Thank you for the kind introduction. I am delighted to be making my first visit to Reading, a wonderful city with proud roots in colonial America and an enviable reputation today as a diverse and vibrant community with a high quality of life for its lucky citizens. You've got the natural beauty of Mount Penn and the Schuylkill River, the perennial excitement-and local pride of Reading Phillies baseball, and the cultural treat each year of the Berks County Jazz Festival. And, for the shopping addict, you've got malls and malls. In just a few hours today, I made the journey to Reading, the "outlet capital or the world," from Washington, D.C., the "out-leak" capital of the world. Somehow, folks, I feel safer here with you!

I have been looking forward to this trip for several reasons. Sure, it's about time some Washington official came here to thank you, on the part of a grateful nation, for all those pretzels and Fifth Avenue candy bars. Like any grown man who was ever a kid, I know a great American institution when I eat one! And I also know well that Reading gave us Daniel Boone, the gutsy colonial frontiersman whose bold explorations into Kentucky embodied the adventuresome spirit that launched our great country. You've honored the nation by preserving his birthplace.

As an amateur historian, however, I am most fascinated by the figure of William Penn, whose sons, as I recall, established this community and gave it the name of the Penn family township in England. Born to aristocracy and privilege, Penn became an ardent and articulate spokesman for religious tolerance, social justice, and republican government. He was a complicated man who suffered much adversity, personal grief, and-as he saw it-betrayal in his life, but his Quaker faith in human freedom never waned. He was not just a great Pennsylvanian. He was a truly inspirational figure in American history, who helped shape the commitment to civil liberties that has sustained our nation into its third century. It is a real kick for me to visit a city so closely identified with the Penn family.

Allow me one last plug before I talk about China. I planned my drive up here this afternoon to allow time to look around Reading and tour Albright College. I feel especially honored to speak from this impressive campus tonight. Albright is in the tradition of the small American college with religious roots-in this case Methodist-that has grown from strength to strength over the past century, broadening its academic program and adapting it to the requirements of an increasingly complex world. One of the impressive analysts who comes about 0730 each morning to brief me on current developments is Joanne Leber Reynolds, a proud and praiseworthy graduate of Albright College. Today, a serious student will get a first-class education here. And your recent record in Division II NCAA sports isn't bad either.

Now, finally, let me turn to China, the topic of my address tonight. I'll talk for about twenty minutes and then take your questions and comments. I especially like Q and A interaction, so, I must tell you, questions are required. I'll take them on China or other issues you want to raise.

China today is the world's most populous country 1.2 billion people in an area slightly larger than the United States and it is in dramatic transition. As we look for solid trends, the indicators are bound to be contradictory. Economic reform has fostered rapid economic growth, for example, but China's leaders continue to be slow in promoting political reform and improvement in human rights for its citizens. Although China has released and exiled several of its most prominent dissidents, such as Wei Jingsheng and Wang Dan, hundreds, if not thousands of others remain imprisoned for nothing more than expressing their religious or political views. The quality of life may have improved for many millions of Chinese citizens, but they have yet to realize the goals of genuine freedom and participatory democracy that we as Americans so readily take for granted..

Making sense of such an enormous, diverse country as China can be overwhelming. For instance, you might recall that when Nixon made his historic visit to China in Feburary 1972 he took some time out to tour the Great Wall. Naturally, he was jointed by a grand entourage of reporters and cameramen, all eager for a story. When one reporter asked Nixon what he thought of the tour, Nixon, apparently a bit flustered, paused and tried to give his most statesman-like response: "This, I would have to say . . . is truly . . .a great wall." Over the years, American visitors and distant observers alike have been prone to making grand statements about China, or quoting someone else's grand statements. China is so immense, its history so long, its culture so rich, that only grand statements seem to suffice. Often the grand statements are-like Nixon's- somewhat less than illuminating. Often they are poorly informed, and tend to mis-inform their audience in turn.

I am, therefore, going to resist the temptation to make a grand statement about China. Rather, I want to give you a sense of what questions we in the intelligence community are asking ourselves about China, and what kinds of answers we are providing. Obviously, we answer thousands of questions from various parts of the US Government about China; questions about China's leaders, it energy production, military capabilities, environmental pollution, local self- government, trade quotas, prison conditions, conditions in Tibet, policy toward India, relations with Russia - the list is exhaustive.

