How can America be friendly with a country which is friendly with so many of America's enemies -- Iran, Iraq, Milosevic, even Pakistan, when they were selling nuclear material?

First of all, our relations with China have been, and will remain for the foreseeable future to be mixed, to be a complex combination of cooperation and contention. So the first thing is, don't ever expect a kind of nirvana of peaceful, cooperative productive U.S.-China relations. I can't see that.

We're always going to have a complex mix of compatible interests and conflictional interests. And really, if you think about it, how could it be different? We have a far different history, far different political system. The Chinese have an aggrieved experience with the West and the United States -- lots of resentment. And China is still a very poor country.

So I think we have to sort of get off this notion that its going to be easy to deal with the Chinese -- it's not. And the Chinese, incidentally, don't think it's easy to deal with us. But be that as it may, we have important interests with the Chinese, and we have to manage this relationship so we can get the maximally productive relationship, the most help we need on the most urgent problems. And we're going to have to subordinate some of other aggrievances.

The atrocity of the World Trade and Pentagon bombings -- how's that changed relations between America and China?

It certainly depends on how the Chinese respond.... If they're seen to be basically positive, this represents a chance to improve U.S.-China relations that hasn't existed since the fall of the Soviet Union in 1991, and indeed since 1989, with the Tianamen massacre.

Since 1991 and 1989, China and the United States have not really been able to cooperate very significantly in the security area. If we are cooperating in the security area, this tends to be an area of cooperation that is so important to the United States that we tend to not clutter the agenda of bilateral relations with lots of other secondary issues; issues that are very important in this country, but nonetheless are not of the same magnitude and urgency of the security concerns. If the Chinese play their cards right and are cooperative, we could see better relations.

.....

How important is the economy at the moment? How important is that in the relationship with China?

It's potentially very important. First of all, China, unknown to many Americans, is our fourth-largest trade partner. There are certainly probably 300,000, 400,000, 500,000 American jobs that are directly dependent to exports to China, and there are some of our most competitive high tech sector. Obviously, given the state of our own economy, we don't need more unemployment. ...

But China's economic importance -- particularly to the United States, but the global economy -- hasn't been recognized in another way, and that is inter-dependence. Let me just give you a fact that I think is just demonstrative of a larger reality. Eighty-seven percent of the motherboards of computers in the world are made in Taiwan. And of that 87 percent of the brains of a computer, the motherboards made in Taiwan, 50 percent are now made in the PRC, and that industry is even moving more rapidly towards the PRC. So in certain key areas, China's component manufacturing is absolutely key to a strategic global industry.

So whether you look at it narrowly, or in terms of jobs, China is essential. Also, China is the most rapidly growing major economy in the world today. And heaven knows, with Japan lagging and Europe's economy stagnating and the Americans hovering near a recession, the world needs all the center of growth that it can get. So I think we are going to recognize that we have a very great interest in China's prosperity.

So that's one reason to get on with China?

I think the president now has both strategic military reasons to try to have a decent, productive relationship with China. He has economic reasons and, frankly, we have great cultural reasons. Some of the most innovative intelligent students in American universities today come from abroad, and many of those come from China. So we have cultural reasons, economic reasons and military reasons.

Does that suddenly mean that China is no longer a threat?

... You can't predict how China is going to behave in the future. But I think what we can say for now, and for the next ten years is, all Chinese I'm familiar with -- except a few modest interest groups -- are devoted to the proposition that the Chinese first need to economically modernize. The challenge to America is to make it clear to the Chinese people that the world is supportive of them becoming more prosperous and having a more dignified place in the world; that the United States does not stand in the way of that; and create an environment that's going to create the incentives where the Chinese want to play by the rules, where they feel like they're a member of the club.

The odds are very great that, if China is able to continue to move in the direction it's going and that we are basically receptive to the aspirations of the Chinese people... I think we'll always have difficulty in dealing with China. But it need not be the kind of experience we faced with the rise of Japan or Germany.

...

There does seem to be an anti-American feeling in China?

The way I would put it, there's a deep ambivalence about Americans. Chinese leaders send their sons and daughters in great numbers here to study. Many of their sons and daughters are living long term in the United States, opening businesses. I think there's great respect for American technological and financial wizardry, great admiration. The Chinese characters for the United States are the "Beautiful Country." The traditional name for San Francisco is "Old Gold Mountain." There's this image of the United States as a beautiful, powerful, clever nation and I think that's the dominant sentiment -- for the United States, in a sense, to be a role model for China.

