What Should the U.S. Do about China?

Contents

• Introductory Remarks by Alex Tabarrok
• Jim Lilley, Author, China Hands: Nine Decades of Adventure, Espionage and Diplomacy in Asia
• Rear Admiral Eric McVadon, Director, Asia-Pacific studies for the Institute for Foreign Policy Analysis
• Ivan Eland, Director, Center on Peace and Liberty, Independent Institute
• Question and Answers

Alex Tabarrok
Director of Research, Independent Institute

Welcome, everybody. I am Alex Tabarrok, the director of research for the Independent Institute. For those of you new to the Institute, we’re a non-partisan, public policy research organization. We publish many books every year on a wide variety of topics. Most recently we have Street Smart on the economics of road pricing. We have books on foreign policy, books on tort law, and many other topics. We also publish a journal, The Independent Review, which is a quarterly. And we hold many events like this one here in Washington, D.C., as well as in California at our Oakland headquarters.

Never before, I think, have our relations with China been more confusing or uncertain. On the one hand, the coming of capitalism to China has lifted more people out of poverty than ever before in all of human history. And American capitalists see China as a great opportunity. Wal-Mart not only buys billions of products from China, they have recently opened their sixtieth store in China and they are opening many more all of the time. Alan Mulally, who is Boeing’s chief executive, recently said, “China rocks!” after the Chinese president announced a big new order during his recent trip to Seattle. On the other hand, Robert Kagan had a recent cover article in The Atlantic magazine titled How We Would Fight China. And the article was not about economic competition, or economic warfare.

Could it be that rich capitalist China is more dangerous than poor communist China? That’s really the question to be discussed today, and we have an outstanding panel to discuss and debate that very question.

Beginning in the order in which they’ll speak, I’ll begin with Jim Lilley. Jim Lilley grew up in China, and most of his incredible career in CIA operations, and as a diplomat, he was involved in China in one way or another. He’s the author, with his son, of China Hands: Nine Decades of Adventure, Espionage, and Diplomacy in Asia. A memoir which covers, among many other adventures, true adventures, Jim’s time as ambassador to China, which overlapped with the Tiananmen uprising and massacre.

Our second speaker is Rear Admiral Eric McVadon, who has a long and distinguished career in the navy, including serving as the defense and naval attaché at the American Embassy in Beijing before retiring in 1992. He is currently director of Asia-Pacific studies for the Institute for Foreign Policy Analysis, and he continues to lend his expertise and advice to private firms as well as to the U.S. intelligence agencies and to the Defense Department.

Ivan Eland is senior fellow and director of the Center on Peace and Liberty at the Independent Institute. He’s worked as a defense analyst for the Congressional Budget Office, for the GAO, and the House Foreign Affairs Committee, and elsewhere. He’s the author of numerous books and articles, including the recent Independent Institute book The Empire Has No Clothes and also of the important Institute white paper, which you all have, Is Future Conflict With China Unavoidable? And with that we have Jim Lilley.

Jim Lilley
Author, China Hands: Nine Decades of Adventure, Espionage and Diplomacy in Asia

I always find it useful when talking about China and the current situation to go back into the past, because the Chinese certainly do that, and if we don’t understand the past a little better, I think we’re going to get into some serious trouble.

This was perhaps manifested most recently in Washington, D.C., where the Chinese 4,000-year preoccupation with protocol meant our lightweights dealing with the same subject in a tit-for-tat superficial way. Long, prolonged negotiations on how many guns would be fired in salute, or how many people would be invited to this or that, or whether it was a state or official visit. All these things were dragged up and negotiated endlessly, and, I gather, rather offensively.

Well, what happened in the end—and I think one has to think about China in this context —is that they decided they were going to go after the two great power blocks in the United States: the business community and academic community. So Hu Jintao goes to Seattle first, and it’s absolute love feast. He’s got $5 billion worth of Boeing planes, $1.2 billion in legitimate software for Microsoft, and then a 4.6 million-ton purchase of soybeans, for instance. And it’s a love feast. It’s terrific. There isn’t any intrusion of unpleasantness. And it’s handled by the business community. It’s great.

He then flies to Washington and what happens here? First of all, they mix up his national anthem. I think he’s introduced to somebody as the president of the Republic of China. I won’t say who it was. It was a high-level American. He finds that a squawking lady from the Buddhist Wheel Society talks for three minutes, and there’s an argument between the uniformed police and the plainclothesmen about whose jurisdiction it is. And it turns out that this lady did this five years ago with Jiang Zemin in Malta, so she’s on the list. And also Epoch Times is known to be a mouthpiece. And finally you get that marvelous picture of Hu Jintao going down the stairs, the wrong stairs, and getting pulled up by his coattails. Later you saw almost fisticuffs happen in Blair House between the various security forces. There’s enraged behavior and a convincing on the Chinese side that this was deliberate and intentional. I can assure you it wasn’t any more than the accidental bombing of Belgrade—their embassy. We can screw up.

The point is that he then goes on to Yale University in New Haven, Connecticut, where he is again treated with great respect. He gives out a hundred scholarships. He gives all sorts of investment opportunities. It’s a love feast. The first Chinese that came over to the States to study when he went to Yale, in 1954, I think.

And so between these two pillars of the American community, he has this unpleasant 36 hours in Washington. It looks to me like he comes out on top. In addition, you’ve got the United States messing up the trip of the President of Taiwan, Chen Shui-bian, and moving around the globe, and finally ending up in Alaska. And he turns down the opportunity to drop there. And he has to fly 37 hours to get where he’s going to go. And there’s a lot of acrimony and unpleasantness. And we’ve been able to do something we haven’t been able to do since I’ve been in involved in China: offend Taiwan and China at the same time. It takes talent.

In any case, after that anecdote, I’ll try to get back to historic trends and not deal with the current. But the current grows out of history, not understanding their 4,000 years of protocol.

I think first you have to understand what the Chinese view of threat is. It has evolved. The basics are land threat, sea threat. And of course, land threat, Soviet Union, Mongols, Manchus, Great Wall. That’s what they had. They had the threat from the Northwest. And most recent by the Russians in the mid-sixties.

This switch to their preoccupation with sea threat—the land’s threat has been more or less neutralized with the fall of the Soviet Union and the establishment of minor states on its periphery that don’t challenge China. But then the Opium War and the Japanese invasion of ’37 makes it very real that the threat to China comes from the sea. And, of course, the most recent manifestation of that is the Seventh Fleet off China.

I think that’s one we want to have in our minds—what their perception of threat is. I think, secondly, one has to recognize that the United States-Chinese relationship is not a tranquil one. It’s not going up steadily. It’s not going down steadily. It’s rocky. It changes. It changed with Ronald Reagan. It changed with Jimmy Carter. It changed with George Bush number one. Bill Clinton. They have their ups and downs. Whether it’s the Reagan official relations with Taiwan, or the Tiananmen massacre, or Clinton’s linking of human rights to most favored nation—these things happen, that throw the relationship off course. EP-3 crashing off Hainan, that kind of thing. It happens, and it drives a relationship down.

Certainly, when I was in Beijing the massacre at Tiananmen was a 10-megaton bomb that caused the relationship to go downhill. But we worked ourselves out of almost every single one of them. And I think we’re working ourselves out of the one now, but you’re waiting for the next shoe to drop.

