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[Senate Hearing 113-460]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 113-460

                   THE FUTURE OF U.S.-CHINA RELATIONS

=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 25, 2014

                               __________

       Printed for the use of the Committee on Foreign Relations

      Available via the World Wide Web: http://www.gpo.gov/fdsys/

                                  ______

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                          Washington, DC 20402-0001

                COMMITTEE ON FOREIGN RELATIONS         

             ROBERT MENENDEZ, New Jersey, Chairman        
BARBARA BOXER, California            BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire        MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware       RON JOHNSON, Wisconsin
RICHARD J. DURBIN, Illinois          JEFF FLAKE, Arizona
TOM UDALL, New Mexico                JOHN McCAIN, Arizona
CHRISTOPHER MURPHY, Connecticut      JOHN BARRASSO, Wyoming
TIM KAINE, Virginia                  RAND PAUL, Kentucky
EDWARD J. MARKEY, Massachusetts
               Daniel E. O'Brien, Staff Director        
        Lester E. Munson III, Republican Staff Director        

                              (ii)        

  

                            C O N T E N T S

                              ----------                              
                                                                   Page

Corker, Hon. Bob, U.S. Senator from Tennessee, opening statement.     2
Friedberg, Dr. Aaron L., Professor of Politics and International 
  Affairs, Princeton University, Princeton, NJ...................    19
    Prepared statement...........................................    22
Menendez, Hon. Robert, U.S. Senator from New Jersey, opening 
  statement......................................................     1
Russel, Hon. Daniel R., Assistant Secretary of State for East 
  Asia and Pacific Affairs, U.S. Department of State, Washington, 
  DC.............................................................     3
    Prepared statement...........................................     5
Roy, Hon. J. Stapleton, Distinguished Scholar and Founding 
  Director Emeritus of the Kissinger Institute on China and the 
  United States, Woodrow Wilson International Center for 
  Scholars, Washington, DC.......................................    17

                                 (iii)

  

 
                   THE FUTURE OF U.S.-CHINA RELATIONS

                              ----------                              

                        WEDNESDAY, JUNE 25, 2014

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:15 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Robert 
Menendez (chairman of the committee) presiding.
    Present: Senators Menendez, Cardin, Corker, Risch, and 
Rubio.

          OPENING STATEMENT OF HON. ROBERT MENENDEZ, 
                  U.S. SENATOR FROM NEW JERSEY

    The Chairman. This hearing of the Senate Foreign Relations 
Committee will come to order.
    We appreciate Ambassador Russel being with us, and our 
other panelists.
    There is no question that one of our biggest foreign policy 
challenges is getting the relationship between the United 
States and China, and the rebalance to the Asia-Pacific, right. 
Today's hearing explores the U.S.-China relationship and, 
coming as it does just in advance of next month's U.S.-China 
Strategic and Economic Dialogue, allows us to reflect on other 
issues beyond the Middle East that will also shape the 21st 
century.
    China is soon to become the world's largest economy, 
whether measured in purchasing price parity or raw GDP. 
Consider that more concrete has been poured in China in the 
past handful of years than in all of the United States during 
the 20th century. Eight of the world's 12-largest container 
ports are in China.
    China is on the move, but the question is: On the move to 
what? Will China become a trade partner committed to the 
enforcement of international law, or will we see 19th-century 
mercantilist behavior and the flouting of international norms? 
Will China help to support peace and stability in Asia or seek 
to overturn the order? Will China open space for its citizens 
to express their views and ideas, or will it continue, like 
Cuba, to brutally repress its own people?
    In the last year alone, a crackdown has swept away more 
than 150 journalists, lawyers, and activists. The bottom line 
is that there are reasons for hope, but there are also reasons 
for pessimism.
    The fact is, U.S. exports to China have increased by almost 
$40 billion in the past 4 years alone, from $67 billion to $106 
billion, creating and sustaining millions of U.S. jobs in 
sectors across the board: automobiles, power generation, 
machinery, aircraft, and other vital industrial sectors. That 
speaks to the potential of our partnership. At the same time, 
U.S. firms complain of cyber-enabled theft of intellectual 
property rights or just plain old-fashioned theft when trying 
to do business in China.
    Equally or more troubling still, we have seen an 
increasingly provocative China on the seas, coercing and 
intimidating neighbors in both the East China Sea and South 
China Sea, and attempting to use the threat of military force 
to address territorial and regional disputes. China's 
provocative actions in the South China Sea threaten not just 
regional stability, but longstanding U.S. interests in the free 
flow of commerce, freedom of navigation, and in the peaceful 
diplomatic resolution of disputes consistent with international 
law. Likewise, China's continued deliberate and provocative 
actions in and around Japanese territory run the risk of 
sparking a broader regional crisis. There should be a clear 
cost to China's actions and what we must do to offset those 
actions is deepen our alliances with Korea, Japan, and the 
Philippines, and reconsider the arms embargo with Vietnam, and 
we must make sure we fully resource all elements of the 
rebalance.
    So, I look forward to our panelists' thoughts on how we 
should evaluate the strategic and economic realities unfolding 
with the rise of China. How do we reconceptualize the problems 
we face? How do we turn them into opportunities? How do we make 
sure allies and partners have the resources they need in the 
context of China's rise? And how do we work with China through 
such mechanisms as the SSD at the Strategic and Economic 
Dialogue to assure that disagreements need not lead to 
conflict?
    And, with that, let me recognize the distinguished ranking 
member, Senator Corker, for his remarks.

