After One Eventful Year: Assessing the Bush Administration's Policy for Northeast Asia

Transcript

MR. MICHAEL H. ARMACOST: Good morning everyone. I'm Mike Armacost. It's my pleasure to welcome you to this national issues forum on Northeast Asia. This is an annual affair which accompanies the spring meeting of our distinguished advisory council for the Center for Northeast Asian Policy Studies. We're grateful for the sage advice and counsel we receive from them and this also gives us a chance to exploit them and enlist them in this program.

I'm personally very proud of the work the Center has done over the last four years. I'm grateful for the leadership that Bates Gill has supplied in taking an idea and turning it into an institution. I think it's certainly enriched the quality of research that Brookings does on this region to have the benefit of the professional scholars and practitioners from Japan, Korea, China, Taiwan, Hong Kong, Russia as part of our staff for a year and we hope the collegiality and camaraderie that develops among this group of scholars can make a modest contribution to the building of bridges between countries which still experience some of the consequences of historic memories and the absence of regional organizations in that area.

I think it's a timely moment to devote some attention to Northeast Asia. Asia, of course, has been much in the news but the focus has been more on South Asia with the struggle in Afghanistan, the establishment of operating bases in Central Asia, the preoccupation at the moment with some Southeast Asian countries where there are large Muslim populations. But in the end it is Northeast Asia where the interests of the major powers intersect most directly. It is Northeast Asia where the two major economies of the region are located. And of course it's in Northeast Asia where we face the residual legacies of the Cold War, the bitter rivalries between North and South Korea and between Taiwan and China which still have the potential, if improperly managed, to provoke the larger confrontations.

I think the very important recent developments likewise are an appropriate focus for discussion this morning. Strategically we've seen that September 11th and the attacks on the American Trade Center and the Pentagon did bring security issues to the fore once again. They reshuffled the strategic deck again. How durable these changes will be remains to be seen, but we have observed Japan extending the scope of its security operations to providing rear area support for a coalition fighting terrorism in Afghanistan, and in a way that's a practical affirmation of the right of collective defense. We've seen a more businesslike relationship develop between the U.S. and China on counterterrorism among other things. But even in the face of developments which one might perceive as being adverse to China, the establishment of American military operating rights in Central Asia, the extension of Japan's security role, strategic discussions with India, reorientation of Russian policy, continuation of our interest and drive for missile defense and so forth, hasn't seemingly inhibited the development of a relationship that's far more businesslike than the one we were experiencing just a year ago.

On the economic front things have been difficult in Asia as they've been difficult in the U.S. and for the same reason, in a way. Whenever the U.S. economy slows down it has a huge impact on countries relying on export-led growth. During the '90s the dependence of the U.S. on Asian imports grew in a huge way. I think it was $124 billion in 1990 and it was nearly $450 billion by the end of the decade and there was a comparable increase in the dramatic holdings of American dollars by Asian countries, something which permitted Americans to finance these huge current account deficits, permitted us to keep inflation low, kept the dollar strong, and it offset what was a declining savings rate in the United States.

Because of the slowdown I think we've seen less reliance in the last year or so for obvious reasons on the demand pool from the United States, and that has forced a number of Asian countries to rely more heavily upon government spending or upon corporate restructuring or upon intra-regional trade. All those things have potential large implications for us in the longer run for Asians rely more upon domestic spending than exports and one of the consequences is maybe they hold fewer dollars in the U.S. and maybe that affects the strength of our dollar and our savings rate and so forth. So these are long term trends that we ought to pay attention to.

Finally it seems to me we're in a period of some uncertainty politically. In Asia we're seeing a transition from the era of Jiang Zemin to Jiron Ji [ph], his leaders, and we don't have a clear fix yet on their successors. In Japan we've had a different style of leadership from Mr. Koizumi who has translated extraordinary levels of popular support into an attempt to overcome domestic sources of resistance to reform plans, and now with Mr. Tanaka's [ph] ouster the popularity ratings have gone down a bit. Other reformers have bit the dust recently, so there's uncertainty whether or not Mr. Koizumi represents a new paradigm of leadership in Japan or whether this is just a blip on the radar screen.

Of course in Korea as well, Kim Dae Jung internationally, a man of great stature internationally who opened the door to talks with the North, has fallen on more difficult times. And with an election later this year, he has entered, quite naturally during that run-up to an election, a certain lame duck status. So that casts a shadow also on at least the short term prospects for North/South relations.

In short, an interesting period in Asia and an appropriate subject for our discussion. To kick off that discussion, it's a great pleasure to introduce to you Peter Brookes who has I think the best Deputy Assistant job in the city in our government as the Deputy Assistant Secretary of Defense who with the Asian portfolio, Morda Bremowitz [ph] who is the Chairman of our Advisory Council and I had the great privilege of serving in that job in 1970. It's a good job and we're delighted with the occupant there now.

Peter before going over to the Pentagon had large experience in the Hill with the House Committee on International Relations. He's also served in the State Department and the Central Intelligence Agency and has held important jobs in high tech companies and the corporate sector. He's a graduate of the Naval Academy, a flyer of the airplanes that were involved in our discussions with the Chinese a year ago, but he's been in the Pentagon for a year or so and we're delighted to have him kick off the proceeding this morning.

MR. PETER T.R. BROOKES: Good morning. Thank you. Thank you, Mr. Ambassador. I appreciate it.

It's good to see some familiar faces out there in the audience this morning. It's actually not been a year and a half since I've taken the job, it just feels like it. It's actually only been nine months since I started as Deputy Assistant Secretary of Defense for Asian and Pacific Affairs.

As you know, I'm responsible for DoD's defense and security policy for East Asia including Northeast Asia, Southeast Asia, and Australia Pacific. It's a great job working with great people at a very unique time and in a part of the world that is very important to the United States.

In 1989 when I was still on active duty, a naval officer flying EP-3s out of Atsugi, Japan, Paul F. Kennedy wrote a book entitled "The Rise and Fall of Great Powers". I'm sure many of you in the audience today have read it.

In it Kennedy reasons that great nations throughout history eventually suffer from a condition known as imperial overstretch. As developing nations rise up and become new world powers, he argued, great nations find their economic and military supremacy fading. Kennedy warned that America could be beginning such a decline.

In the early 1990s while the American economy was in recession and when Washington began a series of post Cold War defense reductions many saw this as an indication of Kennedy's thesis.

Moreover, his view was particularly believable in the Far East where Asian tigers were rising, where America was closing its bases in the Philippines, and where a surging Japanese economy seemed ready to eclipse that of the United States.

Was this really a manifestation of Kennedy's prophecy? Before we answer that question let us look around the region and see what constants remain and what changes are taking place.

The first constant is that Asia is and will continue to be a region vitally important to the United States. More than 50 percent of the world's economy derives from Asia. Over half of the people on our planet live there. Asia is home to four of the seven largest militaries in the world, some of them nuclear powers. Half a million U.S. citizens live, work and study in the region, including some of you. U.S. businesses conduct more than $500 billion in trade with Asia each year, and this accounts for millions of high paying U.S. jobs.

But there's another reason why Asia is important to us. Asia matters to us because we have a shared emotional stake in its future. America has fought three wars in Asia in the past century and in the process has lost 200,000 of its brave sons and daughters. There are nearly 11 million Americans of Asian descent living in the United States today?citizens who help give our nations an even greater heartfelt reason to want the best for Asia and its people.

As President Bush said, America is a Pacific nation drawn by trade and values and history to be part of Asia's future.

The second constant that defines the region is the integral role of the U.S. military. Our forward presence in this region dates back more than a century and a half. The East India Squadron established in 1835 was stationed in Asia to protect commerce and paid regular port calls to Hong Kong, Mainland China, the Philippines, and Singapore. Commodore Matthew C. Perry negotiated Japan's opening to international trade in 1854.

We have had a virtually uninterrupted presence in Asia for nearly 170 years. I can promise you we will continue to be there in this century as well.

Earlier this year the U.S. Department of Defense unveiled its Quadrennial Defense Review, better known as the QDR. The QDR affirmed America's commitment to maintaining our security commitments and capabilities in Asia. In fact it said American will not only meet its security commitments, it will enhance its capability to do so.

It recognized that even though the global war on terrorism would create new demands on our forces, we needed to continue enhancing our presence in Asia in order to maintain security and stability in this region of vital importance to United States national interests. Indeed, U.S. presence in Asia is enduring.

We are positioned to stay just as involved in the region in this century as we were in the last century, if not more involved.

The third constant is our commitment to our treaties and defense obligations. The Bush Administration came into office with a priority of reinvigorating relations with friends and allies in East Asia and demonstrating our long term commitment to remain fully engaged in the Pacific. I think we have made positive steps in this direction.