But when the Chinese define you as a teacher or a role model, they expect the teacher to be deferential and considerate of the student. And so, often, Chinese people see the United States acting in what they believe is an arrogant, thoughtless way that basically is designed to keep China down. So there's this admiration that competes with this sense of victimhood, this sense of "You don't respect us," sort of what we call the Rodney Dangerfield-"I-don't-get-no-respect" kind of view of the United States. So I think it's deeply ambivalent. But, on balance, the prevailing sentiment is very positive.

With President Bush's visit to China ... what should he be trying to do?

The president, I hope, will build bridges where he can and draw lines where he must. ... That's what our country has to do with regard to China. Clearly, the Chinese know that we want a good relationship with them. On the other hand, there's some fundamental conflicts of interest that we have with them on human rights, on their proliferation activities, Taiwan. I think the name of the game is going to have to be to avoid incidents until all this plays out, and we find out whether or not we're going to be dealing with a friendly competitor or an enemy. I don't think we know that yet. We're hoping for the best, but we need to prepare for the worst.

What makes you think you might be dealing with an enemy?

Because they're such a large country; because they potentially have such a tremendous economy; because they are rapidly building up their military; because they have over 300 missiles pointed toward Taiwan, who we have obviously a close relationship and commitment to. Because they're going to be undergoing a change in leadership, nobody knows what that's going to bring about. They have tremendous potential social problems. Outside the major cities, if there was a major disruption, we don't know what that would bring about. It might be worse for the United States than better.

So there are lots of things that could happen that could create difficulty, both in terms of incidents like the Hainan airplane incident, which is relatively small, compared to something like Taiwan and that potential or something major, such as a commitment of their ... to prepare to engage for a conflict. Like there are those in their country -- from their writings, you can tell in rather senior positions -- who think conflict with the United States is inevitable. We cannot assume that that it will not happen, so it's a delicate balance that we've got to make. But we have no choice but to make it.

....

Could you spell out for us how dangerous do you think the Chinese military are?

They don't have to be a threat sufficient to invade the United States. They just have to be a threat sufficient to go against our interests. ... Certainly if Taiwan comes up again, most people think that they're not in a position, for example, to invade Taiwan tomorrow. Obviously they could unleash devastation on Taiwan through the air. But they're behind the curves pretty substantially. The question is not today; the question is tomorrow, and the next day and the day after that.

As everyone knows, they think in long terms, and we think in short terms, usually. And the fact of the matter is that they could be as big an economy as ours before long. That would allow them to continue their military budget increase. They are now at 17 percent, so you know it's substantially more than that. Nobody really knows how much the increase is, but it's going to continue to increase. They are making great strides in technology. They are getting technology from all over the world including the United States -- something that I'm very concerned about. I think we've been blind to that. We've assisted them in ways that we shouldn't be assisting. We're concerned about what's going out the back door in terms of theft of sensitive nuclear technology. But we've been negligent in terms of what we're giving them out the front door in terms of our trade and dual-use items -- things that can be used for military purposes.

...

Already the United States has imposed sanctions on China for nuclear material getting to Pakistan.

And lifted them.

Had lifted them. Why did they suddenly lift them?

For new agreements. The history is that they proliferate. We catch them, we impose sanctions. They promise to be better, we lift sanctions. And they go back and proliferate more. That's been the history. We've got to get more serious with them and we've got to draw the line. Every foreign policy of every major nation involves reason, common sense, carrots and sticks. You can't have all carrots and no sticks. You can't substitute promise after promise with known violators of prior promises at the expense of protecting ourselves or setting an example.

...

Do you think that China maybe [is] no longer a communist state, but things have changed so dramatically that actually the Communist Party will wither away?

China and the United States are engaged in a major gamble with each other. The United States is gambling that, with increased engagement and especially with increased trade, it'll become a more liberal society and more open society. China, on the other hand, is betting that they can open up to the extent necessary to promote their economic prosperity. They're smart enough to know that a certain amount of capitalism is a good thing and they've got to go in that direction to feed 1.3 billion people. But that they can open up to that extent, but not to the extent they lose control -- and control is the name of the game.

It's not communism in the sense of the Soviet Union, where they're trying to convince the world, as it were, of a doctrine. It's more a matter of they're keeping control, and they will do what is necessary to keep the communist regime there in control. So they're betting that they can keep that control. It's going to be some years, probably, before we see who's right. In the meantime, the name of the game in terms of diplomacy and national security is to try to keep incidents from happening until we reach that point that throw us off-kilter and get us into trouble with one another and make the world more dangerous. ... I'm willing to take that gamble. I think we've got a fair chance of winning that gamble.

But it's not at all clear that that's the way that it's going to turn out ...It very well could be, if they can open up somewhat, do better than they've done in the past but still arrest American citizens at will, proliferate weapons of mass destruction and be an imminent threat to our friend across the Taiwan Strait.

