Policy Impact Panel
China and the United States: Strategic Partners or Adversaries?

Council on Foreign Relations

June 2, 1997

Dr. LESLIE GELB (President, Council on Foreign Relations): Welcome to today's program on the United States and China: Strategic Partners or Adversaries? My name is Les Gelb. I'm President of the Council on Foreign Relations. And the Council, along with the National Committee on U.S.-China Relations, has put together this panel because we think it's dealing with one of the most important, if not the most important, foreign policy question facing the United States. These Policy Impact Panels, as we call them, are designed to do two things. One, try to establish facts in a very complicated situation, because often we spend a lot of time wondering what the facts are or if they can be established. The second purpose is to lay out the policy alternatives, to give us a sense of what we can do about the problems or the facts.

The Council is a non-profit, non-partisan organization devoted to promoting better understanding of U.S. foreign policy. The National Committee on U.S.-China Relations, headed by Mike Lampton and Jan Berris, is dedicated to improving understanding of U.S.-China relations.

I wanted to thank our Council people, who put this enterprise together: Karen Sughrue, Vice President of the Council; Erika Burk; and Irina Faskianos.

And without much further ado, let me introduce the chair of today's program, Senator Warren Rudman. Senator Rudman recently left the Senate even though his constituents seemed to want to elect him for life. While he was in the Senate, he was one of the nation's true national security experts, chairman of the Intelligence Panel in the Senate and a man respected and admired by all. Senator Rudman.

Senator WARREN B. RUDMAN (Panel Chair; Partner, Paul, Weiss, Rifkind, Wharton and Garrison; former United States Senator; R-New Hampshire): Thank you very much, Les, and good morning. Let me introduce my two fellow panelists this morning who will participate with us this morning. On my left, your right, Ezra Vogel. Ezra is Director of The Fairbank Center for East Asian Research at Harvard, former National Intelligence Officer for East Asia on the National Intelligence Council. He has a long resume which I would refer you to in the information that you have.

On my right, and a pleasure to be with an old friend, Bill Bradley. Of course, we served together for many years. Bill Bradley--you know, one of the outstanding luminaries of the United States Senate, known in a whole variety of areas, but in particular, of course, he was known for his work on the Finance Committee. But Bill has had an interest for a long time in the foreign policy of this country and was an active member of the Senate in those debates involving those issues.

This morning, we have two panels. Of the first panel, Harry Harding, who is the Dean of the Elliott School of International Affairs at George Washington University. In the material that you have, there's a short caption indicating what the various positions are of the members of the panel, and so I will not read them in the interest of time but simply ask you, if you're interested, to look at those. Sidney Jones is Executive Director of Human Rights Watch/Asia. John Langlois Jr. is Managing Director and Head of Investment Banking, Asian Clients in the United States, at J.P. Morgan.

There will be, I'm sure, three different perspectives from this panel. The title of the panel is Trends in Human, Social and Political Rights. I'm going to ask each of the panelists, starting with Dr. Harding, to give us a three to five minute summary of their views, and then we're going to get involved in a Q&A which will last till approximately 10:20 or 10:25. We'll have a very short break. We'll go to the second panel and hope to wind up at approximately 11:50, at which time we will have some closing remarks by Mike Lampton.

Harry Harding.

Dr. HARRY HARDING (Dean, Elliott School of International Affairs, George Washington University): Thank you, Senator, and good morning, everyone. We weren't asked to make prepared opening remarks, so I guess I will be presenting some informal or even unprepared opening remarks to get things started.

Obviously, an accurate assessment of China is central to the policies that we develop towards that country, and I've been asked to try to present an assessment of the area of human rights in the People's Republic. My basic conclusion, of course, is that we see a very mixed picture as we examine China's record today, especially if we take, as I believe we should, a broad definition of human rights that includes not only political and civil rights but also economic and social rights, all of which have comparable standing in international law.

Let me review briefly what the two sides of the balance sheet are. Economically, as we all know, China has achieved very rapid rates of economic growth over the last 20 years that have meant much greater prosperity for larger numbers of Chinese. In the last several years, those rates of growth have fortunately been coupled with significantly lower levels of inflation. At the same time, much of China remains in poverty. There are high levels of unemployment and underemployment, certainly in absolute terms; growing inequalities between various classes, between different regions and between rural and urban areas, more generally. And, of course, all of this is in front of the backdrop of a very large population that, again, in absolute terms, continues to grow at significant rates every year.

In terms of the social situation, the relationship between society and the state, there are some positive signs: much greater freedom of what I would call private speech, the ability to express opinions to one's friends and associates privately; freedom to practice religion is significantly higher today than it was in the cultural revolution; freedom to choose one's friends; freedom to change jobs; freedom to relocate one's residence; opportunities to travel and study abroad; access to information; freedom from state efforts to mobilize support behind government programs; and perhaps most generally, the gradual emergence of what social scientists call a civil society--that is, the emergence of economic and social organizations that are increasingly independent of the state and the party, especially in the economic realm.

On the other side of the balance sheet, however, we see continuing restrictions that are enforced on freedom of public speech--that is, the ability to advocate political positions in a public arena--and, above all, restrictions on the freedom of political organization. We also see continued suppression of unsanctioned religious organizations so that while one has freedom to practice religion, that freedom must be exercised primarily within religious organizations that are chartered or sanctioned by the party and the state.

Politically, we also see a mixed picture. We see better-educated officials, a more elaborate legal system, enhanced roles for legislatures, a reduced role for the party, the experiments with competitive elections at the grass roots. But we also see growing corruption, bans, as I've said, on organized opposition, and a situation that I would characterize as the rule by law as opposed to the rule of law; that is, the use of the legal system to implement national decisions rather than to place binding constraints on top-level officials.

Now I think that the real problem that we face as Americans is not so much lining up the items on the balance sheet. I don't think there'd be much difference here or in our broader informed society of the list that I've just given, but it's basically how you draw the bottom line, how you add up the summary.

And let me suggest three broad issues that we might want to consider further today. First, it increasingly strikes me that we disagree now on the temporal baseline by which we evaluate China. China today as compared to when? Many China specialists, including senior ones, tend to compare China today with China in 1949 at the time of the Communist revolution or China in 1976 at the death of Mao. I see that in the analysis of China. However, there is increasingly a generational transformation, and more and more analysts are asking whether those dates are relevant. And they want a comparison not with '49 or '76 but with 1989, the Tiananmen crisis, or 1994, when MFN and human rights were delinked.

And, obviously, if you pick these more recent dates, the changes in China have been much less dramatic. One can say there has been lower inflation over the last several years, continued increase in economic freedoms and economic prosperity, some progress on the legal system. But if one takes a more recent baseline, I think it is the case that China has either, at best, returned to the pre-Tiananmen situation or there has been deterioration on the political and civil side of China's human rights record.

The second issue: What kind of system does China now possess? I think it is grossly exaggerated to see China as a Communist, totalitarian system or as a quasi-fascist regime, for reasons that I can describe in more detail later if you would like. I see China as what I would call a developmental dictatorship. The closest parallels I see for China today are those that we saw elsewhere in East Asia in earlier decades: Taiwan of the 1950s and '60s, the South Korea of much the same period, parts of Southeast Asia at the early stage of their takeoff as well. And it seems to me that a comparison with those developmental authoritarian regimes rather than the totalitarianisms of either the left or the right are the most valuable comparisons for placing China in perspective.

And then, finally, I think the issue that confronts us in analyzing China is, of course: Where is China going? And here, I would caution against easy conclusions. I think there is a possibility that China could move backward towards greater totalitarianism, but I would also say I think that possibility is extremely remote. I think that there are two broad paths that are more plausible for China. One is forward towards gradual, further economic and political liberalization or down into growing incoherence, political decay and social unrest. That would be a tragedy for China and for American foreign policy.

Let me conclude with one final thought, not so much about the topic of my panel but the title of our entire exercise today. The title of the Policy Impact Panel that brings us here this morning is "China and the United States: Strategic Partners or Adversaries?" And I've suggested the answer to that question is none of the above--neither of the above. I don't foresee China being either a strategic partner or an adversary of the United States, precisely because the balance sheet for China is so complex. So I think we'll find that if we take an appropriately sophisticated and complicated view of China, we will see that we need a policy that deals with that country also in other than black or white terms. Thank you.

Senator RUDMAN: Thank you, Harry. Sidney Jones.

Ms. SIDNEY JONES (Executive Director, Human Rights Watch/Asia): Thanks very much. I agree with much of what Harry said, but let me give my own balance sheet on the human rights front. Starting with the political and civil rights situation, we've seen no progress whatsoever on the transparency of the prison system in China, and if anybody tells you they know how many political prisoners there are in China, don't believe them, because nobody does. But what we do know is that it probably is one of the largest prison systems around, not just in terms of people who've been formally sentenced on political charges, which used to be counterrevolution and has now been changed to state security offenses, but also in terms of people who've been administratively sentenced without any judicial proceedings for political and, increasingly, sometimes commercial offenses. There have been talks resumed, at least preliminarily, with the International Committee of the Red Cross on access to Chinese prisons, but we've seen these talks start and stop so many times before that we actually are highly skeptical that these are actually going to lead to any kind of major breakthrough.

Secondly, we don't see any progress on release of some of the people who have been imprisoned, either for frontally criticizing the political system or for religious activism or for nationalist activities of various kinds or, again, for falling afoul of commercial interests in China. There's no indication, despite a highly publicized campaign by the Chinese government to end torture, that torture is anywhere near being eliminated. In fact, we're getting increasing reports of torture taking place as communication increases--the ability to communicate between prisoners and families increases. We see an increasing preoccupation in China and also in Hong Kong with the notion of national security or state security.

There's been a debate in Hong Kong recently over these two ordinances, one on the society's law and one on public order where the Chinese government, through the provisional legislature, which is already meeting prior to the July 1st reversion, is already expressing deep concern that Hong Kong may be used as a place for subversion and, as a result, the government is trying to get provisions on national security built into Hong Kong law. We've already seen the elimination of the crime of counterrevolution, but its replacement with the much harsher penalty of trying to jeopardize state security in a way that we think has severe ramifications for people who try to express public opposition to the government.

The moves in Hong Kong more generally towards curtailment of civil liberties are worrying, and I think we need to pay very close attention to what's happening. You get almost a schizophrenic attitude when you talk to people in Hong Kong, optimism from the part of the business community and deep pessimism on the part of the legal and the academic community.

We see distressing signs in Tibet of an increased crackdown there, and this is related in some ways to what Harry mentioned about freedom of religious worship. In fact, all of the discussions about persecution of Christians in China need to be seen in a much larger context. What we see is not so much Christians or Catholics or Protestants being singled out; it's all religion. It's Islam, it's Buddhism, it's secret societies, it's millenium sects and it's also Christianity. But the concern is not so much freedom of religion per se; it's the unofficial bodies which somehow challenge the nature of party control over these religious associations. And I think it's worrisome. I think these people should not be arrested, but it's a mistake to see it narrowly focused on persecution of Christians.

And as I say, there's increasing controls in Tibet over people who are suspected of having any communication between India, where the Tibetan government in exile is, and the Tibetan people in the Tibetan autonomous region and other Tibetan parts of China. We see stepped-up executions in Zhenjiang, partly a response to the violence that's wracked Zhenjiang in the first six months of the year. And we see increasingly distressing ramifications of this strike-hard, anti-crime campaign in China, which is catching many people who seem to be involved in peaceful political activities in the net.

Finally, we do see some progress on the legal reform side, particularly in terms of due process--access to lawyers, for example, immediately after arrest instead of waiting until only seven days before the trials begin. On the other hand, for every step toward legal reform that we see, there is a negative side where the laws have been used or drafted in a way which seems to give increased powers to the Chinese government to deal with dissent.

And the final thing, I guess, is that we see increasing use by the Chinese government of commercial threats and blandishments as a way of trying to silence international criticism on human rights. We've seen this most recently with the United Nations Commission on Human Rights, where the Chinese made really virulent threats against the Danish government for having sponsored a resolution. We see the Boeing vs. Airbus competition come up all the time. And I think whatever policy the United States chooses to adopt toward China, we can't let ourselves or let other countries be bullied in terms of commercial threats and blandishments in exchange for silencing ourselves on human rights issues.

Senator RUDMAN: John.

Mr. JOHN D. LANGLOIS, Jr. (Managing Director and Head of Investment Banking, Asian Clients in the United States, J.P. Morgan): Good morning. Thank you. Our two previous speakers have mentioned a number of interesting issues. One of them is the time perspective that one needs to adopt when looking at China, and the other is the balance-sheet concept for looking at China, the pluses and minuses.

I think if you talk about the time perspective--What's the right one?--it's probably useful to think about where they've come from and where they are now. The reform started in 1978, which happened to be the first year I went to visit China. I was proudly shown a tour of communes, where people were not given any choices at all about where to work. There was hardly anything to buy. People had very poor supplies of common cooking oils and commodities. TVs were very rare and things of that sort. But if you go today--anyone who's been there recently would be amazed at the difference--the number of cranes that are all over the place constructing new buildings. You'd be amazed at the fact that there no longer is a big state assigning jobs to everyone. There, in fact, is a job market. It's very competitive. You frequently get poached. There are product choices all over the place. As anyone who has been trying to make U.S. products in China has discovered, it's very competitive.

Harry mentioned travel choice. There are Chinese tourists all over the place, some of them coming here; residences becoming freed up as people develop the incomes that allow them to buy residences on the market. Information sources are becoming multiple. The Internet is widely available. There's a lot of talk in the press about attempts of the government to intermediate that, but to the extent that they exist, they're very ineffective. There are satellite dishes all over the place. As was mentioned by Sidney, you can hire a lawyer and sue the government if you have a problem. Are you going to be successful? OK, that's a problem, but you can do it, and there are increasing reports of success.

And in terms of the government in its capacity to impose its will, there's been a lot of talk about the inability to enforce IPR laws. Although the USTR has recently decided that there's been substantial progress in that area, the fact is that the government is very inefficient in enforcing its will. Take tax collection, for example. While the government has established a central tax collection entity similar to the IRS with offices throughout China, they're very unsuccessful in taxing the gross domestic product. And so from that point of view, the government has a long way to go in terms of imposing its will.