I’d say, also, one thing I would emphasize to you is that when you begin to introduce foreign forces into China, what comes out the other end is something you might not recognize. What am I talking about? I’m talking Christianity. Introduced into China, let’s say in the early nineteenth century, ending up with Hong Xiuquan, Nakka, who thinks he’s the younger brother of Jesus Christ. He leads a rebellion against the Ching dynasty. Twenty million dead Chinese. It’s a real aberration of Christianity that comes out of this. If you introduce Marxism, as they did in 1921 into China, you get the Great Leap Forward, the wild Cultural Revolution. You get the Chinese version that is almost unrecognizable. And if you introduce free market forces, as they’re doing now, it may not be on our model. The chances are it won’t be. It’ll be distinctly different, and it’ll be distinctly Chinese.

So having gone into the past, I’ll bring this up to the current situation and talk about the tensions today.

In essence, it’s Chinese, what they call their peaceful development strategy. Originally they called it rising, but they changed it to development. And it reflects an outward outreach. I’m not saying projection of power necessarily, I’m saying outreach. And I think that is very visible.

There is a power push in it, and you find it in their law of 1992 that they do claim the entire South China Sea, Taiwan and Senkaku Islands which puts them at odds with the nations of Southeast Asia, Taiwan and Japan. But they say this is our law. This is not necessarily policy. Nevertheless, people in Asia remember the shootouts that took place in the South China Sea in the ‘90’s: the Vietnamese, the Filipinos, others remember these things very clearly.

On the other hand, the concept is the United States is involved in encirclement. Certainly, if you’re looking out from Peking and you look at Korea and Japan, Taiwan, Australia, India, Kyrgyzstan bases, you could certainly see an encirclement of China. And I think this appears in a number of their essays talking about this American attempt to do this, containment back to Kennan’s concept. That seems to be causing some of the friction that exists. The Chinese push outwards are holding the line. So far it’s been managed, it’s been tried in the Taiwan straight crisis of 1996, or various other ways in the Paracells, in the Spratly Islands. It’s been tried. But it seems to be manageable.

But, again, you want to get at the essence of what the Chinese are after. Because the question comes, what kind of a power are you dealing with?

Well, the Rand study certainly says four basic national goals, and I don’t really have an argument with these. Namely the survival of the Communist Party in China, in a position of domination, with internal stability and unity. I think that certainly is the key objective of China. I think certainly second is to sustain their economic growth. That explains their search for oil, their search for minerals, their development of their industry and their science and technology—yes, they’re going after that. I think third, prevent Taiwan’s separation. I think this is a national issue with them. Certainly their peripheral powers, whether it’s Xinjiang or Tibet or Mongolia, Taiwan. These are essence to China. These fall away as the dynasty begins to weaken. The tendency is to keep a very strong hold on these areas, Hong Kong, Macao included now. Prevent Taiwan’s separation is very important. And finally it is to build comprehensive national power. Whether it’s soft power in the Joni mode or whether it’s increasing military strength. I think they go together. They’re all part of ingredients of comprehensive national power.

Then if you begin to spell this out into the area of great concern to China—to ourselves, its neighbors, Japan, Korea, Taiwan, Southeast Asia, Australia, India—how does this transfer into military objectives? Options?

Well, first it translates into a conventional military modernization for local deterrence and blocking access of foreign powers. I think this underlies outspokenly their strategy. But the emphasis is on the use of conventional force. In this process, they have watched Iraq, Kosovo, Grenada, Panama—all very carefully analyzing what we do. Our failures in Vietnam. Our stalemate in Korea. They’ve analyzed those wars very carefully. So they’re doing their conventional military arrangement based on solid evidence.

Number two, I think that they look for improving their strategic position by using the techniques of modern warfare, namely information warfare. That they look very carefully, in their writings, at breaking down our commuter system, knocking out our satellites. These kinds of things to take out your eyes and ears. To take out your ability to run your troops. I think this is their second consideration.

I think their third is a missile-centric, overwhelming short-range threat to Taiwan and potentially a strategic threat to the United States. This is an overall plan. I think they think it through very carefully. I don’t think they necessarily deny it. But this is part of the plan.

And finally I would say they are looking into—and this is the most complicated for them —network-centric warfare. In other words, the combined forces: army, naval, air, marines, underwater—all aspects of this. And they’ve watched us do this in Middle East, and have tried to follow it, but they’re a long, long way from achieving it yet. They’ve got the individual weapons systems, but it’s not in their bag.

I think that there are a number of factors, though, that are going to cause China pause about its ambitions, objectives, options. And I think these are forces within China itself. Competing forces for the military budget. They have neglected their social network, social safety network, and this has caused, continued to cause, serious problems internally in China. They have not developed a pension system. They have not developed a welfare system.

These are lingering problems for them. And they’ve gone to the World Bank and looked for understanding and papers that explain what they have to do, moving their money from one sector to the other. But it hasn’t really happened yet, and it’s causing a lot of unhappiness in the countryside.

I think second is the population problem, the one-child family, combined with HIV/AIDS. Whatever problems they have in the health field causes serious problems in their population. If the HIV/AIDS thing goes the pessimistic estimate, we could have 20 to 40 million Chinese infected in the next 20 years. This has to be tackled, it was denied at first, it’s now more open. It’s discussed openly. And taking action to stop it. But it’s gone into the society and it’s got a hold on it that could be quite destructive. And they’ve got to spend more on it and consider how they’re going to deal with an aging population that is coming up very rapidly.

I think again, you have the desperate poverty in the rural areas. Yes, they have lifted people out of poverty, the World Bank says this. But if you go to China, you go to Hunan or Henan or Sichuan, those places, you’ll see, clearly. And it’s reflected in their own statistics and their own very deep concerns about involving greater investment in the West. This has caused serious problems for the rural population, which now is drifting towards the cities and are living in a very, very poor situation.

I think the other factor, which Elizabeth Economy’s done a very good job on, The River Runs Black, is their pollution problem. You can’t begin to estimate how much this is affecting China in the future. It’s very serious. We see the manifestations of it in the spills in Manchuria, or the problems down in central China. But it is big. The air they breathe, the water they drink, the water they use for irrigation, is all contaminated to a very high percentage. This must be addressed and will require a great deal of investment.

And out of this, of course, comes the social unrest problem, violence. Examples in Jyujhong Province, one of the richest provinces, of resurgence of movements that are hostile to the central government in China. This is not only the underground church, this is Falun Gong, Buddhist Wheel Society, and actually the Golden Gong Revolutionary Committee. These aren’t a threat to the regime, absolutely not. But it’s a spreading disease that’s getting into the rural areas of the province where they’re returning, traditionally in the Chinese way, to whether it’s the yellow turbans—it’s catching. And it has to be kept very carefully.

What do you do about this? Looking at their problems, their objectives, their capabilities—Eric I can talk in much clearer terms about the military problem. We can work with China in a number of specific areas, and we’ve done it already. If you take China is deeply influenced by globalization. And Richard Haas has come up with the concept that globalization has many good things it can do: transfer wealth, transfer technology, transfer capital, people, into areas, and raise the living standards. This is true. The evidence is there. On the other hand, terrorism, drugs, what have you, move with open borders, the movement of globalization. They come in with it. And his answer is you deal with China positively on the right side and you work with them to take out the negative side. That’s one concept that he has.

The second is the energy challenge between the United States rather than struggling over oil fields, or worrying about what the other guy’s doing. It seems to me that we have to spend a good deal more time on alternate fuels, energy saving. After all, it was George Bush, Sr. who introduced the first joint ventures with the Chinese in oil exploration in 1977, which I believe, contributed to the Chinese reform movement of 1978, which changed the world and changed China.

That is something you can do. It is something that’s happened. It’s something that’s very specific. And it’s something for which there is a base.