...China's one of those countries that has very complex feelings towards the United States. They like our music. They like our movies. They like much about what the United States stands for. At the same time, they are deeply dissatisfied with certain aspects of American foreign policy. Many Chinese believe, fundamentally, that the United States is set on destabilizing China, or at least trying to stop China from reaching its full potential.....

How important is China in the field of America's foreign policy?

It is critical commercially. It is the only strong economy in Asia today, in fact, its one of the only growing economies in the world today. ... Also...there is a worry that if China used its military power or its growing political influence to undermine U.S. national interests, we could have a very significant problem in Asia over the horizon.

What sort of problem?

Although China has traditionally never been in a traditional sense an expansionist power ... they clearly have interests that could potentially run counter to the United States. ... Some have suggested, as China grows, they would be increasingly uncomfortable with the large role that the United States plays in Asia, and that, in a sense, the region wouldn't be big enough for the both of them. America's challenge, and indeed, the challenge of the world, is to find a way that these two great powers can find a way to work together to preserve peace and stability and to preserve prosperity -- no small feat, in the current context.

People within the Bush administration staff, as well as others, seem to think China is a military threat. Is that true?

... there is a raging debate, sometimes in full view, sometimes behind the scenes, about how to conceptualize China. From my perspective, the challenge for the United States is that China will represent many things. It will be a challenge in foreign policy and security. It will be a challenge and an opportunity economically. And so it is likely to encompass all of these things.

...We think that China-American relationship should move forward in the interests of both sides. But China is a country which suffered a lot in the past. China country, like the United States, jealously guards its own sovereignty and territory, integrity and dignity. And if people understand these principles that they apply not only to the United States, but to China and to other countries, then they can understand the emotions of the Chinese people on this issue.

How important are economic trade relationships with the United States?

I think this relationship is important for both sides. We're really in the same boat, because United States is the largest economy in the world and we do export a fair amount to the United States. So this market is important for us, and besides, we believe that the American business community and the American people are supportive of this relationship, because the China market is also important for the United States. And they get inexpensive labor there, but good quality products. So that's why there is continuous American investment in China. And United States has been exporting more to China. For instance, in the first half of this year, their export to China has increased by about 17.9 percent, and that's very good.

...

But in Congress, as we know, there are people who see the China threat.

I would like to, in summary, point out some basic facts. First is that the Chinese economic system is dynamic. According to IMF, China will be able to maintain this 7 percent to 8 percent growth rate in quite a few years to come. Second, the Chinese people are living much better, and they support the government's policy, both the foreign policy and the domestic policy. Third, you have a very effective leadership in China, dedicated to the people and to the interests of mankind. Fourth, you look at China's neighbors. Our neighbors all like to develop their relations with China. And people want to see any problem between China and United States ... actually when there were problems in the first half of the year, some of their leaders came to this country to urge the American leaders to have better relations with China. And fifth, China's policy is to develop good relations with the United States to cooperate on issues which touch on peace, prosperity, stability in the world, and in the Asian Pacific region.

So I think we are in a new era. People should have a new concept, and I believe that the American people know even better now where the real threats come from.

I think we should recognize that China and the United States both want to improve and develop their relationship, but there are some sensitive elements in the Sino-U.S. relationship, which will sometimes lead to certain disturbances. Over recent years, you know that both parties in the U.S., the Republicans and the Democrats, have both had the same policy towards developing and improving Sino-U.S. relations.

Since being elected, even the Bush administration has shown a positive attitude to the further development of bilateral relations. For instance, they have said that they recognize the importance of the relationship with China, that China should not be regarded as an enemy, that the U.S. should avoid hostility and further confrontations with China; and that they wish to see constructive relations between the two countries. We take all this very seriously.

On the other hand, frankly speaking, there are also differences of opinion between the two countries. The important question is how to handle these differences. No one should take a tough attitude just because these differences create problems. That will not contribute to the solution of the problems.

Basically, I think what we should focus on are the major common interests between the two countries, which are important and wide-ranging, for instance, to safeguard peace and stability in the Asian Pacific region and to improve world economic development and prosperity. Also, we both want a better environment and less pollution. We both want to fight against transnational crimes, etc. In those areas, we have important common interests, and we should cooperate further in those fields. ...

Relations in trade and other areas are improving. We have also had much more consultation on international issues.

But there are problems, too, like Taiwan non-cooperation -- the fact that the United States has violated its commitments, exerted pressure on us, and damaged China's interests. We are strongly against all of this, and have made our views known very clearly. ...

There are clearly elements within the Bush administration, and within Congress, who see China as the next great enemy for America.

