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"U.S.-China Relations: An Affirmative Agenda, a Responsible Course" [Rush Transcript; Federal News Service]

Speakers: Dennis C. Blair, Institute For Defense Analyses, Former Commander In Chief, U.S. Pacific Command, Task Force Chair, and Carla A. Hills, Hills & Company, Former U.S. Trade Representative, Task Force Chair
Presider: Judy C. Woodruff, Senior Correspondent, the Newshour with Jim Lehrer
April 10, 2007
Council on Foreign Relations Washington, DC

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JUDY C. WOODRUFF:  Good morning, I'm Judy Woodruff.  I'm very glad to be with all of you this morning for this gathering of the Council on Foreign Relations here in Washington. 

There are a few things that I am told that I need to say to all of you.  The first and foremost is to please turn off your cell phones and your BlackBerrys and any other device you have that can buzz or ring or make another noise.  And I do want to remind all of you that this meeting is on the record, so you can whip out your notebooks and pens.

I want to thank all of you for being here, on behalf of the council, for the release, the public release of this report that has been -- the people who have been working on it have been hard at work on it for many months now, and it is, as you know, the product of the Independent Task Force on the Now and Future of U.S.-China Relations. 

I think it's safe to say that no other two countries in the world are going to be more important to the course of events in the 21st century and beyond, perhaps, than the United States and China.  You're all familiar with the statistics:  The population of the United States, 300 million; the population of China, 1.3 billion.  The gross domestic product of the United States, $12.5 trillion; of China, $2.2 trillion.  The U.S. trade deficit with China, $232 billion.  But many of you may not know that there is something these two countries are almost identical, and that is in their geographic size.  Both the United States and China are about 9.6 million square kilometers.  So, from that, perhaps there's a basis for something more than the kind of cooperation we're going to talk about this morning.

I will tell you, I've just come from a speech this morning given by the ambassador to the United States from China, where he stressed the peaceful nature of China's intentions and ambitions, and the fact that they are trying to, in his words, slow down the rate of growth, of economic growth, in order to focus on social justice and greater equality, after a period of -- in his words -- of much focus on economic growth.

So, with that, I want to welcome our two speakers.  They are the co-chairs of the task force.  And we're very fortunate that both of them are here with us this morning. 

First, Carla Hills.  She is chairman and chief executive officer of Hills & Company, an international consulting firm providing advice to U.S. businesses on investment trade and risk assessment issues abroad.  We know that she was the United States trade representative from 1989 to 1993.  She today also serves as chair of the National Committee on U.S.-China Relations, and vice chair of the Inter-American Dialogue. 

Also with us, Dennis Blair, holding the Omar Bradley Chair of Strategic Leadership at the Army War College, and Dickinson College for 2007, 2008; from 2003 to '06 he was president and CEO of the Institute for Defense Analysis, a federally funded research and development center.  Before he retired from the Navy in 2002, he was commander in chief of the U.S. Pacific Command.  During his 34-year Navy career, he served on guided missile destroyers in both the Atlantic and Pacific fleets, and commanded the Kitty Hawk battlegroup.

With that, we are going --

DENNIS C. BLAIR:  Judy, I think that the only thing that those biographies leave out is that in 1976, I worked for Carla Hills when she was secretary of Housing and Urban Development and I was a White House Fellow.  So this is a --

CARLA A. HILLS:  Well, among the best White House Fellows I ever had!  (Laughs; laughter.)

WOODRUFF:  I'm very glad you pointed that out.

BLAIR:  So we need to make sure all the connections are out there.

WOODRUFF:  So there is a secret alliance going on here.

HILLS:  Absolutely.

WOODRUFF:  All right.  So we are going to hear from each of the two co-chairs, then we're going to have a few questions among the three of us, and then we're going to open it up for questions from the audience. 

And let's begin with Carla Hills.

HILLS:  Thank you, Judy.  Well, I can say that it was a great pleasure to work on this task force with Dennis Blair.  And our joint thanks go out to Lee Feinstein, who was very, very helpful; and Frank Jannuzi, who's in Tokyo and was enormously helpful in this project, which stretched beyond a year.

The task force seriously looked at China's trajectory over the past 35 years and found that its increased globalization had been a positive force for change; that it was a huge benefit to the Chinese people, lifting some 400 million people out of dire poverty; and there was a greater convergence with the interests of the United States.  But in spite of these gains, there's an unease in both countries about the future of our bilateral relationship.

The United States appears to be concerned about the unprecedented growth in China, fearing it could jeopardize our economic prosperity; that its growth in influence, its increased influence abroad -- there's a worry about our -- how that impacts U.S. future leadership; the military buildup, which Admiral Blair will address, puts, some think, U.S. security at risk; and its human rights record its subpar, and that creates great anguish in some quarters.