             OPENING STATEMENT OF HON. BOB CORKER, 
                  U.S. SENATOR FROM TENNESSEE

    Senator Corker. Thank you, Mr. Chairman, and thank you for 
calling this hearing.
    I also want to thank the witnesses for being here and 
sharing their wisdom with us.
    It has been exactly 1 year since President Obama and 
President Xi Jinping gathered at Sunnylands to chart a new 
course for U.S.-China bilateral relations. Analysts were 
optimistic that the summit would set a tone for greater 
cooperation between the United States and China on a range of 
issues, including North Korea.
    However, as we convene here, a year later, the prospects 
for enhanced cooperation seem fairly dim. Indeed, we are facing 
a period of increasingly strained relations between Washington 
and Beijing, with issues such as China's continued 
aggressiveness in the East and South China Seas, as well as 
serious ongoing issues with Chinese cyber theft.
    Moreover, I am troubled that the Obama administration does 
not appear to have a clear China policy or a strategy to 
address Beijing's continued disregard for international norms, 
including economic rules of the road. It is deeply 
disconcerting to me that the negotiations on the Trans-Pacific 
Partnership, which has the potential to be a game changer in 
the Asia-Pacific by cementing free trade principles in the 
region and potentially influencing Chinese behavior, continue 
to drag on absent high-level political engagement from the 
administration.
    The United States-China bilateral relationship is one of 
the most important and consequential relationships for U.S. 
political, economic, and strategic interests, yet China appears 
to be positioning itself increasingly as a geopolitical and 
strategic rival to the United States. The pace and lack of 
transparency with respect to the Chinese military 
modernization, coupled with China's actions in the East and 
South China Seas, has cast doubt on the idea of the peaceful 
rise of China.
    Despite these challenges, I still see great opportunities 
to strengthen cooperation, specifically the conclusion of 
successful negotiations on Bilateral Investment Treaty, which 
has the potential to benefit U.S. businesses.
    I look forward to hearing from Assistant Secretary Russel, 
and from our second panel of experts, on whether the time has 
come to rethink U.S. policy toward China and other issues I am 
sure they will bring up.
    And again, I want to thank you, Mr. Chairman, for calling 
this hearing.
    The Chairman. Thank you, Senator Corker.
    Our first panelist is Daniel Russel, the Assistant 
Secretary of State for East Asia and Pacific Affairs.
    Ambassador, your full statement is going to be included in 
the record, without objection. We would ask you to try to 
summarize it in about 5 minutes or so, so we can enter into a 
dialogue.
    And, with that, you are recognized.

  STATEMENT OF HON. DANIEL R. RUSSEL, ASSISTANT SECRETARY OF 
  STATE FOR EAST ASIA AND PACIFIC AFFAIRS, U.S. DEPARTMENT OF 
                     STATE, WASHINGTON, DC

    Ambassador Russel. Thank you very much, Mr. Chairman, 
Ranking Member Corker. I appreciate the opportunity to testify 
today on United States-China relations. And I thank you also 
for your bipartisan support of our Asia policy.
    I am also honored to participate with one of America's most 
accomplished diplomats, China experts, and a good friend of 
mine, Ambassador Roy, and with another important contributor, 
Dr. Friedberg.
    This year marks the 35th anniversary of the official 
diplomatic relations between the United States and China. We 
have made remarkable progress during that time. There is 
enormous potential, moreover, for further progress that 
benefits both our countries, our neighbors, and the world.
    To achieve this progress, we seek a relationship defined, 
not by strategic rivalry, but by fair and healthy competition, 
by practical cooperation on priority issues, and by 
constructive management of differences. As President Obama has 
made clear, we seek and welcome the emergence of a stable, 
peaceful, and prosperous China that respects and supports 
global rules and universal values. Our two economies are 
intertwined, so China's growth fuels our own and promotes the 
region's prosperity, a prosperity underpinned by America's 
enduring security commitments and engagement. Many of our 
interests coincide. So, China's expanding regional role can 
complement the sustained United States strategic engagement in 
the Asia-Pacific.
    Mr. Chairman, we do not seek to contain China. To the 
contrary, we want China to contribute to the stability and 
development of the region by exercising restraint, by upholding 
the basic rules on which the international system is built, 
rules that China helps formulate and benefits from. So, to 
advance this goal, we maintain an intense pace of high-level 
bilateral engagement.
    In 2 weeks, our countries will hold the U.S.-China 
Strategic and Economic Dialogue, the S&ED, in Beijing. This 
important annual dialogue is led by Secretaries Kerry and Lew, 
with their Chinese counterparts, and covers virtually every 
aspect of our relationship. The strategic track includes our 
highest ranking joint civilian-military exchange with China, 
will seek progress on challenges in Africa, South Asia, the 
Middle East, and will discuss concerns like maritime disputes 
and China's behavior in the South and East China Sea, as well 
as cyber security and terrorism, and will further our important 
efforts with China on the world's most pressing nuclear 
proliferation challenges: North Korea and Iran.
    In the economic track, we will work to strengthen global 
economic recovery. China's leaders have announced plans for 
economic reforms that, if realized, could go a long way in 
moving China's economy toward fair market principles. Growing 
Chinese direct investment in the United States contributes to 
jobs here at home, and our Bilateral Investment Treaty 
negotiations hold the potential for greater benefit.
    We will work on climate change, energy, and environment 
issues, where the United States and China share common 
interests and responsibilities as the two largest energy 
consumers and carbon emitters.
    And we will raise our concerns about the worsening human 
rights situation, as senior U.S. officials invariably do. Just 
this month, for example, China harshly suppressed any 
commemoration of the 25th anniversary of the violent Tiananmen 
Square crackdown, with cases of harassment, detention, and 
arrests of journalists, lawyers, activists.
    We will also expand exchange programs that foster long-term 
mutual understanding through the annual United States-China 
consultation on people-to-people exchanges--235,000 Chinese 
students studied in the United States last year, and we are 
increasing the number of Americans who study in China. And 1.8 
million Chinese visitors last year contributed nearly $10 
billion to our economy.
    Mr. Chairman, the United States-China relationship has made 
great strides over these decades, and we are committed to 
building on that progress. Together, we seek to create a ``new 
model of relations'' built on practical cooperation and 
constructive management of differences that strengthens the 
international system to the benefit of our countries and the 
world.
    Thank you, and I look forward to your questions.
    [The prepared statement of Ambassador Russel follows:]

