Transcript
MR. MICHAEL ARMACOST: I think, for those in the back, there are few seats down here in front, and maybe they can pull a few more chairs in.
I'm Mike Armacost. It's my pleasure to welcome you to Brookings and to this briefing on the Bush trip to Asia. As you all know, this trip is a reprise to a larger trip scheduled for last fall, which was foreshortened as a result of the events of September 11th. And it seems to me the context for this visit is considerably in several respects, at least. Once again the focus will be, I'm sure, heavily upon coordinating our respective contributions to the counter-terrorist campaign.
But in October, when the president met with the Asian leaders in Shanghai, the campaign in Afghanistan had just commenced, the likely outcome was still highly uncertain. We were being second-guessed widely at home and abroad regarding the bombing campaign, both because people doubted whether there was a very rich environment for Air Force targets and because there were doubts about local allies. These doubts, needless to say, have been dispelled by the dramatic success we have enjoyed in the months since, and that undoubtedly strengthens our position for this trip in one respect, and indeed, there is much to thank our allies for inasmuch as the Japanese, Koreans and Chinese have been quite forthcoming and have offered a variety of forms of practical support, which I am sure we will discuss.
On the other hand, new issues have arisen, of course, as the focus has shifted away, to some degree from Afghanistan to places like Southeast Asia, where the interests of the countries concerned may differ somewhat, and toward Iraq, where the rumblings out of Washington about a campaign to supplant Saddam Hussein evokes, at best, mixed feelings.
In a second respect, I think the context changed a bit with President Bush, who is now someone who goes with extraordinary domestic support. So his position is a very strong one, not only because of his public approval ratings, but because that translates into a different set of expectations, perhaps about his durability as president and the outcome of the fall elections. We don't know what that will be, but foreign leaders tend to be mindful of those developments.
In the meanwhile, at least two of his interlocutors - Prime Minister Koizumi and Kim Dae Jung have seen some erosion in their political positions, with Mr. Koizumi suffering as a result of the firing of his foreign minister, and also because of, perhaps, accumulating questions as to whether or not he's fully committed to reform or whether or not he can translate the obvious popularity he still enjoys in his country into the kind of political strategy and will that will enable him to overcome a very fierce resistance to those reforms from within his own party and elsewhere in the society.
Meanwhile, in South Korea, of course, Kim Dae Jung has entered a period to some degree of being a lame duck, with elections coming this year, and he's struggling with scandal and the perception widely held around the world that perhaps he and the president are not on the same track with respect to North Korea, and indeed the conflation of our nonproliferation and counter-terrorism objectives makes this a trickier trip, I suspect, for the president, most especially in Korea.
The third change, it seems to me, most notable is that the economic circumstances have changed. In October, some Americans still thought we might elide a technical recession. We now know we had entered that recession months before, but now, happily, we're seeing at least some signs of recovery; how robust is not too visible at the moment. But Japan's circumstances have clearly changed for the worse, and the slow growth in Japan and the United States and the slowing down in Europe have had some impact, even on China's growth rate. Happily, those changes are offset to some degree by China's full entry into the WTO and the successful meeting in Doha, the congressional action to move forward, the likelihood of fast track - or trade promotion authority in the U.S. - all of these things will figure into the discussion, and I think, as I say, the president goes with a very strong position at home and enjoying wide respect for what we've accomplished over the five months, but some uneasiness about where we may be headed in the weeks and months immediately ahead.
We've devoted a lot of effort, attention and resources at Brookings in recent years to enriching our work on Northeast Asia, the expression of that before you. We've got, we think, a very strong team.
One of the briefers who was scheduled to be here today had a good excuse for not being here. Lael Brainard, the former deputy national economic adviser had a child last night, a baby girl. We thought that qualified as a good excuse for missing the briefing, although some were uncertain whether she might show up. She's very dedicated.
But you have on the panel Jim Steinberg, who is the vice president and director of our foreign policy studies program, a former deputy national security adviser to President Clinton. He will serve as moderator.
The panelists you see in front of you, working from my immediate right: Ed Lincoln, expert on the Japanese economy who just recently published a book called, "Arthritic Japan," on the face of deregulation in Japan. He's working currently on regionalism, particularly on the economic side of regionalism in Asia.
Nick Lardy is one of the preeminent experts in this country on the Chinese economy, and he just published a book that outlines the impact of China's entry into the WTO, on it's economic engagement with the world.
Bates Gill, beyond Jim, is the director of our Center on Northeast Asia Policy Studies and devotes his own research to strategic and political issues in China.
And finally, last but not least, Kyongsoo Lho, who is a senior fellow at the Center for Northeast Asia Policy Studies, but is also a visitor from Seoul National University, where he is a professor of international relations. It has been a great privilege to have him with us through this year.
So with that, let me turn it over to you, Jim.
MR. JAMES B. STEINBERG: Thanks, Mike, and thanks for that very comprehensive introduction. You put the scholars on the spot to try to do justice to your very concise but complete overview of what the president is going to be facing and the issues that they are going to discuss.
I don't want to take any more time away from the presentations, so we'll do this in the order of the president's travel. We're going to begin now with Edward.
MR. EDWARD J. LINCOLN: Okay. Let me start by saying that originally this trip to the south and Japan had largely a symbolic purpose. This is an administration that came into to office, that clearly wanted to make the U.S.-Japan relationship a cornerstone of the Asia policy. So it was intended that when the president went to Shanghai for the APEC meeting and stopped in several places on the way, that Tokyo would be the first place he went, and that was a largely symbolic move to show the centrality of Japan. So now that the trip's been postponed, it's going to start again in Tokyo.
As part of this, obviously the president will begin this with thanking Prime Minister Koizumi for the support that the Japanese government has shown since September 11th. For those of you who follow the war on terrorism rather than Japan, this may sound puzzling, since Japan hasn't done very much that's highly visible. And yet they did stand up immediately and express support for the United States and what the United States has done since then.