Certainly terrorism, the Chinese have cooperated with us in Afghanistan, not in Iraq, but in Afghanistan, in a limited way in Iraq, but strong in Afghanistan. They see the central Asian republics, the dangers of violent fanatic Muslim movements down there, terrorist movements—it spills over into their northwest province of Xinjiang. We can work with them on this, and we have.

Certainly on the narcotics field, yes. We’ve just made a major bust in China on cocaine from Colombia. We did this when I was there. It continues.

We have a whole series of projects already with China on which you can base—30,000 of them in the science and technology field, which include coal production, energy efficiency, nuclear safety, environmental clean coal. All these things we’re working with China on. And it’s a common goal that we should have.

I just will spend one minute talking about two flash points, and try to put them in some perspective, because people worry about these two because they are the pinnacle. They are newsworthy. North Korea is one, and Taiwan Strait is the other.

And the North Korean thing, with this country of 23 million people probably building nuclear weapons, chemical weapons, biological weapons, three-stage missiles. It’s a very frightening concept with their very sick ideology, their total totalitarian state, their isolation. It’s very, very dangerous. And China, and the U.S., and Russia, and South Korea, and Japan have all gotten together with North Korea to try to seek some kind of a solution. Because it’s an Asian regional problem.

That’s quite clear. We want no weapons of mass destruction, let’s all agree. We want economic reform and humanitarian assistance. All agree. We will not have military power used to solve this thing, all agree. Fourth, it has to be multilateral, we all agree. Then you get to the hard part. Because in the process, the Chinese basic objectives are not ours. They want to get rid of the nukes, but there’re other more important priorities: the sustenance of the North Korean regime. If it collapses, China faces a horrible situation. Refugees, warlords with nukes, a unified Korea under Seoul allied to the United States with troops on the Yallo. All of these are unacceptable. Plus, long-term arrangements with North Korea in the military field. So their objective is not to allow this place to collapse.

And if you turn too much pressure on it, it could collapse. Ergo, they are going to be very careful in the kind of pressure they exert, and they are not going to follow our scenario. They’re going to follow theirs. The question for diplomats who have put these together in a common program. It’s no easy thing to do. South Korea sees it as seduction of the North using economic means. I think this is part of the solution. China sees it sustaining the North with gifts of energy and food so it won’t collapse. We see it as getting rid of the weapons of mass destruction. That can be folded into a program, and that’s the challenge of diplomats today.

If you get down to Taiwan, everybody sees this in very simple terms, namely arms sales to Taiwan. China started using force. Taiwan independence—all the clichés that continuously are use. The three communiqués in the Taiwan Relations Act. The anti-secession law in China. All these things are part of the 700 missiles that they’ve got on the shore facing Taiwan.

These are all problems that we have dealt with for a long time and focus on. I would cast it in a different light in three areas. First is the oral, the theological area. And in here the Chinese are ahead of us.

One China we recognized. Taiwan is part of China. We do not recognize that, but we recognize a complicated formula, which indicates that we can accept some form of this if they do themselves.

But rhetorically they’re on top. And that’s why they hit constantly on the rhetoric. You are contributing to the independence of Taiwan by selling them arms to defend themselves, that’s a given. Our counter-argument is if Taiwan has strength, and security, and spiritual support as they had from Reagan, they will be more anxious to deal with you. And this has been proven again and again and again.

So, we can make our arguments. They make theirs. But they prevail. We have to acknowledge that, because the communiqués do point this out.

The second level is the geo-strategic level. Taiwan has, for hundreds of years, been the challenge to China. The Japanese launched their attack on China from there. The pirates launched their attacks. We were based there in 1950 during the Korean War and launched attacks on China from there.

They think that Taiwan is a point of attack on China. At the same time they see Taiwan clearly in their own geo-strategic estimates as the gateway to the Pacific Ocean, outflanking Japan, outflanking Southeast Asia, and controlling those key corridors. They see it very much in those terms more and more—less in the sovereignty and unity terms, more in the geo-strategic. We hear that argument.

But in that field, for the time being, the United States prevails. There is no challenge to the power of the Seventh Fleet and our positioning in that area. And the allies that we have that work with us on this, I’m talking about Japan, Australia, India, Southeast Asian nations. So in that area we’re doing that.

But the third point is the point that’s ignored here in Washington and is perhaps the most important, because it’s the win-win point. They win one, we win one, this is win-win. And that is the dynamic monumental economic exchanges between Taiwan and China, which are essential to both areas for their continuing prosperity and stability. They are linked. And if you look at the statistics, and what is happening, it is formidable.

From a person who came into this thing during the Korean War, seeing the incredible changes of what’s happened. Going out to Silicon Valley and seeing Taiwan and Chinese and Japanese venture capitalists, and Americans moving operations into China because of economic comparative advantage. These things are going on under the government control. And it’s a huge force.

It leads to cooperation. It leads to prosperity. It leads to more dependency. And it’s not understood because it goes right to the top of both sides. Taiwan businessmen are not going to invest in China unless they have some sort of a signatory guarantee, and China is going to want Taiwan to have its own contributions to the Chinese economy and keep them steady without having them drop off. And they didn’t drop off during Chien I, that’s for sure.

So I’m saying there’s three areas that we are dealing with China in Taiwan on. And I would certainly say that the third area is the one we should emphasize, thank you.

Rear Admiral Eric McVadon
Director, Asia-Pacific studies for the Institute for Foreign Policy Analysis

Well, I have to say this seems to be a new audience. I look around and don’t see very many familiar faces. But I do see Al Wilhelm sitting there in the back, that’s a familiar face. I’m going to be here today, but I have to say that it’s with a significant measure of trepidation that I’m going to kind of step outside of the box and actually do what Ivan asked me to do and try to offer at least in part an answer to that question, what should the U.S. do about China? And I’ll focus more specifically on the security things than Ambassador Lilley did.

I also want to kind of focus on something that was brought up in the quadrennial defense review, this issue of our shaping Chinese decisions. Because I think that’s an interesting thing as to when you talk about what we should do about China and how that fits or doesn’t fit into the things I’m going to talk about. I think in light of the current opportunities and challenges that we can, indeed, just as Ambassador Lilley referred to it, take some further steps away from an adversarial relationship and toward partnership.

To begin, I assert that China and the United States today face a challenging new situation with respect to their security and military relationship. And I truly mean that. I think we’re looking at a very new situation. A globally preeminent U.S. is now firmly ensconced as the world’s sole superpower, as almost everyone recognizes. But the U.S., wary of China and distressed about terrorism, is realigning its military posture with respect to East Asia. China is, and please take note of this, radically improving the capabilities of the Peoples Liberation Army, the PLA, to deter or defeat Taiwan and to threaten the capability of the U.S. to intervene properly and effectively in a Taiwan conflict. And I believe that’s indeed where the Chinese effort is focused.

Washington feels obligated to respond to this major surge in modernization of the PLA and Beijing feels fully justified, of course, in enhancing its missile, naval, and air forces in ways specifically directed at what it sees as its top security concern, just as Ambassador Lilley said, the Taiwan problem. These circumstances, as I see them, cry out for candid bilateral dialogue, for transparency, and what I’m calling, for lack of a better term, accommodation of the status of the other side. And I hopeful you’ll understand that better as I proceed.

Let me talk a little bit in detail about that ballistic missile force, and I add some cruise missiles that the ambassador was referring to. The PLA’s missile force has deployed, and continues to deploy even today, very large numbers of short- and medium-range ballistic missiles with conventional warheads that can overwhelm defenses and strike Taiwan and other locations in the region, and I mean, for example, Kadayno and Taiwan. Okinawa.