                 Prepared Statement of Daniel R. Russel

                              introduction
    Chairman Menendez, Ranking Member Corker, members of the committee, 
thank you for the opportunity to testify today on U.S.-China relations. 
It is also a great honor to be participating in today's hearing with 
one of our Nation's most accomplished diplomats, Ambassador Stapleton 
Roy--a friend, former colleague, and one of the foremost experts on 
U.S.-China relations. Ambassador Roy's contributions to the U.S.-China 
relationship have been invaluable, and I look forward to hearing his 
insights.
    I would also like to take this opportunity to thank you, Mr. 
Chairman, for your leadership and to acknowledge this committee's 
contributions to the rich bipartisan tradition of engaging China. I 
have found it extremely valuable to work closely with the committee's 
members, and in particular with the Asia Subcommittee, in advancing 
U.S. interests vis-a-vis China and the Asia-Pacific region as a whole.
                      overall bilateral relations
    This year marks the 35th anniversary of the establishment of 
official diplomatic relations between the United States and China. We 
have made remarkable progress since the era of back-channel messaging 
and secret trips. The scope of today's U.S.-China relationship was 
unimaginable when President Nixon made his historic visit in 1972 to 
China.
    Yet there is still enormous potential for progress in the U.S.-
China relationship. Progress that will yield benefits to the citizens 
of both countries, our neighbors, and the world. To realize this 
progress and these benefits, we seek to ensure that the relationship is 
not defined by strategic rivalry, but by fair and healthy competition, 
by practical cooperation on priority issues, and by constructive 
management of our differences and disagreements. Where interests 
overlap, we will seek to expand cooperation with China. These areas 
include economic prosperity, a denuclearized Korean Peninsula, peaceful 
resolution of the Iranian nuclear issue, and a reduction in the 
emission of greenhouse gases. Where they diverge--and we have 
significant and well-known areas of disagreement--we will work to 
ensure that our differences are constructively managed.
    Mr. Chairman, there are those who argue that cold-war-like rivalry 
is inevitable and that the United States and China are condemned to a 
zero-sum struggle for supremacy, if not conflict. I reject such 
mechanistic thinking. As anyone who has served in government can tell 
you, this deterministic analysis overlooks the role of leaders who have 
the ability to set policy and to shape relationships. It gives short 
shrift to the fact that our two economies are becoming increasingly 
intertwined, which increases each side's stake in the success of the 
other. It undervalues the fact that leaders in Washington and Beijing 
are fully cognizant of the risk of unintended strategic rivalry between 
an emerging power and an established power and have agreed to take 
deliberate actions to prevent such an outcome. And it ignores the 
reality of the past 35 years--that, in spite of our differences, U.S.-
China relations have steadily grown deeper and stronger--and in doing 
so, we have built a very resilient relationship.
    We view China's economic growth as complementary to the region's 
prosperity, and China's expanded role in the region can be 
complementary to the sustained U.S. strategic engagement in the Asia-
Pacific. We and our partners in the region want China's rise to 
contribute to the stability and continued development of the region. As 
President Obama and Secretary Kerry have made very clear, we do not 
seek to contain China; to the contrary, we welcome the emergence of a 
stable, peaceful, and prosperous China. We believe all countries, and 
particularly emerging powers like China, should recognize the self-
benefit of upholding basic rules and norms on which the international 
system is built; these are rules and norms which China has participated 
in formulating and shaping, and they are rules and norms that it 
continues to benefit from. In this context, we are encouraging China to 
exercise restraint in dealing with its neighbors and show respect for 
universal values and international law both at home and abroad.
    A key element of our approach to the Asia-Pacific region, often 
called the rebalance, is strengthening America's alliances and 
partnerships in the region. This contributes directly to the stable 
security environment that has underpinned the region's--and China's--
dramatic economic growth and development.
    A second element is working to build up regional institutions in 
order to uphold the international rules-based system and create 
platforms for the countries and leaders to work on priority strategic, 
economic, and other issues. These institutions help develop habits of 
cooperation and promote respect for the interests of all parties.
    A third key element has been expanding and deepening our 
relationships with important emerging countries such as China, 
including through regular and high-level dialogue.
    In just 2 weeks, our countries will hold the sixth round of the 
U.S.-China Strategic and Economic Dialogue--the ``S&ED''--in Beijing. 
This annual dialogue is unique in its level and scope. It is led on the 
U.S. side by Secretaries Kerry and Lew and brings a number of Cabinet-
level and other senior U.S. Government officials together with their 
Chinese counterparts to work on the major issues facing us. The breadth 
of the agenda in the two tracks--strategic and economic--reflects the 
breadth of modern U.S.-China relations. The S&ED is an important 
vehicle for making progress in the pursuit of a cooperative and 
constructive relationship; for building a ``new model'' that disproves 
the thesis that the United States and China are somehow destined for 
strategic rivalry and confrontation.
    The S&ED is an important forum for the United States and China to 
take stock of and set goals for the bilateral relationship, to review 
regional and international developments and explain our respective 
policies, to coordinate and seek practical areas of cooperation on 
important issues of mutual interest, and to constructively manage areas 
of difference through candid, high-level discussions.
    Let me preview of some of the topics for upcoming discussions at 
this year's S&ED:

   We will exchange views and explore prospects for progress on 
        regional challenges, including Sudan, Afghanistan, Iran, North 
        Korea, Ukraine, Iraq, and maritime disputes in the South and 
        East China Seas;
   The world's two largest economies will work on strengthening 
        the global economic recovery;
   The world's two biggest energy consumers and carbon emitters 
        will work on combating climate change, and expand cooperation 
        on clean energy;
   We will discuss global challenges ranging from cyber 
        security to counterterrorism to wildlife trafficking, and the 
        United States will raise our concerns over human rights;
   Secretary Kerry will cochair the annual U.S.-China High-
        Level Consultation on People-to-People Exchange, which supports 
        exchange programs that build the foundation for mutual 
        understanding and trust;
   And Deputy Secretary of State Bill Burns and his Chinese 
        counterpart will hold the U.S.-China Strategic Security 
        Dialogue (SSD), our highest-ranking joint civilian-military 
        exchange with China, where we will conduct frank discussions on 
        some of the most sensitive strategic issues in the 
        relationship.

    The S&ED and our numerous other dialogues and official exchanges 
with the Chinese each year reflect the importance we attach to managing 
this relationship. This level and pace of engagement show the 
commitment of both sides to producing tangible benefits for our two 
peoples, the Asia-Pacific region, and the global community.
    The United States and China have a vital stake in each other's 
success. That is why we maintain an intensive schedule of engagement; 
President Obama and President Xi met in Sunnylands, CA, a year ago and 
have met twice more since then. The President plans to visit Beijing in 
November when China hosts APEC. Secretary Kerry, as well as numerous 
Cabinet and sub-Cabinet officials, have visited China already in 2014 
and have met with Chinese counterparts in the United States or at 
international fora.
    We work with China in virtually all important international arenas, 
including the U.N., the G20, the East Asia Summit, and APEC where we 
are cooperating closely on regulatory transparency, supply chain 
efficiencies, promoting clean and renewable energy, cross-border 
education, and combating corruption and bribery. Our relationship 
touches on nearly every regional and global issue, and, as such, 
requires sustained, high-level attention. Moreover, few of these issues 
can be effectively addressed if China and the United States do not 
cooperate.
                           economic relations
    Economic issues play a central role in the U.S.-China relationship. 
China's economic success has added to our growth and increased the 
purchasing power of consumers in the United States. Our two-way trade 
has almost quadrupled since China joined the WTO in late 2001. While 
the long-standing imbalance in that trade remains troubling, China is 
now one of the fastest growing U.S. export markets. In fact, U.S. 
exports to China grew by more than 90 percent between 2007 and 2013. In 
our bilateral engagements, we are encouraging economic reforms within 
China to ensure not only that its economic behavior is sustainable on 
its own terms, but that it contributes to strong, sustainable and 
balanced growth of the global economy. This includes reorienting its 
economy away from a development model reliant on exports and credit-
fueled investment in real estate and infrastructure to one that 
increases consumer spending and contributes to global demand. Central 
to this goal has been urging China to move toward a market-determined 
exchange rate. We are also addressing sources of friction in our 
bilateral relationship by pressing China to change a range of 
discriminatory policies and practices that harm U.S. companies and 
workers and that undermine incentives to innovate. These include 
subsidies that tilt the competitive playing field in favor of Chinese 
national champions, policies that pressure companies to hand over 
intellectual property as a condition for access to the Chinese market, 
and export credits that unfairly advantage Chinese companies in third 
markets. U.S. businesses have investments totaling over $50 billion. 
And from 2012 to 2013, Chinese direct investment flows into the United 
States more than doubled, according to private sector figures, and now 
contribute to thousands of jobs here. Our ongoing bilateral investment 
treaty negotiations hold the potential for even more mutually 
beneficial economic ties.
    Even as we increase trade and investment, we will continue 
insisting on tangible progress in other economic areas that matter to 
the United States. These include:

   China continuing to move toward a market-determined exchange 
        rate;
   Negotiating a Bilateral Investment Treaty;
   Increasing access to Chinese markets for U.S. businesses;
   Developing a more transparent regulatory regime;
   Ending industrial policies that favor state-owned 
        enterprises and national champions and seek to disadvantage 
        foreign companies and their products;
   Ending forced technology transfer; and
   Addressing U.S. concerns over the theft of intellectual 
        property and trade secrets, including government-sponsored, 
        cyber-enabled theft for the purpose of giving Chinese companies 
        a competitive advantage.

    We will also continue to encourage greater Chinese integration into 
the rules-based international economic and trading system, in order to 
create a level playing field for domestic and foreign companies 
operating in its and other markets. Over the last few months, China's 
leaders have announced plans for sweeping reforms that, if realized, 
could go a long way in moving China's economy toward market principles. 
We are encouraged that these announced reforms would potentially give 
the market a greater role in the economy, and we are keenly interested 
to see such reforms put into practice. I believe we can do much to work 
with China as it transitions to a consumption-driven, market-oriented 
growth model that would benefit both our economies.
                     military-to-military relations
    On the military side of the U.S.-China relationship, we are 
committed to building a sustained and substantive military-to-military 
relationship that focuses on identifying concrete, practical areas of 
cooperation and reducing risk. This includes not only deepening the use 
of institutionalized dialogue mechanisms, including senior defense 
participation at the SSD and S&ED, but also inviting the Chinese to 
join regional cooperative exercises and expanding talks with the 
Chinese military about operational safety in the region. For the first 
time this year, China will participate in RIMPAC June 26-August 1 in 
Hawaii.
    We also aim to continue high-level exchanges between our 
militaries. Recent exchanges have included visits to China by Secretary 
Hagel in April and General Odierno in February, and a visit to the 
United States by Chief of the General Staff, General Fang Fenghui, in 
May.
    At the same time, we will continue to carefully monitor China's 
military developments and encourage China to exhibit greater 
transparency with respect to its military spending and modernization. 
This will help countries better understand the motivations of the 
People's Liberation Army. We continue to encourage China to use its 
military capabilities in a manner conducive to the maintenance of peace 
and stability in the Asia-Pacific region.
                       global and regional issues
    As the largest energy consumers, greenhouse gas emitters, and 
renewable energy producers, the United States and China share common 
interests, challenges, and responsibilities. These are issues that 
relate directly to our economic and national security. Cooperation on 
climate change, energy, and environmental protection is more critical 
than ever and is an important area of focus in the U.S.-China bilateral 
relationship.
    Through broad dialogues such as the Ten-Year Framework for Energy 
and Environment Cooperation and the S&ED, over the last year we have 
been able to produce new and expanded commitments to cooperation on 
climate change, energy, and the environment. During Secretary Kerry's 
February trip to Beijing, he announced implementation plans for each of 
the five initiatives under the Climate Change Working Group as well as 
a new enhanced policy dialogue on domestic and international policies 
to address climate change that will be held on the margins of the 
upcoming S&ED.
    China is a vital partner on some of the world's most pressing 
proliferation challenges, including the DPRK and Iran. The United 
States and China agree on the importance and urgency of achieving a 
denuclearized, stable, and prosperous Korean Peninsula. While 
differences remain between us on some of the tactics, we coordinate 
closely and consult intensively on how to advance these shared goals. 
The result has been a tightened web of sanctions targeting North 
Korea's nuclear, ballistic missile, and proliferation efforts. China 
has also strengthened its own sanctions enforcement, which we welcome, 
though it could do more to prevent North Korea from engaging in 
proliferation activities. Indeed, North Korea remains in flagrant 
violation of the U.N. Security Council resolutions that the United 
States and China approved and support. So we are urging China to make 
greater use of its unique leverage with the DPRK to produce concrete 
signs that the DPRK leader has come to the realization that his only 
viable path forward is denuclearization.
    On Iran, the United States and China share the goal of preventing 
Iran from acquiring a nuclear weapon and are working together within 
the P5+1 negotiations with Iran toward that goal. Through our frequent 
and high-level engagement, we will continue to press China to honor its 
commitments, in particular those related to its imports of Iranian oil 
and enforcement of U.N. sanctions, in furtherance of reaching a 
comprehensive and long-term solution to the Iran nuclear issue.
                          managing differences
    In the Asia-Pacific region, Beijing's neighbors are understandably 
alarmed by China's increasingly coercive efforts to assert and enforce 
its claims in the South China and East China Seas. A pattern of 
unilateral Chinese actions in sensitive and disputed areas is raising 
tensions and damaging China's international standing. Moreover, some of 
China's actions are directed at U.S. treaty allies. The United States 
has important interests at stake in these seas: freedom of navigation 
and overflight, unimpeded lawful commerce, respect for international 
law, and the peaceful management of disputes. We apply the same 