They have been successful each year for the last ten years or more like clockwork in developing 10,000 megawatts of power generation capacity. They recently have been successful in auctioning treasury notes. In the old days, they used to not auction them, but just simply put them in your account--thank you--but now they're auctioned. You have to compete to buy them. Many of the state-owned enterprises, which everyone knows are very inefficient and make things that nobody wants--many of them are being gradually wound down by enforced caps on the stipends paid to the workers there. Some of them have become bankrupt, and so people are being forced to find supplementary incomes.

You're finding the emergence of pension funds because the new enterprises, particularly foreign-owned ones, are establishing pension funds for workers. The government itself has become a regular issuer in the international capital markets, not because they need to borrow that much--they have over $100 billion in reserves--although borrowing is, of course, necessary to supplement, as I mentioned, their shortfalls in tax collections. But one of the reasons that is motivating their desire to become an active issuer is to establish an international price for China credit risk. It's a conscious effort by some in the government to put out there in the market a benchmark by which investors can score China's performance, and the point here being that it's one way to enforce discipline on the management of the economy. Because if the economy is mismanaged, then the bond prices will crash and the whole world will be very unhappy if they bought the bonds and laughing if they didn't. There are something like 500 companies listed on two stock exchanges with a market value of $120 billion, giving investors and savers vehicles to save and put aside some of the money that they accumulate.

So there are a lot of things that one needs to take into account. I think one needs to start in '78, when none of these things existed, and ask yourselves whether they have simply lurched their way to where they are today or has it been a grand design or has it been somewhere of a combination between a leadership that let things happen and grass-roots movement driven by the creativity of the people, and it's probably somewhere in between.

I think, in summarizing, that it's very difficult to assess China because one doesn't know whether the glass is half full or half empty when you look at it; but if you look at it over a longer period of time, it's a little easier to put things in perspective and try to guess where things are going.

Senator RUDMAN: Thank you very much.

I'm going to start the first question from Ezra Vogel, and I'm going to ask the panelists to address it either to one of the members of our panel or others can comment if they wish. So I'll start with Ezra.

Dr. EZRA F. VOGEL (Director, The Fairbank Center for East Asian Research, Harvard University; former National Intelligence Officer for East Asia, National Intelligence Council): I'd like to ask a question to Harry Harding, but others can comment if they wish. Of course, there's a special kind of mood, as we now know, in Washington, concern about Donorgate. There are a lot of pressure groups where people are speaking out, often without adequate background and information. But if you put the mood aside and try to think in terms of long-term U.S. interests, we're now dealing with a rising power, and the report card I think everybody gives is a very mixed report card. How do we walk the narrow balance in dealing with a rising power in terms of protecting our interests and seeing that they don't cause damage to the international system and, yet, engage sufficiently with them so that we can work together on common problems where we need their cooperation? How do we walk that fine line?

Dr. HARDING: The short answer is with difficulty, but let me give some further thoughts on that.

Dr. VOGEL: I didn't mean to ask a simple question.

Dr. HARDING: I think that our policy--one way of looking at our policy towards China that I would recommend would have the following elements to it. First of all, our policy, I think, does need to have an element of reassurance. We need to reassure the Chinese, both the government and the people, that we are not about the business of trying to block their rise to power. We're not trying to destabilize their society. We're not trying to fragment them geographically. We welcome their rise to prosperity and to security, precisely because Americans historically have had very positive feelings towards the people of China and wish them well. And I think a message of reassurance is legitimately and properly one place to begin.

The second element, I think--and you hinted at it, Ezra, in your question, and it's an element that the administration is increasingly mentioning as well--is that we need to complete the process of integrating China into the international community. This doesn't mean simply trade and investment flows. By that measure, China has been fully integrated for a very long time. But it means bringing China into a set of institutions and regimes that are rules-based and do not simply represent American desires and American interests but represent an emerging consensus in the international community about what proper behavior constitutes. And there are now regimes on everything from trade to proliferation to human rights and to environmental issues.

I think that, thirdly, there needs to be cooperation with China, working together, including in areas of human rights, where Americans and Chinese and others can work together to help China promote its legitimate interests, to show China that there are benefits from integration in the international community.

But, fourth and finally, there also has to be enforcement, enforcement of the norms of the international system. And I think that here is another issue on which there is understandably very legitimate debate. How can we best enforce the international norms in the human rights area with a country like China, which is a powerful country, a rising nation and where many other American issues are at stake? But I assume that question will come up a little bit later; I won't try to answer that one now.

Senator RUDMAN: Any other comments from the panel on that question? Yes.

Ms. JONES: Can I just say that I think that it's critical to try and integrate the human rights concerns into policy more generally. Now I think part of the problem with walking this fine line is that you have human rights on one side of the screen and you have trade and investment on the other, and there's no coming together of the two camps, as it were. And I think that if the United States managed to fashion a policy that would both contain some incentives, such as major increase in funding for legal programs, for example, as well as not hesitate to criticize China very publicly in various international fora, when that criticism is warranted, that would be useful.

I also think it would be extremely important to have the CEOs of major corporations investing in China take a much more direct interest and much more public interest on the human rights front so that the Chinese government didn't see that you could try to marginalize the human rights issue and still get all the benefits of the economic engagement.

Senator RUDMAN: Bill.

Senator BILL BRADLEY (Former United States Senator; D-New Jersey): Thank you very much, Warren. It seems to me that Americans want instant answers and instant change, and the Chinese think in terms of thousand year time periods. The problem with the American approach is that we frequently have no patience to allow forces to take their place and evolve, and the problem with the Chinese approach is that we're frequently waiting and nothing every happens because we're waiting for the thousand year period. My question to you is really assessing how things have evolved, say, politically in the last--say, from 1976.

Harry mentioned, for example, voting at local levels. In how many cities in China is the local governing body selected by the party and in how many do people actually select the local governing body?

Dr. HARDING: I think the answer in cities, as far as I know, is virtually none. That is, we are talking about competitive elections at the village level, so well below the city and in rural areas, and competitive elections to the county or the urban district level. So I'm not aware of any sizeable city in China where the mayor or the city official is directly elected.

Mr. BRADLEY: But at the village level...

Dr. HARDING: At the village level, there would now be at least hundreds of thousands--Sidney may actually have a number on this--of elections. These are competitive. However, the level of competition is restricted to basically candidates who are nominated by an official electoral committee so that there is no organized opposition. But it is, actually, a system that many Americans are familiar with with a lot of their non-governmental organizations, where a nominating committee will nominate more candidates than there are vacancies. The candidates will make their views known on issues of interest to the constituents of the organization. And there will be, in that sense, a competitive election.

Senator BRADLEY: How many people actually vote in those elections? Understand, 1,000 cities--they don't vote, but in the rest of the villages, how many people of China would that be actually voting...

Dr. HARDING: Well, we'd be talking about, you know...

Senator BRADLEY: ...since most of the people live in the countryside?

Dr. HARDING: We would be talking about, I assume--got to be careful here--tens if not hundreds of millions of adults. What you'd want to do is to have an extra...

Senator BRADLEY: You don't want to be too precise, then.

Dr. HARDING: I can't be. I'd have to do a little research on this, and I don't want to mislead by giving you a huge number. But if you simply take the rural areas of the country and, again, take into account the fact that China is a rapidly urbanizing society, so that we are talking about a smaller proportion of the population than we have been able to talk about in the past, we then talk about the number of those who are adults. We can assume there's a very high participation rate. So we are talking about tens if not hundreds of millions of people. This is not insignificant, but we are not talking, at this point, about direct elections to national or provincial or municipal levels of government. I think we have to be very clear on that.

Senator RUDMAN: I want to ask John a question. Ms. Jones, in her presentation, suggested that CEOs of major companies that have trade and investment with China should take--and these are my words, not hers, as I heard her words--a more enlightened view towards balancing their trade, commercial interests, with the issue of human rights, which has been delinked as a national policy. How practical is that?

Mr. LANGLOIS: Well, I think there--it's impractical in one sense, and that is that if we're talking about American CEOs, our share of investment in China is still small compared to the total amount of--there was $40 billion in direct investment last year. The U.S. share of that is just a fraction. So the ability of CEOs to have an influence would be very limited.

On the other hand, I think CEOs that I know already do take a keen interest in their investments in China. As is well known, the investments in China are so difficult to do and execute that they frequently do involve the CEOs or very senior levels of corporations in discussions about the nature of the investment. And you quickly get involved in issues such as when you form a joint venture, who to hire and whether or not you have the right, as the foreign party, to determine what are the criteria for hiring and the number of people, the salaries you pay. So I think it is very practical from that point of view because the issues, in setting up joint ventures, are often so complex that they require the best brains in corporations to get them done.

Senator RUDMAN: I want to follow up with Harry Harding. You know, we're talking specific issues right now. Obviously, people are looking at MFN and membership in the World Trade Organization. There was and is, I guess, some defense cooperation that was started a number of years ago, was suspended for a time and now possibly being renewed. The question I have is simply this: At what point should there be linkage?

And let me give you a hypothetical. The human rights issue is a very hard one to assess, although we now have better reporting out of China by organizations such as Sidney's that tell us about these things. But let's get to a very specific United States security interest. Let's talk about the allegations of the sale of weapons of mass destruction, including missiles and biological agents or chemical agents, to countries which the United States has deemed to be if not terrorist nations, certainly nations that are on a world basis antisocial, to put it mildly. What do we do about that? When our intelligence apparatus tells us that this, in fact, is happening, do we delink that or do we say, `Wait a minute. We're going to draw a line here?' And where is that line? Is there a bright line?

Dr. HARDING: Mm-hmm. I don't think there's a bright line, but I think that there is a line, and I think that we do need to use a variety of instruments to pursue our interests and to enforce international norms. In the case of proliferation, I would take two approaches. One, under American law, there are sanctions that can and, indeed, should be applied to cases such as those that you've mentioned, at least most of them. In some cases, we're concerned about the sales of missile technology to countries like Iran that are not covered by the missile technology control regime. So China is doing nothing wrong legally but is doing something we would prefer politically that they not do. But in areas that are covered by international obligations and covered by American law, then there are sanctions on the books that should be enforced.

At the same time, I think the diplomatic representation is also very important. In other words, we can't simply sit here aloofly in Washington and try to influence Chinese behavior simply by imposing sanctions or withdrawing sanctions. We need an ongoing dialogue with the Chinese at both the political and the military-to-military levels that tries to, in many cases, indicate why we believe that a common approach on some of these proliferation issues would be in the common interest of both China and the United States.

The Middle East is a part of the world in which China has an interest. It borders, to some degree, on Central Asia, certainly, and the Middle East itself. It will have increasing interests in importing oil from the Middle East. And, therefore, one could make the case that, over time, American and Chinese interests will converge in wanting stability in the Middle East and a free flow of oil to oil-importing countries. And if we simply use the instrument of sanctions without trying to identify through dialogue common security interests, we'll be missing an opportunity.

Senator RUDMAN: Sidney, do you want to comment on my question about whether we do, in fact, have a bright line as a matter of national policy we ought to be drawing?

Ms. JONES: I guess I would put the balance maybe a little bit more on the punitive measures. I think dialogue is certainly important. I think it's a real mistake to think that dialogue is going to accomplish anything in and of itself, because we've seen too many dialogues that effectively become monologues with governments that are dealing with China. I think we get a sense in the human rights community that, in fact, the line has been drawn; that, in fact, the United States government has little difficulty in trying to impose sanctions on intellectual property issues, or at least threatening to impose sanctions on intellectual property issues or on proliferation issues, whereas it's effectively abandoned any suggestion of imposing sanctions on human rights issues.

That isn't to say that I think that the imposition of sanctions for human rights is always a useful tool, but I do think a line has been drawn in this administration between human rights on the one side and trade and security issues on the other.

Senator RUDMAN: Ezra.

Dr. VOGEL: I would like to ask a question to Jack Langlois. I know that you've been an outstanding scholar with Chinese language and have worked in the country as well as a businessman. If you'd put on your scholarly hat for a moment and think about the process of involving Chinese in international business, to what extent, in your observation, have the Chinese been enmeshed and getting involved in international organizations and laws? To what extent do you see the Chinese businesses now as abiding by international standards, paying debts, learning international rules and sticking to those rules? And to what extent do you see corruption at work where they've tried to subvert international rules and lead to kinds of relationships that we would consider inappropriate?

Mr. LANGLOIS: We have been involved with many companies in China that are seeking to raise capital abroad as well as with many investors who are looking to invest in China. And in most--in all cases, really, I've found that the managers on the Chinese side have been very keen to try to understand what it is, where we're coming from, not that they cave in, but that they want to understand what's going on. For example, we've had people who don't know the difference between equity and debt. And equity sounds good because you don't have to pay it back. But debt, on the other hand, is something they view very, very seriously as something they must pay back, and they're very concerned about interest rates. We found many entrepreneurs in China who have somehow picked up MBAs. I don't know where. They got them on the street. They got them by just learning on the fly. There are people with--somehow have acquired instinctual business skills who have understood the importance of contracts and documenting the rights and obligations of contracts so that they can be understood to avoid disputes later.

There's a native tradition in China that says your word is your bond. That's widely used among overseas Chinese. That does not work for foreign corporations trying to invest in China. And so many of the Chinese we come in contact with have been trying to understand how to translate that value into internationally acceptable documents. The same goes for the people in the government, the people in the regulatory bodies. They are basically building institutions that they haven't had in China, in many cases, from scratch. And, therefore, many of the institutions in China have invited foreign experts, funded at times by the World Bank, to teach modern accounting, to teach finance, to teach contracts. There's a massive effort to upgrade this kind of software in China.

So, I mean, by way of answer to that, I think that--also, many U.S. corporations have invited Chinese counterparts to come here and spend weeks or months at a time learning how we do things here, the purpose being to build friends so that the U.S. corporations can do more business over there, but at the same time transferring experience and know-how to Chinese counterparts.