These missiles are increasingly accurate. Very militarily useful now. And they’ll soon be complemented by long-range land attack cruise missiles. Talking about missiles now that fly like airplanes at very low altitude. I was referring, of course, originally to ballistic missiles that go out of the atmosphere and come back in and are almost impossible to hit. So I’m talking about now these long-range attack cruise missiles that will compound missile defense problems and add greatly to the effectiveness of a missile attack, if one were every to occur.

And please take note of this as well. There is also emerging the exceedingly important potential for a PLA ballistic missile with a maneuverable reentry vehicle, a MARV, capable of avoiding defenses, but the most important thing, of hitting ships at sea, in addition, of course, to being able to do quite a job on airfields. This jeopardizes in a new way the American aircraft carriers that are so prominent in our thinking about such a conflict. If the Chinese pull this off, this is a big deal. And it looms. They’re writing about it a lot.

This impressive missile force, this whole thing I’ve just described, increasingly capable against land and potentially sea targets, is intended, Beijing asserts of course, to serve as a deterrent. And I think that’s in fact absolutely true. If, however, deterrents were to fail and the missiles were used, it almost certainly would not achieve alone, not by the use of the missiles alone, the goal of capitulation of Taiwan, but rather would serve, I remind you, to degrade defenses so that China’s newly enhanced follow-on forces would survive and achieve greater success.

So let me talk now about these follow-on forces. These recently enhanced PLA forces to conduct such follow-on attacks include exceedingly modern submarines, the same with aircraft, an amazing array of surface combatant ships armed with potent anti-ship cruise missiles. These new missiles on all these three platforms, or three kinds of platforms, are long-range, sea skimming, supersonic in some cases, and very evasive and lethal. These are scary weapons. The best of them were designed by the Russians specifically to defeat the U.S. Navy Aegis air and missile defense system.

New submarines, both nuclear powered and conventional, to carry these missiles and other weapons, are being built and bought by the Chinese at an extraordinary pace. I don’t think any of us expected this would happen. Modern destroyers and frigates and being built and bought as never before. They’re building more classes of ships than I thought they would build ships.

New aircraft, some from Russian and others indigenous, carry diverse anti-ship cruise missiles. This PLA modernization constitutes a major change in the cross-strait balance and in the military situation between the U.S. and China. We are witnessing what I call a new PLA with no doubt about remarkable modernization. There are considerable doubts about the PLA’s ability to pull all those together if it chose to undertake a dual campaign against Taiwan, the U.S., and conceivably Japan. However, I assert it’s not very assuring to us to bank on the Chinese inability to employ the forces that they’re so aggressively acquiring.

Turning for just a moment to U.S. forces, to put all this in context. Despite the resources devoted to the so-called global war on terrorism and the operations in Iraq and Afghanistan, U.S. forces are used in a more traditional scenario, remain superior, and would, most experts believe—and if I’m an expert I’m with them—eventually prevail against any adversary in an extended, all-out conventional conflict.

The concern is about what has been widely referred to as asymmetric warfare, or more specifically, that were the PLA to overcome the command and control and other shortcomings I’ve just alluded to, this modernized PLA could deter, delay, or temporarily complicate effective employment of U.S. forces in an intervention effort. In other words, they just might stymie us. This has been described by an effort by China to deter the U.S. by exploiting niche vulnerabilities stemming from our over-reliance some would say, on very advanced technologies.

Fortunately, and this is another point where it’s a foot-stomper, these developments in military capabilities on both sides are occurring in an environment where conflict seems unlikely. Beijing has been restrained in its reactions to recent developments in Taiwan. In other words, some of those have been pretty provocative. Cross-strait tensions have eased while economic and cultural ties, as Ambassador Lilley referred to clearly, have improved.

Many feel that Beijing is to be commended for looking beyond recent invents in Taipei to include troubling political announcements and reports of the testing of offensive counterstrike missiles. I don’t know whether you picked up on that report or not. I expected a very harsh Chinese reaction and we did not get it.

However, Beijing is unhappy with Washington, including developments in the U.S.-Japan alliance and the concept of strategic flexibility in the U.S.-R.O.K. alliance relationship. But strategic flexibility means using the forces in ways that might be difficult with China. But only the Taiwan issue presents imminent potential for armed conflict. And clearly Beijing has not renounced the use of force against Taiwan.

We can hope that Beijing appreciates fully the folly of using force and is not, even if it precedes great provocation, emboldened to act militarily by the fact of this new PLA that I briefly described. In other words, does China’s mindset change because its capabilities are now much greater than before?

Although armed conflict seems neither imminent nor likely, the U.S. Department of Defense has understandably expressed concern about the implications of PLA modernization with respect to Taiwan, and other scenarios. The 2006 U.S. Quadrennial Defense Review, the QDR, in the section entitled Shaping the Choices of Countries at Strategic Crossroads, describes China as having the greatest potential to compete militarily with the United States, but it encourages China to play a constructive role and serve as a partner in meeting challenges. Military threat is discouraged and lack of transparency in the military area is criticized. Beijing is urged to make clear its military intentions. All that’s my paraphrasing of the QDR.

When I read this section of the QDR, more than once, I see the urgent need for Washington and Beijing to better understand and accommodate to the military posture of the other. Shaping the aspirations or influencing the decisions of the other cannot be achieved without first understanding and accommodating to what is seen as reality or even necessity by the other party.

On the matter of developments with respect to the PLA, Beijing should, in talks with U.S. Deputy Secretary of State Zellick and other senior Americans, including military officers, cease its unconvincing equivocation and state quite clearly that it has specifically modernized the PLA to serve as the more effective deterrent or fighting force for a Taiwan conflict. And that moreover, it’s beginning to look to different naval and other forces that independently can ensure the flow of commodities to China by sea and pipeline, especially energy.

I offer this as an example, assuming that these are indeed the purposes, as it seems to me, of PLA modernization. The point here is that Washington seeks assurance as to Chinese intentions, with some American hardliners offering sweeping, sinister interpretations of the motives behind this PLA modernization. Beijing needs convincingly to explain its intention so that Washington does not see deception and obfuscation, as is currently the case.

Let me mention that I found just the other day a comment from Premier Wen Jiabao about their military modernization, and let me read it to you. He said the modest increase in China’s military expenditure is mainly for improving the welfare of its servicemen— that’s got to be a very common line now—strengthening its defense capabilities and achieving national reunifications. A very soft way of saying something that I’ve described to you as a very big move. Thus it will not pose a threat to anyone. China’s defense policy is transparent.

Those are the words that I’m saying, though you might as we sometimes feel, yes you could parse them and say each one is true, when you put it together it hardly paints a very convincing picture in my view.

The task for Washington, like it or not, might then be—if Beijing were forthright—to accommodate to or even reluctantly accept the reality of a dramatically more capable PLA devoted at least for the present to serving China’s interest vis-à-vis Taiwan. On the other hand, Beijing, albeit also reluctantly, might need to understand better and accommodate to a globally preeminent U.S. military statute that could make the use of force in a Taiwan conflict a highly imprudent course of action.

Shaping is not, I am arguing, likely to be a useful tool for reversing the current situation, the reality that exists today. And today’s reality is that the U.S. is confronted by a PLA that is radically more modern and capable if untested in combat, while China must acknowledge that U.S. forces are dramatically superior, if not invulnerable.

Put another way, Washington, as it contemplates shaping Beijing’s decisions in the security arena, must fully understand, even if disagreeing, that Beijing has felt it necessary to build a much more capable force to deter or fight a Taiwan conflict. And Beijing must fully appreciate the possible extreme consequences of drawing U.S. military intervention were China to attack Taiwan.