We have active treaties with Japan, Korea, the Philippines, Thailand and Australia. These are the cornerstones of our presence in Asia and the Pacific and are complemented by the numerous friendships and partnerships we have with other nations in the region.

In Northeast Asia our defense relationships with Japan and Korea are strong and vibrant and we are committed to peace and stability on the Korean Peninsula.

We also have an active security commitment to Taiwan under the 1979 Taiwan Relations Act. The TRA states clearly that any attempt to change Taiwan's status by other than peaceful means would be of grave concern to the United States and a threat to peace and stability in the Western Pacific.

Our position is clear. We don't support a unilateral change in the status quo and we expect Taiwan's future to be determined in a peaceful and mutually agreeable manner to the people on both sides of the strait.

One only has to look at the PRC's continuing deployment of military forces across the Taiwan Strait to see that regrettably peaceful resolution cannot be taken for granted. While the PRC voices a preference for peaceful reunification it still refuses to abandon the use of force against Taiwan as a policy option.

Of particular concern is the PLA's growing arsenal of tactical ballistic missiles which are clearly designed to try to intimidate the people in the democratically elected government of Taiwan. We take very seriously our responsibility under the Taiwan Relations Act to make available to Taiwan defense articles and services that can enable it to maintain its efficient self defense capability.

But just as there are constants in the Asia Pacific region, so too are there changes and uncertainties. The first and most obvious change is the global war on terrorism. Events since September 11th have heightened our awareness and concern over terrorism and transnational groups that inflict these terrible acts. Northeast Asia has fortunately been relatively quiescent on the terrorism front while Southeast Asia has regrettably emerged into prominence. Clearly there is significant threat in that part of East Asia.

We have not yet determined the full extent of the terrorist presence in East Asia but recent arrests in Singapore, Malaysia and the Philippines clearly demonstrate the need for concerted effort with like-minded nations to identify, eliminate, and prevent sanctuaries to terrorists.

At the invitation of the Government of the Philippines the United States has deployed some 600 military personnel including 160 military advisors to assist the armed forces of the Philippines in conducting operations to combat international terrorist groups in the southern part of that country.

The mission of our deployment is to build Philippine military capacity and capability to help continue the war on terrorism, to defeat the Abu Sayyaf Group, to secure the release of U.S. hostages, and to ensure that the Philippines does not become a safe haven for terrorists. We hope that our assistance in the Philippines will lead to the elimination of the Abu Sayyaf Group and the creation of conditions in the Philippines that will prevent the recurrence of terrorist activity.

I should add that we greatly appreciate the contributions we have received for Operation Enduring Freedom from many Asian nations.

The second change is the growing willingness for Japan to take a more active role in global security matters. Since the Gulf War there has been a slow but steady evolution in Japanese security attitudes beginning with peacekeeping deployments to Cambodia and on the Golan Heights in the Middle East. Then in 1997 we issued a new set of defense guidelines for our security cooperation in peacetime for the defense of Japan against armed attack and to respond to regional contingencies.

Under these important guidelines Japan will provide a variety of rear area support, search and rescue and other support for U.S. forces in a regional contingency as well as continuing to take a lead in its own defense.

Following the tragic events of September 11th the planning that we had conducted under the guidelines provided the model that the government of Japan followed as it drew up a package of support for the antiterrorism coalition. That support has included airlift, using almost half of Japan's C-130 fleet as well as deploying ships and conducting at-sea refueling of U.S. and British naval ships operating in the Indian Ocean.

Those are not things that Japan was required to do under the Mutual Security Treaty. Rather, these were the actions of a close and trusted friend and partner. They were actions that Japan took on its own initiative because Prime Minister Koizumi recognized that fundamentally the attacks of September 11th were a threat to Japan and the rest of the world, not just the United States.

As Japan takes these and other steps the region and the world are seeing just how much Japan has to offer if people will put aside the past and instead focus on the possibilities of the present and opportunities and promise of the future.

The third change in the region is the emergence of China. We do not view China as an adversary. On the contrary we seek a relationship with China that is balanced and constructive and we wish to develop areas in which our interests converge. But we must be honest about our differences such as human rights, proliferation, and arms sales to Taiwan.

China is engaged in an aggressive defense modernization program. We are monitoring these developments very carefully. We are concerned about China's continued deployment of offensive missiles near Taiwan and its growing naval and air forces that seem focused on building capabilities that could undermine peace across the Taiwan Strait.

We've created a new policy governing military-to-military contacts with the Peoples Liberation Army that requires they be reviewed and approved on a case by case basis. Let there be no question, we have defense contacts with China but we want to ensure that such contacts serve American national interests, the principles of reciprocity and transparency and balance, and are in line with the fiscal year 2000 National Defense Authorization Act which provides common sense guidelines for military-to-military contacts with the PRC.

Furthermore, we are continuing to take important steps to decrease the possibility of miscalculation in international air space and on the high seas through the U.S.-China Military Maritime Consultative Agreement meetings.

A final change I want to mention is in the U.S. military itself. We are refocusing our military on capabilities rather than specific threats. The capabilities-based approach focuses more on how an adversary might fight rather than specifically who the adversary might be or where the war might occur.

We are actively undergoing a defense transformation, renewing our focus on information operations and technology, base operations, finding and attacking mobile targets, and projecting power into anti-access environments. And we have made an unwavering commitment to develop a missile defense capability to deal with the burgeoning ballistic missile threat. This is a top priority of the Bush Administration.

Additionally, the U.S. is seeking more access and contingency basing in the Asia Pacific region and beyond as well as increasing aircraft carrier battle group presence in the Western Pacific.

We are also exploring options to homeport three to four additional surface combatants in the region as well as guided missile submarines to improve our forward deterrence posture.

These changes mean a U.S. presence in Asia that will be more capable, more flexible, and able to respond more quickly and capably when needed.

As President Bush said during his recent trip to Asia, we stand more committed than ever to a forward presence in this region.

So was Paul Kennedy's forecast correct? Is the sun setting on U.S. involvement in the Asia Pacific region? Is American influence eroding? I would suggest most certainly not.

We have been in the Pacific for over 150 years. The stakes are too high, our interests are too great for us not to remain committed to this important part of the world.

The Asia Pacific region is changing, as are the U.S. military's capabilities and focus. So let there be no question that our involvement, our presence, and indeed our commitments to the region remain constant.

Thank you very much.

[Applause.]

MR. ARMACOST: I regret that Peter's schedule doesn't permit him to take questions, but we'll go right on to the program I think next up is Bates Gill who will say a bit about the survey that's being released. It's a signature product of the Center.

Bates, it's all yours.

MR. BATES GILL: Thank you very much, Mike. I'm Bates Gill, I'm the Director of the Center for Northeast Asian Policy Studies. On behalf of the Center let me welcome you all this morning. Thank you very much for joining us. Again, our gratitude and thanks to Peter Brookes for his remarks as well, I think setting the tone for what's going to be an interesting remainder of the morning.

For about five minutes here before our panel comes up to the podium I just wanted to say a few words about the release today of our second annual Brookings Northeast Asia Survey, this one for 2001 and 2002. This survey which should be available for you as you come in is a collaborative effort drawing together the talents of persons here resident at Brookings, our visiting fellows who are with us for ten months, as well as persons from outside the Brookings Institution with whom we have a close association.

I think you'll find this volume to be handy, very useful. It provides an overview of the most important developments and events over the past year and provides a kind of heads up, a look ahead at what we see as being some of the most important things to look for in 2002.

In addition, the volume includes a quite handy set of appendices which are some of the key documents which came out over the past year related to Northeast Asian Affairs.

For example, the full text of the famous letter of three sorry's which Ambassador Prueher provided to his Chinese counterparts following the EP-3 incident. We have the statements marking the formal establishment of the Shanghai Cooperation Organization which brings together China, Russia and four Central Asia neighbors. We have the full text of the China-Russia Friendship Pact which was concluded mid year last year and the statement from APEC in October on counterterrorism, and there are others as well.

Let me just touch on some of the highlights of our findings from this year's survey.

Japan presented to us I think an interesting paradox on the one hand, and we'll hear more on this, of course, the continuing issues we have and concerns about Japan's declining economy on the one hand, but in the wake of the September 11th event, as Peter Brookes just noted, with barely a whiff of constitutional debate, Japan took unprecedented steps in augmenting, expanding its security role in the Asia Pacific. China, too, presented a number of interesting paradoxes. While being quite active on the diplomatic and economic front, for example, in the foundation of the Shanghai Cooperation Organization in hosting a visit of their neighbor to the northeast, Kim Jung Il and his visit to China as well as the conclusion of the Russia-China Friendship Treaty and its accession to the WTO, we are all I think cognizant nevertheless that internally China remains uncertain about its future both for socioeconomic reasons as well as moving into an important political transition over the course of 2002-2003.