Dr. VOGEL: This is sort of a follow-up from Senator Bradley's question. Do the Chinese businesses you've come into contact with have long-range perspective enough to understand that they're going to have to abide by contracts and going to abide by international rules in order to get credit in the long run? Do they have that long-term perspective?

Mr. LANGLOIS: I know that the government definitely does and many of the corporations we deal with do, but at the same time, there are challenges to that by short-term oriented investors and speculators who move money in and out quickly. But in general, there is a group, a growing group, of managers in China, both in the government and outside the government, who do have a long view and are taking the interest--the long-term view in terms of implementing the things they do.

Mr. RUDMAN: I found Senator Bradley's initial question interesting from the point of view that I think it's absolutely true that we tend to be very impatient in this country from a policy point of view. We expect countries that have a history very much unlike ours to suddenly develop systems without any of the background that it takes to develop those systems. To do so in a short period of time--hopefully within one Administration--that doesn't happen, these things evolve. And I guess my question would simply be this to all three of you. As opposed to official United States policy, much that has gone on that is of positive nature in China has come from the private sector there and here. So as we're assessing their progress, as opposed to assessing it from a point of view of whether or not, you know, the policies our governments--various administrations set forth are being complied with, whether they're being rationalized, my question would be, as you look at, generally, all of these issues--the business relationships, the freedoms, human rights generally, how the laws are being applied and obeyed--my sense is, from all three, including Ms. Jones, that if you want to compare it to ten or fifteen years ago, there's been major progress made, although there is still much to be done. Is that a fair statement?

Dr. HARDING: Well, as I said in my opening remarks, where you set your baseline is really going to determine your conclusion. And I didn't say that to suggest any particular baseline but simply to comment on what I think is a key element in the debate in the United States which, in effect, is: Which baseline do you use?

Senator RUDMAN: Well, pick a baseline and amplify that for us.

Dr. HARDING: Well, let's go back to '76, '79, the reforms of the post-Mao era. And I would suggest the pattern is as follows, with, obviously, Tiananmen basically halfway through that period as being a major turning point.

I would say that basically some of the most dramatic progress in the area of economic rights and some social freedoms has come, in fact, after 1989, but that, unfortunately, the progress with regard to political and civil rights has certainly slowed, if not halted, since then. So we see an interesting trade-off, in effect, where there was, I think, some dramatic liberalization of the political system in the 1980s and now a crackdown, a halting of further progress since Tiananmen, and the emphasis has shifted to the economic realm with further growth, more integration with the international economy and, importantly, bringing, at least for the time being, inflation under control. So we see again a mixed pattern. Certainly, if you compare it with 1976 or 1979, overall, the progress on all of these dimensions has been enormous.

I finally want to simply underscore the importance of what you said a minute ago, and that is that this is not a matter simply of U.S. government policy and U.S. government responsibility. In virtually all of the areas that we're talking about--human rights, security and economics--the nongovernmental community, both corporations and NGOs and universities and an entire array of American social institutions, have a very important and a very positive role to play, and I appreciate your bringing that out.

Senator RUDMAN: Sidney.

Ms. JONES: I don't want to be quoted as saying there's been major progress in China's human rights record over the last, say, five years because I don't think there has been. Yes, of course, if you're looking...

Senator RUDMAN: How about ten or fifteen?

Ms. JONES: If you're looking at the cultural revolution and now, no question. But I do think that a couple of things have to be put in perspective, and let me just say two of them.

One is that even on the economic front, there are some human rights abuses that have been thrown up by the economic boom that we're dealing with now that we weren't even thinking of five years ago, and one of those is worker rights. And I would refer you to the wonderful article by Anita Chan and Bob Senser in the most recent issue of Foreign Affairs, where they go through some of the very systematic abuses in Asian-invested firms and, in some cases, in state enterprises in China that have emerged as a result of this uninhibited economic growth. And that's something that has to be taken into consideration, because the workers are a very powerful force in China, particularly as some of the state enterprises may become privatized.

I think another issue which has come up which most people don't think of in terms of human rights issues is the trafficking of people, which has increased substantially as a result of the economic boom--trafficking of people outside of China, trafficking of women both outside of China and within China.

I think another thing to keep in mind is that even though you may want to take a very long-term perspective and say that the rule of law is going to take years to develop in China--certainly, that's true--what do you do with the people that are the immediate victims of arbitrariness and human rights abuses in China? Do you just say, `Well, it's a problem for them, but we'll have to deal with the long-term issues?' I don't think you can do that. I think you have to do both. I think you have to work on the long-term trends. I think you have to encourage some of these private initiatives that are going on. But I don't think you can abandon the victims of human rights abuses in China today.

Senator BRADLEY: Do you see a tension between the slow development of the rule of law domestically and China's desire to become a member of the World Trade Organization? The World Trade Organization is, after all, a set of rules. It is a set of procedures. It is a set of incentives and punishments. The question really is: Do you see a tension between those two? That's the first question. And the second: As China negotiates for membership in the WTO, what are the three or four most difficult negotiations? What issues related to their membership do you feel will be the most difficult for China and the WTO to resolve?

Ms. JONES: Do you want to start?

Dr. HARDING: Well, maybe I'll take the first one and ask Jack to take the second part, about the agenda of WTO. OK?

Ms. JONES: Let me get there in the middle.

Dr. HARDING: OK.

Senator BRADLEY: Well, each of you can answer all three questions.

Dr. HARDING: All right. OK. I'll just talk about the first question of the tension between WTO and the rule of law and remind everyone of the question that Ezra raised a few minutes ago about the process of integrating China into international regimes. I think it is striking that the Chinese government is now willing and, in some cases, eager to join international regimes and organizations on a wide range of issues, including regimes and organizations that, at one point in its history, it disdained. And these would include not only non-proliferation regimes but also the WTO. I think that that's a very, very positive development. The history of the negotiations suggests that China is willing to take on significant obligations in the WTO negotiations to open its economy to trade and to investment, not only from the United States, obviously, but from the rest of the world, which suggests that China is entering the WTO with its eyes open. It understands that this is a rules-based regime that would demand major change, but it sees this as being in China's interest.

The question that you raised, Senator Bradley, is basically the question of domestic enforcement. Can we be confident that the Chinese regime will be able to enforce the various obligations that the entire Chinese economy, in effect, will be taking on as a result of WTO? And I think this is going to be a very real problem, frankly. I'd say that it reflects the fact that, in effect, totalitarian and administrative controls over China's economy and China's society are being relaxed before an effective and noncorrupt legal system is being developed to replace it. So in that sense, there is a tension between the obligations that the central government may take on, and very sincerely, and the enormous incentive for local organizations, sometimes local governments, to cheat. And enforcing the WTO obligations will be a major challenge for both the Chinese central government and for the other members of WTO, including the U.S.

Senator BRADLEY: Isn't it an insuperable challenge?

Dr. HARDING: I'm not sure it's an insuperable challenge. I think that we have to look at it this way: that...

Senator BRADLEY: Why not?

Dr. HARDING: Huh? Well, because--I mean, let me explain why. It seems to me that if China takes on obligations, and even if it does not fulfill them 100 percent, we are still better off than if it takes on no obligations at all. China has already acquired, in fact, most of the benefits of WTO membership. That is to say that most countries, including the United States, have already given China the reduced tariff treatment that was the major outcome of the Uruguay Round. China has most favored nation status from everybody, and it, therefore, gets most of the benefits. Therefore, even if there is not perfect compliance, we still are better off. It's not perfect, but we're still better off than if China does not take on these additional obligations at all. So that's why I do not see this as an insuperable obstacle, but I do see it as a major problem.

Ms. JONES: I think there are a couple of tensions between the rule of law and the WTO that are just worth throwing out. One is that it's not clear whether we're dealing--I mean, it's sort of a chicken-or-egg question. Do you try to get some kind of major improvements in the rule of law so that when China does become a member of the WTO, it's more likely to play by the rules of the game? Or do you think that by becoming a member of the WTO, you're, therefore, going to enhance the rule of law? What we've seen in the number of countries in Asia is that there's not really a connection between major improvements on the commercial side in terms of rule of law and improvements on the political side of the rule of law. And I don't think it should be assumed that just because China becomes a member of the WTO and perhaps--and that's a big if--is willing to play by the rules of the game on the economic side that, therefore, it will spill over into the political and social side in China. I think that there's a major difference on those kinds of things.

I'd also like to--you probably don't like to be reminded of something you said two or three years ago, but it's...

Dr. HARDING: Depends on whether it's still true or not.

Ms. JONES: But at the height of the MFN debate in 1992 or 1993, we were trying to think of other forms of leverage that the United States might be able to exert on China. One of the issues was whether or not it was possible to keep China back from the club it wanted to become a member of.

Dr. HARDING: Mm-hmm.

Ms. JONES: And as we've seen various tools for dealing with China evaporate, one of the few that's left is access to the WTO. Is that an appropriate tool? You know, that's an open question. But the fact remains, is that we don't have very much leverage and we don't have very many tools left.

Dr. HARDING: Could I respond? I don't know whether I said that two or three or four years ago. If I did, I renounce it today for the very simple reason that I don't see WTO as a club.

Ms. JONES: Mm-hmm.

Dr. HARDING: I see it as a regime. And since I don't believe that we should be asking human rights concessions from China before we allow it, say, to join the non-proliferation regime, nor do I believe that we should demand human rights concessions from China before we allow it to join WTO, I see this as a regime that will impose obligations on China. And as I said, even if they are not completely fulfilled, we're still better off. So whatever I may or may not--and I, frankly, don't recall having said this, but I trust Sidney's memory. If I did say it, I no longer would subscribe to that position.

Mr. LANGLOIS: I would just add simply that in China they are building a legal system and they haven't--many of the laws that are on the books today haven't been around very long. I remember two years ago when they passed a law on collateral, I asked a Chinese lawyer, `How will this be enforced?' He said, `I haven't a clue.' It's a very new law. They haven't been tested in the courts. There has been very little interpretive writing or literature about many of these laws. And so while they are building a system, it's very new.

And so in terms of the WTO, which, as Harry says, is a regime, it's incumbent on the members of the WTO to explain clearly what the rules are and to make sure that it's totally transparent, and then to expect the Chinese to reciprocate in terms of transparency and make their best effort. And then people need to make a judgment and say, `Well, is that a deal we're willing to go into?' And see how sincere they are on the Chinese side in terms of increasing transparency on their side and enforcing the rules of this regime.

My experience is that they themselves are troubled by lack of transparency and are trying somehow to figure out what to do in order to increase it domestically. But it's clear there's a lot more they have to do and I think, as has been said, at some point the world needs to either get on with it or not.

Senator BRADLEY: One last point. You seem to be saying that you think that the international regime will affect the domestic circumstance, maybe not fully in terms of human rights, but at least it will affect it in a lot of different ways. Does that mean that you believe that the Chinese government, if it was a member of the WTO, would submit to the dispute settlement mechanism that exists in WTO, which is really the heart of the last round? As we see, sometimes works in our favor; sometimes works against this. The Europeans just lost on the beef issue; we won. We lose with Canada frequently in our negotiations. You see a Chinese leader being able to say, `Well, the bureaucrats in Europe decided this should happen and, therefore, we're going to have to abide by it?'

Mr. LANGLOIS: That's another issue, and my gut view is yes, because in a way it would help them going through the stress of ordering their own system to be able to say that, `Yeah, there are some clear rules, highly transparent. This is the way it's going to be done and we're going to try to do it here.'

Senator RUDMAN: Ezra?

Dr. VOGEL: China now has a change of generations in many different ways. And particularly since the end of the cultural revolution and the reopening of the universities in 1977 by competitive exam, we now have a group of officials who are rising up who knew universities under a competitive way rather than having grown up in the cultural revolution. What extent is this generational change going to lead to different leadership directions? What's your assessment as to what that's going to mean in trying to project what China is going to become? I'd be interested in everybody's comment.

Dr. HARDING: I think it certainly is true that there is a huge generational change occurring. It is, at this point, evident largely in the subnational level of Chinese politics, but before too long it will be reflected in a new generation at the national level as well. And I think that in general I would say that I would expect the following consequences. First of all, of course, a group of people who are much more, in a sense, technocratic in their orientation; that is, they are concerned about policies that work, policies that are effective in pursuing national objectives rather than people who think ideologically.

Secondly, I think this will be a generation that is much more open minded and exposed to much more of the outside world than their predecessors have been. The generation now in charge, as we know, while it has traveled abroad to a degree since 1979, was trained in the former Soviet Union or Eastern Europe, if at all. This new generation that is emerging will have had a much wider range of experience, including in the West and including in the United States.

On the other hand, I also think that this will be a generation that will be increasingly nationalistic. And I think we have to be careful about this very loaded word, because there are very many variants of nationalism, from xenophobia on one end of the spectrum to good old patriotism on the other. But I think this will be a generation that will increasingly--again, its baseline will also be 1978. It will feel that China has made enormous progress largely by doing things in a Chinese way. And I suspect that they will, therefore, have the self-confidence that will lead them to conclude that China can make its own decisions on the basis of its own interest without necessarily following foreign models or bowing to foreign pressures. So this will be an open minded, practical, cosmopolitan but, I think, proud and in some ways nationalistic group of leaders.

Ms. JONES: The only thing I've learned in the time that I've been following China is not to make any national predictions in terms of what political trends may be. And I would just say that there is a very interesting study done recently comparing three provinces--Hainan, Zhejiang and Shanxi, I guess--looking at three provinces where there'd recently been a change in provincial leadership, or at least you had a new generation of political leaders. And in all three of the provinces, there was no uniform tendency either in terms of whether the new generation was hardline or more open to reform or whether there was a connection between openness to external investment and openness domestically inside those three provinces. Shanxi probably had the lowest level of outside investment and the most open provincial government. So I'm not sure that there's any generalizations that can be made there.

Senator RUDMAN: Ezra, did you want to follow up?

Dr. VOGEL: I just wondered, Jack...

Mr. LANGLOIS: Well...

Dr. VOGEL: ...in the business world what the changes in generations is?