Neither side is amenable to shaping or influence so as to compromise the capability of its forces to serve its interests in a Taiwan conflict. This does not mean, however, that there is no role for the concept of shaping with respect to the future.

In looking at these prospects for shaping, rather than starting with how China’s intentions and decisions might be influenced by American actions, as the QDR contemplates, and as one might expect an American to do, it may be more humble and politick to suggest first how China may approach shaping the U.S. Washington’s posture, with respect to regional security, is an example of how the U.S. might be amenable to shaping.

China’s extremely constructive role in the six-party talks has arguably already altered, or shaped, American views of China’s place or role, in the framework of regional security. We are now looking at a very different situation with respect to China and its role in that region.

Beijing has the opportunity to continue to influence Washington’s view of China as a partner rather than a potential adversary, and to consolidate China’s inchoate role as an insider and positive factor in a regional security architecture.

One of the major challenges would be folding, or accommodating, U.S. alliances with Japan and the ROK into a new security framework. This new framework might take the form of either a formal security structure, if that’s desired, or simply recognition of a new unstructured conglomeration of dissimilar elements such as has existed for the last several decades—a conglomeration of alliances, communiqués, understandings, and misunderstandings.

The important aspect of the new situation is that China is not seen by the U.S. primarily as a troublemaker, as was previously perceived, but as an increasingly constructive player in regional security. From Beijing’s perspective, the shaping would bolster American appreciation of China’s positive role in regional security and encourage the U.S. to take into account Chinese concerns with respect to American alliances, and perhaps other troublesome policies. The point not to be lost here is that Washington should be willing to be shaped if it wishes to shape China.

As to how Washington might hope to shape China’s decision, there are many ways, but let me return to the Taiwan issue for a specific example. The last decade or so might be viewed as a period of very effective PLA military buildup vis-à-vis Taiwan. And I’ve watched this, of course, up close since I was Ambassador Lilley’s defense attaché in the early 90’s.

Washington and Taipei must grudgingly admit that China has developed a force, centered on ballistic missiles, that is effective in both intimidation and deterrence roles and additionally—and this is another important point—would be very difficult to defend against in combat. Those ballistic missiles and cruise missiles, to start with, are things that we simply do not have the capability to cope with yet.

In other words, this has been for China a decade of successful intensive development of arms for use against Taiwan. There is now seemingly an opportunity for shaping and encouraging a major shift. Beijing now seems right for changing further its image in the eyes of the highly polarized people of Taiwan. Beijing is already pursuing limited initiatives, which have been described as changing from vinegar to honey in attracting support in Taiwan. I guess I could say capture the hearts and minds.

Washington would need to exercise care in encouraging such initiatives. For example, the second administration of President Bush is pushing democracy around the world. China is surely not a ready candidate for shaping along the lines of the American model of democracy. But, might we imagine perhaps, that China is ready to engage in another way in dealing with the issue of democracy that is so important to Americans? Possibly China would welcome U.S. supportive attitudes for movement in a direction in which it is already leaning, making a persuasive case to the people of democratic Taiwan that a future link to the mainland would be desirable.

Might Washington work with Beijing to shape an approach so that China increasingly might be self-assured concerning the views of the people of Taiwan with respect to Beijing and the Mainland? Might Beijing’s constructive efforts, in turn, shape the idea of reunification into a viable outcome in the minds of many more of the people of Taiwan? Well, I offer this product of my imagination as a very optimistic, illustrative prospect for the process of shaping.

Let me conclude by saying the lesson here, I argue, is that the first step toward realizing such positive, optimistic outcomes, or shaping, is an accommodation, or fuller understanding by each party of reality as seen by the other side.

The second step can then be a sensitive and mutual shaping of the future. All nations, but especially a superpower, should avoid arrogance, exercise great care when talking of shaping other nations, and demonstrate that it too is amenable to shaping. The concept of shaping, raised in the U.S. QDR, is a valuable tool in the hands of all, but only if it’s used skillfully, not clumsily or arrogantly. Thank you, Ivan. I appreciate the opportunity.

Ivan Eland
Director, Center on Peace and Liberty, Independent Institute

Okay, I’m going to make a few remarks and then I guess I’ll take over from Alex, since he had to catch a plane, on moderation in the question and answer.

I’d like to go a little bit to the underlying assumptions of U.S. policy. Mine is a more radical solution I guess than Admiral McVadon’s. I do think we need to focus on Chinese defense spending, and it has increased. But if you look at it, even the highest levels, it’s still about 20 percent of U.S. defense spending. The U.S. spends what the next 13 countries do combined, and, as Admiral McVadon mentioned, our forces are still crushingly superior to any other force in the world, Chinese or otherwise.

Now the Chinese are making modernization in pockets, and they’re also buying a lot of equipment from the Russians because they’ve had trouble in the past producing military equipment on their own. Now they are producing some systems and they are getting better, especially in the submarines. But they still have problems and they are trying to change over from a Maoist liberation land force into a power-projection, air and naval force, and, of course, that requires money. And it also requires a lot of money to pay increased salaries and benefits to keep up with the burgeoning private sector in China. So some of their spending is sucked off into those areas and so not as much can be spent on weapons.

Now I think we’ve really go to put this in perspective a bit because right now, as Admiral McVadon says. Probably the biggest threat to Taiwan is the missiles. I mean, China does not have the capability to conquer Taiwan, simply because they need a better air force, they need a better navy, and they need more troops that are trained in amphibious assault. So that’s probably a lesser scenario, I think, than some sort of a missile intimidation or that sort of thing.

Now, there is a comment that was in the paper yesterday. I think Rumsfeld has said this a couple of times, that he’s alarmed by Chinese military spending when there doesn’t seem to be any direct threat to China and they claim benevolent intentions. That is to say, he’s saying their military is too big for their security needs.

Well, he ought to look in the mirror a little bit because the United States—we have a fairly good, secure position, and we’ve always had a secure position, and our military is primarily based on power-projecting overseas. So if there’s any example of a country that’s spending way over what we really need for basic security, it’s probably the United States. So I think we have to emphasize, and I think both of our speakers to some extent have said that we have to empathize, with the other side a little bit and put ourselves in their shoes sometimes to see what’s going on.

If I were putting myself in China’s shoes, I would see a U.S. that is tightening the noose around China in the strategic sense, while at the same time is running a program of economic integration with China. So it’s a little bit different than the containment policy in the Cold War, because the Soviet Union never really produced anything that anybody wanted to buy, so it was very easy to isolate them economically. Of course, China’s producing things that people actually do want to buy, and they invest and trade overseas and create great buy-in.

So this containment—I call it an informal containment policy—is sort of in the strategic area and not overall as it was with the Soviet Union. And that proposes problems for it, I think. We’ve seen recently, and I think Admiral McVadon’s mentioned this, that we have the U.S. building up its military forces in the Pacific. We also tightened our Cold War alliances, and we’ve also, of course, gone after bases in the -stans in central Asia. And in addition, we’re improving relations with India, of course, an adversary of China. So if you’re the Chinese, you see this containment policy in an informal sense.

Now, I sort of question whether we really need to do that or not. I think we need to reassess our policies in east Asia, because I think sooner or later if the Chinese—their economy is growing by leaps and bounds—we’re going to want a greater sphere of influence, as every rising great power as done. And of course, over history, many historians will say when there’s a rising power and a status quo power, there’s an enormous potential for conflict.