The U.S.-China relationship of course last year experienced highs and lows. The President having visited China twice in the course of four or five months, most recently, and now we have the visit of [Ju Jing Tao] later this month and we can expect President Jiang Zemin to also come to the United States in October. So we see a stabilization, but I think as noted in our survey there remain a lot of questions and uncertainties about the future of U.S.-China relations in spite of this relatively good news.

Korea we noted also. A time in 2001 of missed opportunities. A chance to follow up on the headlines and the symbolic summit treaty of 2000 failed to materialize, and now as Korea goes into its own political transition in 2002 with Kim Dae Jung stepping down, again we have a great deal of uncertainty that even the most recent news of renewed North/South talks I don't think can necessarily alleviate.

Most interestingly about our survey I think this year is the new section which we have offered in addition to politics, security and economic issues. We've added a fourth section on regional development.

I think it is very interesting to follow the nascent emergence I think of several region-based organizations which do not include the United States which we see as a trend in the region of sort of increased degree of economic and political and security regionalism. Again, which does not include the United States.

For example the creation of the Shanghai Cooperation Organization, also the fifth meeting of the ASEAN+3 group which brings together the ten countries of the association of Southeast Asian nations along with Japan, China and South Korea also met last year.

Interestingly also I will note at the November meeting of the ASEAN+3 last year came the release of the report from the so-called East Asia Vision Group. We're very pleased, I should add, to have one of the leading authors of that report, Kyongsoo Lho on our advisory council and with us today. The East Asian Vision Group which was an idea of President Kim Dae Jung's had many important points to it. Among them thoughts about accelerating free trade in the region, establishing an East Asia free trade area, and President Kim has also put forward as part of his East Asia Vision Group exercise the possibility of creating an East Asia Forum or an East Asia Summit. So we see in these many interesting developments a move towards regionalism. Whether this will be successful is another question. I think the early indications are that these are serious regional attempts to create greater cooperation within East Asia.

We don't believe that it necessarily points to difficulties for the United States and I think by and large our authors support this notion of both economic and political and security-related regionalism in the region as a means to bring greater stability, security and prosperity to Northeast Asia.

I recommend these to you. I hope very much you'll find it useful. They will also be available on the WorldWide Web later today, simply by going to the Brookings web strike, available in a PDF file. So I hope that you'll enjoy it. If you have any questions or issues with it please do raise them with us.

Let me also note, speaking of the WorldWide Web that today's event will be archived on the Brookings web site providing streaming audio and video of the event to users who click where indicated on our main Brookings home page which, as you know, is www.brookings.edu. Also a full transcript of this event will also be posted to the Brookings web site. I recommend those to you as well as the excellent Brookings web site more broadly.

Let me conclude here and invite our panelists to please step up to the podium. I'll introduce them briefly and then turn it over to our moderator.

[Pause]

We're very pleased to have a distinguished group of individuals joining us this morning to discuss the topic After One Eventful Year: Assessing the Bush Administration's Policy Towards Northeast Asia.

We're especially pleased to have as our moderator and asker and fielder of questions Ms. Andrea Koppel who as you all know is the senior State Department correspondent for CNN. Andrea comes to us with lengthy experience in this part of the world, having been some years ago the CNN correspondent in China. We're very pleased that you could join us, Andrea.

To Andrea's far left we are pleased that Dr. Lho Kyongsoo from Seoul National University is with us today. Also a visiting Fellow here at CNAPS. Dr. Lho is a well-known expert on Korean security and political affairs.

Next to him Dr. Ed Lincoln, our colleague here at the Brookings Institution, one of the country's leading if not the leading specialist on Japanese economic issues, author of the recently released book Arthritic Japan: The Slow Pace of Economic Reform.

Next to Dr. Lincoln is Dr. Jia Qingguo who is from Peking University in Beijing, a well-known scholar of U.S. American [sic] relations and Chinese security policy. He is also with us, fortunately, this year for ten months as one of our CNAPS Visiting Fellows.

To Andrea's left is Jim Steinberg, Vice President at Brookings and Director of our Foreign Policy Studies Program and formerly the Deputy National Security Advisor in the Clinton Administration.

Paul Hsu who is a senior attorney with Lee & Li, Taiwan's most renowned and famous law firm. He is a member of our Advisory Council and is also a senior advisor to governments and corporations and agencies in Taiwan.

Finally, Dr. Fiona Hill is a Senior Fellow here at the Brookings Institution focusing on Russian security and economic issues with a special focus on Russian relationships with its Central Asian neighbors.

So I want to thank you all for joining us. Let me turn the floor then over to Andrea.

MS. ANDREA KOPPEL: Thank you very much.

I think since September 11th obviously there's been a profound effect around the world on the U.S.-led war against terrorism so I thought I'd begin by asking the former Deputy National Security Advisor James Steinberg where you see the biggest changes in Northeast Asia.

MR. JAMES B. STEINBERG: I think that's a really important question. People around the world have been saying since September 11th everything's changed. That question can be asked not only about policy here in the United States but in the region as well. How much has September 11th changed the dynamic of both U.S. policy and the perspectives of the country in the region. I think the answer is still a little bit too soon to say. There was certainly an initial sense in which the entire landscape would be transformed, that we would have as President Bush suggested in his speech to Congress about a week after the attacks, a new paradigm in which the entire world could be judged as those who were with us in the war against terrorism were our friends, and those who did not stand with us were our adversaries.

It was clear that the countries in the region began to think about how to position themselves with respect to that formula so we had, as Mike and Secretary Brookes suggested, movement by the Japanese to try to show that they were going to be supportive of the United States, very forthcoming statements by the government of South Korea, and perhaps most notably, the government of China identifying itself as a partner with the United States in the war against terrorism, talking up its cooperation, its intelligence cooperation with the United States, supporting the United States in the Security Council — a quite remarkable set of circumstances, China which had been very reluctant to give any sign of supporting military action against another sovereign entity supporting actions by the United States in response to events of September 11th.

Then the question is so how much is that going to follow through and how much can we look back to events before September 11th and see continuity as well as change?

I think the picture that's emerging is a shift back a bit to continuity in the sense that the core issues that we're facing in the region both as between the United States and the countries in the region and among the countries themselves have not dramatically changed. Yes, there has been some highlighting between the United States and China of the cooperation on terrorism but that's been more symbolic than substantive and we're beginning to see traditional issues come back on the agenda. A renewed attention to the problem of cross-strait relationships, China's particular concern about the invitation to the United States of Taiwan's Defense Minister. Again, a sense that the relationship which looked like it might take a more positive turn now coming back into more familiar channels. Not hostile, but again not one that has a great change of dimension if you look at where it stood on September 10th.

Similarly as we see with respect to Korea. We had a situation where when the President came in, clearly indicated he was going to take a tougher line on North Korea, and that, so the Administration has tried at some level to associate that with the antiterrorism effort. In fact it's a fairly loose connection at best, and that the concern about North Korea is largely related to its weapons of mass destruction program and to some extent its efforts at home, it's repression of its own people. And although it has now been identified as part of the axis of evil, in fact there's been a great deal of continuity in the Administration's approach from when President Kim first came to Washington in March of last year and to the rhetoric that the President pursues now.

So while I think that certainly the Administration will want to try to find ways to keep the terrorism issue at the front of the agenda, I think the inevitable reality of this region which is so important and affects so many great interests of the United States will remain in their own unique characteristics and our policy and the policy of the countries in the region will quickly I think come back to dealing with the core issues which existed well before September 11th.

MS. KOPPEL: Jia Qingguo, do you buy what James Steinberg just said, that the change between the U.S.-China relationship has been more symbolic than substantive?

MR. JIA QINGGUO: Well, I think certainly some of the changes have been symbolic, but in other aspects probably we also see some substantive changes.

I would say that in U.S.-China relations September 11th certainly had a tremendous impact on the way of thinking on the part of people, many people on both sides of, in both countries.

I think in China many people began to believe that we have a lot of things in common as well as a lot of differences and terrorism is a threat to the people of both countries. This is a thing that we should work together and fight against.

Of course in the war against terrorism the United States and China can cooperate, and on that basis we can advance our cooperation into other areas where we can cooperate, resolve some of our differences, too.

In some other areas the changes have been symbolic. As Jim has mentioned, U.S. policy towards Taiwan has been changing in a different direction. The Chinese might have hoped that the Administration would be more sensitive to the feelings on the part of the Chinese people on the mainland on the Taiwan question, however what we have seen in recent months is some movement towards a different action, that is an effort to sell more weapons to Taiwan, an effort to upgrade official relations with Taiwan, and now some people are trying to push for changes in visits to Washington, D.C. And of course somehow, sometimes when I look at U.S.-China relations now I find that the Bush Administration has two China policies. On one hand it wants to have a constructive, candid and cooperative, on the other hand some people have been advancing for a policy that still focuses China as a sort of potential enemy or strategic competitor as before. I think in those areas for those people things have not changed.