This is in contrast to what happened during the Gulf War where trying to get the Japanese to understand the importance of doing something about Iraq's invasion of Kuwait was just rather slow and difficult, as Mike Armacost can explain in great detail sometime, as he was ambassador to Japan at the time.
They've also sent several vessels to the Indian Ocean to engage in refueling and supply operations for the Americans, and they hosted the first meeting on the reconstruction of Afghanistan in Tokyo, and have kicked in a fairly sizable amount of money in the amounts that were offered up at the meeting. So they've done some things; they've been solidly on our side, at least up until now. If action were to move into Iraq or against Iran, then as with the Europeans, I think you would find a lot of problems for the Japanese. But so far they've been fairly solid, so the president will presumably thank Koizumi for that.
But what has now become the centerpiece of his trip is the Japanese economy. There is rising concern among all specialists on Japan that the probability of a major financial crisis in Japan is now rising. It may not be all that high. We may be talking only a 15, 20 percent chance of a disastrous collapse in the banking sector, but clearly this risk is rising in the context of a shrinking economy. They've been in recession since last spring, second quarter of 2001. Expectations are that the recession—the shrinkage of the economy—will continue this year. Prices are falling slowly. They're going down as deflation increases the burden on debtors. So this situation is not very good. It's particularly startling to see Japan stumbling so badly for the last decade after how well they had done.
In that context, the president's agenda appears to be one, again, of embracing Prime Minister Koizumi as a reformer and endorsing the reform package that Prime Minister Koizumi heads. Now that's important because, as Mike was saying, there are now doubts about to what extent Koizumi really is a reformer, how serious was his reform package. Frankly, I think that there are large parts Koizumi is calling reform that are either trivial or largely irrelevant to the core issue at the moment, or they are insufficient. Now he's got a bailout package to the banking sector calling on banks to wipe out non-performing loans, but it appears totally inadequate to virtually every economist that I know who works on Japan.
Nevertheless, the president will - approach will be to say to the Japanese public and politicians, "Koizumi is your man, he's your prime minister, he's a reformer, but you've got to get with the program and get these things implemented." So that will be the choice that he takes there.
I think the things to watch for in this trip are basically to see how serious or how strongly does the president express his concerns about the state of the Japanese economy, and there's a delicate balance here. If he's too mild, then the LDP and Mr. Koizumi will interpret that as blanket support for everything he's done, even though, as I say, I think it's very inadequate. If he comes across too tough, then that opens a field day for the opponents of Koizumi and every Japanese running around now saying that there's nobody in the wings to take over as prime minister, and so I think that this is not a moment in time that the administration would like to be seen undermining a prime minister who appears to be basically the only choice at the moment. So it's a very delicate balance and so that's the element to watch, is how the president carries off this message of concern and need for reform.
MR. STEINBERG: Going over to the other side and for the President's next stop, Kyongsoo Lho.
MR. KYONGSOO LHO: Thank you, Dr. Steinberg.
The second stop in Seoul for President Bush, I'm afraid, is going to be equally or perhaps even a more problematic challenge for Mr. Bush. Quite aside from the press play that the differences, human differences in ideological persuasion, perhaps in terms of strategy and tactics vis-à-vis North Korea in between the Bush administration and the Kim Dae Jung government. The real problem, I believe, is a fundamentally systemic one. I'll try to explain what I mean by that.
I think the South Korean government policy-makers under Mr. Kim Dae Jung over the last four years or so have grown accustomed to Washington putting a second order of priority to it foreign policy interests. What I mean by this is, of course, the Clinton administration's primary focus on domestic policy as opposed to foreign policy, as least with regard to the Korean Peninsula. This has suddenly changed. I think after 9/11, whether the Bush administration wished to do this or not, it seems to me, as a Korean observer in Washington, that America's focus has been shifted towards foreign policy, at least over the foreseeable time horizon, and, number two, with a clear focus on the security aspects of foreign policy. And I think this was reflected in his inauguration speech where the "axis of evil" became such a phrase of concern in Seoul.
Mr. Kim Dae Jung's problem, as Ambassador Armacost made it at the outset, has been that he's been experiencing a continuous slide in support domestically over the last four years with respect to his engagement policy towards North Korea, what he calls "the Sunshine Policy." Fundamentally, I think all members of Korean society wish to see better relations with North Korea. Who wouldn't? But they've consistently had reservations about the tactical content of Mr. Kim Dae Jung's policy towards North Korea. And with the emergence of the Bush administration and the seemingly tough tone in President Bush's policies toward North Korea, those in the center and to the right of center in Korea have been encouraged, and those left of center have been troubled by what this could mean in practical terms.
I think over the last two or three days, the media in the Korea have been spinning the story ostensibly trying to reassure the general public in South Korea that Mr. Bush's tough tone does not necessarily imply any conflict on the Korean Peninsula. And, in fact, it's hard to imagine American policy going to that extent. I think the substance of Mr. Bush's tougher line against North Korea will, in fact, be tougher demands than negotiations.
The way it's evolving, it seems to me, is that it's a different tact than Mr. Kim Dae Jung's policies in a fundamental way. Mr. Kim has been willing to pay for dialogue. South Korea has offered assistance packages to the North, various concessions just to get the North Koreans to the negotiating table—never mind what the substance of the talks was—and hoping that over time that the North Koreans would go on a learning curve and eventually come to see Seoul's logic and engage in genuine dialogue. But I think for most South Koreans, the frustration of waiting for four years without any real changes in North Korea's behavior, or even in the internal situation in North Korea, despite all of the aid given during the last four years, has proven disappointing.
So I would say that Mr. Bush in Seoul will face, on the one hand, a very broad base of support, if not approval, of his somewhat harder stance on North Korea. It seems to me what Washington is saying to Pyongyang is that, no, the game is over. We're not going to pay for you to come to the negotiating table. Come to the table prepared to negotiate and to negotiate substantial issues in a credible fashion that aid will be given. But the previous pattern of providing aid just to get them to the table is no longer going to be the way that Washington deals with Pyongyang.