Now that hasn’t always been the case. You can go with what the British did with the Germans before World War I. Or you can go with the model of the British and the Americans in the nineteenth century, which seemed to be more productive. The British allowed the U.S. to have some space and the Monroe Doctrine, etc., in their own sphere. It’s easy to forget this, but in the nineteenth century the U.S. and the British didn’t have very good relations at all up until about 1895 or so. Eventually the British allowed the U.S. to rise as a power. And I think this was possible, and unlike the case of Britain and Germany before World War I, simply because of the vast ocean between the two. Now some people would say, well, it’s also cultural, and the fact that our system came from Britain, etc. But I’m in the realist school. I think it probably has more to do with the ocean—the vast separation.

But, of course, we have a vast separation with China. Now, of course, that didn’t work in World War II with Japan, because simply all the colonial powers left the power vacuum because they were overstretched and weak, and so the United States and Japan were the only ones there.

Now, of course, we have a lot of countries in east Asia that could combine if they really spent more on defense than they do now to act as the first line of defense against any rising China—Russia, India, and, of course, Japan, the big countries. And then, of course, you have your smaller countries, Taiwan, South Korea, Australia, who could also go into this as well. So I really question whether the United States really needs to be the first line of defense.

We have this forward presence in Asia, and I’m wondering whether we couldn’t run a policy of being the balance of last resort. In other words, if China got out of hand, started acting like imperial Japan, or something like that, of course the United States would have to enter the fray. But it could be the second line of defense.

But of course, none of these countries really want to improve their military to the extent that they should, because there’s a U.S. shield there to do it for them. Even Taiwan, I think, has lagged a bit because they have an implicit security guarantee. Of course, the Japanese have an explicit security guarantee. And whether these countries should do more in their defense—they’re all very wealthy countries, and this is not the years right after World War II. So I say, perhaps, we should think about our overall strategic policy and the assumptions under it.

After the Cold War, the United States, instead of retracting back to its more traditional balancer of last resort foreign policy, we did tighten our alliances. We increased the bases, and the war on terror has been used as well to do that in Central Asia. And of course both Bush administrations and the Clinton administration increased the military interventions overseas. So if anything, the U.S.—if you want to call it an informal empire, or whatever you want to call it—hegemony, has actually increased after the Cold War, which in realist terms, of course, would be logical since your primary opponent, the USSR, went away.

But the real question is perhaps we should go back to our more traditional foreign policy, which we ran up until World War II now and perhaps keep our growth rates up so that in the long-term, if China does become a problem—and what I mean by a problem is just what I said before—if it goes into a more imperial Japan mode, and these other countries can’t handle it, then perhaps the United States can then get involved.

I think the United States is overextended right now, and many empires in the past have been overextended. And, of course, all empires thought they would last forever. The British in 1913—if you would have told a Brit that in a few short decades the British Empire would be expired, he would have laughed at you, but, of course, that’s what happened.

So I think the U.S. is, of course, not overextended to that extent now, but Iraq is a very small war and it’s really straining our forces. We account for 40 percent of the world’s military spending and about 30 percent of its GDP, so I think that’s a fairly wide gap. And we could meet the end of other overextended countries or empires by have it being a forced retraction under very undesirable circumstances, or we could perhaps manage China’s rise in a better way as the British managed the U.S. rise. And as I mentioned, I think the U.S. and China could do something like that, simply because they’re separated by a large ocean. And also, I think the advent of nuclear weapons has actually made it much more difficult to actually invade other countries, especially if they’re nuclear, because obviously you’re going to get a very unpleasant surprise.

So if anything, in one sense, the world has become a little less interdependent in that it’s more difficult to actually invade. And, of course, it’s absolutely ludicrous to think that an amphibious assault could be carried out over that large space of ocean by either side. Even the U.S. couldn’t do that very successfully, I don’t believe. It’s just very difficult to do. So I think we do have a good security position here, and perhaps we should take advantage of it and sort of retract our forces a bit, and perhaps be a little bit more conscious of the long-term.

The British and the French empires, these countries were so busy managing their empires that they didn’t really think about the Nazi threat. Now, I’m not comparing China to the Nazi threat, because I don’t know if China’s going to be a threat or not. Even if China becomes a democracy, it still may be a threat. I’m not a big believer in the democratic peace theory.

But on the other hand, if China remains autocratic, it doesn’t necessarily mean that they’re going to be a future threat. I mean, there are some strains of authoritarianism like Hitler’s Germany, which are very aggressive, and there’re other forms which are externally aggressive. And there are other forms which are not externally aggressive. The current junta in Burma would probably be some sort of an example there. There are others as well.

So hoping that China’s going to become democratic and all our problems are going to go away, I think, is probably too optimistic. But on the other hand, we really have to ask ourselves whether we need this military presence so far out into the Pacific for our security. And what do we exactly get from our allies for providing this security? We don’t seem to get trade concessions or anything else, so it costs us a lot of money to do. And of course, we also have the problem of Taiwan.

Essentially what we’re doing, and nobody likes to say this, is when we guarantee Taiwan’s security, Taiwan has never been very strategic for the United States. It might be strategic for China, and I think one of our speakers said it was, that there have been attacks on China from Taiwan, which is one of the reasons why the Chinese are very concerned about it.

But I would think that perhaps we should question that security guarantee, because it’s not a very strategic island for the U.S., and also if you’re going to guarantee it, you’re guaranteeing it in a nuclear war, which actually means if the I.O.U. ever comes in, you’re going to have to get into a nuclear war over this with China, and I don’t think it’s very smart to do that.

So I think we really ought to ask ourselves what our overall objectives are, and perhaps a more restrained posture should be done before any crisis over Taiwan comes up, their pride on the line. And I think, of course, Bush is doing the opposite.

So I guess I’ll stop there. I want to leave some time for questions and answers. So I’ll moderate the questions, so if you have a question, please state your name and your affiliation and who it’s directed to, and we’ll try to get it answered for you.

Audience Member

What are the prospects for China working with the United States to thwart Iran’s aspirations for nuclear weapons?

Rear Admiral Eric McVadon

I won’t pretend to be an expert on all the implications of the Iranian acquisition of nuclear weapons, assuming that happens. Certainly they would not be the direct threat.

I can’t help but be reminded, when I was with Ambassador Lilley in Beijing, that there was a time when I was regaled with a tale by a Pakistani who said, you know, there are times when it’s just kind of fun for China and Iran and Pakistan to find a way to poke Americans in the eye.

And I don’t mean to be flip about this, but I think China is far less concerned about the implications, and yet, I would hope that there are thoughtful Chinese who are realizing the instability that could be created, so that maybe though not a direct threat, that Iran with nuclear weapons is something that we worry about like we worry about with North Korea with nuclear weapons. I don’t know if that addresses your question directly or not. Is that what you were getting at?

Audience Member

Well, could China and the Unites States make a united effort against Iran to prevent this?

Rear Admiral Eric McVadon

I guess the Chinese would say that they have made something of a concerted effort for us, but of course, as you’ve noticed, they do not wish to do it so aggressively. They don’t wish to impose sanctions, and they say they don’t think the sanctions will work. So that probably translates, in the eyes of the cynical or maybe the objective, to saying that China is more worried about oil from Iran than it is about the prospect of nuclear weapons.

It still reminds me of a position I think the Chinese have moved away from. It used to be that I got my lectures from them saying, “We are also concerned about nuclear proliferation but you guys are obsessed with it.” And so I think they probably would still feel a little bit of that, that we are too worried about the situation and that they have the right balance of views. I don’t know, anything to add, Neil?