But I hope that eventually things would move in a positive direction.

MS. KOPPEL: One thing that has raised a lot of questions in the minds of many is why China hasn't said more publicly about the fact that the United States has moved into your back yard in Central Asia. The U.S. military.

MR. JIA: China doesn't feel that this is a sort of zero sum game. I think China believes this is a positive, this can be turned into a positive sum game.

We have the U.S. fighting against terrorism in Afghanistan. This is not only in the best interests of the United States but also in the best interests of China. Neither of us want to have terrorists operating anywhere in the world, especially for China on its border. So I don't think China believes this is a sort of U.S. gain, China lose kind of situation. Rather—

MS. KOPPEL: You expect the troops to leave in the near future.

MR. JIA: Well I think the U.S. probably will not have a sort of vested interest to spent a lot of money to put its troops there. I think it might have more resources to send its troops in stationing in areas which it believes to have more strategic interests.

I don't know, if the U.S. wants to spend money and put troops there to stabilize the situation, to develop the economy there, as long as it's not making China as a sort of enemy it's fine. You know. We welcome American constructive efforts in Central Asia or in any part of the world. But what we are concerned about is that if the policy is embedded in the sort of doctrine against China then that's a different situation.

So as long as we have a political understanding of trust between the two countries we can cooperate with each other. Then many of the existing problems or suspicions or sort of conflicts will not be there.

MS. KOPPEL: Dr. Hill, another country that has been noticeably quiet about the U.S. presence in Central Asia and soon to be in Georgia is Russia. I've heard and you probably are speaking to folks who are better in the know than I, that the Russians, while President Putin himself is okay with it, that there are many in the military, in the Russian military, who in fact are very concerned about this and very worried.

MS. FIONA HILL: I think the Russian attitude is very similar to the attitude of China that Professor Jia just outlined. Obviously while the focus of the United States is on fighting terrorism in Afghanistan and in stabilizing the situation, this is very much a positive sum game also for Russia. In fact just like China, Russia was extremely concerned about the Taliban, and the operations of al Qaeda, because of the spillover effects of this in Islamic militancy in Central Asia, also of course the drug trafficking from Afghanistan which has become a great scourge of Central Asia and Russia itself. This was defined as one of Russia's number one security problems in 2000 and 2001, the spillover from instability in Afghanistan and the civil war. So the Russians had been spending quite a bit of time in fact trying to attract attention to the problems in Afghanistan and get Western and U.S. support for actions to support the Northern Alliance in their struggles with the Taliban. This is very much playing into many of the security concerns for Russia.

The longer term problem is just the question that you asked Professor Jia. What happens if the U.S. stays for a longer time? It depends on how that U.S. presence is defined. Because the opposition to U.S. presence has exactly the same concerns that this may lead to a U.S. base in the region that's directed against Russia, although obviously as Professor Jia said, the Chinese don't necessarily fear this right now. President Putin is not concerned about this at this stage. But obviously people in the military who have been used to seeing Central Asia as their back yard, as their historic sphere of influence, have some concerns about how the U.S. presence is defined in the region. So it really all depends on how the U.S. engages with Russia as well as with China in defining its long term goals.

MS. KOPPEL: Mr. Lho Kyongsoo, how has the axis of evil speech affected the prospect for any kind of early reunification between the two Koreas?

MR. LHO KYONGSOO: I think Korean unification is sometime off in the future, but in terms of North Korea's relations to the U.S. I just heard, it hasn't been confirmed, roughly about an hour ago I got a message that Pyongyang had called for reengagement in Washington. So in spite of the axis of evil remarks, it seems, perhaps because of it, it's galvanized the North Korean leadership to seek a breakthrough with the U.S. rather than having a standoff with the U.S.. So we shall have to wait and see.

But coming back to your point about reunification I think Seoul, South Korea's policy towards the north has consistently been since the mid '70s, early '70s I should say, peaceful engagement, and President Kim Dae Jung since 1998 has reaffirmed and strengthened the peace initiative. But we have a very large hurdle to get over, namely North Korea's production of missiles, export of missile and missile parts to other troubled regions of the world, its dalliance with the nuclear weapons program, and its positioning of a considerable number of conventional forces along the DMZ with South Korea.

So we have a host of security problems that we have to address before unification, but with wide leadership on both sides of the DMZ, hopefully in the not too distant future we will be talking reunification.

MS. KOPPEL: Edward Lincoln, I think the title of your book sort of sums up what you think of Japan's prospects for reform in the near future, at least under this Prime Minister, "Arthritic Japan: The Slow Pace of Economic Reform".

Why do you think the Bush Administration hasn't been tougher with Prime Minister Koizumi in pushing him to put his money where his mouth is and make those reforms go through parliament?

MR. ED LINCOLN: I think maybe there are two reasons. First of all this Administration came in wanting to emphasize the security relationship and as part of that I think there was a tendency to kind of downplay the economic side. In the past, over the past 20 years there's often been something of a tension between raising economic issues which were often trade issues versus trying to maintain a warm and close security relationship.

So this Administration came in and said we need to strengthen the security relationship. They felt it had atrophied a bit during the Clinton years. Their focus tended to be more security than economics. Not that they wanted to downplay economics, I don't think they were paying as much attention to it initially.

The second reason though, I think, is they simply followed the footsteps of many people in Japan and greeted the arrival of Prime Minister Koizumi as representing a potential for actually a lot of forward movement on reform and restoring the economy to a better economic growth path. Now, a year later, I think they are finally coming to terms with the fact that it's not happening.

Now frankly I didn't think that Prime Minister Koizumi was that much of a reformer to begin with, so maybe I am less disappointed with the lack of action than the Administration has been, but be that as it may I think they are now coming to terms with the fact that reform has not moved forward very quickly and the potential for a real economic disaster in Japan has been rising somewhat.

MS. KOPPEL: What's your definition of a disaster?

MR. LINCOLN: Collapse of the whole banking system, which could happen. There are serious economists outside the Japanese government who believe that probably all of the major banks in Japan are bankrupt. So a collapse is certainly possible if in fact they actually reach a point where they don't just have a balance sheet problem but actually have a cash flow problem. So it's within the realm of possibility. I wouldn't say it is going to happen tomorrow, I don't think it will. But the possibility has been rising and that finally has the Administration somewhat concerned.

MS. KOPPEL: Paul Hsu, last but not least. I've seen reports every now and then in the paper about increased, on a slightly higher level, cross-strait exchanges. What do you think mainland China is up to? Do you think they are open to the possibility of peaceful reunification?

MR. PAUL HSU: I think there are two dimensions. I think all the other analysts talk about the political implications. I think we cannot ignore the economic interaction and what will be the impact of such economic interaction to the stability issue.

So in that regard, what I want to address in this equation of a political power struggle or political settlement in the short term, mid term or long term, I think we still think the continuing economic growth and economic involvement is important to the stability of Asia.

One interesting thing is noticing what are the differences between cross-strait implications and the two Korea implications. in the two Korea situation we have witnessed that the politicians are developing gradually an off and on dialogue. The politicians cross-strait have not done that—politicians from Taiwan and mainland China have not done that. But yet in the two Korea situation you don't see too much economic interaction. But in the cross-strait relationship you see a lot of economic interaction in terms of investment and trade.

In fact one mayor, Mayor of Su Chou [ph] mentioned to me that 50 percent of the outside investment in the Su Chou area, this is probably one of the fastest developing areas in China in terms of high tech industry and so forth, and he said that 50 percent of the outside investment is from Taiwan.

Now this kind of economic interaction leads to the cross-strait relationship, not mentioning all the cultural exchange, the mainland delegation visiting Taiwan and vice versa, and not mentioning the half million Taiwan businessmen are living in Shanghai doing business.

So this brings up a totally different dimension that I don't hear the politicians talking so much about it.

MS. KOPPEL: Some say that the Chinese are actually, this is part of their greater strategy obviously, they're tying the hands of Taiwan's leaders because all they have to d if they want to suffocate Taiwan is to affect Taiwan's investment in—

MR. HSU: This argument can be interpreted the reverse way. In other words it's to create a friendly or in real terms amicable, I wouldn't say too friendly, but amicable relationship and create another dimension. If one could argue that continued economic development in China could affect the changes in China in the future, the changes including transformation of socioeconomic, legal system, and I don't want to speculate what kind of political changes will be. But if you look at human history there is a long term trend that dictates the changes of a country.

MS. KOPPEL: Jim Steinberg, Peter Brookes in his remarks said that this Administration does not view China as an adversary, and yet at the same time he said that they were going to review on a case by case basis military to military cooperation. Do you think that's a mistake in light of the lessons that we seem to have learned from cutting off our military relationship with Pakistan?

