Moderator:  [Chinese] Good morning, ladies and gentlemen.  [Chinese]  This morning, MIN. CAO and Secretary Rumsfeld will make some opening remarks, and then followed by questions and answers.  Because we have a lot of other fixed activities in the afternoon, so the time will be 15 minutes.

Now, the first question goes to my military colleague at PLA Daily.  Chinese]  Uh, no, no, sorry.  MIN. CAO. [Chinese]

(MIN. CAO's remarks are through an interpreter.)

MIN. CAO:  Friends from the press, good morning.  At my invitation, the Secretary of Defense of the United States of America, his honorable Mr. Donald Rumsfeld, is visiting China from eighteenth to the twentieth of October 2005.  This has been Secretary Rumsfeld's first visit to China since he took the post in 2001.  And also, five years have passed since the last American Secretary of Defense visited China.  This is a very, very important visit, and we see it a big event in mil-to-mil relations this year between our two countries.  Therefore, the Chinese side has attached high importance to his visit, and has tried our best to make some considerate arrangement for him.  The objective is simple: that we want to make sure Misters- Mr. Sec- Rumsfeld's visit to China is a full success.

Just now, Secretary and I had some discussions.  We exchanged views on international and regional situation, on political and the defense relationship between China and the United States, and other issues of common interest.  I believe our talks have been candid, pragmatic and constructive, during which we have reached a common understanding on a number of important issues.  We believe both China and the United States are big powers and very influential countries in the world, and we also share important responsibilities in developing the world.  Therefore, the two countries have a broad range of shared interests and a good basis to build up cooperation.  To develop the constructive and cooperative relations between the two countries, it is in the fundamental interests of the two peoples and is conducive to world peace, stability, and development.  I will conclude my opening remarks here and leave the floor to the Secretary.

SEC. RUMSFELD:  Thank you very much, Mr. Minister.  I very much appreciate your invitation, your warm hospitality, and you have certainly succeeded completely and admirably in your goal of having this be a constructive and useful trip from both of our standpoints.  [Translation into Chinese]

First, I would want to offer my congratulations on the successful launch and recovery of the Shenzhou module.  It is a truly impressive accomplishment, one that the people in the United States watched with great interest and respect.  [Translation into Chinese]

Over the years, of course, the U.S.-China relationship has encountered some challenges, to be sure, but challenges also offer opportunities - opportunities to learn from each other, to better understand each other's direction and intentions, and to work seriously to find areas of mutual interest and cooperation.  [Translation into Chinese]

And it's in that spirit that I've approached my meetings here in Beijing with China's leaders, including the Minister of Defense, and would agree completely with the Minister that our meetings have been very constructive and candid and useful from, certainly, from our standpoint.  [Translation into Chinese]

And we certainly share the hope and goal that our countries can move forward in a relationship that is candid and straightforward, and one that steadily advances the peace and opportunity of the people of Asia and the people of the United States, so I thank you so very much, Mr. Minister.  [Translation into Chinese]

We had so much to talk about, Mr. Minister, that we went something like 45 minutes over our allotted time.  [Translation into Chinese]

Thank you.  [Translation into Chinese]

Moderator:  [Chinese]  Thanks, MIN. CAO and Secretary Rumsfeld.  Now the question session.  The first question goes to my military colleague from People's Daily.  [Chinese]

Question:  [Chinese]  I'm with the PLA Daily.  I have two questions.  The first is directed to Vice Chairman Cao.  Would you please tell us what you have achieved from the talks with Secretary Rumsfeld?  And how do you comment on the existing defense relationship between China and the United States?  And the next question is directed to Secretary Rumsfeld:  I understand this is your first visit to China since you took the post as the Defense Secretary.  How do you comment on this visit, please?

