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DDI Speech 11/20/96

An The Outlook for China: A CIA Perspective
Address by Deputy DDI John Gannon
at the College of the Holy Cross
Worcester, Massachusetts
20 November 1996

Good evening. Thank you for that warm welcome. It is always a pleasure to return to my hometown and a real kick to come back to my alma mater.

I want to talk about China tonight. But first let me say a couple of words about the Jesuits.

As some of you undoubtedly know, the Jesuits have a strong link to China, which is the subject of my address tonight. Italian-born Father Matteo Ricci (1552-1610) brought the first Jesuit missionaries to the then-village of Shanghai in the late 1500s. He adopted the language and culture of China and gained access as a teacher to its elite. He converted a Chinese scholar official, Xu Guangqi, who later became Grand Secretary to the Ming Emperor. Because of Xu's influence, the Jesuits were able to start a congregation in Shanghai, and ultimately they brought much Western science and learning to China. The Jesuits also taught an ignorant West a great deal about China. Their great cathedral, St. Ignatius, is still in Shanghai, and the observatory they founded continues to provide weather data for the central China coast.

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 economic growth, for example, but China's leaders continue to resist political reform and improvement in human rights for its citizens. For some experts, it is the dark scenarios that will prevail. The painful memory of Tiananmen in 1989 and the later arrests of dissidents Wei Jingsheng and Wang Dan remind us that political freedom is still more of a hope than a reality in contemporary China.

My own assessment of China's future, despite the downsides, is admittedly on the bullish side. 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.

Making sense of such an enormous, diverse country as China can be a little 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."

In characterizing the outlook for China, I will make five points:

Scholars can and do debate what constitutes 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 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 1996 China's GDP will grow by about 10 percent and retail price inflation will be about 7 percent. China continues to run a trade surplus with the world, and Chinese officials predict it will be about $6 billion this year.

What is significant for the long term is the series of recent reforms 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 1,000 most important state enterprises while instituting ownership reform in 90,000 others.

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 the upward trend should 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 disciplined, 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--that is, Japan, the Philippines, and Indonesia.

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 will soon field a F-16-class multirole aircraft. It is continuing to develop new naval systems, including attack submarines and destroyers. It continues to weigh the wisdom of developing or acquiring an aircraft carrier.

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 this spring was notable on three levels. First, it featured China's most advanced military hardware, including the Su-27s and short-range ballistic missile. 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 says 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 to be one.

The final element is leadership, and here the picture is more mixed. China's senior statesman, Deng Xiaoping, is 92 years old and ill, and he has not been a factor in policy decisions for nearly a year. For all intents and purposes, China is now governed by a younger post-Deng leadership. By younger, I mean leaders in their sixties and seventies.

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--someone like Mao or Deng.

It is a group that takes great pride in what China has accomplished in the last 15 years, but it also fears the forces it has unleashed in the process that could limit Beijing's control.

It follows, therefore, that this group takes a cautious and uninspired 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 that 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, with the ultimate heir to Deng emerging several years from now. 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. It is useful to remember that Japan can also be described as resource poor. When a nation exports as successfully as China has, it should be able to buy whatever it needs on the world market.

This does not mean the Chinese economy is free of problems. Double-digit growth rates are neither sustainable nor desirable over the long run. But the Chinese have shown a remarkable ability to reform a Stalinist economy and learn from their mistakes.

So, to return to my question: are the elements present that will propel China to major power status? Yes. 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, some of whom were born under the last Emperor, experienced firsthand the unequal treaties that denied China sovereignty on it own soil. These leaders 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. 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 the century of 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 two years the Chinese have bristled at Washington's decisions to approve the visit of Taiwan's President Li Teng-Hui to the United States in May 1995; to send two aircraft carriers to waters near the Taiwan Strait in March 1996; to keep selling arms to Taiwan; to levy persistent criticism against China's human right record, its proliferation policies, and its pirating of US technology; and to sign the US-Japan security agreement last spring. Some elements of China's leadership misperceive all this as a US scheme to contain China.

Consider the popularity in China today of such books as China Megatrends and The China That Can Say No. We would call these jingoistic if they were written by Americans about the United States, but they speak to the deep feelings in China of alienation from the United States and the West.

Given all this, we should expect China to have ambivalent feelings about the United States for the foreseeable future. Now China 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. The latest visit of Secretary of State Warren Christopher to China, which is under way as I speak, will undoubtedly surface some of these mixed Chinese feelings toward the United States.

Particularly troubling to me at this time is the absence in the Chinese leadership of anyone with a personal stake in a strong bilateral relationship with the United States. Deng had such a stake, and perhaps another leader will assume that role in the future. In the meantime, there will be a strong temptation among Chinese leaders to seek immediate tactical and largely domestic political gains by "standing up to Washington" and others in defense of Chinese interests. Making sense of the next generation of leadership will keep the Agency busy.

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. CIA has made a major commitment to analyzing China's political, economic, and military development.

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 DI 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 Central Intelligence Agency and its Directorate of Intelligence, which I am honored to lead, can meet.

Thank you. I'd be happy to take questions about China or any other issue.