MR. STEINBERG: I do think it's a mistake, Andrea. There's obviously concern over the years as we've developed military to military relationships. They've been unbalanced. We have provided a lot of openness on our side, we've tried to be very transparent and showed our Chinese colleagues more about what we're about on the theory that the more they understand about us the more confidence building can take place, and they did not reciprocate. When U.S. military officers went to China they were basically given a nice headquarters visit. They didn't really have a chance to meet with troops or see much, so there's a sense of this being unbalanced. And I think there's a fair complaint there. It would be important for the Administration to continue to press for more reciprocity in these talks. But cutting off contact seems to me to be particularly counterproductive at a time in which there is concern about Chinese military modernization and the great debate even here in the United States about just how extensive it is and what the purpose is of those changes.

So although it clearly is unbalanced and I think likely to remain unbalanced for some time, I think we get more than just sort of seeing it in that narrow sense of do we learn more about the Chinese military— the personal contacts, the sense of what the objectives are, the general tenor of the way the Chinese military is thinking is very important to the United States and I think there is very little to be lost from having these contacts. I don't think they in any way endorse anything we don't approve of in terms of the military threats to Taiwan, but that we in the long run do benefit from these things and we can explore and be very candid about our differences and our concerns in these channels. But I would very much like to see the Administration be more forthcoming on that front.

MS. KOPPEL: Jia Qingguo, I remember just about this time last year I was, along with a lot of people, very busy reporting on the EP-3 incident. Do you think now that Beijing really believes that this is the start, thanks to, and I say that understanding that this is an incredibly tragic period both to the United States and many other countries around the world, but do you think they view this, the war, the opportunity that the war on terrorism has opened in terms of breathing new life into the U.S.-China relationship, does Beijing view this as a new opportunity?

MR. JIA: Certainly Beijing was very dismayed that this attack ever happened. It caused a lot of human and material disasters for the U.S. and for other countries.

But any bad thing may have unintended consequences and of course one of the unintended consequences of the 9-11 attack against the U.S. was that it created the situation in which the U.S. priorities shifted.

Before that the Bush Administration, one of the Bush Administration's priorities was to pressure, focus on China and then at least to some people China was sort of the future competitor to be contained. And 9-11 sort of shifted U.S. priorities to other things and this created room for China to be more cooperative. At last the U.S. was not pressuring on China, then China feels more secure politically and economically so it can come forward and say to the U.S. we want to help. This was what the Chinese government did.

And of course once China came up and tells the U.S. we are partners, we want to help, then the Administration and the American people would feel the Chinese less threatening as a potential adversary. Maybe there is greater chance of initiating a process of cooperation between the two countries.

MS. KOPPEL: Where do you see that?

MR. JIA: President Bush went to China and he apparently appreciated China's help over, on a series of matters including among other things offering the APEC platform in Shanghai to the U.S. to promote its antiterrorist accord. Then he said that we want to have a candid, cooperative and constructive relationship and the Chinese really want to hear this.

Of course Chinese believe that a stable and cooperative relationship between the two countries is most important for China as well as in the best interest of the U.S., for the two countries.

China is experiencing tremendous changes and China needs all the possible international help to go through these changes and then to— And U.S. plays a pivotal role as the strongest and also the most advanced country in the world to help China or to make China's situation less manageable.

So China has every good reason to seek U.S. help and in this process 9-11 created an opportunity for China to cultivate this relationship. It appears to me that we are still in the process, and of course there are problems between the two countries, especially recently over the Taiwan issue, but I think the two countries, and China has made it clear it wanted to overcome this problem. Then somehow develop some kind of understanding with the U.S. government so that we can push forward the relationship in other aspects of the two countries.

MS. KOPPEL: Dr. Hill, we've seen how 9-11 has affected the Russian attitude toward the U.S. desire to change its ABM relationship. What other opportunities do you see for this relationship to move ahead that this Administration is not taking advantage of in your eyes?

MS. HILL: Again, when I listen to the description of China there's a great deal of resonance also for the situation for Russia. Russia just like China is still undergoing a massive process of internal change. The transition to a free market economy is certainly incomplete and as we know there have been many bumps on the road towards democratization.

Just like China, Russia is seeking international stability so that it can concentrate on completing this process of domestic change.

The relationship between China and the U.S. with the beginning of the Bush Administration began with the EP-3 incident. Russia also had a very rocky start to the relationship with the Bush Administration with spy scandals, the great concern over the prospective withdrawal of the United States from the ABM Treaty, missile defense, and a real desire by Putin as we saw, over the several months of his meetings with President Bush to change the nature of the relationship and obviously go beyond just a simple superficial change in personal chemistry. We all remember the soul gazing that President Bush engaged in at the first meeting, but Putin was of course very concerned to expand upon that and make that some basis for concrete cooperation.

When we look at Russian and U.S. relationships in the two principle arenas in which they interact, Europe and Northeast Asia, of course there's been a great deal of contention in both of these regions.

Central Asia in fact gives the U.S. and Russia the first real basis for cooperation. And I think that we can expand more upon that cooperation in Afghanistan to really stabilize the relationship.

We've already seen an integrating shift in the Russian approach. Remember back to the summer of 2001 the United States was very concerned about what seemed to be a closer partnership between Russia and China as the basis of the Sino-Russian Friendship Treaty which here was perceived as something of a threat. Of course that's proven not to be the case at all. Simply both Russia and China were looking for ways to make their presence felt to the United States, for the United States to think about the two of them very differently.

So now I think as we're moving forward, as long as we continue with the process of close consultation both with China and with Russia in the war on terrorism and on all of the other issues that affect their interests, I think we can build very stable relationships with both of these very important countries, not just in Northeast Asia but also in the other arenas in which the two countries interact with the United States.

MR. STEINBERG: Can I add something here? It's important to reflect on this with the upcoming summit between President Bush and President Putin. The President is going to Moscow in May. I think what we've seen is that President Putin has tried very hard to redefine Russia's own national interests. There are a number of things the Administration has done or is in the process of doing which historically have been seen by the Russians as very threatening to Russia, moving forward with missile defense, breaking off from the ABM Treaty, moving forward with NATO enlargement, basing U.S. forces in Central Asia. The traditional Russian paradigm. These were all, they were zero sum for Russia.

President Putin has tried very hard to say actually these things are not threatening to us. We can see these as positive. The ABM Treaty is, we can find a way to work that through. We're working together on offensive reduction. NATO enlargement is not so threatening because we're working with the United States and Europe to redefine NATO and Russia's relationship. Central Asia is something we can do together. But that's a big challenge because he's trying to get the Russian people to think about these set of problems in a way that's been than the way other leaders have presented to it.

So for President Putin now, he needs to be able to show that by redefining Russia's national interests, focusing more on Russia's own economic reform, moving forward, reconsolidating the country, that he has the support of the United States. That this is getting a positive response from the United States.

And so the challenge for the Administration now, if it's going to move forward on all these issues that were traditional bugaboos for Russia, how can they do things positively with Russia that respond to Putin's new redefinition of their interest? There I think the economic front is extremely important in the sense that the Russians are now putting a focus on investment, a focus on WTO, a focus on getting rid of the Jackson-Vanik restrictions, a focus on getting Russia treated as a full market economy.

I think what the Administration needs to look to as it moves forward to that summit is in fact embrace and reinforce Putin's move in that direction because it's a very positive one for us.

MS. KOPPEL: Dr. Hill I have to ask you, just following up on Jim's point, what did President Putin get out of all of this? And is he actually a Mikhail Gorbachev in a KGB uniform?

MS. HILL: Well, it depends on how you view what Mikhail Gorbachev stands for. In fact I think there's a great deal of similarity between the positions of Gorbachev and Putin. Of course Gorbachev picked up on many of the ideas of his predecessor Andropov who was of course also in a KGB uniform. So Putin is following in a long tradition of very serious, as he sees it, analysis of the problems that Russia faces and the practical steps in which to address them. And Jim is absolutely right, that Putin is trying to redefine things.

But just like Gorbachev, his main concern is in trying to stabilize the international environment. If we think back to the late 1980s and Mikhail Gorbachev's new thinking, his approach to the United States, the way he was trying to embrace also the idea of a common European home with the European Union and many of the closest neighbors to Russia, Putin is trying to do the same thing. He's trying to redefine Russia's place in the world right now and to show that Russia is in equal standing to all of its immediate neighbors.

So just as Jim was suggesting, this is a great opportunity for us to try to embrace this and keep moving him in that direction. Because unfortunately, in spite of this rather positive spin on the way that Russia or Putin is trying to present Russia right now there are many signs that the transition could indeed reverse itself. We've also seen some disturbing signs of steps back in the process of democratization with the closure of prominent TV stations, with a lot of pressure put on non-governmental organizations, environmental activists and human rights activities. The more I think that Putin feels that his international agenda is failing and his critics at home accuse him of letting Russia's position internationally slip, the more likely we're going to see this clamping down at home to try to suppress dissent and try to salvage what he can out of this really rather bold new agenda that he's trying to implement.