I think it's up to Pyongyang to understand this as quickly as possible and think carefully about a workable agenda that they're going to discuss with Pyongyang. I don't think Mr. Bush will be swayed by the Kim Dae Jung's administration's persuasion while Mr. Bush is in Seoul. I think the strategy, the American strategy, has been thought out fairly carefully. I don't think the "axis of evil" remark was an off-the-cuff thing. The fact that it was in the State of the Union Address suggests to me that careful thinking went into the language before it was delivered. And it was intended to give a certain message to North Korea.
I would hope that the strategy does not pressure North Korea to the point where they retract or cause unnecessary problems on the Korean Peninsula or in terms of the U.S.-Korea alliance. For those who denigrate the Clinton years, I part company, because despite Mr. Kim Dae Jung's very soft line towards Pyongyang, we did experience movement in Pyongyang's political context, in dialogues with Seoul, in dialogues with Washington. That's unprecedented. But I think about four years, nearly five years of testing North Korea, that it's time for North Korea to begin to talk to both the U.S. and to South Korea in a genuine fashion. And I think Mr. Bush will continue to deliver this message to the Korean public, believing that this is the consensus view. And I think he's not very far off, if I read the South Korean context sufficiently well.
I'll stop there.
MR. STEINBERG: All right. Thank you. Because China is so much bigger, we have not one, but two. And we'll start with Bates on the political-security side, and then Nick?.
MR. BATES GILL: Thanks very much, Jim.
Let me just divide my remarks into two basic parts. One, I'd just like to paint a broad picture for what I think the environment of the US-China relationship is going to look like as the president travels to Beijing, and then, secondly, try to zero in on some specifics, what we might expect to come out or not come out of the upcoming meeting between the two presidents.
I think, by and large, we should be giving the Bush Administration some good marks in bringing this relationship onto a more stable and steady footing. Certainly, if we were having this meeting a year ago, we might have had a lot more concern about the direction that the US-China relationship was moving. But already, by mid-year of 2001, I think we could see the outlines, at least, of a re-stabilization, a turn towards what I would consider the mainstream take on US-China relations, as it has existed for so many successor administrations.
And in many ways, the events of September 11th even further stabilized, provided a further opportunity for the US-China relationship to get back on some at least stable ground. I don't want to take that assessment too far, though, because I think while we do see things more stable, certainly, than in 1999 or in 2000 in many respects, this remains a fragile relationship, as Harry Harding once put it here at Brookings Institution. And beneath the surface in both capitals, there are, I think, lingering suspicions and a sense of mutual difficulty, as the two capitals look upon one another. Indeed, the events of September 11th, I think you could argue, have exacerbated, in the minds of the leadership in Beijing, some preexisting concerns they had already had about the United States and its actions and its long term intentions in China's neighborhood.
For example, we bolstered our military presence around China's periphery, we've strengthened our alliance relationship with countries like Japan and Australia, and I think, again, through the actions of our military, have demonstrated, once again, that we are indeed the sole superpower, immensely capable of projecting power to all parts of the world.
So, on balance, then, going into this meeting, I think we can say over the past year, there's been a net gain, let's say, in the sense of stabilizing the US-China relationship. And for that, I think we should be relatively happy. But things remain fragile. I think any number of events that we could tick off quickly could easily set back the relationship back to a sort of 1999 or 2000 setting, re-igniting mutual suspicions, which I think are beneath the surface in the political and security relationship between our two countries.
So, I guess, at best, I would say, one could be cautiously optimistic about the prospects for further gains in the US-China relationship going forward. That's why I think the summit is important, because it comes at a critical turning point and can do much to solidify what gains we've seen over the past year. Let's turn to some specifics, then, secondly.
It's highly unlikely, in my view, that we'll see any major breakthroughs or major agreements coming out of this meeting. Let's not forget that this is not a "summit," quote, unquote, in the diplomatic language coming out of Washington. It is a working meeting. And I think this administration wisely has sought to keep our expectations low for both political and practical reasons in this meeting with the Chinese leadership.
Nevertheless, it's worthwhile. This is an opportunity, as I said, to further stabilize the US-China relationship, to further clarify some strategic issues with one another, and maybe most importantly this is going to give President Bush and his full entourage what may be the best chance yet to interact intensively with the so-called fourth generation of new leaders who will be stepping up to positions of power over the coming 12 to 15 months. And I think that in itself is well worth the time and effort.
Two other points. Let me talk a little bit about what I see as divergence in the US-China relationship and where I think we can find some areas of convergence, and how those will play out in this meeting. And what I would term external issues, there's an enormous amount of divergence between the United States and China, external foreign policy and security issues, things with which we're all familiar, like questions of missile defense, differences over Taiwan, differences over China's proliferation practices. And I just don't suspect that we're going to see any significant type of breakthrough or agreement. But it seems to me that the two capitals have at least agreed to disagree on these things, and to look instead at areas of potential common ground. The best we can hope for on these sort of areas of divergence, I would be listening very carefully for turns of phrase and reassuring words.
For example, maybe the president, in China, will say openly that U.S. missile defense plans are not aimed at China. I think that would be a significant statement if he were to say that. I think we'll hear the president speak reassuring words about our interest in seeing China smoothly enter into and integrate itself with the WTO system.
For China, we should be listening to see whether or not we hear them emphasizing their intention to resolve the Taiwan issue peacefully and how soon thereafter they say, but we reserve the right to use force, or whether they don't say it at all. I think that would be an important set of words to be listening to. Also, I'm hopeful, and I think the pressure is on in our negotiations running up to this meeting, that we can hear a high level public statement from Chinese leaders to the effect that they do not oppose the presence of the American military in the western Pacific. Those would all be reassuring. They don't solve these problems, but they're reassuring words and important.