MIN. CAO:  [Chinese]  During the talks, the Secretary and I both reiterated the importance we both attach to defense relationship between the two countries, and we agree that to establish a frank, cooperative and constructive defense relationship is in the shared interests of both sides.  We also agree the defense relationship forms a part and parcel of the state-to-state relations.  Today, the relations between our two countries have been very good, and we need to join hands and work hard to elevate the level of the defense relationship and to make it consistent with the level of state-to-state relations.  I'm confident that Secretary Rumsfeld's visit to China will help the two sides to enhance mutual understanding and build up mutual confidence.  In the future, I'm quite optimistic the defense relationship will continue to move forward.

SEC. RUMSFELD:  My first visit to this country was in 1974.  That is a long time ago.  And the changes that have taken place here are impressive.  Theconstruction, the energy that one sees in Beijing, the progress that's been made over those 31 years is something that is noticeable.  The meetings we've had have been good meetings.

[Speaking to translator] Excuse me - I'll let you take that much.  [Translation into Chinese]

While I've been back many times since 1974, this is the first visit since I came back to the post of Secretary of Defense.  [Translation into Chinese]

And I come away from my visit with the Minister confident that we will be able to find activities and exchanges and interaction between our two militaries that will be mutually beneficial.  [Translation into Chinese]

And we've agreed to take a personal interest in seeing that that is in fact the case.  [Translation into Chinese]

Thank you.  [Translation into Chinese]

Moderator:  The next question is from the U.S. side.

Question:  This is Bob Burns from Associated Press.  I'd like to ask a question of each of the gentlemen.  General Cao, Secretary Rumsfeld has been saying during his visit that China is essentially hiding the true extent of your defense spending increases and that a lack of openness is creating uncertainly for other countries regarding China's real military intentions.  How do you respond to the suggestion that China is on a non-unpredictable and uncertain path?  And I'd like to ask a question of Secretary Rumsfeld.  You've been saying that-

SEC. RUMSFELD:  Then why don't we - why don't work that one around first?  [Translation into Chinese followed by laughter]

[Question translated into Chinese.]

SEC. RUMSFELD:  And hopefully at some point I'll have a chance to make his question somewhat more elegant and more closely approximate my actual words.  [Translation into Chinese]

MIN. CAO:  [Chinese, followed by English Translation]  I discussed this question with Secretary Rumsfeld during our talk just now.  The first I want to point out is the top priority of the Chinese government today is to develop the country's economy and improve the livelihood of the people.  In the country, we still have over thirty million people living in poverty, and it is our priority to lift them out of poverty.  Therefore, given the duties and obligations of the government, it is simply impossible for us to massively increase the investment into defense capabilities building.

And the second point I want to share with you is that this year's defense budget of China is some 29.56 billion U.S. dollars, and that's calculated according to the old official exchange rate between the Chinese Yuan and U.S. dollars.  Introducing the new exchange rate, today's defense budget is at the level of 30.2 billion U.S. dollars.  And I'm quite sure to tell you that that is indeed the true budget we have today.  It is not necessary and not impossible [sic], actually, for us to massively increase the defense budget.

And the third point I want to tell you is that some funding for the development of certain equipments is not calculated in our defense budget, that is true.  For example, the funding for the manned space mission, Shenzhou VI, is not calculated as part of the defense budget.

Question:  Secretary, I'd like to ask you a question as well.  Bob Burns, AP.  You said in coming here that one of your purposes was to try to learn more about China's military intentions.  So far in your meetings, what have you learned?  [Translation into Chinese]

SEC. RUMSFELD:  One of the things that I've learned is that I sense a desire on the part of the Minister and his team to do essentially that which those of us in the United States defense ministry want to do, and that is to find activities and ways that we can work with each other that will contribute to demystifying the - what we see of them and what they see of us.  It strikes me that there are real opportunities to do that in educational exchanges and the like.  [Translation into Chinese]

We've had an opportunity to discuss some of the what I would characterize as mixed signals that we feel that we've been getting, and to talk about them, and to understand the reaction that one gets when one receives mixed signals.  And I think that that's also been useful and constructive.  [Translation into Chinese]

Moderator:  [Chinese, followed by English translation]  Ladies and gentlemen, we already give you - have given you - the six, seven extra minutes.  Now that concludes the question session.  Thank you.  [Moderator thanks group in Chinese.]