principles to the behavior of all claimants involved, not only to 
China. China--as a strong and rising power--should hold itself to a 
high standard of behavior; to willfully disregard diplomatic and other 
peaceful ways of dealing with disagreements and disputes in favor of 
economic or physical coercion is destabilizing and dangerous.
    The United States does not take sides on the sovereignty questions 
underlying the territorial disputes in the South and East China Seas, 
but we have an interest in the behavior of states in their management 
or resolution of these disputes. We want countries, including China, to 
manage or settle claims through peaceful, diplomatic means. For 
example, the Philippines and Indonesia have just done so in connection 
with their EEZ boundary. Disputes can also be addressed through third-
party dispute resolution processes. Where parties' rights under 
treaties may be affected, some treaties provide for third-party dispute 
settlement, as is the case of the Law of the Sea Convention, an avenue 
pursued by the Philippines in an arbitration with China currently being 
considered by an Arbitral Tribunal constituted under that treaty. The 
United States and the international community oppose the use or the 
threat of force to try to advance a claim, and view such actions as 
having no effect in strengthening the legitimacy of China's claims. 
These issues should be decided on the basis of the merits of China's 
and other claimants' legal claims and adherence to international law 
and norms, not the strength of their militaries and law enforcement 
ships or the size of their economies.
    Another area where we believe China's actions run counter to 
important universal principles is the worsening human rights situation 
in China. Just this month, China conducted a harsh crackdown on 
commemorations of the 25th anniversary of Tiananmen Square. China's 
actions included the detention, harassment and arrests of journalists, 
lawyers, and activists. Top U.S. officials raise our concerns with 
Chinese leaders on a regular basis, and, as we have in every previous 
round, Secretary Kerry plans to raise human rights at this year's S&ED. 
We express concern about the Chinese Government's censorship of the 
media and Internet. We push for the release of all political prisoners, 
including but not limited to prominent figures like Liu Xiaobo. We urge 
China to address the policies in Tibetan areas that threaten the 
distinct religious, cultural, and linguistic identity of the Tibetan 
people. Instability and violence are on the increase in the Xinjiang 
Uighur Autonomous Region. As we unequivocally condemn the acts of 
terrorism and violence, we also urge China to take steps to reduce 
tensions and reform counterproductive policies that stoke discontent 
and restrict peaceful expression and religious freedom.
                               conclusion
    Clearly, a wide-ranging and complex relationship such as ours with 
China comes with challenges. Some degree of friction is inevitable. But 
an essential tool for managing and resolving differences is open and 
extensive communications between our two countries--at senior and 
working levels of government, military to military, through local 
governments and organizations, between our business communities, and at 
the grassroots level.
    We are now reflecting on the considerable progress attained in 35 
years of bilateral relations. One key lesson is that to ensure that our 
relationship grows and matures, we need to build up the links among our 
two peoples. People-to-people exchanges are essential to enhancing 
mutual understanding and furthering U.S. strategic and economic goals. 
To that end, the United States in 2013 received 1.8 million Chinese 
visitors who collectively spent $9.8 billion on goods and services in 
our economy. Our State Department personnel work hard to facilitate 
growing Chinese demand for international travel by maintaining average 
visa wait-times under 5 days over the past 2 years.
    Education also plays an important role fostering mutual 
understanding. In 2013, we had 235,000 students from China studying in 
the United States, more than from any other country, and the United 
States aspires to increase the number of American students studying in 
China and learning Mandarin through the 100,000 Strong Initiative. In 
March, PRC First Lady Peng Liyuan welcomed First Lady Michelle Obama to 
China where together they met with U.S. and Chinese students and 
faculty and promoted the value of study abroad and educational 
exchange.
    We are also working with groups like the Sister Cities 
International and the U.S.- China Governors Forum. These programs help 
by encouraging and supporting cities and states to deepen their 
cultural or commercial ties with Chinese counterparts. In the last year 
alone, we have supported numerous visits of governors and state 
delegations and helped them to find opportunities to deepen their 
involvement and links to China.
    The Department works closely with the United States Chamber of 
Commerce, AmCham China, the U.S.-China Business Council, and other 
business groups to support key priorities for U.S. companies doing 
business in China and to promote greater Chinese investment in the 
United States. In partnership and consultation with those 
organizations, we have encouraged the Chinese Government to eliminate 
investment restrictions, strengthen IPR protection, increase regulatory 
transparency, and establish a level playing field for all companies in 
China.
    In conclusion, let me paraphrase what President Obama said earlier 
this year when he met with Chinese President Xi at the Nuclear Security 
Summit in The Hague. The U.S.-China relationship has made great strides 
over these past several decades, and both sides are committed to 
building a new model of relations between our countries defined by 
expanded cooperation and constructive management of differences.
    Mr. Chairman, I thank you for the opportunity to appear before you 
today to discuss U.S.-China relations. I look forward to answering any 
questions you and others from the committee may have.