More likely, I think where we're going to see any type of agreement or convergence during this meeting are what I would call internal issues of Chinese security and which, indeed, are, in some ways, strategic issues, even for us here in Washington. And by this I mean some convergence on the need to assure that China goes through its WTO accession process smoothly, that unrest is kept at a relative minimum inside China, that its unemployment problems be dealt with effectively, that its looming HIV-AIDS crisis—there's an article available which we'll issue in about two weeks time with Foreign Affairs about China's looming HIV-AIDS crisis. It's available to you. Please have a look. This is a big problem, and I think it's one where the United States and China can find a good bit of common ground. It's not a sensitive issue. It's a problem of concern to the Chinese, but, politically, it's not as sensitive as some of the other external divergent questions.
I think we may also see the creation of an FBI representative office at the embassy in Beijing, another sort of step forward in helping the two countries liaise more effectively on issues of transnational and even internal concern for China, such as trafficking in people, narcotics and illicit weaponry.
So, in conclusion, I don't think we should be looking to any high water marks during this meeting. This is going to be a cultivation exercise, an opportunity for the two sides to get to know one another all the better. If you need a barometer of, quote, unquote, "political security success" from this meeting, maybe we will see some movement on China with regards to its proliferation activities, though I doubt it. Maybe we'll see a prominent support for steadily expanding military-to-military relations between the United States and China, possibly. And I think for the Chinese, certainly, the best barometer of success for this meeting will be that President Jiang Zemin is invited to Crawford, Texas later this year following the APEC summit in Baja, Mexico.
MR. STEINBERG: Thank you, Bates. Nick.
MR. NICHOLAS G. LARDY: Unlike Japan where economic issues are going to be very high on the agenda for the president, by the time he gets to China, economic issues are going to be pretty far down the list of priorities, as you can tell from the survey that Bates has given. But just let me give you a little bit of background on the economic relationship that kind of sets the context. Then I'll talk a little bit about emerging WTO issues.
Basically, the interesting thing is that the bilateral relationship between China and the United States has grown extremely rapidly over the last decade. Our trade last year was about 120 billion U.S. dollars, six times what it was in 1990. China's now our fourth largest trading partner. We're trading more with China than we are with Germany, about two and a half times more with China than we are with France. I can go down the list. And the trade continues to grow fairly rapidly. So it's kind of in an economic growth in the trade relationship, even without the benefit of WTO, and I think WTO will accelerate things somewhat.
On the investment side, cumulative U.S. investment in China is now about $35 billion, which means U.S. companies have more invested in China than in any other developing country, by a substantial margin.
So the economic issues are increasingly important, or economic interchange is an increasingly important dimension of the relationship. And I think as we move forward, we will see WTO compliance become a major issue. Already, we have heard a lot of complaints from various interest groups and sectors in the United States that China, in one respect or another, has failed to fully deliver on the commitments that it made in its WTO accession document.
Obviously, they've only been in the WTO for about two months, but expectations are very high. I think, as you look at the details, whether it's soybeans or tariff free quotas for agricultural products, or financial services liberalization, or any of the other areas, a lot of the criticism so far, at least, strikes me as somewhat premature. The Chinese have been very forthcoming in providing their new regulations for comment. I think they're the only member of the WTO that actually publishes regulations in draft form related to their WTO commitments and provides an opportunity for foreign firms and foreign governments to suggest how they might be improved or revised before they're promulgated in final form. So there's a lot of going back and forth in these early months, and I think it will, quite frankly, take quite a long time to see precisely how well China does in terms of following up on the commitment.
But I do think compliance will be an issue. It will be discussed, I think, by the president. We are told reliably that—and here, what a contrast with Japan—we are told reliably that the president actually talked about soybeans with Jiang Zemin when he was in Shanghai for the APEC meeting. And that issue has not yet been fully resolved, and many people believe the president will take this up again when he's in China later this month.
The underlying structural problems, I think in terms of compliance, are several. First of all, China has agreed to a very, very high standard of market openings, particularly in services. Really, China's commitments in services are, in some respects, unprecedented. Charlene Barshefsky said, for example, that China has made stronger commitments in the area of distribution, which means things like wholesaling, retailing, after market service, et cetera, et cetera. There's a long list of components of a distribution sector. But China's commitments in the area of distribution are stronger than thte commitments made by any other WTO member. That is, they will liberalize market access more than any other member of the WTO. So they've made very high commitments, particularly in the service sector. Combine that with the fact that they have forgone the right to use some of the policy tools that other countries have been able to use to smooth the adjustment process domestically. For example, they've agreed to unprecedentedly tough restrictions on the use of subsidies for various domestic sectors to try to smooth the adjustment process as you get a restructuring as imports increase.
And finally, they have ceded to WTO members really unprecedented rights to reduce the flow of Chinese commodities into the markets of other WTO members. So there is in place a variety of mechanisms that other WTO members, including the United States, can use to restrict Chinese imports. And I think, particularly in the United States, but also in other countries, and not just advanced industrial economies, but even countries like Mexico and India and a number of other major developing countries, there is pressure being exerted by domestic producers to use these instruments if imports in China increase very rapidly.
So I think, as Bates said, the president will say encouraging things about the WTO, but perhaps we'll get down in the weeds a bit on some of the specific problems that maybe already seem to be emerging, for example, in the case of soybeans, which I can talk at length about if anyone's really interested. But I say, overall, economics are pretty far down the list in the agenda, in very sharp contrast with what will be the case with the stop in Japan.
MR. STEINBERG: Thank you, Nick. I think what you've heard from all of our group up here today is it's a trip with relatively modest expectations. It seems fittingly ironic that 30 years after the Shanghai Communiqué that soybeans should be a dominant issue in the US-China relationship. (Laughter.) But I think that the wonderful thing about these trips is that there're always the unanticipated, and I'm sure that President Bush is not going to have far out of his mind the memories of his father's trip to Tokyo as well.
(Laughter.)
But let's turn now to questions. I think we have microphones here, so when I call on you, if you'd wait until the microphone comes up and then ask your question.
Q: George Condon with Copley News Service. Let me ask about two areas of the China trip that neither of you mentioned. One is the succession, the transition to the next generation of leadership. You expect the president to meet with Hu, and is this significant since he's never traveled to the United States?