At the same, China is concerned about the U.S.  It worries about its outreach to Central Asia, believing that that is an effort to curtail China's growth; that its military deployment is seeking to encircle it; that its exports control is aiming to deprive it of necessary technology; and our calls for democracy is really to foment domestic turmoil and interrupt its growth.

We -- the task force concluded that the United States could help alleviate many of these concerns by focusing on a positive agenda that sought to integrate China into the global community.  And we defined "integration" as a blend of engaging China on the basis of issues of mutual concern, weaving China into global regimes of all description and balancing China's increasing military power.  And the task force concluded that this blend of policies would help shape China's self-interest in ways that maximize bilateral cooperation and minimize bilateral friction.

The task force, I think, uniformly applauded China on its economic growth, which had had such a tremendous positive effect upon the elimination of poverty, and the pivotal role that the private sector in China had played to make this happen.  But it was -- it concluded that China was unlikely to rival the U.S. economically or technologically in the near term, and it found that China wanted to focus and needed to focus on a daunting set of concerns that included environmental degradation; about 1,700 square miles of land in China turns into desert every single year.  China is the proud host to 16 out of the 20 world's most polluted cities; and there are problems dealing with the disparity in wealth.  The gap between the rich and the poor is growing.

There's a rapidly aging population that needs health care in a country that does not have a social safety net.  There is a growing and clamoring middle class that wants clean air, clean water, better education, and that creates demands that China is striving hard to meet.  There are volatile ethnic and religious issues that China needs to address, and there is, unfortunately, enormous corruption that affects the legitimacy of government.

The task force found that the Chinese government is trying to deal with many of these issues, and least well, however, with the issue of corruption.  The task force also found that as a result, China continues to rely upon repression and censorship, which are prevalent.  And it found that China wants to maintain, with respect to the outside world, three policies.  One is a cooperative stance with the United States; secondly, to maintain a zone of peace in which it can continue its economic development and provide the gains to its population, which provide the Communist Party with its legitimacy; and to a secure diversity to commodities, particularly energy, and their source.

And the task force found that these priorities led China to improve relations with its neighbors, most recently even with Japan, which has been a very rocky bilateral relationship.  And Taiwan, though still a flash point, is more stable than years back, and Dennis will talk about that.

However, the task force found that China's no-strings attachment in connection with its aid and investment policies clash directly with the policies of the United States and its allies in trying to use aid and investment as a tool to shape regimes that have governance contrary to international norms.  And I refer to Angola and Sudan, Nigeria and countries of that ilk.

The task force recognized that the United States had sharp differences with China on serious economic issues, such as the protection of intellectual property rights, and which the task force found was more a lack of will than a lack of capacity.

The task force found that the currency issues that have been so much in the news were more complex; that China's currency interventions contributed to the $1 trillion worth of reserves; but that China believed that it had a legitimate concern with excessively rapid appreciation, based upon a worry that that the increased price of food products would create problems in its poor rural sector, that a cut in exports would create unemployment in the urban sector, and that it could result in defaults on loans made for unworthy investments and thereby jeopardizing fragile banks.

And the task force concluded that unless all currencies in Asia were revalued -- by that, I mean the Korean won and the Japanese yen -- that appreciation of the Chinese currency alone would have minimal effect upon our trade balance and risked unintended consequences, such as raising U.S. interest rates, slowing the Chinese growth and probably inducing a Chinese buying spree of U.S. icons, which would generate real political backlash.

And the task force recognized that sound macroeconomic analysis demonstrated that our global trade imbalance would require a change not only in China's activity but also the U.S. activity.  We spend too much, and China consumes too little.  Indeed, its consumption has been decreasing over the past five years.

We acknowledged that job insecurity in the United States was high and rising, but concluded that China was not the principal cause of the loss of manufacturing jobs but that that loss was generated as a result of rapid advances in technology.  For the past 10 years, we have seen a 30 percent increase in manufacturing output, by 22 million fewer workers. 

And the task force found that the United States economy had gained considerably as a result of its trade and investment with China.  Indeed, there's a study out that shows by 2010 the average household income will increase by $1,000 per year as a result of our economic interactions with China.

And finally, the task force found that U.S.-China cooperation on regional and global challenges would benefit from a clear and more consistent statement of U.S. policy goals both to the people in China and to the people in the United States.

And hence the task force recommended that the president state clearly and more often that the U.S. wants to establish a close, candid, constructive and collaborative relationship with the Chinese leadership.  We recommended that the president describe to the American public the various benefits that we derive from that relationship and that we state that our interests are furthered by a responsible and cooperative China that adheres to international norms, a prosperous and peaceful China that fuels global growth, and an equitable China that is accountable and cares about issues like the environment.