    The Chairman. Well, thank you. It sounds like a rather rosy 
picture. Let me delve into it a little bit.
    So, when China speaks of a new type of great power 
relationship, what is it that the administration interprets in 
that phrase? Is that China just laying down a marker for 
gaining greater say in its own backyard? And what is our 
response to that?
    Ambassador Russel. The new model concept is something that 
was discussed indepth in the Sunnylands meeting, a year ago, 
that Senator Corker referred to. There are those in China who 
seek to define a new model as if it were the creation of a 
sphere of influence by China in the Asia-Pacific region, and 
the ``respect'' by the United States and the international 
community for certain ``core interests,'' as if it was not 
legitimate for the United States and others to hold positions 
on certain issues.
    We see the prospect of a so-called ``new model'' very 
differently. To the President and to the administration, to the 
United States, the goal is a model that is defined by practical 
cooperation on issues of genuine significance to the United 
States, China, and to the world--real issues, not boutique 
issues--along with the ability and the wherewithal to address 
and manage our serious and genuine differences, and to do so in 
a way that is strengthening, not deleterious, to the rules of 
the international system that have allowed China to achieve so 
much progress in its development. We seek a model of a 
relationship that is marked not by strategic rivalry, but by 
healthy competition.
    The Chairman. So--and that is what we see. What does China 
see when it says that it seeks a relationship that is based on 
a new great power paradigm?
    Ambassador Russel. When the Chinese officials talk about 
the ``new model,'' typically they talk about win-win outcomes, 
and they talk about respect for core interests. We are all for 
win-win outcomes, but we are not for slogans.
    What we care about and what we seek to achieve is 
meaningful cooperation. So, at the upcoming S&ED, for example, 
on the security--on the strategic track, which, as I mentioned, 
brings together high-level civilian as well as military 
officers in the strategic security dialogue under it, we engage 
on issues like the conduct of China in the South China Sea and 
the East China Sea. We engage directly on issues of human 
rights, including the repressive practices in Xinjiang and 
Tibet. We do not consider so-called ``core interests'' to be 
out of bounds for substantive discussion, and we hold China to 
account for its behavior.
    The Chairman. Well, when we talk about hoping that China 
will be part of an international order that will observe 
international rules, and you talk about the South China Sea, is 
our carefully calibrated balance between cooperation and 
competition still the right approach? Should we be putting a 
little more on the competition side and demonstrating, in more 
robust terms, our enduring national interest in freedom of 
navigation, the free flow of commerce, and the peaceful 
resolution of disputes, consistent with international law?
    Ambassador Russel. Mr. Chairman, we believe that 
competition and cooperation coexist in the United States-China 
relationship. We seek healthy competition on the basis of a set 
of accepted global norms. We welcome the right and the ability 
of China to participate in shaping and updating rules, but on 
the condition that China accepts that rules are binding on it, 
as well as on others. Rules apply not only to small countries, 
but to large ones.
    We are strengthening our diplomatic engagement throughout 
the region. We have significantly strengthened our military 
alliances and our security relationships. Our presence in the 
life and in the security of the Asia-Pacific is robust.
    The Prime Minister of Singapore is in Washington today. I 
think he had the opportunity to call on you and other members 
of the committee. Singapore, for example, is not only an 
important security partner of the United States, not only an 
important conegotiator in the effort to achieve a uniquely 
high-standard, comprehensive trade agreement, the TPP. 
Singapore is also a charter member in ASEAN, a regional 
grouping that the Obama administration has invested a great 
deal of diplomatic effort in supporting.
    The Chairman. I appreciate that. But, you know, this 
committee has expressed itself, as has the Senate, about its 
concerns about the way China is acting in the South China Sea. 
And, while there may be--maybe those are legitimate disputes on 
territories--but the manner in which, so far, it seems to be 
addressed is more of a muscular China versus a China driven by 
the international order which seeks to solve its disputes 
through the international order. And that is a concern.
    Let me turn to another concern. We talk about competition. 
I was in China last August, and throughout the region, and I 
always try to meet with the American Chamber of Commerce in 
different countries to get a perspective of the realities on 
the ground about the challenges of doing business for American 
companies in a given country. And a 2013 American Chamber of 
Commerce China survey found that 72 percent of respondents, 
which reflected a lot of what I heard when I was there, said 
that China's IPR enforcement was either ineffective or totally 
ineffective. The U.S. International Trade Commission estimated 
that United States intellectual-property-intensive firms that 
conducted business in China lost $48 billion in sales, 
royalties, and license fees in 2009 because of IPR violations 
there. In certain sectors, such as wind power, where American 
Superconductor has been severely harmed by IP theft by its 
Chinese partner, Sinovel, the damage to U.S. businesses have 
been particularly acute. It is estimated that an effective IPR 
enforcement regime in China that would be comparable to United 
States levels could increase employment by IP-intensive firms 
here in the United States by 923,000 jobs.
    So, where does intellectual property rights in our 
competition and discussion with China rank on the list of 