And secondly, human rights, which was barely mentioned at Shanghai when they met at APEC, since Tiananmen Square, that's always been a dominant issue at these talks. Other than religious persecution, has that been shoved to the background by September 11th?
MR. STEINBERG: I've just got to observe the infinite Abbot and Costello possibilities of being asked whether he's going to meet with Hu are kind of hard to pass up. But, Bates?
MR. GILL: I suspect he will. I haven't seen the latest from the White House today, but I don't think they've yet formally announced who he'll be meeting. But all signals suggest that he certainly will meet with Hu Jintao, as well as others. I wouldn't be surprised if he, or certainly members of his entourage, meet with others like Wen Jiabao, and Hu Yaobang and these fourth generation leaders that we can expect to take very senior positions over the coming years. So I think the answer to your first question is yes.
And do I think it's important? Absolutely. It's important for a lot of reasons. First, it's important for these leaders who are going to be dealing with each other for, you know, maybe another six, seven years, potentially, to take a measure of one another. That's very important. But for the Chinese domestic political scene, I think it's also useful because, at least for those who are backing Hu Jintao, this is going to help solidify his position, because he will be sort of rolled out even more formally as a quasi heir apparent. He has to be careful, of course, not to outshine his senior and mentor, Jiang Zemin, but this is an important beginning, I hope, of more regularized and senior level sets of dialogue with this emergent leadership.
On the human rights question, I suspect we'll be hearing some strong words from President Bush, at various occasions, perhaps at the People's University—oh, no, I'm sorry, he's speaking at Chingua, at the Chingua University speech, which is going to be live and broadcast to the Chinese people. That's going to be his single greatest opportunity to say some strong words. I mean, it will come across strong in many ways. I'm sure it will be couched diplomatically. But this will be his one great opportunity to speak to the Chinese people and try to make a convincing case of the desirability of a more open society, more pluralistic form of relationship between the government and the governed, and why that is to the benefit of the Chinese nation and why that is not meant to pose a threat to the stability of China, but, rather, open up new opportunities for China's development.
MR. STEINBERG: I think it's notable that the Chinese have taken at least two steps in recent days to try to diffuse some of the human rights issues with the release not only the prominent Tibetan scholar, but also a Hong Kong individual who had been arrested for selling Bibles in south China. The case was handled very quietly and very expeditiously, and he was sent back to Hong Kong.
Q: Mike Lavallee with Tokyo Broadcasting. A question for Dr. Lincoln. As you mentioned with the Japanese economy, President Bush probably—publicly will not go too far one way or the other in his public comments. But I'm just wondering, how much concern do you think he will express privately to Prime Minister Koizumi about the Japanese economy? And what do you think about within the Bush administration? Is there a growing concern that Prime Minister Koizumi is not the reformer that they thought he might have been when he came into office?
MR. LINCOLN: Well, only President Bush knows how much farther he'll go beyond his public remarks, but if he's listening to others in the administration, I think he will go beyond his published remarks and get across, I think, a fairly strong sense of worry and urgency that there really is the potential of a financial crisis fairly soon—in the next year or so—if the government doesn't start to act more quickly, particularly on cleaning up a non-performing loan problem.
So my guess would be that he will deliver that fairly strongly. And do remember that this is a guy who even in June was able to bring up the experience of Texas in the 1980s and the resolution of that in the first Bush administration when we created the RTC. So he can bring into it some personal examples of, (a), the short-term pain that's involved that you have to pay and, (b), the efficacy of actually moving ahead quickly when you finally get your act together to do something.
So I think that he will do that.
Q: (Inaudible.)
MR. LINCOLN: Oh, they really believe he's a reformer. You know, that's harder to say. I know some people in the administration who, I think, understand that Koizumi may not be the reformer that he was portrayed, but, again, how broadly that view is shared I don't know.
Q: Al Millikan, Washington Independent Writers.
In the war on terrorism, dealing with the axis of evil, particularly on North Korea, will Japan, China and South Korea be asked or expected to do anything they won't want to do?
(Laughter.)
MR. STEINBERG: I think Kyongsoo has talked a little bit about what his expectations are vis-à-vis North Korea. I think that the difficulty at this stage is that it's not clear that the administration knows it wants to do in the first instance, so it's hard to know exactly what they're looking for the allies to do.
The most dramatic case is going to be the case of Iraq, and it's a case where the demands on the countries in this region will be relatively modest. It seems unlikely that the administration, if it decides to use force in Iraq, is going to seek support in the Security Council because it has very little chance of getting it. But it may seek to use an effort in the Security Council to push the issue of inspectors, and that may be one case in which it goes to China and says, look, we're not asking you to endorse the use of force, but let us let you know that if we can't get the inspectors in, that's the direction we're going. So to the extent that you have any dialogue with Iraq, you ought to give them that tough message.
So I think that's one potential demand. And, of course, there will be the very challenging question for Japan which Ed touched on and Mike touched on before, which is the question if there is military operations in the case of Iraq whether we would have any expectations as we did in the Gulf about support from Japan.
On Iran, similarly, there has been over the years a number of instances in which the United States has gone to Japan, which in the past has had extensive economic ties with Iran and sought to use to leverage Japan as another partner in trying to put the squeeze on Iran. But since we don't really know what direction the U.S. Iranian policy is going to go at this point, I think it's a little hard to anticipate. But I don't know. Ed, do you want to?.?
MR. LINCOLN: If I could add one or two comments on Japan. The Japanese, of course, have had a fairly tough policy toward North Korea themselves. They were, in fact, somewhat uneasy with the Clinton administration's rapprochement with North Korea. And recently, as you may know, the Japanese have actually fired their first shots in anger since 1945, sinking what was apparently a North Korean spy vessel and killing all of the people who were on board it.
And so in a sense, they're ready to do more, although that was within the confines of their definition of defending their territorial waters. If there was to be some kind of broader conflict on the peninsula, then they would be hard pressed to figure out where they stand on that.