And it recommended that the U.S. regularly and candidly talk to China about those issues that cause us major concern like the trade imbalance, clearly stating that the collection will require action on both sides of the Pacific -- the currency base that tried to get the Asia governments to address, either through APEC or through the Group of Thirty economic ministers, the intellectual property issue; tell China that we're going to commence a rating issue and evaluate the provinces on how they enforce intellectual property, the government procurement issues; persuade it to join the WTO procurement code, because there is discrimination in favor of Chinese domestic.  And I could go on. 

But in short, the task force concluded that consulting and collaborating with China on trade and economic issues of mutual concern, and involving China in global organizations would maintain the likelihood of maximizing our possibilities for positive outcome, and minimizing the possibilities for conflict. 

And I look forward to your questions. 

WOODRUFF:  All right, thank you, Carla Hills. 

Now, Dennis Blair. 

BLAIR:  The report, you'll find, makes recommendations in five basic areas: economic relations, security relations, non-proliferation, political reform and the environment.  And Ambassador Hills has covered the economic section and the environmental section quite well.  Let me talk quickly about the political reform section, and then spend most of my time talking about our security recommendations. 

On the political reform, Ambassador Hills mentioned the difficulty that China is having with corruption, the lack of adherence to international norms in the areas of civil society, rule of law and human rights.  The task force believes that as China develops, it really needs to develop these in order to reach its full potential, that dealing with corruption, unlocking the abilities of your citizens is best reached that way.  The Chinese government now doesn't really agree with that.  They are fearful that these sorts of reforms will in fact unleash forces that will threaten them. 

The task force believes that the way to work on this from the American point of view is through quiet, persistent institution-building within China, much of it done not by the U.S. government but by the many other organizations, international and American, which have ties within China, working on improving the judiciary system, non-governmental organizations, and basically building a civil society of the kind that will unlock China's potential and turn it into even more of a great country.  So this point of building a civil society in China is very important in the context of American ideals, and we think it's important for China, and we think there's a way forward there. 

Let me turn to the security area.  I think the key summary of what we recommend is, we lifted from Bob Scalapino, the scholar of Asian and Chinese relations, and we've said that U.S. strategy should combine balance-of-power with concert-of-power thinking, that these two approaches to strategy needed to be blended in the future.  And let me trace quickly what those mean in both the diplomatic, political, international, political area and in the military area. 

In the diplomatic area, this means that we -- and we recommend it in our report -- that we should reinvigorate our traditional relationships with our allies and friends in Asia, Japan, Australia; the new relationship with India; the relationships with Southeast Asia.  Events have distracted us to the Middle East in recent years.  It's not that nothing has been going on in our relations with Asia, but the importance of the region, we think, takes renewed emphasis. 

But we say strongly in the report that our improvement, our re-emphasis on these ties should not be simply bilateral "how to freeze out China," but in fact it should be a much more inclusive development of these relationships that takes into account relationships with China and multilateral activities more generally.  We explicitly call out that part of our relationship with Japan should be attempting to improve Japan's relationship with China, not in a hectoring, public way but in a quiet, effective way.  We say that building our relationship with India should similarly take into account China and be based on bringing the countries together for common concerns, not plotting against each other, also emphasizing our relationships with Southeast Asia and acceding to the treaties in that region. 

So we very much believe that we should emphasize our traditional spoke-and-hub relationships with Asia.  But at the same time, we should overlay a networked concert-of-power thinking on top of that that is inclusive with China, as well as strengthening bilateral relationships. 

Turning to the more narrow military aspects, you see a similar sort of emphasis from the task force.  We believe that the United States should maintain the air, maritime and space superiority that we have in the Western Pacific that's been the basis of a lot of Western Pacific/East Asian development ever since the end of the Second World War.  And we need to maintain that position.  But we believe that that power is shareable; that that does not exclude growing Chinese military power, if it's done properly. 

We took a hard look at the growth of Chinese military power.  That was the result of a separate Council on Foreign Relations report in recent times.  It is absolutely clear that there's been a great emphasis in the last decade on building up Chinese power; it's dedicated both towards their objectives in Taiwan and towards their greater definition of sovereignty as a rising power.  We conclude that that is not going to -- China is not going to become a peer competitor militarily of the United States in the near future; there are too many other things going on -- the continued development of the United States itself, Japan, Korea, other countries in the region; the much greater resources that the United States and other countries spend on their military forces, compared to China; a lack of Chinese combat experience compared to the United States.  So we don't see it becoming a peer competitor, but we think the United States needs to maintain its capability that it's had.

However, again, this is not a zero-sum, win-lose game.  We think the United States needs to expand its definition of its military policy in Asia; similarly, that we should be talking with the Chinese about the important issues that are between us -- nuclear developments on both sides, missile defenses, missiles buildups -- in a much more focused and constructive and high-level manner.  The level of military diplomacy is about three ranks below where it is in other areas in which groups of eight Cabinet officers go to China and there are return visits.  That the United States -- on the military side those are at the undersecretary level.  We think those should be raised, made more dense, and address the real issues, military issues.