Mr. LANGLOIS: ...there are a huge number of Chinese who've come here to study and gone back home to get rich. There are not too many who go back to work in the government, as far as I can see. And so that's the problem. It would be good if many would go back and work in the government and help it deal with the problem. But at the business level, there are many who have studied here, who you bump into all over China who speak very good English, because they've studied in the U.S. and they have a good idea how things are done over here. They are bringing management, as we would call it, into China very rapidly.

that will lead them to conclude that China can make its ow

Senator RUDMAN: This panel, of course, has been entitled "Trends in Human, Social and Political Rights." And the panel that will follow at 10:30 deals with "Trends in Economic and Strategic Goals and Objectives." Obviously, the two are inexorably linked, and in order to kind of set the stage for that panel, I would like to take something from what Harry has said and ask you all to comment on that and ask my two fellow panelists here to comment if they wish on the following question. Essentially, there is not a great divergence in views between what we've heard from the three of you this morning. There are, obviously, some differences.

But in terms of trends, I get a sense that, although there are varying degrees of satisfaction, the facts as to how it's evolving aren't really that much in dispute. So taking Harry's baseline, which I think is a very good place to end this panel, I want to ask this question. Members of Congress have to vote on specific issues involving China over the next several years. We tend to look at those issues but we probably ought to look more broadly at what should the policy be of this administration and succeeding administrations. Having said that, what are the baselines? What are the things that we should look for? What are the things that those in Congress who are not China experts should look for in social, in human areas, the area of human rights and social rights and political rights.

What are the baselines? Harry, Sidney and John, what should we look for over the next five years in terms of the various markers that we should hope would be reached from a reasonable point of view, knowing China and how it moves? That's my question.

Dr. HARDING: I can't give a comprehensive answer to that, but let me just tick off a number of things that are important. One--and you'll have a chance to ask Nick Lardy about this later because he's the leading authority on this--is that we really need to see some further progress in enterprise and banking reform in China. Why? Because unless that progress is made, China is not going to have the resources available to deal with a daunting set of internal economic and social problems over the decades ahead--everything from shortages of water to dirty air and soil to shortages of arable land and so forth and so on. So we need to see further progress there. That's an important benchmark.

In the area, more specifically, of political and civil rights, I think that the two things that I will be looking for--and the first time to look will be this fall and next spring at the meetings of the National Party and National People's Congresses, respectively--is whether there is any direct or indirect reassessment of the Tiananmen crisis of 1989 by the Chinese Communist Party and whether any further elements of political structural reform are placed on the political agenda as part of national policy. There is much rumor, much speculation that these items are being discussed. This will be a time to see whether we will have any kind of resumed momentum in the direction of political reform. That kind of momentum, as I said earlier, has basically been halted since 1989.

Senator RUDMAN: Sidney.

Ms. JONES: I guess I would look at how China deals with the whole notion of state security and whether that concept is applied more and more broadly or whether it's defined more and more narrowly. And I think this has great implications for Hong Kong. I think I would look at the transparency of the prison system and look at the access to that system by international bodies and the ability of outsiders to actually have access to individual prisoners. And I would look at the impact of major development projects, particularly from a social point of view. And the Three Gorges Dam would be a good place to start.

Mr. LANGLOIS: I think there are a couple of things people should keep in mind over the next few years. One is--it's a little abstract, but to what extent are people able to chart their own lives, and are there any changes in that? For example, are people still able to find jobs pretty much on their own? Are the achievements that have been recorded over the last few years still in place? Benchmark? One might look at what investors think about China. What are the price of Chinese bonds in the international markets? Are they stable or are they volatile? What are investors in Hong Kong saying about investments in China today? It's a boom time. What will it be like over the next few years? I think people should take a look at that. How many students are coming to the U.S.? And what are they saying about China? What do they write? Recently, the son of the Foreign Minister has written a book about the U.S., very complimentary. What are other people saying? And are they going back to bring their insights into what goes on in the rest of the world? These are the things that people should be looking at as they set policy.

Senator RUDMAN: Ezra, final questions and comments.

Dr. VOGEL: Well, I was just going to make a comment this time...

Senator RUDMAN: Either way. We're going to take a short break...

Dr. VOGEL: ...since we have so little time.

Senator RUDMAN: ...here in a few minutes before the second panel, so questions or comments. I...

Dr. VOGEL: It seems to me we have a widespread agreement that if you use the baseline of the late '70s until now, there has been broad change. And I think the underlying dynamics are that when China was a closed society and there was a Cold War from 1949 until the 1970s, there was tremendous suppression in the society and there was very tight constraint, and there was not much economic growth, and that since the opening in the 1970s, there have been some zigzags but that the main direction is one of very considerable expansion, and not only of economic dynamism but of personal choice and a great expansion of that since that time, using that as the baseline. I think to look for baselines to measure growth from now on--I guess what I would add to some of these discussions is looking at some of the things at the grass roots.

Because I think often in the indications that hit the American press, like the number of prisoners released, we don't have--that's not a very good reflection of what's going on at the grass level. And I think the impact of village voting is a very important one. I think the extension of that voting system to, say, counties and cities, I think, which may come, I think the growth of disagreements at the National People's Congress, is another place I would look. To what extent is that institution beginning to behave more like a genuine legislative discussion group with different opinions rather than simply rubber stamp on the government?

In looking at some of these deeper levels, I would also look at the vernacular press because I don't think that gets enough attention, because most people don't read the vernacular press. But among my Chinese friends who read the vernacular press and the literature and the short stories, there's no question there's been a tremendous amount of improvement. And I think that we ought to pay more attention to that range of discussion--ideas that are discussed at the local levels, ideas that are thrown out in the magazines. And I think that those are very important benchmarks that we ought to think--and are perhaps even much more important than the question of how many prisoners did they release in response to the latest pressure. Thank you.

Senator RUDMAN: Bill Bradley.

Senator BRADLEY: I would like to ask the panel: Do you think that the best way to influence China on human rights is either, A, talk about it every time you get a chance and don't sanction? Do you think it's bilateral pressure? Or do you think it is multilateral action? If you believe it is multilateral action, how credible are we in advocating that, given the fact that we haven't ratified the International Covenant on Economic, Social or Cultural Rights? How credible are we on worker rights issues when we've not ratified the five core conventions of the International Labor Organization?

Ms. JONES: If I can start off in response to that, I think we would be far more credible--there's no question--if there was a major push for ratification of the International Covenant on Economic, Social and Cultural Rights and if we ratified the five core ILO conventions. And I think it's a shame that this administration hasn't put as much effort into those human rights conventions as it did into the chemical weapons treaty, for example. I think the push should be as great. I don't think it follows, however, that because the United States hasn't ratified it, that, therefore, we should just stay silent when human rights abuses occur.

I would rather have this administration speak out on human rights abuses even with the fact that it hasn't made a push for those ratifications than just to abandon all effort on that. I think the question of bilateral vs. multilateral's an extremely loaded question in some ways, because there's been a lot of talk about multilateralism, but not enough effort to actually ensure that multilateral approaches are undertaken and then work. I think the whole effort at the United Nations Commission on Human Rights was a total disaster, partly because France played an incredibly reprehensible role, but also because the United States didn't put the effort into it that it could have to try and ensure that it turned into something more than a farce.

So I think multilateralism has got to be more than a slogan. Of course, it's better to have multilateral initiatives than to have unilateral or bilateral programs, but you can't just keep it as a slogan. You've actually got to put the time and resources into making it work. And I think if you don't put the time and resources into making it work, then you have to fall back on the unilateral action, rather, again, than just abandoning ship and saying, `OK, we can't do anything about human rights.'

Senator RUDMAN: Last comment from Harry, John.

Dr. HARDING: I thank you. I think that we need a very broad based human rights policy. I think that talking or dialogue with the Chinese is important at both the bilateral and the multilateral levels. We know that the Chinese are very sensitive to multilateral criticism of their human rights record, and I agree with Sidney that we need a much more effective multilateral approach than we've yet undertaken.

Secondly, I think that there are areas where we can cooperate with the Chinese in doing some things that will promote human rights, especially if we take a broad definition of those rights. In particular, the Chinese would be very interested in working with some American organizations, especially nongovernmental, in such areas as village elections, the rule of law, poverty alleviation, dealing with issues of the social safety net and so forth, all of which are human rights related. And I'd like to see a lot more emphasis and, indeed, funding for these cooperative elements.

There is then, finally, the issue of sanctions or enforcement. I think it is very difficult to apply economic sanctions across the board to human rights violations. I do think, however, there are some areas where economic sanctions are entirely appropriate. And I can think of one very easily, and that is the importation of prison labor products, which is already illegal under American law. And it seems to me that American law in this area should properly be enforced. So I think it has to be a combination of these elements, but I think that, compared to the situation today, we need more genuine dialogue with China, more multilateral approaches and more efforts at cooperation and, therefore, relatively less emphasis on simply unilateral criticism and threats of sanctions that are never carried out.

Mr. LANGLOIS: I would favor a continued emphasis on bilateral talk. I think that taking the high road is the right way, making it very clear what our values are. When we're unhappy about something, don't be silent. But at the same time, don't push people into corners to make them lose face or to adopt procedures which often are counterproductive and get you results that are negative on both sides. It's much better to be constructive. But do take the high road. Do stand for principle. And at every occasion, do speak one's mind to express one's concern about where things are going. But at the same time, don't carry a big stick and club because often you hit your own foot.

Senator RUDMAN: Harry and Sidney and John, thank you so much for being part of the first panel. I'm going to take a five minute break and we'd like panel two to be in place, if they could be, at 10:30; and the audience be in place at 10:30. Thank you.

*****

Senator WARREN RUDMAN (Panel Chair; Partner, Paul, Weiss, Rifkind, Wharton and Garrison; former United States Senator; R-New Hampshire): The second panel, titled Trends in Economic and Strategic Goals and Objectives--I believe, again, you have information on each of the panelists. Let me briefly introduce them.

Colonel Karl Eikenberry is Defense Attache Designate, U.S. Embassy in Beijing. He's a graduate of the United States Military Academy, fluent in Chinese, with academic training in China under Professor Vogel. Robert Kagan: Alexander Hamilton Fellow at American University, Contributing Editor to The Weekly Standard. Nicholas Lardy is Senior Fellow, Foreign Policy Studies Program, at The Brookings Institution. He is well known for his expertise in economics as it relates to China. And finally, Greg Mastel, Vice President for Policy Planning and Administration at the Economic Strategy Institute.

I'm going to start with Colonel Eikenberry and ask each of you to give us a brief opening statement, informal, hopefully keeping it to about three to five minutes; with four panelists, I'd prefer three to five, but we'll give you that latitude.

Colonel KARL W. EIKENBERRY (Defense Attache Designate, U.S. Embassy, Beijing, People's Republic of China): Thank you, Senator.

Let me very briefly talk about two different issues. First of all, if I could give some context by giving a very brief assessment, a personal assessment, of the state of Chinese military power today, and secondly, some thoughts on what appropriate security responses from the United States might be.

First of all, in talking about Chinese military power, it's clear that China has--the Chinese military has, over the last ten years, had a certain degree of progress. Its budget, its military budget, its defense budget, has increased significantly over the last seven to eight years. Beginning in the late 1980s it's had steady real increases of perhaps anywhere from five percent to fifteen percent per year. As well, Russia has sold a certain amount of advanced weapons to China. China's had some success in acquiring several squadrons of relatively advanced Russian fighters. They've made purchases of Russian air defense systems. They've made purchases of Helo-class attack diesel submarines. They've also made purchases as well, or we've read about purchases that they're making of fairly capable destroyers. At the same time, China has had varying degrees of success in acquiring advanced technologies, dual use and military application technologies from abroad.

And finally, I'd point out that in the last five years, China has had some progress within the People's Liberation Army of improving their what we call interoperability, or their jointness, of their military forces.

But we need to put this in a proper context. First of all, in terms of the budget, the budget is starting from a very low baseline. From roughly 1979 to the late 1980s, there was very little, if any, real growth in Chinese defense budget. So while we see correctly that the Chinese defense budget is increasing at rates, as I said, of ten percent, fifteen percent per year, at the same time we need to put that into the context of a very low baseline for a takeoff point.

Secondly, in terms of equipment that the Chinese military fields today, it is true, as I just pointed out, that they do have some kinds of sophisticated, relatively sophisticated, equipment. But in terms of the overall context that that equipment is operating in, fundamentally, we can say that the Chinese army is an army where the bulk of the equipment is anywhere from 1950s to 1960s. We can say that the Chinese navy is a navy that has equipment that is fundamentally in the 1970s. We can say that its air force is an air force that has equipment in the 1960s and 1970s.

And the final point that I would make in terms of assessing Chinese military strength is that, increasingly, warfare is a matter--as the former Vice Chairman of the Joint Chiefs of Staff, Admiral Owens, had said, is integrating systems of systems, and herein is where China has much progress to be made. By this I mean it's a--in warfare, warfare is a matter of locating the enemy, being able to acquire the enemy, reporting the location back, and then to come up with systems to target that enemy location. And when we talk in terms of force projection, moving away from China's shore, the need for highly sophisticated systems of equipment and systems to put all of this together becomes of greater and greater importance in terms of assessing overall military strength. And in that regard, China is at least one, in some cases several, decades behind U.S. military power.

Now at the same time, it's clear that we have difficulties in accurately assessing the strength of the People's Liberation Army. The People's Liberation Army remains one of the most opaque, least transparent major militaries in the world, probably the least open major military in the world. The Chinese, for instance, will say that their defense budget--in real terms, their stated budget is $8 billion, $9 billion, $10 billion a year; however, we're going to convert the renminbi into U.S. dollars.

Ten billion dollars a year--well, for $10 billion a year, the Department of Defense would certainly like to organize a delegation to travel to China to figure out how to buy so much for $10 billion a year, how to field so much for $10 billion a year. But the fact is that even if we were to try to get at what real Chinese defense spending is--Is it $30 billion a year, is it $40 billion a year?--compared to our defense spending, still far, far behind. And I would also point out on this issue of transparency and trying to talk to the Chinese military about becoming more open, not only from our perspective, but really, at this point in time, perhaps even more importance within the Asia Pacific region, with our friends and allies telling us that they're nervous about the growth of Chinese military strength, this is a major part of our strategy in working with the Chinese military to get at this issue.