Oh, one more thing, by the way. If there's trouble with Iraq, the legislation which authorized a dispatch of Japanese vessels to the Indian Ocean will expire this spring, and so if indeed something comes up with Iraq, this is going to require new legislative authority from the Japanese parliament.
Q: Randy Mickelson with Reuters for Mr. Lincoln.
To what extent do you think President Bush will be carrying the message of U.S. manufacturers to Japan? They're concerned that the yen devaluation has gone too far, it's hurting U.S. businesses.
MR. LINCOLN: Not very much, in my opinion. I do think the administration is somewhat concerned by what they see happening in Japan, not so much that the yen is weakening, but the fact that various Japanese government officials were trying to talk the yen down. And so I think they've objected to that kind of interference in the market, whether it was effective or not. I mean, there certainly is the debate about whether the yen has been falling because the government's been talking it down, or whether it's been falling because of just simply market pressures. But I think they do object to having the Japanese government talk about wanting a weaker yen. And he's likely to at least deliver the message that's been delivered to some extent already. So long as the administration thinks or believes that the Japanese government is moving forward vigorously with the reform that deals with the fundamental problems of the economy, like non-performing loans, then yen weakness, at least on a temporary basis as a consequence of that, is acceptable. But, again, what they object to is the thinking that appears to be going on in parts of the Japanese government that "nothing else is working, so let's at least try to get a weaker yen and see if we can export our way out."
But again, I think that a lot of this is driven not so much by the administration responding to pressures from manufacturers. Again, my impression is that they've pretty much brushed off the Detroit Big Three, but the reasoning of economists who were saying, you know, "exporting your way out is not the way for them to go and what they really have got to deal with the non-performing loan issue." And anything that helps them postpone that is going to leave them in a stagnant or recessionary condition for longer than necessary.
Q: —Knight-Ridder Newspapers.
I'm wondering if you could, the two on the end here, flip it around and give us what China and Korea hope to get out of this meeting.
MR. STEINBERG: Other than a visit to Crawford.
Q: Right.
MR. GILL: Other than a visit to beautiful Crawford. Coffee's excellent, I hear, at the diner. Although maybe that's not as funny as it may seem. I think probably the principal goal of this meeting for China is, indeed, the opportunity to have the President of the United States travel for the second time in four months, mind you, to China and meet directly with President Jiang Zemin, a man who is desperate in many ways to secure his legacy as a third-generation leader for China, but increasingly, I think, also secure his legacy as the man who, following through the footsteps of Mao Tse-Tung and Deng Xiaoping, brought China to the world and brought the world to China. And this visit by the President of the United States is, I think, part and parcel of that. So that I think just by the fact that he's setting foot in the capital of China is a great success for the Chinese, and I think that's very important.
Secondly, and a little bit more amorphously, Jiang Zemin needs to get some reassuring words out of the Americans in public so that he can turn to his domestic constituencies and say, see, I'm handling these guys okay. They may be a sole superpower, they may be a hegemonic imperialist, but I've managed to deal with them effectively and I've gained some reassuring words and they understand that when they're dealing with China, they're dealing with serious people and they're going to treat us like a great power.
So he wants to hear from the Americans that kind of reassurance so that he can turn to his own domestic constituents and prove his statesmanlike credentials.
Even more specifically, I would suspect that they would be very pleased—the Chinese would be very pleased if they could gain from the American side various forms of assistance—technical, financial and otherwise—that will help them address these enormous socio-economic problems that they've got internally, whether it's environmental issues, WTO accession questions. I mentioned the HIV/AIDS issue. These are big, big problems, and we, I think, with other Western powers, can provide enormous amount of assistance to assure that this socio-economic transformation that China's going through can be done in a relatively smooth way.
The way I like to think of it is this. If the Chinese leadership have insomnia because they're worried about the national problems they face, they're not lying awake at night because of what I would call external problems. I don't think missile defense keeps them awake. I don't think Taiwan keeps them awake. I think, in fact, they're relatively confident in a lot of ways about their role externally. It's these internal issues which are really big, big problems and threaten the very survival in some scenarios of the Communist Party. So if they can get some help from the U.S. on those issues, I think they're going to be pretty darn happy.
Q: Well, Bush goes on live at the university and starts talking on human rights?.
MR. GILL: Well, that's why I phrased it—I tried to phrase it and I'm hoping the president will phrase it in this way of saying political transformation is necessary, but not because we think the communists are bad, but because, in fact, we think that this good for the Chinese people and for the Chinese nation, and that this will open the door to all kinds of new opportunity and innovation and change and development, which you might not otherwise enjoy. So, you're right. He has to phrase that in a way that I think garners support from the Chinese people. It cannot appear to be a finger wagging approach. It has to be stated in a way that is consistent with American values, but at the same time reassures the Chinese people that this is really in the interest of their and the broader region and global interests as well.
MR. STEINBERG: But the trick on this which both Reagan and Clinton used was not to criticize the Chinese for what they did, but to extol what America does, and by implication criticize the Chinese and I would guess that that's the kind of basic strategy that Bush is likely to use here.
MR. LHO: As far as Seoul goes, I think it's very anxious at this moment about the visit. And if I read the media correctly over the last week, the government is putting out a full-court press to try to reduce expectations about this visit. I think they're very, very worried that the difference in approach to North Korea, even the ideological differences between the principal policy-makers in the Bush administration and Mr. Kim Dae Jung's personally and his few key aides in charge of North Korea policy will become very overt during the course of the dialogue.
I think Kim Dae Jung has given up hope that it can persuade Mr. Bush to see things his way. As you will recall, his visit to Washington at the start of the Bush administration went very, very badly, and I hope that both sides learned a lesson from that visit and not be over anxious, not to load the agenda, but try to find things to agree on, rather than to disagree on.