In addition, we think that there should be cooperative military activities addressing common threats between the United States and China.  There have been some small steps recently in peacekeeping exercises and mutual observation of exercises, but there's a whole raft of military activities that we have in common, from simple search-and-rescue and safety-at-sea procedures, all the way up through peacekeeping activities, which we should be working on together.  And we believe that these sorts of cooperative activities at the practical, "can do" level can develop habits of cooperation which can then lead to a more cooperative way of thinking in the future to balance the inherent rivalry that we have and the sound-off that we're in over a potential conflict in Taiwan.

So this combination of strengthening our bilateral and the U.S. capabilities while building this concert of power type of thinking -- by the way, that's a two-way street.  It has to do with the way the United States approaches it; it also has to do with the way China approaches it.  The same exact set of capabilities can serve either cooperative, positive purposes for the region, or they can turn the region at odds against itself; it depends on wise policies on both sides.

So, in the security area, we are mindful of the dangers and of the potential for great power rivalry in China.  But we come down strongly on the side of policies by the United States and by China to turn those relationships in a cooperative way that benefits the people of both countries and of the region at large.

WOODRUFF:  All right, Dennis Blair, thank you very much.

And I'm just going to ask them a couple of questions, and then we're going to open it up to all of you. 

Both of you have laid out -- Carla Hills, you've laid out the more -- the pro-engage recommendation on the economic, the environmental front, on the security, military, diplomatic front.  And as you well know, there are those out there who spend a lot of time studying China who see their intentions in a much darker way; who say that there's a "go it alone" approach when it comes to thinking about their own economic welfare. 

What gave you the hope, the belief, as you worked through this and as you looked at the recommendations, that China is coming to the table with the good will, with self-interests that would embrace the recommendations as you laid them out?

HILLS:  We looked at 35 years of change in China.  And we went back to the Mao era when people could not choose their employment, could not choose where to live, and we noted the fantastic change.  And as a result of opening up to the world, China has unleashed forces that are affecting its economic future and its political future.  And we think that we have the best opportunity to work with China and to achieve our own ends; to, in effect, shake the agenda where we have many, many mutual concerns, and where those concerns require both of us to work together if we're going to find a solution.

You think of it -- the environment.  If China sits out no matter what we do, we're going to have a very sick environment.  You think about global energy policy.  If China doesn't play and doesn't come to the table, we will not have a good outcome.  You think about the issues where we have a convergence of interest, we need China.  And we think the forces that have been unleashed in the past 35 years make it likely that in their own self-interest they will want to work with us.  And if we're wrong, we don't think that we have lost anything, because as Admiral Blair so eloquently says, we have the power militarily to protect our interests if things go sour.  But the task force was pretty upbeat that the things won't go sour if we communicate a message from the top -- "We want to work with you.  We think we can make progress for both of our people, and these are the things we have on our agenda.  And we have the capacity to listen.  We want to hear what is on your mind and how you think these issues can be addressed."

And so it is a positive report, but we also think it's a highly pragmatic report.  And we hope that there is a listenership out there.

WOODRUFF:  And I have the same question for you, Admiral Blair.  You come down on the side of engagement.  There are many voices out there who are saying, you know, just the evidence is to the contrary; that the Chinese harbor great ambitions, and they're not there yet, but they will be there one day.  How can you ignore reality?

And I want to ask you in connection with that:  How do you sell this?  How do you persuade this point of view to an often skeptical American public and certainly some prominent members of the United States Congress?

BLAIR:  Right.  I spent a great deal of my career worrying about worst cases and some of those involving China, and in my personal thinking, it's that very process of thinking through some of the worst cases that brings you to want to work hard for the better cases for both countries.  And as I've watched the region and dealt with Chinese, I see that same divergence -- suspicion on the one hand, hope on the other hand -- and then a range in between on the Chinese side.

So I think that the way to do it is to take prudent steps on both sides to ensure that fundamental security interests are protected, and we think the Chinese have the right to do that just as we do, realize that there's a big wide path out there that we can walk down together if we're smart about it, and then work that direction.  So it's sort of a practical conclusion from my point of view.

WOODRUFF:  And what about in terms of getting that point across to the public?  Obviously, you're trying to do that with rolling out this report, but in terms of the skeptics in the Congress.

BLAIR:  Yeah, I think that one of the big things is mutual exposure.  I know it sounds Pollyannish and "Kumbaya"-like, but I find that the more that you expose Americans to the diversity of what's going on in China and vice versa, the more people find that there is this broad middle path.  And so I'm a strong advocate of intense visits and dialogue back and forth.  I think that will lead to the right conclusion.  You're not putting something over on somebody and fooling them; you're understanding that there are in fact -- are ways that we can move forward.  So I think that's a real key.