Audience Member

Yeah, if you measure what the Chinese are trying to do in Iran, I think you have to look at the North Korean position, that they share our desire not to have weapons of mass destruction, granted. But their priority is energy from Iran. They signed this $100 billion deal, $30 billion gas, oil. It’s very important to China’s developing. It’s one of their high priorities to keep that oil flowing. And that takes priority over the weapons of mass destruction.

Second, I think that they’ve looked at Iran and Iran does not necessarily affect their own Muslim population in northwest Xinjiang. The leaders are Turkic, they aren’t Persian. So they see that it’s not going to be directed at them.

And third, I think the reason the Chinese aren’t that worried about it is because the terrorist offensive would be directed at us. That’s why we’re obsessed with it. It’s not going to be directed at them. And we are concerned about it. Obsessed, perhaps, is too strong a word.

But they’ve got different priorities with Iran, and also they see the fact that if they buy off Iran with these things, they’ll get protection from Iran against using Iran-supported terrorism against China. It’s what you do, what Saudi Arabia does, various countries do, to buy off the states supporting terrorism by getting that state on your side and having the animus directed elsewhere.

Ivan Eland

I want to chip in something here. I hate to empathize with the Chinese too much, but I think Iran’s probably going to get nuclear weapons, and I am not sure there’s much the West can do about it. You know, we hear all this talk, but air strikes are not going to take it out. You have to invade the country, and I don’t think anybody’s in the mood to do that, although you never know.

They’re probably going to get nuclear weapons, but I’m not sure what you can actually do about it. Countries feel threatened, and Iran feels threatened. I’m not sticking up for the Iranian regime, because it’s a very bad regime, but Israel has nuclear weapons in the area, and there are other countries that are unfriendly in that area, and so they have some sort of an incentive to get these weapons.

Also to keep the U.S. out. I think, they see what happened in non-nuclear Iraq and they see the different treatment that North Korea’s been given, more respect by the U.S. So they’re probably going to get the weapons one way or another, and I’m not sure China and the U.S. cooperating is—you know, that may be great. And sanctions probably aren’t going to help either.

I mean, you can put technical sanctions on various nuclear components. General sanctions probably won’t do much of anything at all, general economic sanctions. And of course, all the sanctions are going to leak, so over time Iran is probably going to get nuclear weapons, and we’re going to have to deal with it just like we’re dealing with North Korea getting them. And I’m not sure North Korea’s going to give them up either.

Audience Member

I’m Jed Shilling with the Millennium Institute. I’m an economist, and I want to touch on a couple of economic questions, because China as a member of the World Trade Organization is just joining the Southeast Asia Trade Association and creating much more intra-industry trade within that group, so it’s shifting their economic dependence from the U.S. to China for much of their trade. So as they’re expanding this out, they’re becoming much more important as a regional economic power. And I wonder how that’s going to affect the relationships between China and the U.S, which is increasingly dependent on China and East Asia for this set of goods.

The second related economic question is China is negotiating trade agreements or supply agreements with suppliers of natural resources. Not just oil, but other primary products as well to support its economy, often with countries that the United States is not at all friendly with, and is supporting people that we are opposed to. So I wonder if you could comment on how that’s going to affect U.S.-Chinese relationships.

Ivan Eland

Anyone want to comment on it?

Jim Lilley

Yeah, the truism is that China is doing well economically, expanding economically, 9 percent growth. These things are repeated ad nauseam, and I think you have to accept it, because their trade with Southeast Asia now, I think, has surpassed Japan’s. And they’ve become an importer of Southeast Asian products, which they put together in China and then export to us mainly.

I’m glad to see Ernie Krieg’s here, because he’s done a book on this kind of business, and he’s probably in a very good position to answer some of this.

But I don’t really see that these free trade areas that China’s getting with ASEAN will make that much difference. I really don’t. I think we’re getting the bilateral agreements going with a lot of countries in Asia quite successfully—Australia, South Korea, Singapore, etc.—and we’re going to expand that. We tend to feel that’s a more effective link than getting into these rather large, amorphous organizations like ASEAN. So I think we’re going to continue on our path and they’re going to continue on theirs.

Their strength doesn’t lie necessarily in togetherness with ASEAN. Their strength lies in their use of their own comparative advantage to use ASEAN products to make money for both China and ASEAN. Countries, individual countries.

The process is going to go forward regardless of what we do. It’s linked to the globalization, and globalization, as Amy Chua points out at the Yale Law School, benefits the elites and creates political demagogues. That’s the downside of it. And she points out a number of cases that this has happened, and particularly overseas Chinese and Southeast Asia have benefited tremendously from globalization. But that isn’t a threat.

My sense is that China is moving ahead, but with a great preoccupation with other problems that we’ve pointed out here. That Wen Jiabao—Eric mentioned Wen Jiabao—is a sensible man who has put a great deal of emphasis on investing in the West in China, of somehow getting rid of these horrible disparities of wealth they have between the people of Shanghai and the people of Szechuan. It’s a very damaging thing for them.

And what they’ve done to the countryside is to cement over farms, build excess buildings, getting a very corrupt construction industry going. It almost follows the Japanese pattern. The Japanese did this and they went wild. It was an unholy alliance between construction, kickbacks to politicians, subsidies for the construction industry, bridges that went nowhere. Kyoto’s been almost destroyed. It’s a horrible thing that happened, and it burst. It also burst because of bad loans, crony capitalism.

China’s doing exactly the same thing. And when we talked to the Party Central two years ago, this was much more on their mind than North Korea or Taiwan. They can bellyache about Taiwan and be sanctimonious on North Korea, but this is reality, and this is what looks them in the face, and they’ve got to spend a great deal of time on it.

And they’ve come to us and said, what would you do? We have these savings. We have these foreign exchange reserves. Our advice was get equity in American companies. Well, they tried that with Unocal, but—don’t stop there. That’s where you can make your profit. Move into that global market. Become, as Zellick says, a stakeholder. Invest in the United States. We want your investment. We welcome it. And we don’t play games with Unocal, which has one percent of the oil and considered it a national security problem. It is not and was not. But I think the Chinese are concerned about that, and it’s a question of working these things out.

Let me just finish with one little anecdote. Bob Zellick is a very good negotiator. He was dealing with the Chinese Foreign Ministry in a very sophisticated way. In a villa in northwest Peking, they worked with currency manipulation, intellectual property rights, market access. It was a very stimulating discussion with a tough, well-informed partner.

If you look at the second villa in Diaoyutai, there are the six-party talks on North Korea, with the Chinese chairing it. And as Eric says, they have been a contributing factor. They have been working together to get concessions, to get the drunken North Koreans out of there at 10:00 at night, and get them to sign something or do something. It was really quite a feat on their part.

But who’s in the third villa? And this is the problem you raised. Robert Mugambe of Zimbabwe. If it isn’t Zimbabwe, it’s Pol Pot. If it isn’t Pol Pot, it’s Milosevic. It’s Kim Jong-il. It’s the Sudan. It’s Chavez. All right, there is something in that mentality which you’ve got to look at when you start spreading soporifics around about China. There’s that street. It’s going to be there. And it’s a balancing act between international finance, international security, and this other thing.

Rear Admiral Eric McVadon

Ivan, with respect to its effect on relations with the U.S., I remember in 1996 when Li Peng and Jiang Zemin—the premier and the president then— both made statements about the move to use economic measures rather than military measures in furthering their interest with Southeast Asia. And most people ignored it. That’s been 10 years. I think they’ve done just that. In other words, no more gunboat diplomacy, let’s do it by investment and so forth.