The final point I'd make in terms of assessing Chinese military power is that militaries are not static, that as we talk about Chinese military power today, the U.S. military and, for that matter, all of the major countries in the Asia Pacific region, continue to modernize their own militaries. So as we look at Chinese military strength today and project forward, we need to remember that the Department of Defense, that the United States military, continues to move forward as well.

And now, briefly, if I could talk about the security responses, or thoughts about security responses, given this context. First of all, which China do we wish to look at in determining what the appropriate security response is? Do we wish to look at the China that we're concerned with because of its sale of advanced conventional weapons to Iran, to a very unstable part of the world? Do we wish to look at a China where we continue to have reports and concerns about the sales of weapons of mass destruction and their means of delivery or missile systems or, more importantly, the means of producing these kind of weapons and missiles to countries like Iran and Pakistan?

Do we wish to focus on the China that, from the mid-1995 time period until the spring of 1996, was--from our perspective, had policies within the Taiwan Strait that were clearly working against our stated national interest of maintaining peace and stability and peaceful approaches towards resolution of the difference across the Taiwan Strait? Is that the China we wish to concentrate on?

Or do we wish to concentrate on the China that, over the last decade, has acceded to the nuclear non-proliferation treaty, that has stopped nuclear testing and has signed up for the comprehensive test ban treaty? Do we wish to concentrate on the China which has acceded to the Chemical Weapons Convention? Do we wish to concentrate on the China which has given us diplomatic support and back door support or behind the scenes support in the Korean peninsula, where we have 38,000 troops deployed today on the Korean peninsula, with China having a stated interest in peace and stability and the preservation of peace and stability on that peninsula, backing our efforts diplomatically, as I said, with the agreed framework, backing our efforts diplomatically with the proposed four party talks?

So I'd go back to what Harry Harding had indicated during his presentation this morning, that we need a more nuanced approach, that--I've heard other people say before that sometimes when we talk about a security strategy with China it sounds like something like this old light beer commercial that people might have heard several years ago, that it's either: tastes great or it's less filling. And that kind of debate about security, that it all has to be confrontational or that it all has to be in a common interest kind of approach, is probably about as vacuous as that kind of an advertisement that we saw.

If we were to take the approach that China is an adversary today, if we were to take an approach that what is needed is firmness across the board, that there are no common interests there, that would be an approach that we used with the Soviet Union. But that approach with the Soviet Union was unique to a particular challenge, a particular place in time, where we had what we can say was just a monochromatic threat from the Soviet Union. It was a security threat that we faced. But in the case of China, where we find that we have this huge amount of economic interaction with them, where we have political interaction with them, where I've indicated we do have areas of common interest and security, is this the approach that would best suit this country?

On the other hand, if we were to take an approach that focused only on common interests, this would risk trivializing and ignoring the fundamental, the very real, differences that we do have with China in the security domain. China is undergoing a huge transition. It's undergoing three transitions. One is--and we can argue, as was argued in the panel this morning--about a shift from a rule of man to a rule of law with varying degrees of success. It's a shift from a command economy to a market economy. It's a shift from an inward looking country to an outward looking country--three very fundamental transitions; hopefully, those three may be reinforcing.

What does this leave us with, then? I believe it leaves us with a common sense kind of approach that we should be following regarding our security relationships with China. On the one hand, it's an approach that should encourage these kinds of transitions that are taking place and looking for common interest, but at the same time not ignoring those areas where we do have differences, and taking whatever steps are needed to defend our vital national interests.

Senator RUDMAN: Thank you, Colonel. Robert Kagan.

Mr. ROBERT KAGAN (Alexander Hamilton Fellow, American University; Contributing Editor, The Weekly Standard): Thank you.

I guess I'm thinking about how to fashion an appropriately nuanced policy toward a nation like China. It might be worthwhile thinking a little bit about what China's strategic goals may or may not be over the next five, ten, fifteen years. I'd like to take a minute to do that, perhaps.

It seems to me that China is a sort of classic revisionist power on the world scene. It is a dissatisfied power. It is a non-status-quo power, in many fundamental respects. People have compared China today with imperial Germany at the end of the century, and I think that that--at the end of the 19th century--and I think that that comparison may be apt, although the policy implications deriving from that are not always clear.

China obviously seeks to make some important territorial changes having to do with territories that they lost during times of weakness over the past 150 years. They are in the process of reacquiring Hong Kong. They'll be reacquiring Macao. Obviously, it is one of their goals to bring Taiwan back under full control by Beijing. There are disputes in the South China Sea, islands that China believes rightfully belongs to China, and there are sort of innumerable border disputes around China's periphery, with India, with Russia.

So in that very simple sense, in that one category, obviously, China seeks to make changes in the existing status quo. I think there are also three other ways in which China would like to see--certainly, the current Chinese leadership would like to see a kind of change. It seems to me that China would like to assume a regional hegemony in East Asia. As David Shambaugh at GW has put it, China would like to place itself at the top of a new hierarchical pyramid of power in that region, perhaps to reinstitute what had been a tribute system. This doesn't necessarily have to be a violent type of hegemony, although China has not been averse to using force in the past. But I think that's a reasonable goal for a growing power whose economy is growing and who has a historical understanding of its rightful position in the East Asian environment.

Unfortunately for the United States, this goal, to the degree that they pursue it, clashes with what has been a U.S. predominance in the region, at least for the past 50 years or so. The United States has always felt it to be a vital interest that no single power in Asia rise to be the predominant power. And it seems pretty clear that China cannot accomplish its goal of gaining a regional hegemony without diminishing U.S. power and influence in the region.

And finally, at a much broader level, China is dissatisfied with what we like to refer to as the international order. After all, that international order was not established by China; it was established very much by the United States and its allies during a time when China was weak or otherwise isolated from the rest of the world. China does not accept, as a matter of course, the international rules that we have established for governing international relations, certainly on matters like human rights, but also on matters having to do with security. By definition, a revisionist power would like to see a revision in the international system that was more accommodating to its own growing power and its own interests.

Now how does it want to accomplish these objectives? Mr. Eikenberry has made the points about the Chinese military buildup, and I won't go on too long about that, but it is important to note, I think, that in the 1980s Chinese military doctrine shifted from essentially a Maoist people's war, which is primarily a defensive approach--defense in depth to deter invasions by large powers--to what they refer to as limited war under high-tech conditions, which was partly a response to their perception of the change in the international environment--both the collapse of the Soviet Union and the result of American technological superiority in the Gulf War. And they have been trying to acquire weapons as quickly as possible to try to achieve some capabilities in this regard.

So clearly, one way they're going to accomplish these objectives is try to increase their military capabilities, through weapons acquisitions, through a changed military doctrine. Another way is by strategically significant arms transfers. China has made arms transfers to Iran, to Pakistan; it now is a leading arms supplier to Burma. Some of these are obviously commercially oriented, but I think it's also clear that if you look at Chinese strategic objectives, they also have some strategic significance, vis-a-vis India and, again, into Southeast Asia.

Fourth, China intends, and naturally so, to use its economic muscle to achieve its objectives. China's perfectly aware of how much the world, the United States and other leading countries want to have access to the Chinese market, and they're able to use this lure as a means of effecting international policy in their favor. And finally, they are, on occasion, willing to use military muscle in a direct way, as in the case of using threatening missile exercises in the vicinity of Taiwan and in the seizure of Mischief Reef at the beginning of 1995.

So if we understand Chinese intentions, and I don't think the intentions I've outlined are very controversial, especially within the scholarly community in the United States about China, the question is, what about the Chinese ability to fulfill them? And here, of course, there are significant doubts that they can fulfill these goals anytime soon. And it would be a mistake to overstate Chinese military capabilities, and I do not overstate those capabilities. It may be five, ten, fifteen years before China has the military wherewithal to take significant steps in the direction that I believe China would like to go.

On the other hand, I don't think this is cause for a relaxation or sanguine view on the part of the United States. For one thing, sometimes, history has shown us, nations act before they are ready. Obviously, Iraq, in a certain sense, made a miscalculation about its capabilities. Perhaps it wasn't ready to make the strike that it made or it miscalculated American intentions. We have seen many instances where nations don't always maximize their understanding of whether they have the capability to achieve certain goals. And secondly, part of that miscalculation comes from a miscalculation of the other great powers' goals and intentions, and therefore it is important, it seems to me, for the United States to be very clear about its own intentions to defend its interests in the region as a means of aiding China in not miscalculating anytime in the next five, ten or fifteen years.

Finally, there is an argument that if China is not going to be a threat in any significant way to the United States' interests in East Asia for five or ten years, then we ought to just put off that problem, wait for them to become a threat, and when they finally do become a threat, well, then, we can take actions. I think this is fairly shortsighted. I don't think there's any reason why, if we can see a nation on a certain kind of trajectory, we ought not to begin early trying to shape the behavior of that nation, making it very clear what is acceptable behavior, what is not acceptable behavior, what will prompt a strong American response, what will not prompt a strong American response, so that, as they evolve militarily, they will understand the rules of the road better. And, in fact, perhaps we can even deter military buildup by showing the futility of that military buildup. I think that would be a useful goal.

And I don't believe that it is too early to consider measures that blend engagement with elements of containment of China. After all, Russia, which is at its weakest state in many, many, many years, has moved back 700, 800 miles across Eastern Europe, has cut its defense budget enormously. That fact has not prevented, and I think correctly not prevented, the United States and the West from taking steps to ensure that Russia does not ever think again about trying to aggrandize itself in Eastern and Central Europe. It's a kind of preemptive containment. It is not incompatible, by the way, with closer relations with Russia, and I don't see any reason why we shouldn't be able to pursue a similar policy with regard to China. Thank you.

Senator RUDMAN: Nicholas Lardy.

Dr. NICHOLAS LARDY (Senior Fellow, Foreign Policy Studies Program, The Brookings Institution): Thank you, Senator Rudman.

I'd like to address the question of whether or not there is a convergence of economic interests between China and the United States and whether or not the two countries are likely to become adversaries in an economic sense. And I guess in general I would argue that the increasing openness of China's trade and investment regime has contributed very substantially to a more liberal world economic, trading, foreign investment system over the last fifteen or so years since economic reform began in China.

China has become one of the world's largest trading countries as a consequence of that transformation that's begun in its domestic economy in the late 1970s. It has become one of the most open economies in East Asia to foreign direct investment, and as a result of that has attracted more foreign investment than any other economy in East Asia. And I should remind us that, in this respect, really, China's quite different from Japan or Taiwan that came before them. China has attracted far more foreign investment than those countries did, and I think that bodes very well for the long term future of the interrelationship of China and the rest of the world.

And finally, China has become a major source of economic growth in East Asia, in particular, and to a certain extent in the world in a broader scope, as well. In other words, more and more countries in East Asia have redirected their trade relationships, their investment relationships, so there's a very substantial economic interaction, and the very rapid growth of China over the last fifteen years, thus, has tended to pull the whole region ahead on an accelerated economic growth path.

So I think in terms of a kind of overall global perspective--I think China's openness, the reforms it has undertaken over the past fifteen years, certainly suggest there is a convergence of economic interests or the potential for convergence of economic interests, in the sense that we both are moving towards a more liberal, open world trading and investment system.

Moving simply to the bilateral side on the U.S. export side, it is not frequently noted that China has become the eighth largest market for U.S. firms. It is far and away the most rapidly growing large export market for U.S. firms, so U.S. firms have done extremely well. Exports to China have actually tripled since 1990. And almost all the exports are being produced in very high wage areas of our economy; transportation equipment, electric power generation equipment, agricultural products are all high wage areas of our economy, and this trade relationship has, in other words, created a lot of jobs in high wage sectors.

On the import side, China has become the major supplier of labor intensive manufactured goods--things like apparel, footwear, toys and consumer electronic products--that U.S. consumers have benefited from the availability of goods from China at a lower cost than previous alternative suppliers. And I should say the alternative suppliers had been largely other countries in Asia and, to a certain extent, other developing countries around the world. In other words, we do have a large deficit in our trade with China, but we are not losing a lot of jobs as a consequence of that. The jobs that we lost in those labor intensive sectors were lost back in the '50s and '60s when those jobs moved to other Asian countries. Now those Asian countries have much higher wages. They've been very successful in economic development--countries like Hong Kong, Taiwan, Singapore, South Korea--and given China's open investment environment, these countries are moving their manufacturing to China, and those goods are now flowing to the United States.

So the real adjustment cost that's being borne by the virtue of China's expansion of exports of labor intensive products is within Asia. It's within the countries that are exporting the jobs to China as they move their factories, say, from Hong Kong, Taiwan, Singapore and so forth. The labor adjustment costs in the United States, quite frankly, have been very, very modest.

So I think, in summary, we're gaining on the export side with a lot of high wage job growth in a big market that's growing very rapidly. On the import side, American consumers are gaining from the availability of goods at a lower price than would otherwise be available. So I think the economic relationship, both at the bilateral level and the more global level--I think there is a convergence of economic interests between China and the United States.

Given that, what should U.S. policy be? Well, I would very much like to echo what Harry Harding said on the first panel, and that is, I think we should work to further integrate China into the international economic system, get China into the WTO, which is the last major international organization dealing with economic matters to which China does not participate. This has an enormous advantage to us. We should negotiate a protocol that has further reform opening steps on the part of the Chinese, a time specific path in which they would promise to lower trade barriers, both tariff and non-tariff barriers, over a very specific schedule that would be written into the protocol. We would have the advantage of dealing with them on the bilateral dispute mechanisms or multilateral dispute mechanisms that are built into the WTO to move our economic relationship to a more stable basis than we have seen in recent years and increase the gains in that relationship.

The key thing that's lacking, quite frankly, is the incentive for China to take the steps that are necessary to come into compliance with the international norms in the international trade area. They have obviously done a great deal over the last fifteen years, but there are certain areas in which they still fall short. And the main problem, of course, is that China already has permanent MFN from every country in the world except the United States, and that is typically the major gain from coming into the WTO, and I think that suggests that U.S. policy should really be to figure out a way to credibly promise China permanent MFN if they make the kinds of concessions that are necessary to come up with a viable WTO protocol governing their participation in that very important body.