WOODRUFF:  All right.  We're going to open it up for questions.  Please wait for the microphone to come to you, and we're going to ask you to stand and give us your name and your affiliation.

Arnaud de Borchgrave is right here, and the microphone's coming your way.

QUESTIONER:  Arnaud de Borchgrave, CSIS.  Admiral, as I recall, you were the first to suggest some years ago or first to advocate weaving the Chinese navy into a web of mutual interests with the U.S. Navy on such problems as piracy.  Could you give us a little more of that history and what has been achieved, if anything, since then?

BLAIR:  Right.  I think when I was first advocating it, the Chinese, the PLA wasn't ready for it.  This was back in 1998, 1999.  At that time, when we would have exercises with them, they would treat them as intelligence-gathering events and send a bunch of spies and try to measure our ships and things.

Since then, they have matured, and I find that they are realizing that they have capabilities and that they can work, and so we are seeing -- in fact, we saw just last year our first search and rescue exercise.  The ones that I tried eight years ago, as I say, were mutual intelligence-gathering exercises.  So to me, those are two good data points.

In between of course we had the EP-3 incident, which happened while I was there, and that certainly set back our military relations quite a bit.  To that point, for example, though I think both sides realized -- as a result of that collision, there was a Chinese pilot in the water and very close to 22 American sailors in the water.  We had American ships that were about 50 miles away; of course, Hainan Island was 70 miles away with a lot of -- with a Chinese naval base.  We had no procedures for being able to go out and rescue those sailors, Chinese and American -- (had it happen ?).  And I thought, you know, this is really terrible.  We don't even have the basics.

And I think we are developing the basics now.  On the Chinese side, there is still a feeling that maybe they're not quite ready yet; part of that is not wanting to show their capabilities.  They traditionally believe it's the job of the weak to hide their capabilities, it's the job of the strong to show them.  They've got to realize that they're becoming strong.  On the American side of course we have to -- we have more experience at this thing, but we have to also work to bring them along.  So I think the chances are good.  Admiral Wu, the head of the Chinese navy, was just here, had very positive meetings and some chances to go forward.  So I think we're headed in the right direction.  I was just a little impatient and maybe a little early.

WOODRUFF:  Yes, the young woman in the back on the left.  Wait for the microphone.  Thank you.

QUESTIONER:  Good morning.  I'm Thea Lee with the AFL-CIO.  And I think that the choice that you pose is not such a stark one between engagement versus isolation; it's a question of what our government's priorities are and whether we have those priorities right.  And I guess I was a little bit surprised to see in the report, in the section on political reform, rule of law and respect for human rights, that you don't even talk about worker rights and the creation of independent unions as an important focus for democracy and change in China.

You talk about corporate social responsibility, which, you know, is already happening in China.  Most companies that operate in China do have corporate codes, and what we've found has been that these have been tremendously ineffective, that there is -- the monitoring which is done by the companies and their hired monitors simply doesn't work, that what you need is to have unions and have workers empowered at the workplace to form their own organizations in a democratic way.  And I guess this comes back down to the issue about engagement versus isolation.  You say that we need to convince the Chinese government that it's in their interests to have human rights reform, but independent unions really would be a threat to the Chinese leaders.

HILLS:  I thought that the report dealt with the human rights.  And our desire to move China down that path -- there are unions in China; they are not developed unions.  And when you say that we have a corporate code of conduct, I have seen that work.  You certainly recall how it worked in Latin America, where there was advertisement about how products were recommended that the consumer not buy them; when tuna, for example, was caught and often were killed.  And it was a very effective campaign.  And we're seeing that being duplicated in other countries.  It's not very effective in China, and our recommendation is that corporate America could do more.

WOODRUFF:  Let's see.  The gentleman right here, and then we'll move over there.

QUESTIONER:  I'm Bruce MacDonald, an independent consultant.  I appreciated the comments made about greater dialogue with China.  In the area of space, in particularly military space issues, the United States issued their policy last fall, a revised national space policy that basically said we did not need to engage in dialogue concerning arms control or any discussions in space because the existing agreements were sufficient.  When I was in Beijing last fall with -- in a talk of academics, they complained quite a bit that they felt that they had -- that China had legitimate concerns about the weaponization of space, issues like that, which can become emotional, of course.  But one of their complaints was that the United States was unwilling even to talk to China about those concerns.  Certainly those ought to be of some interest to us, given China's recent little surprise in January, with the test of the anti-satellite system. 

So my question would be, do you think that we should be engaging China, even if we don't have to agree with them, talking with them about issues related to their concerns in space?  Or do you think the current policy is correct and we should not have a dialogue with them?

BLAIR:  No, we disagree with the administration.  We think that the area of space is one for dialogue -- as we also mentioned, nuclear arms, missiles.  We think there should be far more dialogue than there is, and a policy that says you don't need to discuss it is simply wrong. 

WOODRUFF:  All right.  This young woman right here.