In the end, the questions come down to two: First, whether China is going to succeed as a nation. After so many years of failure and frustration, maladministration and quasi-colonial oppression, revolution and war, ideological extremism and tentative reform and opening to the outside, is China on the verge of being a great power? And second, will it be friend or foe of the United States?

Neither question has a clear answer - or demand the kind of grand statement I have already promised not to make. Over the last several years, we have become accustomed to viewing China as some sort of economic dynamo, growing at 10-12% per year, its products flooding American markets, business people clamoring to find a way into a market of 1.2 billion people. But more recently, we have heard more stories about China's problems - the weakness of its financial structure, enormous inefficiencies in its socialist enterprises, massive environmental damage, the persistence of rural poverty on a vast scale. United States-China relations have also seemed to oscillate between extremes. Following President Clinton's visit to China this summer, relations appear relatively harmonious. But it was only two years ago that we came close to military conflict in the Taiwan Strait.

My own assessment of China's future, despite the downsides, remains on the bullish side. I think we'll see fits and starts, peaks and valleys. China's development will not be linear. But the broader, long-term trends will be decidedly positive for China. And development will benefit from the legendary energy and ingenuity of the Chinese people which I have seen firsthand.

In characterizing the outlook for China, I will make five points. These points relate directly to the components of national power:

• First, China appears to be pursuing the right mix of economic policies needed to sustain economic growth into the next century.

   

• Second, China is developing the labor force and technical base necessary to compete internationally and support its own military modernization.

   

• Third, that military modernization program will enhance its force-projection capability, as well as its ability to damage American forces and interests in the Asia-Pacific region.

   

• Fourth, although China's future political leadership remains unsettled, it seems quite capable of governing for now.

   

• Finally, China's leadership seeks to deter challenges to Chinese interests by combining all the elements I just noted and gaining for China recognition as a great power.

 

 

 

 

Scholars can and do debate what constitutes great power status. The intelligence officer at CIA who oversees most of our work on Asia argues for a simple test: a nation is powerful to the degree that it is a valued friend or a feared foe. By this measure China has been a potential power for some time. Now, however, we are starting to see that potential realized.

First, China has been the fastest growing major economy in the world over the last decade. At some point in the not-too-distant future it will become the largest in the world, surpassing the United States in GDP. In the past few years, China has taken steps to overcome the boom-bust cycle that has plagued it since the reforms were launched by Deng Xiaoping in 1979.

Chinese officials project that in 1998 and 1999, China's GDP will grow by about 8 percent, with very low retail price inflation. China continues to run a trade surplus with the world, and Chinese officials predict it will be about $40 billion this year. Compared to the other economies in Asia, most of which are actually contracting, that growth will be a remarkable achievement. Many observers are doubtful China can achieve that growth rate; others insist it should not try. Another economic issue being hotly debated these days is whether China will devalue its currency, the renminbi. To a certain degree, these are the wrong questions. To be sure, they are important in the short term, affecting China's social stability in the first instance, and Asia's economic recovery in the second.

But what is more significant for the long term is whether China maintains the series of reform policies that address China's troubled state enterprise sector. These bloated relics of the past are a major drain on state coffers and are contributing less and less to China's total industrial output. The problem is that any reform will increase unemployment and remove the social safety net for a large portion of the urban population.

But China is stepping up to this challenge. It has put in place a number of laws that it hopes will allow it to strengthen the performance of the most important state enterprises while instituting ownership reform in thousands of others. Not surprisingly, these reforms have generated controversy. Urban workers and state industrial bureaucrats are resisting change. In the face of the Asian financial crisis, enterprise reform has clearly slowed.

China has a long way to go, and structural problems will not be easily overcome. Infrastructure, energy, corruption, distribution of income, and a host of other issues must also be dealt with.

But it is important to keep the problems in perspective. Legitimate concerns about the accuracy of Chinese statistics notwithstanding, living standards in China have increased dramatically in less than 20 years, and I believe the upward trend is likely to continue.

A second element of national power is China's technological base. China remains at heart an agricultural nation more than 80 percent of its population are farmers. But we cannot dismiss China as a nation of peasants. Its scientific and technological capabilities are robust and growing. We see these capabilities reflected in the composition of its exports, which include not just squirt guns and firecrackers but also fiber optics and semiconductors.

A third key element is a large, skilled labor force. China has a highly motivated, talented, and energetic population that values education and has a demonstrated flair for business. There is also a tradition of sacrifice and respect for authority, as long as authority fulfills its responsibilities. In China that means maintaining order locally and looking after Chinese interests globally.