So in summary, I would say I think there is a convergence of economic interests between China and the United States on both the global and the bilateral level, and I think those interests would be enhanced by China's early accession to the WTO.

Senator RUDMAN: Greg Mastel.

Dr. GREG MASTEL (Vice President for Policy Planning and Administration, Economic Strategy Institute): Thank you.

One of the problems with being the last speaker on the last panel is that all the good things have already been said, so I'll dispense with any kind of long opening statement and just make five remarks or five observations I think are important.

First, I just returned from a lecture tour of China in conjunction with a book I've released, and I was surprised that the first question I always got was, in some form or another, `Is conflict inevitable between the U.S. and China? Are we headed toward a conflict?' And it seems to me that, on the economic front and on other fronts, yes. The answer is yes, conflict's inevitable and so is cooperation. But the fact is, the U.S. and China are great powers. Inevitably, they're going to have points of conflict and points of cooperation, and nothing that I've seen in recent years regarding China has changed that assessment.

I do think that there are some unfortunate realities of the political debate in both the U.S. and China, though, that are important to consider in this regard. I think in the United States that the political debate has swerved wildly back and forth between what I would call an apologist camp and a camp that used China as a much greater threat than they actually are on many, many, fronts, and that the unfortunate reality is that, as almost always is the case, the truth lies somewhere in the middle. There are problems with China, but they're problems that I think, by and large, can be managed.

I think a more concerning political development goes on in China, however. In 1996, I was in China lecturing for a book that I recently released, and at that point, you know, my sense of the audiences were skeptical, but not openly hostile to U.S. interests. This year I've gotten in the--just returning, my strong observation was that the audiences, again and again, were very much more hostile, much more concerned that the U.S. is trying to contain China, and I attribute most of the blame for that to a Chinese government that sort of feeds its people a very simple diet that says, `The U.S. is the bad guy, the U.S. is the problem,' and that's partly as a result that the regime has little planned legitimacy, aside from having an enemy somewhere. And unfortunately, I think the U.S. has become the enemy, and I'm not sure there's a lot the U.S. can do about that, frankly. I think that, as I say, if we didn't exist, the Chinese regime would have to create us. And so that is an unfortunate reality, a political reality, of the U.S.-Chinese relations.

The second point I would make is that I think economics are the most important issue in the U.S.-Chinese relations. As an economist, I guess I already--some of the best statistics have already been cited here by my colleague. But I think it's important to note that China is probably already the fourth or fifth largest economy in the world, depending on how you do your measurement, and by early in the next century, China could be the largest economy in the world.

Most of the issues on human rights, on the political front, on a military front, can have some indirect impact on the United States, but in most cases, that's very indirect and, in many cases, many years off, whereas the economic reality of China's presence in the world is already having an impact on the United States and already having an impact on U.S. citizens. For that reason, I believe economics should be in the top of our priority list in dealing with China in the near future.

The third point I guess I would make is that we talk about reform in China. I think we're using the wrong term, or we're convincing ourself that something's going on that may not be. There's a widespread assessment in the United States that at the end of the Cold War the wall went down and the Communists are all going to become capitalists, and so in a few years, they'll be Jeffersonian democracies with free-market economies. I think the reality is, particularly on the economic front, that's not going to happen. China is pursuing economic reform, very substantial economic reform, but China's stated goal is not to become a market economy; it's to become a socialist market economy, a term that I think China itself is trying to define in some sense. But clearly, there's a prominent role for state-owned enterprise, for state planning. These are the kind of things that are remnants of a Communist system. And to be honest, a Communist system is, in many ways, in conflict with free market economics, and as a result, in many ways, in conflict with the WTO, and I'm sure we'll talk more about that in questions.

The other issue on reform I want to point out is the matter of rule of law. Here again, China's made progress on the rule of law, but its record, particularly on the international trade front, has not been very good recently. Let me cite a couple of recent agreements. The U.S. concluded two important trade agreements with China in 1992, one on intellectual property and one on market access. The intellectual property agreement I think most of you are probably aware of. The enforcement was very poor, at best. I mean, China's laws were formed in 1992 to make them on the patent, on the copyright and on trademark issues, as good as any in the world, or nearly as good as any in the world, but unfortunately, it just didn't follow through. So actually, the pirate industry grew after the laws were passed. And despite two major accomplishments with the United States, I would have to say there are still serious, serious concerns about China's willingness or ability to enforce intellectual property laws, and I think that precedent carries over to WTO, as I think we'll talk more about.

But maybe the more difficult issue is what happened on market access, and that's something that's not so widely discussed. In the market access agreement, China agreed to end the practice called import substitution. This is a practice of, as a matter of government policy, trying to replace imports with domestic production. And this is a fairly significant step forward, probably the biggest achievement in the market access front. But in the two industrial plans that followed, on pharmaceuticals and on automobiles, import substitution was explicitly included as a provision. This is not a matter of some guys out in the southern provinces running wild; this is a matter of the central government effectively not doing what it said it would do on the trade front.

And so I think this issue of rule of law is probably the most serious in the WTO context, because China's record of keeping its word in international trade agreements is not very good. Now China has done some positive things, mostly in terms of meeting its international debt requirements. And I think that's very good, but I think it's important not to overlook the fact that there are serious questions now about rule of law in China and what it means for international trade.

The fourth point I'd make, I guess, is that there are serious trade problems that the U.S. has with China. Mr. Lardy cited some statistics. Unfortunately, the reality is that exports of the United States are not doing all that well. We trail behind both Japan and Europe in the Chinese market. Our share of the Chinese market has actually gone down. In 1990, the U.S. and Japan sold almost the same amount to China. Last year, China and Japan sold almost twice as much as the United States. In this last year, exports are actually down from 1996 in the first three quarters of '97. So the export boom is, at best, a very small, relative one.

I think I should also note that, traditionally, our trade with China has been--the imports from China have been very low labor intensive products, but the reality is that is changing, and that is a goal of Chinese industrial policy to move to higher value manufactured products, and that Chinese policy is beginning to have some real impact. Right now, as you see, some of the fastest growing categories of imports from China are things like X-ray equipment, telecommunications equipment, computers; not textiles, not apparel anymore. The character of Chinese exports to the United States is changing dramatically, and it's important not to dismiss them as simply a producer of textiles and apparel. The Chinese have greater ambitions and they're actually making significant progress in fulfilling those ambitions.

The last point I'd make is just about the WTO. Most of the panel today, I think, have been what I would call China scholars, and they're very good China scholars. But unfortunately, they tend to view the issues in terms of the context of China alone. When you talk about issues like joining the WTO, the issue is not just `What does this mean for China?' It also means, `What does it mean for the WTO?' My concern is that by letting China in, in a state where its economy is not in compliance with the WTO and it does not have a reliable rule of law, you may set a precedent that actually destroys and undermines seriously the WTO as a working institution.

So we in the U.S. have to keep in mind not only what it means for China to be a WTO member, but what it means for the institution and what it means for our long term interests, globally, for international trade. I think that's the key issue, and I think that's the issue that really hasn't been addressed too much here today.

I think that China, clearly, does want to become a WTO member, and there are good reason for it to become so. I mean, although it's true they get MFN, as two of our speakers have already alluded to, there are three good reasons for China to join the WTO and three important incentives. First of all, it's a matter of international status. This probably is what's driven the Chinese forward for ten years. They want to be a member of all international organizations, including the WTO.

Secondly, there are real export benefits. The Chinese get MFN as a matter of course from most countries, but the U.S. has not given them permanent MFN. And, more importantly, no one is obligated to give China MFN. And this has many small limits on Chinese exports abroad. For example, the Europeans, at last count, had 17 quotas on Chinese products. These are small quotas, and each one by themself is not very significant, but they do impose a limit on Chinese exports that probably would not be possible if China was a WTO member.

But the last and most important point, I think, regards investment. China is a foreign direct investment driven economy. Its dramatic economic growth is largely a result of the flow of foreign investment. And one of the most important reasons to join the WTO is to get sort of a Good Housekeeping stamp of approval on their economy, to ensure continued flows of foreign investment. In fact, I was in China again just a couple of weeks ago, and in southern China for this year, foreign investment is actually down for the first time in, I think, eleven years. And that, by itself, made a dramatic difference in the way the southern Chinese view economic reform. Now they're suddenly much more concerned what the world thinks about China--what the world thinks about China as a trading partner and as an investment partner. That wasn't the case even a year ago.

The fact is that foreign investment, I think, is one of the key elements influencing the Chinese, and it is one of the key reasons the Chinese want to join the WTO. And so let's not underestimate our leverage. The WTO is a significant lever to move the Chinese forward, and it's one I think we should use very carefully and judiciously, and I suspect that WTO membership is the most important issue on the short-term agenda with China.

Senator RUDMAN: Our first question's from Bill Bradley.

Senator BILL BRADLEY (Former Senator, D-New Jersey): Thank you very much, Warren.

Colonel, you have made an interesting point, which is the two military structures are not static. And you have hypothesized how long it would take before China had a credible force projection capability, and also that the United States is modifying and evolving and innovating with every year. Can you conceive of any time horizon where the Chinese would have caught up sufficiently to threaten, in any way, serious American interests in the region or in the United States?

Col. EIKENBERRY: Senator, let me make several points in response to that question. First, when we talk about force projection capability of any military, it's important that we try to define where are they trying to project force to. We're a global military power and, of course, the Chinese military is decades--decades--away from being a global military force projection power. I think that's understood by everyone.

On the other hand, in terms of projecting power into various areas of the Asia Pacific region where our interests may conflict, whether that be in the South China Sea, whether that be in the area of Taiwan, that's probably the more important question to answer.

China has had some success in recent years in the continued development of its rocket forces. I did not, in my remarks--when I talked and assessed the different capabilities of China's very services, I didn't mention its rocket forces. It has rocket forces that have anywhere from 1960s up, in some cases, to 1980s capability. Now can those rocket forces threaten interests within the Asia Pacific area? Yes, they can, and they will continue to develop those particular capabilities. At the same time, when we look at the naval forces and the air forces of China, I would have to say that, in terms of being able to put together comprehensive systems, as I referred to in my opening remarks, about the ability to see targets and acquire them, to communicate and then to respond with appropriate targeting, that we're talking about ten to fifteen years that they're going to be able to put together those kind of conventional capabilities where it would make the United States take close notice.

Senator BRADLEY: And, Colonel, could you give any idea in terms of the amount of increased defense spending that China would have to expend in order to achieve that end?

Col. EIKENBERRY: Senator, since we're not entirely clear on the amount of expenditure that China has at this time, that's a difficult question to answer, but let's say that we were talking about the development of an aircraft carrier, for instance, which China one day will deploy. But an aircraft carrier comes with a set of auxiliary ships; it comes with a set of maintenance requirements; it comes with a set of logistics requirements that starts to make a carrier battle group into the multibillion-dollar figure. And China, at this particular stage, does not have, or is not likely to put those kind of resources into its defense budget. It would require--without trying to quantify it, in order to accelerate its defense spending to the point that its force-projection capability in the near term would start to threaten U.S. interests, would require a very significant increase in defense expenditures that, given the current security environment in the Asia Pacific region, given what we see as Chinese security interests with their predominant interest still being in economic modernization, we find that to be very unlikely to occur.

Senator BRADLEY: Is it likely that they could import this power?

Col. EIKENBERRY: I would say also, Senator, that the kinds of--the quantities of equipment that they would need in order to achieve a near-term kind of breakthrough, it would be unlikely for them to be able to acquire that kind of equipment.

Senator BRADLEY: So that what they'd really have to do is change the organization of their defense structure, is that correct?

Col. EIKENBERRY: They'd have to change the organization of the defense structure, and they would have to move military modernization to the number-one priority in the country, which it is not. I would say one final thing in terms of constraints that the Chinese military--that China may be facing in its military modernization that's important as well: that warfare in the 1990s, as we move into the 21st century, is increasingly--when we talk about force projection, which is what we're looking at right now in this discussion--that a comparative advantage goes to a system, to a military system, in which information sharing and the ability to manipulate information rapidly--a competitive advantage goes to a military that is strong in that area. And a military is always a reflection of a society from which it stems.

America is a very level society. It is a society which has a comparative advantage in high-tech information sharing. And in that area, with the Chinese military, given the system from which it comes from, does not have a comparative advantage within that field. And so when I talk about the next century and our continuing efforts within our own military to modernize, I would have to say that this is a constraint that, from our perspective, we see the Chinese military faces.

Senator BRADLEY: So, Colonel, what I've heard you say is that, in order for them to threaten our interests, even in the region, they'd have to make defense expenditures their number-one national priority, they'd have to choose that over the development of water systems, road systems, electricity systems, all the other massive infrastructure needs that are on the agenda in China, and that you're doubtful that they really could do it anyway because of the closed nature of their society and the need to have information freely flowing to have the most modern military possible.

Col. EIKENBERRY: Senator, I have to say that they have to put significant investments into their military to achieve that, but I will put, of course, one caveat in this, in that what is the nature of the security interest that the People's Republic is facing in terms of how much force, how much risk are they willing to take for a particular objective. And without listing them, we know that there are certain issues that touch upon Chinese sovereignty, that touch upon our own interests in the Asia Pacific region, where we do believe that there's the potential, if both sides within all parties don't manage things properly, that there remains the risk that force could be used.

Senator RUDMAN: Ezra.

Dr. EZRA F. VOGEL (Director, The Fairbank Center for East Asian Research, Harvard University; former National Intelligence Officer for East Asia, National Intelligence Council): I would like to ask a question to Mr. Kagan, and I would also like Colonel Eikenberry to comment on the question. Mr. Kagan has taken the very bold and admirable step, I think, of putting the word `containment' out into the open at a time when it's not terribly popular to do so, and I want to understand what he means by that and what would be the consequences of that. For example, in the case of Taiwan, our policy, as you know, is not to say we would defend Taiwan under any circumstances, because if we do, Taiwan might take new kinds of liberties that would involve us in action that would cause us to be involved unnecessarily. And we also say to China, `Don't count out our response,' and we showed that last year by sending in battle groups.

