afghanistan, 
     Nepal has worked with a DEA attache in New Delhi to set up a 
     drug enforcement unit in the local police force. Trained by 
     U.S. and British specialists, this unit has improved Nepal's 
     customs procedures and has increased the number of drug 
     seizures at the Kathmandu airport.
       Nepal has been an enthusiastic participant in international 
     peacekeeping missions, sending its troops to Haiti and 
     Africa, among other destinations. U.S. diplomats also report 
     that Nepal has been extremely cooperative in counterterrorism 
     efforts. They attribute much of Nepal's cooperative attitude 
     on these international problems to the consolidation of 
     Nepali democracy. Another manifestation is that Nepal enjoys 
     the best human rights record in South Asia.
       Nepal has also handled two difficult refugee situations 
     very sensitively--those from Bhutan and those from Tibet. 
     There are currently 91,000 Bhutanese refugees living in camps 
     administered by UNHCR in eastern Nepal, at a cost of $4.5 
     million a year. They first arrived in the early 1990s. After 
     many years of stalemate, the Nepali and Bhutanese governments 
     are hesitantly beginning talks--possibly with European 
     mediation--on possibly resettling some of these refugees back 
     to their homes in Bhutan. But for a solution to this problem 
     to be reached, India will have to commit to helping 
     facilitate it because these refugees would have to transit 
     through India, and some may even choose to settle there.
       Approximately 2,000 Tibetan refugees pass through Nepal 
     each year as a way station on the way to Dharmsala, India. 
     Nepal has set up transit centers for these refugees to help 
     them make the journey, even though it causes sensitivity in 
     China. Nepal prefers to do this quietly, precisely to avoid 
     upsetting the Chinese, and the government does not permit 
     anti-Chinese activity on Nepali soil. A U.S. earmark of 
     $200,000 a year goes to assist this Tibetan refugee community 
     through the Tibetan Welfare Organization. UNHCR also monitors 
     the well-being of these refugees, and tries to keep track of 
     any abuses. The week we were there, a group of refugees had 
     been beaten up by some Nepali youths. UNHCR and the U.S. 
     Embassy were urging the Nepali government to ensure that 
     action was taken against the perpetrators.
     Relations with India and China
       Foreign Minister Lohani was pleased about the state of 
     Nepali-Indian relations, especially since Indian Prime 
     Minister Deve Gowda came to power. He cited recent 
     breakthroughs in the area of trade, transit and border 
     issues, and the generally less paternalistic attitude adopted 
     by the Deve Gowda government toward India's smaller 
     neighbors.
       But probably the most important achievement is the Mahakali 
     Treaty on water resources. The treaty establishes Nepal's 
     right to be treated as India's equal on water resource 
     issues. It also established the framework of for private 
     sales of electric power from Nepal to India at competitive 
     prices. With Nepal's major market being India, this framework 
     agreement was absolutely essential for any large-scale 
     private investments in electric power generation.
       Despite Nepal's continued assistance to Tibetan refugees, 
     Foreign Minister Lohani was pleased to report that his recent 
     visit to China had gone very well, and relations with China 
     are as good as they have been in recent memory. He cited the 
     strong positions the Chinese had expressed on Taiwan and 
     Tibet. Nepal is faced with a constant balancing act, situated 
     as it is between two large and powerful neighbors who can 
     exert strong pressures on Nepal if and when they choose. But 
     by adopting essentially a ``good neighbor'' policy, Nepal is 
     able to keep tensions in these two relationships to a 
     minimum.
     Hydro-Power
       There is widespread agreement in Nepal that hydro-power is 
     the nation's number one natural resource. With great volumes 
     of water (225 billion cubic meters annually nationwide) 
     flowing down steep slopes in four major river basins 
     (Mahakali, Karnali, Gandaki, and Koshi), if the full 
     potential of Nepal's hydro-power can be harnessed, it could 
     have a dramatic impact on the nation's economy. The numbers 
     are staggering: hydro-power projects in Nepal today generate 
     250 megawatts, while demand is under 300 megawatts. As Nepal 
     develops, its demand will rise; projections are that demand 
     will reach 1,640 MW by 2015. But if the over 60 feasible 
     sites for hydro-power projects are developed, Nepal could 
     produce on the order of 44,000 MW, a vast surplus that can be 
     exported to Nepal's energy-hungry neighbors, India and China. 
     Northern India is the brightest (and closest) potential 
     market. Already its energy demand exceeds supply by some 
     9,000 MW, and that deficit is projected to rise to 20,800 MW 
     by 2010.
       The prospect of taking advantage of these conditions was 
     made brighter by the conclusion of the Mahakali treaty with 
     India last October. This treaty will allow the private sales 
     of electric power from Nepal to India. Essentially, both 
     countries would benefit from this arrangement--Nepal could 
     export its primary product to a vast market in northern India 
     that is desperately in need of increased electric power. 
     Foreign Minister Lohani sounded an optimistic note, 
     indicating that there could be substantial progress in 
     construction of the dams in the next year, in hopes that they 
     could come on line fairly soon thereafter. Clearly, American 
     companies should be able to play a leading role in developing 
     this vast resource.
       Not surprisingly, politics were responsible for delays on 
     other hydro-power projects. Prime Minister Deuba indicated 
     that he supported signing a letter of intent with Enron for 
     two hydro-electric projects on the Arun and Karnali rivers, 
     now that India had indicated it had no objection to this 
     arrangement, provided that Indian companies were also 
     included in the consortium. However, the final decision rests 
     with the Minister of Water Resources, Pashupati Rana, to whom 
     the Prime Minister felt indebted for supporting his 
     government in a no-confidence vote last spring.
       Various American environmental organizations have raised 
     objections to some of the large hydro-power projects that 
     have been proposed, both because of the change in the river's 
     flow and because of the damage done by the construction of a 
     road to facilitate construction of the dam. But Nepali 
     environmentalists tend to take a different view. Their 
     concern is that Nepal's vast forests are being destroyed as 
     most Nepalis rely on wood as their main source of energy. For 
     them, this is the real environmental disaster, and the 
     successful development of hydro-power, which could supply 
     most regions of the country with electricity, would help 
     preserve the forests. For Nepali environmentalists, the focus 
     is on seeing the hydro-power projects done right, so as not 
     to squander this vast resource, while mitigating the 
     environmental impact of the dams as much as possible.

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