QUESTIONER:  (Name and affiliation inaudible.)  This is for the admiral.  And --

WOODRUFF:  I'm sorry.  Your name and your affiliation.

QUESTIONER:  Okay.  Betty Lin of the World Journal.  Yeah, Admiral, that -- what's your gauge on the current mil-to-mil with China?  And what kind of recommendations you're having for Admiral Keating on his upcoming trip to China in May?  And also, the 2nd Artillery commander will be coming to visit, and what do you think we should talk (sic) to him on the ASAT test?  And also, your recommendations to Taiwan concerning what -- people say that Taiwan has already lost its air supremacy, plus facing 700 missiles across the strait.

WOODRUFF:  I think that's four questions.  (Laughter.)  So you know, good effort there.  All right.

BLAIR:  I guess my answer is, read the report.  It's pretty well laid out in there in terms of the range of things that we should not only be discussing but actually working on.

I think the overall objective, number one, is to -- on the Chinese side, to let them know that the United States doesn't -- the United States armed forces don't spend every waking minute figuring out how to try to contain them, that in fact that's not on our agenda at all, that we have a broad-based global set of responsibilities and that some of these China should also develop as it expands.

So I think simply the fact of the dialogue at the right levels can dispel the misconceptions on both sides.  I think Taiwan should be a part of that dialogue.  As I've said many times and publicly, a war between China and Taiwan that involves the United States is a lose-lose-lose.  And then the alternative of peaceful resolution is better, better for all of them, and I think that's what we should be working towards.

WOODRUFF:  Yes, right here, on the aisle.  Yes, sir.  Right there.  Oh, okay. 

QUESTIONER:  I'm sorry --

WOODRUFF:  I'm going to go actually to the gentleman in the back, and then I'll come back forward again.

QUESTIONER:  Okay.

WOODRUFF:  Yeah.  Right there.

QUESTIONER:  Howard Wiarda from CSIS.  Everything you have said is based on the assumption that China is a developed and a stable nation.  And there's a lot of indicators that this is still a Third World country with enormous poverty, particularly out in the Western parts, with enormous social tensions as it modernizes and urbanizes, and a political system that's out of touch with social and economic realities.

So for Ms. Hills, what would be the consequences, in terms of your report, politically and economically, of a destabilized China?

And for the admiral, what would be the consequences of the security area if China becomes a really big failed state?

HILLS:  The whole point of the economic recommendations is to try to prevent China from becoming a failed state. 

We recognize very clearly in the report -- when you read it, you will see -- that the political difficulties that China faces are genuine and tough.  We have a whole section on the daunting challenges that China faces in moving forward that -- in their political system but also in their economic system.

And you ask what would be the effect of China's failure on the United States.  It would be devastating. 

You know, I don't worry that China becomes strong.  I worry that China becomes too weak; that if there an implosion in China, we are very apt to have a crisis that makes the Asian '97 crisis look like a little blip on the screen, and we would have really a devastating effect throughout not only the region and not only to the United States, but to the global economy.

So the purpose of our recommendations is to say:  How can we assure or make more likely that China will take a path that will create strength, stability, peace and prosperity not only for China, but China is a -- right now today -- a motor of economic growth.  The reason that Latin America and Africa have gained economically is in large measure because of China's veracious appetite for commodities.  China is our fastest growing export market.  Our exports to China had grown 160 percent last year versus our exports to the rest of the world growing 10 percent.

So China is a key player economically, and we want to be sure that it remains stable and peaceful.  And we think the recommendations of sitting down and talking to China and building on our mutual interests which are many, being candid and direct about our interests where they clash, have the best opportunity to move China in a direction that will avoid catastrophe.

WOODRUFF:  Dennis Blair.

BLAIR:  I think you can go back in history and look at what the effect in Asia and the world was of a divided, fractured China from, you know, the opium wars through the Chinese civil war, and I don't think it was pretty for Asia or the world.

WOODRUFF:  Let's come forward.

Paula Stern.

QUESTIONER:  Thank you very much, Judy.  Thank you.  Actually --

WOODRUFF:  Paula Stern, with?

QUESTIONER:  Oh, I'm sorry.  Paula Stern.  I have my own consulting firm, the Stern Group, Inc., and the question that preceded me was a perfect setup for me because I wanted to ask specifically about the report and what it says on China's efforts towards a consumption-led growth model, which, the report says, would be enhanced -- I'm quoting -- "by non-investment expenditures on health care, education, welfare and pensions; expenditures that would not only fuel consumer demand but also free up private resources for consumption," end quote.

So I'm trying to understand.  After that you said, for China, quote, "this means emphasizing consumption-led growth and spending more on social services like health care and Social Security," end quote.  So I'm trying to understand whether you are proposing non-investment expenditures by the government of China or spending more by the government of China on health care.