Now would you, by containment, go further and say we would defend Taiwan in all circumstances and examples? Also, what are the consequences of taking a full-containment policy when countries of Asia--Southeast Asia, South Korea and so forth--have made it very clear that they don't want to take sides, and that, unlike the Cold War, where they would rally to our side, they see China as a future power in the region, and they therefore don't want to be involved in taking sides? And where South Korea and Japan have made it clear that they would like to reduce the number of American troops rather than increase, where would you put the troops and how would you get the cooperation, and to what extent would it really be--when you're saying containment--an extension of what we're already doing?

Mr. KAGAN: Well, in less than 20 minutes, your last point is actually worth contemplating for just a second, because...

Dr. VOGEL: As opposed to the rest of the things I asked you before.

Mr. KAGAN: I'll try to get to those, too, but I want to start with your last point, because for one thing, I think that we already are, to some extent, engaged in a containment policy of China, even though we are loath to use the word. When China conducted its missile exercises around Taiwan, the United States responded in a way that is like a containment policy. We sent the aircraft carriers there to push them back. And insofar as the region is concerned, the consequences of China's threatening behavior around Taiwan included the strengthening of U.S.-Japan security ties and very much of the Japanese initiative, so that whatever popular pressures there may be with regard to the number of troops deployed in Japan, it seems to me pretty clear that the consensus among the leadership of Japan is that they want to try to increase U.S. security ties.

It seems to me as well that the Southeast Asian, the ASEAN countries, are worried about China. As far as I can understand, one of the reasons they've done something that we wished they hadn't do, which is brought Burma into ASEAN, or moving toward bringing Burma into ASEAN, is precisely because they want to try to woo Burma, try to provide an alternative to Chinese control in Burma.

Historically, the point you make is an interesting one. What do you when the nations that you would like to participate with you in a containment policy are worried about the power that you would like to contain? It's wrong, it seems to me, to look back upon the Cold War as everyone constantly rallying around the United States whenever the United States called upon them to do so. As a matter of fact, United States policy often ran into roadblocks dealing with its allies and others who were not necessarily allies but whom we wanted to involve in containment policy precisely because they were afraid of what the Soviet response might be.

Now it seems to me the situation that we're in in East Asia right now is that we have created uncertainties about the U.S. staying power in the region. I think as recently as four or five years ago there was a consensus, or at least there was a growing consensus in the region, that the United States was not in it for the long haul, and there were some doubts raised in this country about whether we ought to be in it for the long haul. And so it doesn't surprise me that nations in the region are reluctant to stand up and say, `We're with you 100 percent,' when they're not sure that we're with them 100 percent. So one answer to your question, seems to me, would be for us to be more forthright about what we intend to do.

Now I think there are some things about containment that need to be said, and I said I won't take 20 minutes, in reality. But containment has been caricatured by those who hate the word as isolation, and that seems to me a terrible mischaracterization of even the containment strategy that was conducted with the Soviet Union. After all, Ronald Reagan managed simultaneously to contain the Soviet Union, to engage in an arms race with the Soviet Union, to support freedom fighters fighting against regimes supported by the Soviet Union, and engage in strategic dialogue on arms control and engage in a number of other close contacts with the Soviet Union.

Containment does not mean isolation. There's nothing inherent about containment that denies you the possibility of continual dialogue with China. I just think we would be a lot healthier, the whole debate would be a lot healthier, if we acknowledge the degree to which we already are engaged in containment of China and to get beyond that dirty word and move on to shaping an intelligent policy based on that understanding.

Dr. VOGEL: Is what you advocate, then, pretty close to what we're now doing? And can you just say it's called a containment policy, or are you advocating a big increase in American commitment? And if so, what's the nature of that commitment?

Mr. KAGAN: Well--OK. The answer is I would like to move away from a policy that I believe is the current policy, which is an engagement policy that fundamentally denies the serious prospect of adding disincentives to the relationship--that is, mostly about what incentives can we offer the Chinese to do what we'd like them to do, how can we bring them into the international community--but does not talk very seriously and, in fact, very rarely employs serious penalties to their noncompliance with international rules that we'd like them to abide by. I would like to see us increase the level of our military commitment to the region.

We shouldn't assume, I'm afraid, as the colonel does, that even though China's buildup is not necessarily going to be commensurate with our modernizations, that our own military capabilities, if you can project out into the future, are going to be capable of dealing with any number of increasing threats that China may pose. I think that our own military expenditure program is very much in doubt now. We are going to be cutting, I mean, in real terms, some $75 million out of our military budget, and we have a whole world to deal with. China has only a region to deal with.

So I would be in favor of beefing up our abilities in the region. I'd be in favor of increasing our own defense spending as a deterrent to Chinese military buildup. I think that our commitments to Taiwan should be very firm and very clear, and I think that we should be willing to use economic pressures as well to get where we want. This backs us into the previous panel, and I won't go into too much detail about that.

Senator RUDMAN: Before we move on...

Mr. KAGAN: Yeah.

Senator RUDMAN: ...your last comment about our policies about Taiwan should be very clear. Would you define--how clear?

Mr. KAGAN: They should be...

Senator RUDMAN: I mean, you're secretary of state now. Define them. I mean, knowing of all the consequences in what you define, define them.

Mr. KAGAN: I think that we should be very clear in letting China know that we will defend Taiwan, obviously, in the event of any Chinese attack, that we will defend Taiwan in the event of any effort to intimidate Taiwan. I do not like the level of uncertainty, the creative ambiguity policy, which is aimed at preventing Taiwan from moving too precipitously toward independence. I understand the importance of--I understand the meaning of it, but I believe that we ought to face the reality that Taiwan is going to be increasingly moving toward independence. It is a democratically elected country now. We cannot count on a dictatorship to tell the people what exactly they can and cannot do.

And so we are--the situation in Taiwan and between Taiwan and China is not a stable situation, and I don't think that an American president ought to be in a position, as Taiwan evolves in that direction, of saying, `We will allow a Chinese invasion of Taiwan if you in Taiwan don't do exactly what we want you do to.'

Senator RUDMAN: And you believe that an administration could get support of the American people for loss of American life in that military action?

Mr. KAGAN: Sure. I think we--I mean, we've gotten American support for other kinds of military actions in the past when people said you would never be able to get American support for those kinds of actions, and I think the American people understand what the Taiwan situation is. I think they understand about defending a fellow democracy. I think they understand, and it could be explained to them, the strategic consequences, the enormous impact that it would have on the region, if China were able to take Taiwan with military force. Yes, I think they could understand those points.

Senator RUDMAN: Let me move on to--we'll come back to that, but--I'm sure we'll come back to that, but let me move on to a question for Nick Lardy. It seemed to me that there was a very real conflict in what you stated concerning WTO membership and what Greg Mastel has stated. To restate what Greg said, he said essentially there were two overwhelming reasons, in his mind, that we ought to give this very serious consideration against such grant at this time. One was the lack of the obedience, the adherence, to the rule of law, and secondly, that the economic system of China today is not an economic system that meets the basic rules for operating within the WTO. Could you respond to those two points?

Dr. LARDY: Well, I would highlight a couple of points. I would say, first of all, yes, there are many shortcomings in their system, where they are what we might call WTO-incompatible. But the protocol provides us and other countries that are interested in this with an opportunity to sign them up to a program that will get them to compatibility. It's not a question of China coming into the WTO and not meeting WTO standards; it's the question of when they're going to meet them. Are you going to demand it on day one, or are you going to give them some time to phase in? And the current regime that's in place, on a lot of accessions, allows countries to phase in over time. So the question is not whether you're letting them in on a lower standard forever and ever; it's a question of how long of a phase-in are you going to give them?

The problem with demanding that they come into all the standards as a condition of membership on day one is that they simply can't do it. Their economy is far weaker than is widely perceived, and they have a very weak state-owned sector that employs tens of millions of people that are not going to have jobs once they open up their economy to international competition. And so the leadership in Beijing is weighing, obviously, the trade offs. Some advantages to coming into the WTO, yes, but some very high costs.

So the danger is, if you demand they do everything on day one, that they will elect to stay out indefinitely. China's a very unusual case. This is the only time in the postwar period--first the General Agreement on Tariffs and Trade and now the WTO--in which one of the top 10 trading countries in the world has not been a member of the WTO. We have enormous stake in this. We should want to get them in. We don't want to have one of the top ten trading countries remain permanently outside a rules-based system.

Senator RUDMAN: Greg, you want to respond to that?

Dr. MASTEL: Yeah. First of all, let me be clear. I think the goal of having China in the WTO is one we all share. The most important goal on the economic front, I think, is making China play by the rules of the WTO, and I think there's no question that's a long term goal. The question is: How do you get there? I think where Nick and I differ is, first of all, in the short term--in the interim, we have other ways to encourage China to reform. We have bilateral negotiations, which, although they haven't been entirely successful, have been a pretty effective tool for moving them along. So we can keep prodding them in the right direction bilaterally.

I'd say, secondly--again, you have to keep in mind the issue here is not just, `What does this mean for China?' but `What does it mean to the WTO?' If China comes in not able to meet the requirements of WTO, not able to enforce legal changes as promised and, in many cases, maybe not even obligated to, depending upon how the protocol and negotiating comes out, the precedent that sets for the other former nonmarket economies that are also trying to join the WTO is compelling.

Beyond that, how do other members react? China is already one of the world's top ten exporters. If China does not force to play by trading rules, how do you force India? How do you force Malaysia? It seems to me the argument, then, is that not only new members might be held to a lower standard, but that its current members must see the WTO as more of a paper tiger.

Senator RUDMAN: So...

Dr. MASTEL: So my concern is the WTO would be weakened by China...

Senator RUDMAN: If I understand the difference in your two positions then, Nick would say, `Bring them in now under the transition rules allowed, and bring them along within the WTO'; you say, `No, they should come along a bit under the various multilateral ways we have of doing that, and then bring them in.'

Dr. MASTEL: Right.

Senator RUDMAN: That's essentially the difference. Bill.

Senator BRADLEY: Thank you, Warren. Colonel, how would you compare the Japanese military with the Chinese military?

Col. EIKENBERRY: Senator, if I could also just say one thing to respond to one point that Bob just made earlier. Bob had said that I was not interested in more defense spending for the United States. I would like to just go on record...

Mr. KAGAN: I didn't say that.

Col. EIKENBERRY: And if Bob has a way to do this, we will...

Mr. KAGAN: We--we're working on it.

Col. EIKENBERRY: ...support it. Senator, your question on the difference of the Japanese and the Chinese military--I would say, in terms of the capabilities of the Japanese navy and air forces, that they are highly sophisticated branches of service, that the Chinese military is a generation behind in those areas, which are critical areas. When we talk about relations, vis-a-vis security relations and balances of power within the area, Japan as well has a highly professional, extremely well-educated officer corps. This is not to denigrate the Chinese military officer corps, a highly professional group, but Japanese society is at a higher state of economic modernization, and its space level and science and technology is at a higher state, and the Japanese officer corps reflects that society.

At the same time, when we get into the area of strategic systems, of course, Japan is not a nuclear armed nation, does not have nuclear weapons and does not have a missile capability, as the Chinese do.

Senator BRADLEY: Given the sophistication of the Japanese economy, how long do you think that would take, if they chose to?

Col. EIKENBERRY: Is your question, Senator, how fast could they go nuclear?

Senator BRADLEY: Nuclear.

Col. EIKENBERRY: They have the technology, if the decision were made, to go nuclear in a relatively short period of time.

Senator BRADLEY: Do you have a ballpark?

Col. EIKENBERRY: No, I would not like to estimate that.

Senator BRADLEY: The presence of the United States in the security treaty with Japan--is that reassuring to China or alarming to China?

Col. EIKENBERRY: I think it's--China looks at the U.S. military presence in the Asia Pacific region in mixed terms, that it's clear that, from a Chinese perspective, that the U.S. military presence, especially in Northeast Asia, has benefited China tremendously since the 1970s. And we can go back--when we look at our relationship with Japan, we can make the argument, and I think that many in China's national security community would agree, that the remarkable security relationship that we've had with Japan--probably the greatest recipient after the benefits of this, after Japan, within the Asia Pacific region, has been China. Again, as I mentioned, with Korea, as well, U.S. military presence, their abroad presence, is contributing in an enormous way towards peace and stability on the Korean peninsula, which China wishes to see.

At the same time, we have in recent years, and more recently in the last twelve months, heard increasing criticisms from Beijing and, in China, from elements within the national security community that are beginning to question what is the purpose of the U.S. military presence within the region. Are the bilateral alliances--especially, again, within Northeast Asia, are they aimed at China, or, in fact, are they providing a kind of collective good which China benefits from?

But I would say in the main, Senator, that in this year, as we look ahead in the near term, that we believe that, fundamentally, Beijing sees a utility, albeit unspoken, in U.S. abroad presence and in our corps alliances in Northeast Asia.

Senator BRADLEY: So that they perceive the presence of the United States in Asia as a major force for stability. That's what you just said.

Col. EIKENBERRY: They see the U.S. military presence as clearly a force for stability in the Korean peninsula, and they see the benefits of a secure Japan through its military relationship and our security relationship with the United States as promoting stability within the Northeast Asia region and being in China's benefit as well.

Senator BRADLEY: Among the various other hot spots around the Chinese periphery, other than Taiwan, what would you put at the top of the list, Mr. Kagan?

Mr. KAGAN: The hot spots on the Chinese periphery?

Senator BRADLEY: Other than Taiwan, what would you put at the top of the list?

Mr. KAGAN: Well, obviously, Korea is a hot spot. I mean, do you mean in terms of where China's likely to try to exercise its power?

Senator BRADLEY: Well, you listed a whole series of things--the Spratlys--so what would you say?

Mr. KAGAN: Well, actually, I--obviously, Taiwan is the number one hot spot and is likely to be that.

Senator BRADLEY: Yeah, yeah. That's why I excluded Taiwan. I wanted to get...

Mr. KAGAN: So if you exclude Taiwan, then...

Senator BRADLEY: ...the breadth of your thinking on it.