Many Americans very cynically looked at that and said, well, there was the military threat before and now the damn Chinese are doing it in yet another area. Well, the other way to look at that, of course, is that wouldn’t we prefer to see a China that is doing that. And I hope that that turns out to be the proper perspective on its effect with U.S. relations.

It kind of depends on how we look at it as to when they make these economic moves, but China has broadly turned largely from military to non-military means to protect its interest in the region.

Ivan Eland

Yeah, I would like to second that. I think some people look at China’s economic activities and see sinister activities when they’re probably just economic activities. And, you know, they’re buying oil from Iran, etc. Well, Iran sells oil and China needs it, so they stick up for their interests and they buy what they need to buy. And hopefully as they become more economically integrated, perhaps they’ll stop hanging out in the third villa as much. But that’s what you hope. There’s no guarantee, but you hope that that’s what happens. Yes, right over here?

Audience Member

What are the areas that the U.S. should work on to strengthen relationship with China, and what are the areas the U.S. and China could work on to avoid potential conflicts?

Jim Lilley

Well, I think I spent quite a lot of time on that.

Audience Member

Yes, you did.

Jim Lilley

Yes, so we listed about seven different areas where we could cooperate, and I think that that’s been done.

Other areas—I think Eric has gotten the point that you’ve got to reach their military. I’m not saying that talky-talky’s going to solve your problem. It isn’t. But we made progress recently. Rumsfeld’s been there. Fallon has just been there. They’re going to come to the exercises. We hope we’ll go to their next exercises with the Russians.

That’s all the good. You’re making progress. We’re getting away from the non-reciprocal arrangements we had before, where we were shown the 196^th Division outside of Dimsin (sp?), which they have target practice with the Japanese there. And we showed them our logistics centers, and our special forces, and our aircraft carriers.

This must stop. We’ve got to have reciprocity. Then that’s what we’re getting. And I think this attendance at each other’s maneuvers is a very important first step.

Rear Admiral Eric McVadon

And I would assert that I think I made some comments along those lines too. And of course, as Ambassador Lilley points out, from the narrow perspective of security, the military-to-military relationship is something that we have neglected. We probably still have not done nearly enough in fostering that, and the Pentagon is not nearly as enthusiastic about it as other parts of the government. So I think there is something to be looked at here.

As far as a potential conflict, maybe I did it in too complex a way—especially with respect to the Taiwan problem—and I have every reason to believe that it can happen. As Ambassador Lilley characterized it, Deputy Secretary Zellick is a very sophisticated negotiator and interlocutor. I hope, whether we read about it in the press or not, that they are having discussions along the lines, or maybe much better than along the lines that I described, as to the specifics of here’s why we’re doing things. You need to understand this, this is important to us, and that both sides make—so we can avoid misunderstandings, misperceptions, and eventually grow to a partnership.

Looking back to my time as a Navy officer, and still imagining myself in that sort of role, I could truly envision a time when the U.S. Navy and the PLA Navy view themselves as partners on the high seas rather than as potential adversaries. I don’t think that is impossible.

Ivan Eland

I think the military-to-military connections are good, and we need to do more of that.

But I think the overall, underlying problem is still that United States is increasing its commitment to Taiwan. Zellick, the other day, talked about troops being sent if there’s any conflict. We’ve always had this ambiguous security guarantee with Taiwan, and then our forward posture. So you can have all the military-to-military contacts you want, but if the underlying factors are still there, that could lead to conflict.

You have a rising China that wants an increased sphere of influence, and you have a status quo power that has a forward military presence, you’re bound to run into problems if something’s not done about it. And my proposal, of course, is somewhat radical, I guess, and that is that the U.S. should reassess its posture. Do we have to be that far forward in Asia? Can we give China some room to expand their sphere of influence without threatening our security? And I think we have the luxury of doing that, since we have a huge buffer of an ocean there. So I think it makes it easier for us to give up something without giving up our security.

Any other questions? Right over here.

Audience Member

Mr. Lilley, you brought up some really great points about China’s interpretation of certain ideologies and turning them into a very Chinese thinking.

Can China move towards democracy without any sort of conflict? Can all the social unrest that you named between the rich and the poor, the disparities that are going on, and of course, all the recent demonstrations that we’ve seen—is that a possibility for China? And if it’s not possibly, will the U.S. interfere with any sort of pro-democracy movement on the part of China?

Jim Lilley

Well, as my wife says, if you can’t handle contradictions, get the hell out of China. There are contradictions in everything you’ve said. And Hu Jintao, on the one hand, was the man that cracked down very hard on Tibet when he was there, and he’s also the man that liberated the thinking of the Central Party school. So put those two together. He’s a tough guy in law and order, but he feels you should stretch your mind among the elites that you’ve got your control of.

So I wouldn’t put too much faith in what he’s saying on democracy. I think their interpretation of democracy is they start with a Marxist-Leninist interpretation of democracy. So I’d be very careful that you select that out as an indication of what he really thinks.

Obviously, the Chinese, from the time I was first there in ’73, when it was a locked-down, sort of a Soviet constellated area, it is now a very different country, quite clearly. It is much more free. You can go out and see people. You can have people come over and talk. But the people know the limits of what they can do, and the elite classes have got a Faustian deal. We can have a Mercedes-Benz. We can have our own apartment. We can have—whatever it is, but stay out of politics. We’ll do your thinking for you.

I’d suggest you read Jonathan Spence’s book, Treason By the Book, which shows the Chinese conception of dissidence against the center and how you have to root it out in the most exacting, comprehensive way. And certainly you find this being done at the politburo level. You really see that movement have its back broken, except for these little bits that happen around. But when you had 5,000 of them in Tiananmen Square, and the central government didn’t know about it, they were very shook up, especially after 1989.

And they’re very conscious of this. The concept goes very deep into psychology, that the strong central government must have conformity. And yes, you have a way for individual competition in the free market areas, but in the political areas, we will do your thinking for you. And we will get the Olympics, and we will have Lang Lang and we will have Yao Ming, and we’ll have Xulian (sp?) and all these great stars that they have. Kennedy Center, did you see that? It was incredible what they put out. You can do all these things, just don’t fool around with opposition politics and a free press.

But I just end on this point, that at Tiananmen, the arguments for a freer press, an independent labor union, etc., went right to the standing committee for (inaudible) vote, through Hu Zhivi (sp?) and Zhao Ziyang. They lost, and it was crushed. But it’s interesting that that stream went all the way up to the very top of China and then it’s knocked down. So it’s there, but it looks like the other guys have control.

Ivan Eland

Okay, we’ve got time for one last question. The lady in the back there.

Rear Admiral Eric McVadon

As Ambassador Lilley says, China is full of contradictions. Who knows how China will change its intentions as its military power grows and so forth? Certainly there is a potential for all sorts of bad things to happen.

I would assert that we have considerable opportunity to influence how that goes, and so I think the odds of the kinds of things which I think that he said, even though neither Ambassador Lilley nor I—maybe it says something that we avoided reading the book so that we didn’t agree with the views. Of course, we had heard what they’re likely to be. But anyway, I don’t think those necessarily need to be the outcome.

Rear Admiral Eric McVadon

There are certainly people at the Department of Defense, including people who have recently left the Department of Defense in the past few months or a year or so in this administration, who feel very much that way about China. All sorts of shades of it. And you probably heard the blue-red team discussion. Well, I have to say that I put those together and say the right team is purple. So it takes a little measure of both.

Ivan Eland

Okay, I think that’s going to be it. We’ve got some refreshments, and I’ll pick up the chairs and we’ll have the reception right here. So I hope you all stay for some refreshments.