This is all on page 57 and 58.  I think it's very important.  I'd like to get that recommendation cleared up in my mind, but further I'd like if you would talk about the implications, Carla, that you started to of China's consumption worldwide, particularly, of all and other resources which -- at least there are many critics in the United States feel are being bought up by China and may preclude the U.S. comparative advantage vis-a-vis access to those resources.

HILLS:  We do believe that China should increase its consumption.  It's investment -- it has been led by an investment growth, and a disproportionate amount of its economy is devoted to investment, wasteful investment.  It has more steel mills than it has any need or want for, similarly with cement.  Heavy industry is dominated by state-owned enterprises to this day, and so they are making investments that are inefficient and unworthy.

China consumes too little.  Actually in the past several years, its consumption has declined, and it saves too much.  Our recommendation was that it stimulate its domestic consumption and that would help right the balance.  Today, the state-owned enterprises are spending about 8 percent of GDP on investments.  We'd like them to allocate some of that to the consumption, and recommend that the lacks that the Chinese people have identified are health care, pensions.  And were they to spend money at home, then the Chinese people would not be so worried that they have to save disproportionately.  And their saving rate is the highest for any developing country and has grown in recent years.  Contrarily, the United States should save more, cut our deficit, and that would help create a better balance in the global economic picture. 

So you're right.  If you read the report, you can see that we would like China to shift its growth pattern from investment to consumption.  And we think that that would not only advance the welfare of the Chinese people, but would help balance the global trade picture. 

Yes, there is a competition for resources.  We would like to work with China on that.  We do not like to see China try to tie up and dedicate to itself what we regard as products in the global market.  And we think that by working on energy efficiency together -- because China, for example, spends nine times more energy to create one dollar of output than does Japan.  If we could curtail that, not only would we get a benefit in the environment but we would get a more efficient use of energy, which is in short supply. 

So all of our economic and trade issues require us to sit down and not lecture or hector China but to try to work out being cognizant of their interests, and sharing with them our interests to see if our mutual concerns in dealing with this range of issues -- we can come to a much more satisfactory solution than by acting unilaterally. 

WOODRUFF:  Some in the back of the room.  Yes, the woman there in the aisle.  I'll try to get over there, too. 

QUESTIONER:  Thank you.  I'm -- (name inaudible) -- from The Epoch Times. 

I -- from the report --

WOODRUFF:  Could you please stand and give us your name and affiliation again?  I'm sorry. 

QUESTIONER:  Yeah.  I'm Terri Wu from The Epoch Times newspaper.  We have both Chinese and English editions. 

From the report, I see that the assumption is, when you were talking about China, you were talking about Chinese regime; you were talking about the Chinese Communist Party.  Sometimes it's not about what U.S. want China to do; it's about Chinese people's choice.  Right now, a lot of people are getting rid of the Chinese Communist Party.  For example, my family members, my friends in China have quit the Chinese Communist Party. 

So have you considered Chinese people's choice of abandoning the Chinese Communist Party?  And the wisdom from China's 5,000 years of culture can really give China a great future, even a better future without the Chinese Communist Party.  I'm not really about -- you know, this is a comment to your worry about China's decline and failure that you worried about it would give the world a disaster. 

BLAIR:  I don't think that we seriously considered a scenario in which there would be a, in your term, alternative to the Communist Party of China.  We rather looked at the changes to the Chinese Communist Party that are taking place -- one, that you mentioned, of some people leaving it.  Others are different people joining it -- businessmen and others.  We really didn't prescribe a way that the Chinese government should develop.  We tried to look at the overall, as I saw, rule of law, representative government, human rights within the society, and called for a development of that in a way that probably we can't anticipate right now. 

QUESTIONER:  Thanks.  Gary Hufbauer with the Peterson Institute. 

This is a very fascinating report.  Often in these task force reports, the most fascinating part is the additional comments and dissents.  And particularly intriguing, and this follows up on the last question, is the comment by Hank Greenberg, because he no longer feels obliged by political correctness, if he ever did.  (Laughter.) 

Now what he says in his comment, to paraphrase, is that the report natters at China too much on the democracy front, and broadly that the U.S. natters too much at China on the democracy front, and let China evolve in its own way.  You might have added look at developments in Russia and the Middle East, and maybe there's a lesson there.

Comments?

BLAIR:  Yeah, it was certainly -- Mr. Greenberg made that point strongly in the deliberations.  It was a point that we talked about a lot in the task force itself. 

But we felt, number one, that, you know, we in the task force believe that, fundamentally, the ideas of civil society, rule of law, representative government -- not the "democracy" label, which has lots of baggage, but these fundamental principles that give people a stake in their country and a feeling of the ability to realize their potential are important in China, just as they are in other countries.  And we believe that without adopting some sort of high moral stand, the United States should in a broad way, and in a -- but in a persistent way, push those.  And as I mentioned, we also believe that it is ultimately in China's best interests for unleashing its own potential. 