We think China is not an enemy of the United States, and neither is the United States an enemy of China. I said just now that the Bush administration has already stated clearly that China is not the enemy of the U.S., and this view was also expressed by the secretary of State, Mr. Powell, during his recent visit to China.

However, U.S. arms sales to Taiwan are quite another matter. They totally violate the promises made by the United States. We know that under the August 17 communiqué, there are clear provisions in this regard, in which the U.S. undertakes that it does not seek a long-term policy of arms sales to Taiwan.

The U.S. government also undertook not to increase its arms sales to Taiwan, either in quantity or in quality, based on the levels of recent years since the establishment of diplomatic relations. That should lead to a gradual reduction in sales over a period of time, which would eventually solve the problem entirely.

However, what the U.S. did in reality was not what it said. In recent years, U.S. arms sales to Taiwan have increased both in quality and in quantity. So this shows who is really to blame here. What the United States has done is interfered in China's internal affairs, undermined China's sovereignty, and most importantly, added further to serious tensions across the Taiwan Strait. At the same time, they have further increased the difficulty of achieving a peaceful resolution in Taiwan....

Therefore, we hope that the United States will come to a better understanding of the sensitivity of the Taiwan issue, and the damage done by their arms sales. They should change their course, stop selling arms to Taiwan, and seek a proper solution to this issue. This will improve the chances of a peaceful resolution in Taiwan, and improve long-term Sino-U.S. relations. ...

So what will China do if President Bush decides, despite your views, to go ahead and deploy theatre and nuclear missile shields?

To ensure the safety of China's own sovereignty and territorial integrity, we must ensure that our nuclear arsenal is effective. We are opposed to the theatre missile defense system, especially the fact that the U.S. wants to include Taiwan in the TMD system. Our position on this is clear-cut.

Just to be clear, does that mean that if President Bush goes ahead, you will need more nuclear missiles?

China will not enter into an arms race, but we will ensure the effectiveness of our nuclear weapons. ...

So, is there "one China?" Is Taiwan part of China?

I think the art of this period consists of not challenging the principle of "one China" and leaving open the possibility of an ultimate resolution, but also making very clear that the United States has an intense interest in a peaceful resolution. To enable Taiwan to continue its autonomous existence without facing the issue of its precise legal status and while maintaining the basic principle of "one China" is a delicate road to go, but every American president now for 30 years has managed to walk that.

Every time there has been an attempt to disturb it, it led to two things. It led to immediate intense conflict with China, and it led to a re-affirmation in the end, because nobody wanted a major confrontation with China to this principle of a "one-China" policy within which Taiwan is finding a place now. Its own position has greatly improved since the Nixon policy. It is richer, it is stronger and it is participating in many international organizations.

But many Taiwanese want to be a separate country.

And many don't.

If it ever came to a conflict between China and Taiwan, should America support Taiwan?

I think America has made it very clear in several administrations that if there is an attack by China on Taiwan, the United States is very likely to resist.

"Very likely?" Or "possibly?" Or "maybe?"

No, [the U.S.] has made it clear that we consider a peaceful resolution an essential aspect of American foreign policy. This I believe to be a situation understood by China. But again, it is important to not sound too truculent. Taking on a billion-plus Chinese is not an enterprise which one should enter lightly.

...

There are three principles that should be followed. One, we should maintain the "one-China" policy that every American president has articulated, including President Reagan. Secondly, we should make clear that we want a peaceful resolution. And three, Taiwan should not challenge that arrangement in a way that will provoke a conflict. ...

......

What is the position you think [President Bush] will take up [for his China policy]?

The position is that stability and peace in Asia depend on a cooperative relationship between China and the United States. ...

There are some people who think that, at some time in the future, China may challenge us for supremacy in the Pacific, and therefore, what do we do today to prevent that? And you, of course, will say that we will try to thwart any economic progress in China. If we engaged in such a policy, we would turn a billion-plus people into nationalist opponents of the United States. I don't think that that's a desirable option for us. Besides, it wouldn't work, because there are too many other countries that are willing to work economically with China. But I don't think the basic relationship depends on economics. It depends on a political understanding of what is required for peace in Asia.

...

China has had a long and complex history and has managed to evolve its own culture for 4,000 years. It therefore is not necessarily true that we know exactly what is best for the internal structure of China.

I do not know what will happen in China politically. I do know that it is impossible to maintain the communist system or probably even a strict one-party system when the economy becomes so pluralistic. Now, what form that takes and what institutions will evolve, I do not have a clear view about. I do not think the United States, as a general principle, ought to intervene in this.

Our concern for human rights comes to the fore when there are gross violations of human decencies. Then other countries, including China, must recognize that this affects the American attitude towards their country. But towards what precise institutions will it evolve? I think we ought to leave something to history.