MS. KOPPEL: Lho Kyongsoo, there's a transition of a different sort that is facing South Korea in the months ahead. As you've already predicted, it's unlikely that there is going to be a reunification in the near future. In that case, and seeing that despite his best efforts Kim Dae Jung's sunshine policy seems, and he knows— you've just mentioned the North now wants to contact Washington. But it seems to have failed.

Who can we expect to be in the President's position after the election?

MR. LHO: That's a very tough question. I've been somewhat reserved about the construct of Seoul's engagement policy with Pyongyang. But if I could just say that I don't consider that a failure as yet. After nearly half a century of cold war and military confrontation across the DMZ I think we're going to require a substantial amount of time to pass before confidence between the North and the South can be built.

Four years has been quite a good chunk of time but I think we ought to be more patient and persist with constructive engagement with Pyongyang even after the next government comes into power in Seoul in 2003. That will be the, I think the most crucial agreement that has to be reached with Washington for Seoul and Washington to conduct a very closely coordinated and productive engagement policy with Pyongyang in the years ahead.

But going back to Seoul, I think whoever wins our presidential election in December of this year faces essentially four major challenges.

First and foremost, as I just mentioned, is the strengthening of the alliance with the U.S.. The U.S. has been our primary ally, supporter in the international community, and even as recently as the financial crisis we faced in 1997 and 1998, American support was instrumental in helping Seoul bridge this crisis and recover.

I think second our relationship with our close neighbors Japan and China will be crucial to peninsula stability. Without the support of Tokyo and Beijing in whatever peace process takes place, takes root in Korea, that the process can't be very long-lived. So I think close consultation with both Beijing and Tokyo will be very key to a successful peace process on the Korean Peninsula.

I think we together with the U.S. and our Japanese allies have to be always mindful that even as we engage North Korea that North Korea remains a very unpredictable factor and that deterrence on the one hand and our combined ability to manage unexpected and sudden change in North Korea, be it political change of a peaceful kind or a more sudden implosion that we've thought possible over the years, whatever may arise in North Korea, that we have in place a plan to effectively and peacefully manage sudden changes in North Korea will be important. So the trilateral cooperation, what we call the [inaudible] process between Tokyo, Seoul and Washington will be very instrumental in the years ahead.

Finally, on the domestic side I think whoever becomes President in Korea in 2003 will much as in this country have to face some very difficult choices. We have an aging population now like most industrial countries, and Medicaid, medical care, retirement funds all of these become very important and that is tied to increasing labor activity which impacts on our continued economic performance and growth over the years. So he will have to be mindful of the nexus between the needs of an aging, maturing society and the need to stimulate economic growth and provide for that, and eventually as you mentioned earlier, for the unification funds we will need down the line.

On the other hand, having the surplus necessary to invest in continued research and development, R&D, economically, industrially. Our high tech sector has been sort of our cash cow providing the impetus for growth. So we will have to continue to invest in sectors such as automobiles, electronics, the internet, broadband, what have you, the technology side and whatever the followon technology is.

So it's a full plate. It will be more than North Korea. It will be maintenance of stable relations in the region. And Korea, though small, is an important sort of cog in the wheel of the greater players in the region. Because if the peninsula goes critical, much as the Middle East crisis impacts at a global level, an unstable Korean Peninsula will impact on the stability of North Asia as Jim mentioned, and Deputy Secretary Brookes mentioned. North Asia counts for about 51, 52 percent of the global economy at the moment. So it's a very high stakes game now.

MS. KOPPEL: Edward Lincoln, as Deputy Assistant Secretary of State Brookes also mentioned in his comments earlier, he said we saw unprecedented willingness by the Japanese government to participate in a security way in the post 9-11 reaction, if you want to call it that.

How much does North Asia and for that matter the world need to be concerned or just need to be aware of the possibility of a reemergence of the Japanese military might? Do you see that happening any time soon?

MR. LINCOLN: No. Let me start by saying I think he was being pretty charitable and perhaps he was trying to make up for the fact that the Defense Department had inadvertently left Japan off of a list of allies that was published several weeks ago, so he may be feeling a little sensitive on this issue at the moment. [Laughter}

No, the reality is that what Japan did after 9-11 was useful, helpful, but modest. Probably the most important thing the Japanese did was to stand up and be counted as an ally very quickly. This is in contrast to the Japanese government's behavior during the Gulf War where I think initially they really didn't understand how seriously the United States and other Western powers regarded Iraq's invasion of Kuwait. This time seeing an attack on the United States I think they understood very quickly that the United States would react very negatively and that as an ally Japan had better stand up and be counted and they were. So that was helpful.

In terms of the shift in actual behavior by the Japanese, again this is just another modest step in the direction that the U.S. government's been nudging Japan now for some 20 years or so. Yes, they deployed vessels outside of their immediate coastal waters, but very carefully, very clearly kept them in a logistical support position and so they still have not approached the question of real military action.

Unless one wants to look at something very different, which is not the 9-11 reaction, but the willingness of the Japanese naval forces to sink a vessel that had intruded into Japanese waters, waters, was presumed to be a North Korean vessel, although I guess now there's at least some suspicion that maybe there's a Chinese angle here. But they fired upon it and sank it and did not save any possible survivors.

That surprised me. That was a step forward to actually fire guns in anger. But again, this was protecting the integrity of intrusion into coastal waters which is not a real big step.

So to come back to your original question, I really don't see that the region needs to be concerned about the emergence of some major shift in Japan's policies on the military side. There may be a continuing slow drift of little policy decisions as we've seen this year, but my guess is that this will remain fairly carefully confined to UN mandates or at least, the Japanese don't want to use the word, cooperative security with other nations and not an exercise in unilateral power.

MS. KOPPEL: Jia Qingguo, six years ago I was in Beijing and I was reporting on the standoff, the military standoff between the United States and China in the Taiwan Strait. Peter Brookes also alluded a moment ago to the continued buildup of ballistic missiles in China's southern coast. Why should Taiwan, the United States, the rest of Northeast Asia not view this as a threat to Taiwan, and why should the U.S. not view China's continued expansion, which is not transparent of its own military budget, as a threat?

MR. JIA: I think if you look at China's deployment of missiles across the Taiwan Strait, you can get an impression that China is becoming a threat, threatening Taiwan with missiles. But you can also look at it from a different angle. That is as the Chinese have put it, the missiles are put there as a sort of deterrent against Taiwan's independence or separatist activities.

If Beijing really wants to invade the island, to take over the island, missiles are not enough, are not the weapons to accomplish the task. Missiles are more useful as a sort of deterrent.

Beijing would have devoted much more resources and amphibious capabilities instead of placing missiles across the Taiwan Strait if it intends to take over the island.

MS. KOPPEL: But it is expanding its navy.

MR. JIA: It is expanding its navy. It's part of this modernization program. The whole, the Chinese state is becoming more modernized. Not only the defense but also its education, its social welfare system, everything is growing and the military also wants part of the pie. And of course the more the Taiwan separatists push for independence the more the military people feel that they should have the pie and a larger pie and other people have less of a voice to say that no, no, no, education is more important or social welfare is more important, pension is more important.

So there is a sort of negative interaction across the Taiwan Strait.

As far as Beijing is concerned, I think the most important thing for Beijing is to maintain political stability at a very uncertain time., The country is facing tremendous challenges and there is scarce resources. The money should be put on domestic internal development and reform rather than on defense. However, the country is really facing a problem of separatists, I wouldn't say terrorists, but at least separatist efforts to take Taiwan away. And of course as long as these efforts intensify, as long as some sectors of the Bush Administration are supporting this attempt to create an increasingly separate identity of Taiwan in international affairs, Beijing feels it has no choice but it has to spend more money on defense.

Another aspect to this rather high level of defense spending is that the cost of maintaining the military has rocketed in China. In the past when the military did exercises in the field they could use the land for free. Nowadays for example, now they have to pay for it. Because we are in a market economy. And of course in the old days you can drop the soldiers at a very low wage. Nowadays if you want to get the people you have to pay for much more money to maintain, to have the sort of attraction to get them into the military.

Also with more advanced weapon systems you have to get the qualified people, and these people would go to do business instead of joining the military if you don't pay them well. So the cost of maintaining the military has increased tremendously.

So when we look at the defense spending, the high rate of growth. This is a complicated story. It's not just that China has other intentions, it's that in order to maintain a viable, effective military it has to invest in the military according to the market principles rather than just as in the old days on the basis of need.

MS. KOPPEL: Very quickly. [Hu Jing Tao] is going to be coming here in the very very near future, in a matter of weeks. If you could write the talking points for the Bush Administration, in order for it to seize this opportunity with the man who is likely to become China's next President, what should the Bush Administration say and do to impress him?