Mr. KAGAN: The breadth of my thinking carries me into the South China Sea, where there are disputed islands, and I suppose that would be, behind Korea and Taiwan, the third potential hot spot. Obviously, the...

Senator BRADLEY: What...

Mr. KAGAN: ...nations in the region--the Philippines and others--that are engaged in that dispute view Chinese actions with a certain amount of nervousness.

Senator BRADLEY: So you'd put the Spratlys ahead of the Russian border, the Vietnamese border or the Indian border?

Mr. KAGAN: In terms of likelihood of armed conflict, I would certainly put it ahead of the Russian border at this point. It seems to me that on the Indo-Chinese border they're trying to avoid that kind of thing. Vietnam is another question. I don't really know to characterize the likelihood of armed conflict on the Vietnamese-Chinese border. I suppose there is some reasonable likelihood.

Senator BRADLEY: Do you think if the United States opted strongly toward the position of a hard containment policy against China that that would enhance our role for stability in Asia, or do you think that that might make it a little more difficult, Colonel?

Col. EIKENBERRY: Senator, if you're defining a hard containment strategy as a la Cold War, vis-a-vis the Soviets, I would have to say, from my own limited experience in dealing with our Asia Pacific allies, that we would find ourself friendless and with no one joining. When we look beyond the Asia Pacific region, if you look at China's diplomatic initiatives in the security realm that they've been able to carry forward over the last several years, and look at their land borders, they've had remarkable success. They have signed a fairly comprehensive set of border agreements and confidence building measures with Russia and for the neighboring stan, or former Soviet countries, republics. They've made some progress on the Indian border and, although they do have maritime disputes with Vietnam, they have made some progress on the land frontiers there.

So to categorize China on all areas of its periphery as a rising power that has instilled a kind of apprehension throughout the region, which provides the United States with the opportunity to lead any kind of comprehensive containment strategy against the People's Republic, is simply incorrect.

Dr. VOGEL: One of the key issues is how much we can trust China as abiding by international rules, and some of the comments that Mr. Mastel made led me to be skeptical about his source of evidence. For example, when he talked about Guangdong, where people have discovered within the last year the importance of looking to international sanctions and international activities, as somebody who's been working on Guangdong and been there every year since 1978, I can assure him that last year was not the first time that they discovered that.

But the key issue I would like to raise--of course, you can find examples of every country obeying and disobeying, but how does China compare? And I would like to ask Mr. Mastel and Lardy, particularly in dealing, say, with the IMF, dealing with the World Bank, dealing with international trading agreements, how does China stack up, comparing with other countries? You can find other countries that violated IPR and so forth. How does China stack up?

Dr. MASTEL: I didn't mean to suggest that Guangdong never cared about international agreements; I simply wanted to say that I think they care a lot more in 1997 than they did in 1996. To answer your question--and I will answer your question, but let me first say I think, in some ways, using the IMF and the World Bank is a poor analysis, a poor comparison, because trade agreements really aren't like IMF and World Bank understandings. For the most part, those are with central bankers. And China's record has been pretty good. I mean, I guess I would point out, with the IMF, there are still some problems on the foreign-exchange front, but I think it's much more important to look at how China has done in terms of its trade agreement commitments.

And in terms of trade agreements, its record on intellectual property went 0-for-4--was mentioned previously. Also on market access, there are a number of problems, including this import substitution issue which I mentioned. We have an example of the Chinese central government, not some people in Southern China, but the central government, violating an understanding. And I was particularly concerned in this regard, during research of the book last year, that when you get outside of MOFTEC and into the other ministries, the industrial ministries, of China, there's very little appreciation for what WTO membership, for example, means. And these people are really engaged in activities that, by their nature, almost by definition, are in violation of the WTO.

And my concern is, then, with little understanding what the WTO means, that you're almost certain to see more problems like we had with market access. Beyond market access, of course, is the problem with prison labor agreement, problems with the multifiber agreement. So I would have to say that China's record in enforcing trade agreements has been very weak.

Dr. LARDY: I think one has to look at this, really, quite frankly, in a more historical and comparative standard. I think if you take, for example, the area of intellectual property rights, where China began to develop its legal regime, as Mr. Mastel mentioned, in the early 1990s and put in place a really world class legal system, but they haven't been able to enforce it quite as rapidly as we would like--but if you go back and look at the record of disputes we've had on intellectual property with other Asian countries--with Taiwan, South Korea, Thailand and others--we've been working on these countries for decades. And they are still occasionally cited from time to time. We still occasionally even cite Hong Kong for violation of various agreements in this area.

I think China has come further and faster than any other country in East Asia in the postwar period. And they've made enormous progress, and obviously, they have a ways to go. It's going to be very difficult to get them into full compliance very rapidly, but we are moving more rapidly there than we have with any other trading partner in East Asia. So I think the record has some promise.

I would say similarly with respect to market access China has, by and large, lived up to all the agreements that it made back in 1991 at the first market agreement and then the revision. They have brought down their tariff barriers. They've brought down their non-tariff barriers. And one of the reasons we've made progress on this bilateral negotiation on market access is it also plays into their WTO strategy. In other words, the concessions they are making with us bilaterally also help them multilaterally in the WTO negotiations.

So again, there was a very specific schedule. We're going to eliminate licensing or quota requirements on a specific product in a particular year over a multiyear period. And by and large, they have lived up to that agreement that we signed initially in 1991. So I think that gives me some grounds for optimism that they would agree to a protocol for the WTO that would have a similar kind of schedule. And I would also say that if China comes to the point where it decides it's going to stay out of the WTO, then I think our leverage to negotiate with them bilaterally will be very substantially diminished. So I think it's very important for us to keep China interested in and committed into getting into the WTO so that we can get them on this time-specific path of further reforms.

Senator RUDMAN: All right. In the time remaining, from each of you, a capsule: the most important thing we ought to do that is different from current United States policy towards China in the areas of the economy and strategy. I'll start with you, Colonel. I'd like to hold it all down, if we could, to a minute or two each.

Col. EIKENBERRY: Senator, I'll be just very brief and I believe that, as I've said at the outset, that, to go back to what Harry Harding had said--and I believe there's probably considerable consensus from all seven folks that have stood up here today--that to try to define our security policy as one of--a policy that focuses only on common interest and ignores the security differences that we have, or to juxtapose that to a false choice that the only other choice that we do have would be one of containment, is to make a fundamental mistake in how we approach a security issue of the magnitude of China.

At some point in the next century, our former Secretary of Defense, Secretary Perry--Dr. Perry--had frequently said that perhaps the most important bilateral relationship, bar none, in the world having the most consequences for global peace and stability will be that between Beijing and Washington. And I believe that our policy that we must pursue must be one that does not ignore the common interests that we have with this country, that does not ignore the tremendous transitions that are occurring within that government, within that society, and to recognize those and to show a kind of patience but to do that from a position of strength and to retain that position of strength, to use that strength as needed to defend our vital national interests, not only within the Asia Pacific area but as China grows increasingly, globally.

Senator RUDMAN: Robert Kagan.

Mr. KAGAN: Well, I think one prerequisite to an intelligent--an important policy step toward China is not to fall into a sanguine view of Chinese military capabilities because they cannot sweep the United States Navy out of the Pacific at this moment. There are many other things that they can do which can raise doubts about America's ability to defend its allies in the region. They need only acquire certain missile technologies, for instance, to raise doubts about the American Navy's ability to place itself in certain difficult waterways, as I'm sure Colonel Eikenberry would agree.

But the most important thing, number one, is for us to have the defense capabilities to fulfill our commitments in the region. And that means, I think, a larger defense budget than we seem to have planned for the coming years. We need to maintain our technological superiority but also we need to think about our quantitative as well as qualitative abilities in the region. We cannot hope to keep China moving along the right direction as we see it in international affairs while we, ourselves, appear and, in fact, are--if we are going to grow weaker in the region.

And I don't think we should be afraid to use plain English in describing our policy toward China. I think we should not be afraid to talk about a policy that blends both engagement and containment in appropriate measures. The issue is too important for us to play with words in that regard. And finally, I would say--and we haven't had much chance to talk about this on this panel--that we ought to be willing to use all the levers at our disposal in trying to shape China's behavior in a beneficial direction. And that includes our military capabilities as well as our economic and diplomatic capabilities.

Senator RUDMAN: Thank you. Nick Lardy.

Dr. LARDY: I think if I were to emphasize one thing, it would be to increase the extent to which we try to deal with China multilaterally. I think, as we heard in the first panel, there are quite a number of regimes now that the Chinese have acceded to. And most of these regimes do have provisions for multilateral sanctions when the Chinese don't live up--or any other country, for that matter, doesn't live up--to the provisions of the regime.

For example, take the missile technology control regime. It has very clearly specified multilateral sanctions. I think where we have evidence that the Chinese has not lived up to the agreement in terms of sales of missile or missile components or whatever they are to Pakistan, the appropriate way, at least in the first instance, is to try to get multilateral action to get China to change its behavior.

I think the same thing is true in human rights. The Chinese are much more worried about a vote that would sanction them in the Human Rights Commission in Geneva than they are worried about the possibility that the United States is going to take away MFN because of its human rights behavior.

And I think you can just look across the board, whether it's the strategic area in terms of weapons proliferations, whether it's human rights, whether it's economic issues. I think the most effective way is, at least in the first instance of trying to deal with these problems, on a multilateral basis rather than a unilateral basis. And the institutions are there, the structures are there.

This administration has not tried to use them effectively and I would say previous administrations really have not tried to use them effectively. So we have been reduced to trying to deal with a whole range of issues on a unilateral basis. And I think, quite frankly, to date the record is not very good in many of the areas--human rights, in particular; proliferation, perhaps, is another one; and even to some extent on the economic side. I think we'd do better where we have differences with China to try to proceed on a multilateral basis.

Senator RUDMAN: Greg.

Dr. MASTEL: I guess I'm left with two thoughts. First of all, I think that China is a unique problem for the United States. There's a real tendency, as Mr. Lardy pointed out, to analogize China to Japan. Well, China's very different from Japan. I think there's also a tendency, though, in the current debate--and expressed here today--to analogize China to the Soviet Union. Well, China's very different from the Soviet Union as well. China's a strong economy with a weak military. The Soviet Union was a strong military with a weak economy. The strategy we have for addressing those problems are really very much different and I think we need to address China really much on its own merits. It's a problem we really haven't faced before in recent years.

I guess the second point I would make, though: It's also important to remember that what we do for China is not done in isolation. Again and again on today's two panels, there's a tendency to compare China now to China five years or China ten years ago or China twenty years ago. And I think that in some cases that's useful. But it's also important to compare China to the rest of the world and to understand that the way in which we deal with China has important implications for how we deal with other countries and for international organizations.

The WTO is the example I was using here today. It seems to me that we have to understand that what we do with China for the WTO sets an important precedent for all the other reforming non market economies that are following in China's wake and for the rest of the world as well. And so what's at stake here is not just a good U.S. relationship with China, but in some cases, the credibility of international organizations like the WTO. So I think we need to examine the larger context as well and not to try to make China a new Soviet Union or the new Japan. It's really a very different problem from either of those.

Senator RUDMAN: And finally, a closing comment from the panel. Bill Bradley.

Senator BRADLEY: I think it's always dangerous to argue from analogy. China is not Russia, as you said, Greg. China is not Wilhelmian Germany. China is China. And we have to see China for what it is. We have to avoid the tendency that is a kind of state of mind in the United States that is uncomfortable without something against which to define who we are, and instead define who we are, without reference to the negative, without reference to the villain, without reference to the enemy.

At the same time, I think that we have to pursue a policy toward China that is balanced, that follows United States' interests and it is clear for the rest of the world to see. And it seems to me, if we are able to engage China as China, that we'll be able to do that much more effectively than if we try to bring habits of the past and read them into the facts of the present.

Senator RUDMAN: And Ezra.

Dr. VOGEL: As somebody who's now back in the university at Harvard, there are two things about the Washington mood on China that strikes me as peculiar now. One is in the '70s and '80s, when China was just getting over that cultural revolution, the masic reaction in Washington was quite positive. And now that China is far more open and far freer, the mood in Washington, I would say, is far more critical and not always very balanced. And the second thing is there seems to be an assumption of how much we can change China policy and how much we can sort of shape China. I think our leverage is not all that great. I mean, China is a major power. They have a huge economy, long history, great civilization, and by and large, they will shape their own future.

I think that what the United States needs to do is stay firm in our military commitments out there and work with our allies. I think on trade we ought to push them when they violate things and we ought to push them, we ought to express ourselves in human rights. And yet, sitting in the university, I see tremendous eagerness on the part of the whole educated young people in China to reach out to the world. And I see enormous changes.

And I just don't want our firmness to prevent us from taking advantage of what I think will really change China in the long run, and that's the breadth of contact and the openness and a readiness to let them take part in international institutions. And the way I read it is exactly the way Nick Lardy did, and that is that there's been an extraordinary progress in China since they began opening in 1971 and adapting to international institutions. Thank you.

Senator RUDMAN: This morning was sponsored by two organizations. We heard from Les Gelb, from the Council on Foreign Relations, who opened this conference. And to close it, we're going to hear from Mike Lampton, who's the President of the National Committee on U.S.-China Relations. Before I call on Mike, however, I want to thank Colonel Eikenberry, Robert Kagan, Nick Lardy and Greg Mastel for--very informative, very interesting.

I want to tell my colleagues, Ezra and Bill, how much I enjoyed having the chance to sit with you this morning. And we'll call now on Mike now to wind up the morning, I would like to note, on time.

Dr. MIKE LAMPTON (President, National Committee on U.S.-China Relations): Thank you. Well, I want to thank all of you for coming and witnessing what I think's been a very enlightening morning. And I hope it helps do two things that Les Gelb, our co-sponsoring organization president, said we were going to do, and that is talk about what the facts are and some balanced, reasonable sense of what the alternatives that America faces. I would like to thank our panelists, both presently and the earlier panel, and particularly thank Senator Rudman, Senator Bradley and Ezra Vogel for directing questions towards our panelists that I think were very productive and illuminating. Thank you.