So that was how we came down on it.  But as you said, Mr. Greenberg and some others thought that perhaps that the tone was not quite right, and that was certainly his right as a member of the task force to express.

HILLS:  And I agree with what Dennis has just said.  The thrust also of Mr. Greenberg's comment was we ought not to be hectoring China; we ought not to talk about regime change, we ought to work with her.  And although he thought there was too much focus on democracy, I think the consensus in the task force was that politically, this is not an issue that we wanted to duck.  Democracy, responsive government, rule of law has an effect on American interests in China, and we think it provides, as they are moving in a direction toward more pluralism -- today there are over 200,000 non-governmental organizations active in China; there are more members of a Christian church than there are members of the Communist party.  I mean, these changes are unheard of when taken in a historic, two-decade context.  So that we wanted to work with China and tell them that actually, they have put corruption, its elimination, as one of its top goals because that is the issue that most Chinese complain about when they talk about their government.  Well, how better to help rein in corruption than by having democratic elections where you can throw the bad guys out?  And so to move in that direction -- and China has -- at the very lowest level there are elections at the community level.  We would like to encourage them to move that upstream to the provincial level.  And I think rule of law is indispensable both to eliminate the protests and the domestic dissatisfaction by having an avenue to challenge unlawful activity -- the taking of land, the ignoring of environmental pollution laws which are on the books. 

So I think that the task force felt comfortable in sitting down with China and talking about these issues.

WOODRUFF:  All right, we have less than five minutes, so one or maybe two more questions.

Jessica Mathews.

QUESTIONER:  Jessica Mathews, Carnegie Endowment.  Can you lift the curtain a bit?  What were the two or three issues that the task force had the toughest time coming to agreement on?

BLAIR:  I'd say that in the security issue, the toughest issue we dealt with was this balancing of a concert of power and balance of power.  And the catch phrase for that in the security debate these days is hedging.  And we spent a lot of time talking about the advantages and disadvantages of hedging.  If you do it too much, you form a mutually reinforcing negative (dialogue ?); if you don't do it enough, you encourage false confidence on the other side.  So we worked really hard on that issue and came up with the formulation that you see on this combination:  concert of power/balance of power.  But that was the one that we arm-wrestled with.  We had good adult leadership with former Secretary Brown, and Ash Carter, and others with extensive experience in the security area.  And Aaron Friedberg was there.

So what we came up with, as you can see from the report and from the additional views, is the way that we threaded that needle.

WOODRUFF:  Do you want to add anything to that?

HILLS:  Well, I think the human rights issue was well debated at the task force level.  It took more time than some of the other issues.  But I think we came to a consensus that is agreeable to the task force members, which was really quite a diverse group.

WOODRUFF:  One last question.  Let's see.  The gentleman in the back.

QUESTIONER:  Charlie Snyder of the Taipei Times.  On page 83 you talk about China's relations with Taiwan, and you say that the United States should let China know that it does not rule out the -- using force to thwart any Chinese attempt to compel unification through force.  Does this imply that -- this seems to be a relatively soft statement on that issue.  Does this imply that the task force recommends that the United States tell China it would not rule out the fact that the United States would not use force in case -- in this situation?  And does this reflect a recommendation to move again towards strategic ambiguity, reversing President Bush's recommendation in -- or statement in April 2001 that the United States would do anything it could to help Taiwan defend itself?  What exactly were you saying in that statement?

WOODRUFF:  It's an innocuous final question.

QUESTIONER:  (Laughs.)

BLAIR:  Yeah.  Charlie, you and I don't have time for a Talmudic discussion -- (laughter) -- of the adjectives of -- and adverbs of policy declarations in this area. 

But what we basically said was that the United States should have this dual assurance, dual deterrence policy, in which we let the Chinese know clearly that a peaceful solution to the -- to Taiwan issues is what the United States will support; that if there is -- that it will use force if necessary to carry out its obligations and simultaneously tell the Taiwanese that the moves towards independence are not supported by the United States and will not be supported by -- necessarily by force.

So again, the -- I wouldn't put too much emphasis on an adjective or an adverb, or whether they use a double negative or a single positive.  (Laughter.)  That's the basic issue, is keep it cool on both sides, work towards a peaceful solution.  And the United States will make that happen with the tools that it has. 

WOODRUFF:  Do you want to add anything to that?

HILLS:  I would just say the report is solidly behind the three communiques and the Taiwan act.  There's no change whatsoever in that.  And I think that it's quite clear in that regard, and that actually that policy and what administrations over the years have done has been constructive.  We have greater stability, I think, in the straits today than we had five years ago.  We'd like to see that maintained.

WOODRUFF:  With that, thank you all for being here.  (Applause.)  On behalf of the council, let's thank Carla Hills and Dennis Blair.  Thank you all very much. 

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