MR. JIA: One of the things that I believe that is most important is to show, to tell the Chinese government that it has done a good job in, over the years, to manage this huge country with a huge population not only to feed them but also develop a highly vibrant market economy and offering people in China a sort of hope for the future. This is a tremendous part.

If you look at the Third World countries in the rest of the world, you don't get many governments which can deliver this kind of thing. Of course China has many problems, but these problems are serious and China must deal with these problems including human rights problems. But you have to recognize this government has delivered miracles in the past. You have to show some respect.

And of course at the same time you can say that well, in order for China to become better, Chinese government could consider to do this, consider to do that. But any kind of help from a foreign government that can be effective, you have to show the other government some basic level of respect and I believe that if the Bush Administration can show some respect, and then conduct dialogue and talks and voice America's misgivings and criticisms, the Chinese government would be more willing to accept it. And of course this would be very useful if the Bush Administration adopts this kind of approach and this would make the visit much more meaningful instead of just to get to know each other. We need to show some respect, get down to business, and then talk about how we can help each other, China in the war against terror in terms, for example on the question of terrorism and the U.S. in terms of how to help China in other ways including—

I like the program of the rule of law program in which the U.S. helps China to train some lawyers or judges to improve China's legal system. Rule of law in the long run does not only serve the best interests of China, but also the best interests of the United States. So we have a lot of things like this that we can cooperate and help to build a more prosperous and enlightened China and also to create more opportunities for the U.S. and for people of both countries to move forward to in the future.

MS. KOPPEL: Paul Hsu, I recognize you're an attorney but I'd like to ask you whether or not you have any idea what's on Taiwan's shopping list this year for military weapons. [Laughter] And whether or not— We know now the Bush Administration is moving ahead full steam with national missile defense. How far along is the conversation between your government and the Bush Administration on theater missile defense

MR. PAUL HSU: I can only quote message from the news media. But the fact is the 600 or so missiles are based in Fujian Province aiming at Taiwan. So this always causes me to wonder what are the logic behind.

MS. KOPPEL: Well the logic is to let Taiwan know you better not be thinking about breaking away from the mainland.

MR. HSU: Right.

The first is, a reasonable logic is based on Taiwan has a capability to, or a threat to China, for attack China in any way. I think that logic doesn't exist at this moment. So there must be other logic. The only logic I can hear is prevent Taiwan from becoming independent. What is the definition of independent?

Taiwan has been independent from PRC's system, PRC's jurisdiction, and you can even argue from PRC's sovereignty for many many years. That situation hasn't changed. So what is the real worry about Taiwan becoming independent in reflecting the de facto situation. So the only thing I can think of is Taiwan becoming Republic of Taiwan in name, but I really haven't seen any signs in Taiwan, any meaningful force to promote that particular thing.

So it's a worry that cause the Taiwan businessman wondering a lot, you know, if they decide to ignore those issues and still carry on their businesses.

To answer your question more directly I would say whatever weapon system that China choose to adopt aiming at Taiwan so Taiwan naturally has a desire to come up with the appropriate or adequate weapons system to balance that threat. So people survive under the threat from China, not under the threat from Taiwan toward China. In such manner that the country can do business.

I really, personally I fail to see the logic of posing a military threat to Taiwan at this moment because the other branches of the Chinese government are in mind of Taiwan businessman to help to develop the wild west, the great west, the provinces. There are many many business proposals on the table. I've seen them other times. So Taiwan businessmen are probably, not every one of them, but in retrospect of their business strategy, they have all kinds of strategy of cooperating or doing business in China. And recently the Taiwan government had to let go its intention of, well some become the official intention, not letting the foundry, the [eight inch] foundry industry to invest in China. So they give qualified approval.

So I fail to understand, maybe I'm not a politician, not in the government, in terms of this intensive business interaction and yet think there must be a need for certainly in Taiwan militarily.

MR. STEINBERG: Let me do a little commercial here. [Laughter]

Last year one of our scholars, Michael Hanlon, did a book on defense policy choices for the Bush Administration and one chapter is about what are the military options for China to deal with the potential of Taiwan's declaration of independence, and I commend it all to you. But one of the things that Mike points out is that the missile threat in some ways is the most visible but in some ways the least useful part of the military equation here. The missiles are, by their nature, somewhat of a terror weapon, but as has been suggested here, they certainly can't lead to a conquest, and were they to be used it would certainly lead immediately to not only Taiwan declaring independence if it hadn't already done so, but other countries rallying to its side.

The real military challenge, which goes to your question about the modernization of the Chinese military and actually the greater threat is the potential of a blockade at the course of implementing Chinese policy.

So if you look at some of the choices that we face now in terms of military assistance to Taiwan in many ways it's dealing with the problem of blockade rather than dealing with the problem of missiles which ought to be the priority.

That's why I think the Bush Administration did the right thing last year in it's package [for sales] in which it focused on that, by looking at the question of diesel submarines, looking at the question of upgrading cruisers, but not with Aegis missiles to deal with the missile defense, but rather to deal with the blockade.

Because by moving with a theater missile defense you just create this tit for that escalation in which for China the answer is very simple, just build more missiles, and it's a lot cheaper than trying to develop an effective missile defense against it.

So you don't really move the ball much by playing an escalating competition against missile buildup, missile defense. On the other hand, the blockade which is a much more credible threat, particularly with the acquisition of the [Sobrameni] cruisers on the Chinese side, is a real concern. And I would hope that the Administration, and I think they did show good judgment last year about doing it. They also showed good judgment and had a little bit more political faith to do something that I wish we could have done which is get rid of these annual visible meetings which there has to be a package every year, and rather simply say this is an ongoing process that we'll deal with in a quiet and deliberative way but without the kind of drama of the annual arms sales.

So I think that Mike's piece really points out both the realities as opposed to a lot of the kind of rhetoric around the characteristics of the things we ought to most worry about in terms of what the threat is to Taiwan.

I also think, although we've heard a lot about this interaction, and I think Paul's comments about the economic interaction is very important. I think just as I advocated that we should be more forthcoming on military-to-military contacts with the PRC, I think the time has come for China to recognize that talking to Taiwan is in China's interests. There's been hints of moving in that direction. We had the Vice Premier suggesting that while they weren't quite ready to talk to [Chiang Suibun] that at least some members of the [DPP] might be possible interlocutors. I think that China can show, can maintain its principle position about one China and the like but still be open to dialogue and to say this is not a reward to the Taiwanese side to have the conversation but rather a chance for China to make clear how it wants to move forward, and I think that would have a huge impact on the dynamics.

MR. HSU: Can I make a further comment?

I think both China and Taiwan now have joined WTO. On one side you see tremendous opportunity for both China and Taiwan and maybe for U.S. companies as well. This is on the division of labor between Taiwan and China. An expanding variety of industry, starting from the traditional industry of footwear and moving into notebook computer, etc., etc., and foundry for the integrated circuit.

Then Taiwan industry is playing a role and that role is expanding as an integrator in the supply chain, management of global products. And China can benefit from that. But also encouraging strong entrepreneurship in the private sector has reached consensus between Taiwan and China. This is reflected in the last October APEC Ministerial meeting declaration. It firmly accepted the theme of encouraging entrepreneurship, innovation, venture capital, startup company as initiative by Taiwan side. So there is cooperation and consensus.

Now having said that, I just don't see how this military threat fit in. What does it mean? What is the real threat from Taiwan? What is China really afraid of?

MS. KOPPEL: And what's the answer?

MR. HSU: ?a lot of imagination, but with reasonable imagination I cannot see this policy fitting in this economic integration.

MS. KOPPEL: What I'd like to do now, I've had enough fun up here asking the questions, is to open up the floor to your questions. Please state your name, your organization and to whom you're addressing your question for our distinguished panelists.

Q: Joe Boscow with the Asian Studies Program at Georgetown. For Professor Jia.

You mentioned the significance of September 11th to provide an opportunity for China and the United States to cooperate in the antiterrorism campaign. I believe the United States has said as one of the primary requirements that it looks to from China in that campaign is the elimination of the dissemination of weapons of mass destruction technology to countries in the so-called axis of evil or other rogue states. So far during the meeting in Beijing and subsequently, China has not agreed to that kind of cooperation. They described it as a moral [inaudible] to the U.S. arms sales to Taiwan.

Do you see that attitude on the part of the Chinese continuing? Or do you think that there is room for some kind of cooperation in that area?

MR. JIA: Thank you for the question.

Actually on the question of non-proliferation there was a lot of mutual distrust and it is mistrust that has left, guided our views about each other. It just happens that the Director General of the Arms Control Department of the Minister of Foreign Affairs was my roommate in college so I had a chance to ask him in detail about China's policy on the question of proliferation.