Any government would be challenged to manage a country that is home to almost one- fourth of the world's population. But before we conclude that the Chinese leadership cannot meet the demands for jobs, schools, and infrastructure, we need to remember that the four out of five Chinese who live in the countryside ask remarkably little of Beijing.

China's military modernization, the fourth element of national power, stands out among nations in the post-Cold War period. We see in China a military that is concentrating on building its force-projection capabilities with an eye to defending China's strategic perimeter out to the first island chain off its vast coastline. No longer reliant on Mao's strategy of "luring the enemy in deep and drowning him in the sea of people's war," China is developing the means to carry out an active defense beyond its own borders.

As part of its modernization effort, China has made some high-profile purchases of military equipment, such as Su-27 aircraft and Sa-10 missiles from the former Soviet Union. More significant for the longer term in our judgment is China's indigenous development. It is testing an F-16-class multirole aircraft. It is continuing to develop new naval systems, including attack submarines and destroyers.

China continues to improve and expand its strategic forces, including developing mobile missiles. All this speaks to the previous points I made: the robustness of the Chinese economy, which can afford this sort of investment, and the quality of China's technological base and work force, which can support military R & D.

China's military modernization is more than just hardware. We are also seeing an evolution in Chinese military doctrine. The Taiwan Straits exercise two and a half years ago was notable on three levels. First, it featured China's most advanced military hardware, including the Su-27s and short-range ballistic missiles. Second, China displayed a level of sophistication and integration in its forces that was unprecedented. The exercise was heavily scripted and subject to weather, but it is clear that, in addition to new equipment, the PLA is also acquiring the skills to use it effectively.

Lastly, the exercise was significant for what it said about China's willingness to use intimidation and force to achieve political ends, in this case sending a strong message to Taiwan about its efforts to raise its international profile. There are many inefficiencies and deficiencies in China's military forces, and China is still not a global military power, but there is no question it has the potential - and the intention - to be one.

The final element is leadership, and here the picture is more mixed. Since the death of Deng Xiaoping in February 1997, we have seen a new era dawning in Chinese politics. President and General Secretary Jiang Zemin has emerged as first among equals, although with significantly less personal power than either Deng or Mao Zedong. He presides over a leadership that is younger (that means, leaders in their sixties and seventies), better-educated and more technically competent than any of its predecessors.

This leadership exhibits a mixture of hubris and insecurity. It is made up of men of approximately the same political strength and with little affection for one another. And there is no visionary or strategic thinker in the present group that we can identify.

It is a group that takes great pride in what China has accomplished in the last 15 years, but it also fears the social forces it has unleashed in the process that could limit Beijing's control - or even bring the country to the kind of social chaos seen during the Cultural Revolution.

It follows, therefore, that this group takes a cautious and wary approach to policymaking. And with the de facto death of Marxism as an ideology, it is a group that seems to be relying more and more on nationalist appeals for popular support. These appeals occasionally unnerve some of China's neighbors.

We do not foresee the sort of factional infighting or succession struggles that marked the passing of Mao. This group may be uninspiring, and ultimately it may be a transitional leadership. But it seems capable of making major decisions and dealing with the issues that will face China.

Let me make a small aside at this point and address two notions about China that surface periodically that I believe are mistaken. Sometimes we hear predictions China is going to fragment. We think this line of analysis tends to overstate the tensions and faultlines between regions and classes. Chinese everywhere think of themselves as Chinese, accept that Beijing is the capital of China, and share a cultural fear of chaos and disorder-"luan" in Chinese-that their history teaches them is the certain result of dissolution. The pressures are there, but the fact is the glue remains strong.

The second notion we hear is that China's economic bubble will inevitably burst-that it will not be able to feed itself or that it will run out of steam for lack of energy. The Asian financial crisis has brought this issue into sharp focus, and several commentators have speculated about whether China's economic problems will overwhelm it. It is useful to remember that predictions of doom and collapse for an economy generally are no more accurate than those that foresee unending growth and freedom from the business cycle. Take them all with the appropriate dosage of salt, and keep your eyes on what really matters: enterprise reform, not growth rates, trade surpluses or currency markets. If China sustains its efforts to fix what is wrong with its economic structure, it will be able to overcome its short-term problems.

So, to return to my question: are the elements present that will propel China to major power status? Yes, they are. The real question then is not whether China will be a major regional power, but rather how big a power will it be and, more important, how it will use its power.