I think from Mr. Bush's perspective and something we in Korea tend to forget too often is that we are bound by a mutual defense treaty, that we are military allies, funny as that sounds today post-Cold War, but we remain a military allies. We owe each other very close cooperation and support. And to go back to your earlier question what would South Korea do: any South Korean government, given that we are military allies and given what South Korea—and I don't say this sentimentally, for South Korea owes to the U.S. over the years of the Cold War, like individual nations have that, too, that we do whatever we can to support the U.S. in material terms and in political terms, and where we disagree, we use the proper channels of government to consult and to disagree, but that we do everything we can to support American policy, as it benefits us too. We have to live with essentially a rogue state. Never mind the missiles, never mind the nuclear program. We have over 30,000 large caliber artillery tubes aimed at Seoul. And as we sit here in Washington, just to give you a perspective, if this were the North Korean front lines, my house would roughly be in Alexandria. That's how close we are with North Korea. And it's not the nuclear threat, but the conventional threat that it's immense, has always been, and there are 37,000 young American men and women who, as part of this alliance framework, serve in Korea today on the DMZ.
So I think, you know, other places matter, but a conflict on the Korean Peninsula is not out of the question, and we have to be very, very careful and very, very judicious about each strategic step we take towards North Korea. I think Mr. Bush is somewhat concerned because he and his staff, his key aides—I would understand if they were somewhat concerned because, from a military perspective, our military assessment and American military assessment in Korea is that the material military threat on the Korean Peninsula on the North Korean side has increased over the years. I think that's an observable, quantifiable fact. Yet on the political front, there seems to be movement. We have to sort of resolve how we assess this. We don't have a close enough consultative process, unfortunately, where we do this on a frequent enough basis, on a substantive enough basis. And hopefully during his visit, Mr. Bush will touch on this, or his principal aides on security and foreign policy will touch on this and prepare for the next phase of our engagement with North Korea.
Q: Thank you. Radio Free Asia. This question is for you, Dr. Lho.
Why are the North Koreans not wanting to talk, to talk with the United States, even if the United States offered unconditional talks, even considering what you just mentioned of the conventional forces' threat issue, North Korea would not?.?
MR. LHO: Well, that's the core of the question, isn't it, after all? Since 1998, we've had in South Korea in place what we've come to know as the Sunshine Policy. It's a policy of persuasion. It's a policy of bribing North Korea to behave in the way we want to behave. We pay lots of money, but North Korea hasn't behaved the way we wanted it to behave. It's a kind of a dysfunctional at this point, or at least that's the majority assessment in Seoul.
My own view, and this is my own personal bias having watched North Korea over the last decade, is that the North Korean leadership, as currently constituted, has to change in a fundamental fashion before we see a behavior change in the North Korean regime. I think Mr. Kim Jong Il, who heads the North Korean government like his father, has a vision of a unified Korea that is fundamentally, diametrically opposed to the kind of life we have in South Korea. He still envisions a very socialist, if you would call it, a Kim Il Sungist, a very rigorously, centrally controlled Korean Peninsula under his control, and will still look for opportunities to leverage whatever military strength he has into a bargaining position, or hopefully should the day ever come where America tires of its commitment to the Korean Peninsula, he moves south, what the old Soviet terminology used to call the correlation of forces; that the correlation of forces on the Korean Peninsula favors North Korea; that they would not be beyond using physical force to try to unify the Korean Peninsula.
All of what I see over the last ten years is tactical maneuvering by North Korea to maximize its space in the post Cold War world, to try to close off as much outside influence from contaminating their system, taking aid where they can, extorting aid where they can, and trying to keep the influence of the United States and South Korea at bay. They've done, I think, quite a good job up to now. But as I understand it, what this administration is saying and what the potential government in Seoul about to enter into office next year is saying, in fact, no, this will not wash. We've had five year of this. There's been more than enough time for North Korea to understand that neither South Korea nor the United States intends North Korea harm, except to ask that you modify some of your most brutal policies internally and reduce your military expenditures, which, after all, is hurting the North Korean economy, which is in shambles regularly.
We find it very serious, those of us of this persuasion in Seoul, why this current government, which is headed by a human rights activist, after all, the political opposition to authoritarian regimes in South Korea in the past, would not address human rights issues in North Korea. If we talk about human rights violations in China, the violations in North Korea are far, far worse. And it's just unthinkable violations against individuals, not merely freedom, but the right to life, simple life. I could go on with hundreds of examples of what the regime has done and it continues to do. But there's no time for that.
But the reality of the peninsula is that we need to deal with North Korea as it is rather than deal with North Korea as we would hope it would be.
MR. STEINBERG: Well, I guess there's a diversity of view up on some of these issues. I think that if you look at the developments over the last seven or eight years, clearly there had been—there has been a price to pay. But there's also been a significant gain for security on the peninsula. The agreed framework has largely been honored on the North Korean side. We have the moratorium on the missiles, and these were two of the most immediate dangers that we faced. And the interesting question would be, had we not engaged over the past seven years, whether we would have had that.
So I think it's an issue of important debate, and Dr. Lho will say the fact that this is a keen debate within Korea itself. And I think it's one in which they're trying to figure out the way through in which you both gain the benefits from engagement and holds North Korea to tangible commitments is critically important. And now the debate is where do you go from here.
Q: Eric McVeighan (ph), a consultant on East Asian security.
Jim, you mention that this is the 30th anniversary of when Nixon arrived for the opening to China. Incidentally, I was told purportedly by someone I knew that the choice of the specific date was coincidental, that there was knowledge, of course, that it was around Shanghai Communique time. But even so, Bates, I wonder if you would comment on the significance of a visit by President Bush, whose administration, of course, started out, most people thought, not very favorably inclined toward China. Now, scheduling a visit on this very propitious date, does it indicate a major change in attitude of the Bush administration? Are we reading too much into it if we take that as a signal, that this really means that we're looking at China in a different way?
MR. GILL: I don't think we could read too much into the fact that he's visiting there on the 30th anniversary of the Shanghai Communique. As you note, Admiral, it's a coincidence, an opening in the President's very, very calendar. So I presume that certainly from Washington's point of view, I presume they'll try to do their best not to tout the fact that he'll be there, while, on the other hand, Beijing may do its best to do the opposite.
But be that as it may, I don't read too much into it.