I think the Chinese government policy on the question of proliferation is very clear. It is against proliferation. It has been trying to develop a system, a mechanism to fight, to control and fight against proliferation. And it regards proliferators as drug smugglers nowadays, as criminals. There were cases of proliferation and of course the Chinese government has been very tough on this issue. They recently arrested someone involved in the last, in one of the cases of this proliferation that the U.S. government complained about and was ready to put him in jail for the violation of the rules, of the game.

China is a big country, and now we have a market economy with tens of thousands of companies. You have bad businessmen, we have bad businessmen. Some people want to make money so they try to sell some things that are prohibited because the margin of profit is so big. And they want to try against the law and they will be caught.

The problems between China and United States over the proliferation issue is largely a lack of trust. When the U.S. first got notice of, according to the story, one of the cases, when the U.S. got notice of an act of proliferation, immediately brought it to the Chinese government's attention, and then the Chinese government said tell us more about this case. Whether it's proliferation of material or technology or machinery or anything. Tell us more so that we can capture, we can deal with this case. But the U.S. government initially said no, no, no, no, no, we can't tell you this because we don't want to betray our intelligence sources.

Then the Chinese government had to work harder on this issue to go through the tens of thousands of companies. It took time. Then after a few weeks the U.S. government became very anxious. Why you haven't done anything about it? The Chinese government day we have been trying to do something. And some people in the Administration will say they are not serious. They are not serious. They are not dealing with this issue. They are behind this proliferation. So you have the accusation going on. Then we have, we should impose sanctions against China. That's what happened the days before the arrest of the guy who was involved in the proliferation. The U.S. imposed sanctions against China in the name of proliferation violation.

But the Chinese government say okay, we are prosecuting this case. Lift the sanctions. We have an agreement. But of course you know, you don't want to give the sign that, any sign of weakness. You don't trust the other side.

So we have this problem of distrust and as a result we have a problem of proliferation. In the long run the Chinese government is determined to push for the development of a system of [inaudible] as good as exist in this country against proliferation, against dissemination of sensitive technology. Not only, not because U.S. pressures, but because Chinese government believes this is in the best interest of China.

MS. KOPPEL: If I could just add a footnote. I believe the reason those sanctions were put in place is that China had agreed with his administration in October of 2000 to put in place an export control regime which it hasn't done, and now I understand you're moving ahead with that. But if I could just open up the floor again to more questions?

Q: My name is Austin Turner, I'm a stringer for news agencies in D.C. This question is directed to Mr. Hsu.

Recently China and Taiwan both ascended into WTO, and WTO basically provides equal rights to each participant within the organization. However China's already indicating that economic disputes between the strait might be considered an internal matter.

How is Taiwan dealing with this in a legal fashion?

MR. HSU: We have a real case right now. This is an antidumping charges lodged by China against the steel industry of many countries including Taiwan, Taiwan steel industry. So I don't know how it will be finally settled. According to the WTO mechanism, this is ideal case to be settled under the TWO framework. But I think there is some statement coming from China, I don't know how authoritative it is, but this is right from newspaper, they suggest this antidumping matter involving Taiwan and China should be settled outside WTO.

We have to study the logic of that. I think the possible logic that granted this is equal membership at WTO, but when come to a real case the officials in China still have to think about whether this is domestic issue or not.

So we have a case, a live case, and therefore we have to wait for the outcome of that. Whether there's any negotiation involved or give and take and we are watching the development of that case.

Q: My name is Louis Cohen. I work with Toys 'R Us here in Washington.

I was taken by the sort of parallels between Russia and China and their reaction to the increased U.S. military presence in Central Asia, and I'm wondering whether or not this presages some sort of condominium among America, China, Russia to control the sources of tension inside, on the Asia mainland, inside the center of the continent. It seems to be directed at Islamic Fundamentalism and other kinds of tensions.

Do you see this expanding into something more than just a sort of passive acceptance of the presence of American troops? Is there a potential for collaboration there that's greater over time? These tensions are probably not going to subside any time soon, so how do you see this developing?

MS. HILL: There's actually been some considerable discussion of this very issue. I'll just do a little plug for the survey that we just got out. We have a section here on the Shanghai Cooperation Organization. Obviously Russia and China have been very much concerned about what's been going on in Central Asia for some time now, several years in fact, and had set up the Shanghai Cooperation Organization with the express goal of trying to find some way of stabilizing the region among themselves.

The United States at various times has considered even seeking an observer status to that group. Other countries, like Pakistan for example, have sought to participate in the Shanghai Cooperation Organization, although Pakistan's request was blocked by Russia.

We have coming up this summer a major meeting of the Shanghai Cooperation Organization which would be worth watching to see how Russia and China now view developments in Central Asia, but it's also the case that the Central Asian states themselves are not just simply passive objects in what's happening in their own region. As we know, Uzbekistan, Kazakhstan, and Kyrgyzstan have all been very active now in seeking their own relationship with the United States. Even Tajikistan where many Russian troops are stationed has been very forthcoming to the United States in the war on terrorism. And the Central Asian states themselves may help to shape what happens. They're also very concerned about their relationships with other regional states.

We now have a complication about how to fit Iran into the region, especially given the statements by the Bush Administration that Iran is part of the axis of evil and Iran clearly has a large role to play not just in Afghanistan but also in Central Asia given its border and its cultural linkages with the region.

So I think it's going to be a very delicate question about how this evolves over time. There will be a number of events that we'll have to watch to see how these are negotiated. And I think a lot of it will depend on how the United States manages its bilateral relationship with Russia in the upcoming summit in May and then during the visit from the prospective Chinese leader to Washington, D.C.

I think there is a great opportunity in fact for the United States to help to shape what's not so much— I wouldn't want to call it a condominium, but a more cooperative set of relationships in this region that will help to stabilize it over time.

I think Japan also has a very important role to play here, notwithstanding what Ed has said about Japan's limitations. Japan obviously stood up very strongly in the Tokyo conference in support of longer term development assistance to Afghanistan. Japan has been the largest provider of technical development assistance to the Central Asian states and could also play a role here.

So we have to start thinking about how all of the regional states and in fact those a little bit more distant play into this region.

MS. KOPPEL: Hamid Karzai, the interim head of the Afghan government has said he has as yet to receive a nickel of that money from that Tokyo conference. [Laughter]

MR. JIA: I also believe that there is a lot of potential for cooperation between China and the United States and Russia and other countries to stabilize the situation in Central Asia. I think that many times the government believes that this is in China's interests as well as in other countries' interests. Of course we have doubters and more radical views, but the prevailing view is that we want to cooperate.

But the problem is it depends on how the Administration wants to deal with this issue. Will it introduce a bit of trust between China and the United States in the relationship? If it wants to it can begin with resumption of mil-to-mil, senior level contacts. It's not really helpful for the two militaries not to deal with each other. The Pentagon even doesn't receive civilian visits like me to go there. And of course I understand the logic of reciprocity and transparency, but U.S. is such a stronger country, and with greater capabilities.

I think if China were in the position, I wouldn't think that China would lower itself to have reciprocity and transparency to the extent as some people try to in Pentagon.

So I would hope that if we, the Administration would do something in this regard to push for greater contact to instill greater trust in the relationship and then we can cooperate more fruitfully not only in Central Asia but also on a whole range of issues.

Q: Al Millican, Washington Independent Writers.

Does anyone detect a significant difference in the way Asians view terrorism and evil and the way that George W. Bush has defined it? Has anyone noticed any sympathy in the way that Jimmy Carter reacted in saying he thought defining an axis of evil was counter-productive.

MR. LINCOLN: Just to start with, you raise an important issue because I think the Japanese public at least is very ambivalent about what the United States has been doing since September 11th. On the one hand, as I said, they want to stand up and be counted as an ally, but it's hard because of this demand from the United States, either you're with us or you're against us and they wanted to make sure they were on the right side. And yet in terms of American actions, the Japanese are often disturbed. In the last 50 years there's been a real allergy towards the notion of military action solving problems in the world, so there's a very pacifist reaction that you get from many groups in Japan.

So we have an official position of the Japanese government supporting what the U.S. is doing and yet behind it there are concerns, worries, and gee, is the United States going too far.

MS. KOPPEL: Going too far in what way?

MR. LINCOLN: In using military action to try to retaliate against terrorists. If this had happened in Japan, if a couple of big buildings in Tokyo had been knocked out the reaction of the Japanese government would be oh, we have to increase security at home and that would be it. That would be the end of the reaction. They would not be in Afghanistan trying to root out terrorists. They would create more of a fortress at home. So I think that's a sentiment which they see the United States going too far; or the step for the Japanese as well as the Europeans and many others, which would be very problematic for them would be action against Iraq. They are not ready to sign on as an uncritical ally if the action were to be transferred to Iraq.

MS. KOPPEL: Unfortunately I think we've run out of time. I want to thank all of you and our distinguished panelists.