Before I can address that question, I want to make a small digression and address a widely held but incorrect perception that the job of intelligence officers is to predict the future. That is not the case. Only God is omniscient, and only the Pope is infallible; intelligence officers are too savvy to compete in that league.

Rather, the function of intelligence is to help US decisionmakers better understand the forces at work in any situation, the other fellow's perspective, and the opportunities and consequences of any course of action so that US policymakers can make informed decisions. I should add, and stress, that intelligence officers do not make or recommend policy. What follows then is my own perspective on China's future, based on current trends.

When I think about China's tendencies I am inclined to agree with China scholars who argue that China is not a "status quo power." What Beijing wants is change. It wants to be admitted to the club. It wants to help make the rules, especially on such matters as global trade and proliferation and arms control.

More fundamentally, what China wants most is respect. This is sometimes hard for Westerners to comprehend. China's leaders have experienced firsthand the unequal treatment that denied China sovereignty on its own soil. They fought a long civil war, a war that is not over in their eyes and that continues only because of US intervention. They fought Japanese invaders who were incredibly brutal, and as could be seen in Jiang Zemin's recent trip to Tokyo, refuse to allow Japan to forget the painful lessons of history. They suffered because Stalin sacrificed their interests for his domestic political needs, and they experienced international isolation. This leadership feels deeply and personally what it views as humiliation at the hands of the West. It seeks recognition as a powerful nation whose views ought to be sought and given weight, especially by other Asian nations.

These feelings are not likely to fade with the passing of this generation either. The Chinese time horizon is a long one. Whereas Americans tend to think in terms of years or decades, the Chinese think in terms of centuries and dynasties. It is an important distinction. You might remember when Kissinger asked Zhou Enlai for his views on the French Revolution and the response, "It's too soon to tell."

In 5,000 years there have been 22 Chinese dynasties, 13 of these have endured as long or longer than the entire history of the United States. It follows that the Chinese are acutely aware of their history, intensely proud of their ancient civilization, and sometimes wary of the United States with its global reach and infectious popular culture.

In the past several years, mainland Chinese have bristled at Washington's decisions to approve the visit of Taiwan's President Li Teng-Hui to the United States in June 1995; to send two aircraft carriers to waters near the Taiwan Strait in March 1996; to keep selling arms to Taiwan; to sign a security agreement with Japan; and to levy persistent criticism against China's human right record, its proliferation policies, and its trade surplus. Some elements of China's leadership misperceive all this as a US scheme to contain China. And they see events like Congressional hearings over purported Chinese efforts to influence US elections as evidence of a deep anti-China conspiracy.

Given all this, we should expect China to have ambivalent feelings about the United States for the foreseeable future. China of course recognizes that a peaceful East Asian environment is essential for its continued economic development, and it appreciates the vital role US forces have played and continue to play in guaranteeing peace in the region.

But Beijing also believes that role is rightfully its own, and at least some elements in the leadership (and especially the military) see the United States today as the main obstacle preventing Beijing from reassuming its historical place as the paramount power in Asia.

I want to stress that Sino-US hostility is not preordained. Our interests run parallel in many areas, and we are working together very productively in many areas. Senior US officials have stated repeatedly that a stable, secure China-one that is comfortable with its neighbors and whose neighbors are comfortable with it, a China that believes it has a stake in the positive trends now under way in Asia-is in the best interests of the United States and is essential for regional peace. How the US-China relationship unfolds in my judgment will have much to say about how China actually evolves.

Our national leaders will need good intelligence in order to understand Chinese behavior and to develop the right policy tools to deal with it. Given our limited resources, we will need to stay focused on what is important.

There is a story, perhaps apocryphal, about J. Edgar Hoover's aides at the FBI who once sent their boss a memorandum with margins too small for his liking. In big red letters Hoover scrawled an angry warning across the top: "Watch the borders!" The next morning his frightened staff transferred 200 FBI agents to posts bordering Canada and Mexico.

Unlike Hoover's aides, we don't have the luxury of moving people and resources on a whim. In today's tough budget climate, we need to target our efforts where we can make a real contribution. Based on comments I receive from senior officials, I know that our analysis is making a significant impact on a wide range of China issues. This administration has relied heavily on the Intelligence Community to guide it in its deliberations with the Chinese on trade issues, human rights, and proliferation.

China presents a major foreign policy challenge for the United States and an equally challenging one for the Intelligence Community. It is an exciting challenge that I think the US Intelligence Community, and especially the National Intelligence Council, which I am honored to lead, can meet.

Thank you. I'd be happy to take an comments.