But your second question, I think, is a very interesting one. Are we seeing a kind of turning of the corner? Should we read this as at least a change of tone? At this point, I think we can trace this change of tone, if you want to call it that, back to the summer of 2001 when, after the EP-3 incident, and indeed maybe because of it, it allowed for some laser beam focus on how to get this relationship on a little bit more steady footing. You could even walk it back farther than that. I think in February, and even in March of the new administration's tenure, there were some pretty positive signals that the two sides were prepared to operate with one another in a more businesslike way and try to set aside some of the discrepancies for the time being and focus instead on managing the relationship in a more effective way.
So I think this visit is, indeed, a part of that ongoing process. Again, I wouldn't exaggerate a kind of turning the corner analogy. I don't think that's quite right. I think it's another step, let's say, in a process that I think we can trace back almost a year and maybe was brought to a greater clarity by the EP-3 incident and the bad direction that could have gone, and the two sides coming back and really working hard, I think, over the course of the summer and into the APEC meeting to put things back on a firmer path.
All that said, as you well know, there's serious debate still within this administration about what our long-term strategic position should be vis-à-vis China, which is not settled. The food fight has not even begun on that question. And maybe September 11th has allowed for that debate to be put off for a while, which will allow at least a little more moderate and a subtle stabilization to take place in the relationship.
MR. STEINBERG: If nothing else, a whole new generation of Americans are going to know what Zhou Enlai looks like. (Laughter.)
Yes.
Q: This question is for Dr. Lincoln. I was just wondering what can the Japanese government do to eradicate the non-performing loans problem and why haven't they done so already?
MR. STEINBERG: Do we have three hours?
(Laughter.)
MR. LINCOLN: Well, what do they need to do? Essentially, what you need in any country faced with a sizable non-performing loan problem of this sort, and we faced with our S&L crisis in the 1980s, although that was a smaller proportion to the economy than Japan's problem. You need basically to get the non-performing loans resolved, and to resolve them in one of two ways. For those borrowers for whom the creditors think that there's actually some reasonable chance of resuscitation, you work out some kind of a deal involving a debt-for-equity swap to get the debt levels down, in which you take equities in place of it, but then force the?.
(TAPE CHANGE.)
MR. LINCOLN: ...and the borrowers forced into bankruptcy, and the collateral is seized by the lender. You know, that's the model of what we did with the Resolution Trust Corporation at the end of the 1980s with the S&L crisis. Japan has just got too many of these non-performing loans and non-performing borrowers sitting there as kind of a dead weight on the economy. So they need decisive action to deal with it.
The problem with what the government's done so far is that it has been basically administrative guidance. They've said, "gee, banking sector, we would like you to write off 20 trillion yen worth of loans in three years." There is no coercion involved in that. And that's an important missing element, because—and this gets to the last part of your question—the banks have been very reluctant to crack down on borrowers who are in arrears, either because the banks themselves have very close personal ties with the borrowers. If you spend 20 years playing golf and drinking whiskey with somebody, it's a little hard to go to them and say "I'm sorry; I'm shutting you down." Or, they're afraid because the borrowers have political connections, and the political connections come to the bank and say "Don't you dare shut down this particular borrower." And so there's just this web of personal connections that appears to have made the banks very reluctant.
They're also reluctant, I think, for maybe a more simple economic reason. Some of these banks have so many bad loans out there that if they actually start writing these things off and make it evident to the public what a pile of non-performing loans they're sitting on, then there'll be a run on the bank, the bank will go bankrupt, and the bankers are out of a job. So they are, in some cases, they're just afraid about revealing how much under the water they are as an institution, and so they'd rather just try to continue hiding.
MR. STEINBERG: I'll take one more question. All the way in the back.
Is that mike on there? Why don't you stand up, and then maybe we'll be able to hear you a little bit better.
Q: (Inaudible.)
MR. GILL: Well, there's a pretty simple answer, just to start out with. I mean there just is not a comparison to the China of today on those issues you raised of human rights, proliferation and Taiwan in 1972 as compared to the situation today. And I think the evidence is very clear that there has been remarkable and, in some ways, historically unprecedented progress inside China across all of these fronts, all to the good. The trend line, we have to say, is good. You know, this is not Maoist China. This is a completely different place, far more open, far more pluralistic in many respects. You have greater opportunity as a Chinese citizen today than you probably had in the history of China for economic well-being, for social development, education opportunities, even something as simple as getting a decent meal, on and on.
On the question of proliferation, too, I think, while we still have some very serious remaining difficulties with China, the trend line has been good. I mean 1970s' China thought it was good to proliferate nuclear weapons, because that broke the hegemonic monopoly of the nuclear powers, the Soviet Union and the United States. And they made some very stupid mistakes in the 1970s in their nuclear relationships, I think, which they're paying the price for today. But nevertheless, I think the trend line has, overall, been good. There're still a lot of problems.
And on Taiwan, there's an unprecedented degree today of interaction and exchange, travel back and forth, economic, social, cultural, educational, academic, athletic, on and on and on. And we're moving in a good direction in the overall tenor of the relationship between China and Taiwan. I mean back in the 1970s, just to turn the tables on Taiwan, the leadership there believed they were going to take the mainland back. I mean don't you remember the phrase, you know, you have to put a leash on Generalisimo Chiang for fear of what he might get us into with the mainland.
So I think, overall, the situation's much, much better. It's not where we want it to be, of course. And there remains some very, very serious and outstanding difficulties. But that's why I believe—that's why I have such trouble when people want to somehow change the policy which has been so successful for the past 30 years in achieving these movements. Okay. It's not been fast enough. But the onus needs to be on those who want to reverse this policy in the face of a proven success. Maybe it's not been as fast as we want it, but the trend line is right, and the success is proven. The onus is on those who think you need to reverse that. There's no evidence whatsoever that I can point to which suggests that a reversal of the policies of the past 30 years are going to get us any closer or any faster to what we've seen as considerable success in our relation with China.
MR. STEINBERG: Well, thank you. And thank you all for joining us.
(Applause and end of event.)