priorities among the wide range of issues that we have with 
China?
    Ambassador Russel. Mr. Chairman, the protection of 
intellectual property rights is a top priority for the 
administration, and I can personally attest to the fact that 
President Obama, Vice President Biden, Secretary Kerry, and 
other Cabinet Secretaries have raised our concerns very 
directly with Chinese leaders, including, and particularly, the 
Premier, Li Keqiang, who has responsibility for the economy. 
This is on the agenda as a priority issue for the upcoming 
S&ED.
    The Chairman. But, we have had this on the agenda. Now, 
this is not new to the agenda, right? So, what----
    Ambassador Russel. Right.
    The Chairman [continuing]. Is the progress we have made? I 
mean, where has the dialogue taken us on making advancements? 
So far, I do not see it.
    Ambassador Russel. Well, there are points of measurable 
progress with respect to motion pictures, with respect to 
pharmaceuticals. But, I fully agree with your point that China 
still has a long way to go to meet acceptable international 
standards in protecting IPR.
    One thing that is different is the fact that the Chinese 
themselves now realize that they increasingly have more to lose 
as Chinese companies develop products and as Chinese consumers 
suffer from the poison or the other deleterious effects of fake 
pharmaceuticals and counterfeit products.
    We use our regular working group on IPR to delve down on 
very specific issues. We have made a strong push to educate 
Chinese consumers and manufacturers to the fact that they lose 
in the race for innovation, they lose in the race for 
entrepreneurship, when they flagrantly violate the rule of law 
and they rely on the theft or the forced transfer of U.S. or 
other technology and products as the driver of their 
industries.
    A related problem, Mr. Chairman, is the use of cyber-
enabled theft of United States companies' intellectual property 
and proprietary information, theft that we have identified as 
enabled, in some cases, by Chinese Government or Chinese 
military officials. This is an issue that we raise forcefully, 
and it is an area where we will continue to push for Chinese to 
take action.
    The Chairman. I have many other questions.
    Let me turn to Senator Corker, recognizing that there is a 
vote that is ongoing.
    Senator Cardin, have you voted in the last vote?
    Senator Cardin. I have.
    The Chairman. So, I will let Senator Cardin chair. I will 
leave, come back, and we will try to keep the hearing going, in 
respect to everybody's time.
    Senator Corker.
    Senator Corker. Thank you. Thank you.
    Again, thank you for being here.
    I cannot help but notice that Secretary Kerry's bigger 
issues, timewise, seem to lie in the Middle East. Secretary 
Sherman is spending 100 percent of her time on Iran 
negotiations--we had a good meeting this morning--and Secretary 
Burns is leaving. Who is responsible at the State Department 
for our China policy?
    Ambassador Russel. Secretary Kerry, personally, is 
responsible, and is engaged directly in overseeing our China 
policy. I met with Secretary Kerry at some length last week to 
discuss it. I have accompanied Secretary Kerry to China. I will 
again next week, when he makes his sixth visit to Asia. He is 
on the phone with his Chinese counterparts, he is in regular 
receipt of the reports that our Ambassador, Ambassador Baucus, 
submit or that I send up. I have found, and I can attest, 
Senator, to the fact, that Secretary Kerry and Deputy Secretary 
Burns and all of our Under Secretaries are focused and engaged 
on the Asia-Pacific broadly, but particularly on the United 
States-China relationship.
    Senator Corker. And what is their constructive policy to 
persuade China to not have the antagonistic relations that it 
has with its neighbors?
    Ambassador Russel. Well, we have outlined clearly the 
principles that we believe should guide China and all the 
countries in the region with respect to maritime security, 
which includes, obviously, the respect for freedom of 
navigation and overflight, unimpeded lawful commerce, and 
insist that only peaceful resolution of disputes is in 
consistency with international law as the acceptable vehicle 
for responding.
    There is, however, as you have pointed out, Senator, a 
pattern of behavior on the part of the Chinese that is 
straining China's relations with its neighbors and raising 
questions about China's intention. We talk candidly, directly, 
and openly to the Chinese leadership through our diplomatic 
context. We talk extensively with not only the other four 
claimants, which are ASEAN countries, but also the relevant 
neighbors who have a stake in the peaceful and open region in 
Southeast Asia.
    We have put forward--and you will hear more about this from 
Secretary Kerry--a proposal that the claimants themselves, 
including China--China is not alone in overreaching--can, on a 
voluntary basis, forgo some of the provocative actions that are 
destabilizing, such as the reclamation of islands and the 
construction of bases, such as the building up of outposts, and 
so on.
    So, we use public messaging, we use diplomacy. We also 
engage in building the capacity of the countries in Southeast 
Asia to ensure that they are able to adequately police their 
own territorial waters and that they can maintain the domain 
awareness that ensures that they know what is going on in their 
contiguous waters or in the open seas.
    Our strategy, Senator, includes the support for a unified 
and influential ASEAN, and we believe that the call from the 
ASEAN countries to China to work with them, not to bully them, 
has a long-term salutary effect.
    Lastly, the fact of the matter is that the robust military 
presence, the strong security commitments, and the healthy 
alliances that the United States maintains with many countries 
in the region similarly serves to maintain stability and keep 
the peace, going forward, as it has for the last six decades.
    Senator Corker. I appreciate that comprehensive answer. We 
just had a gentleman in from the region who is very much a part 
of China, if you will, and I asked him why this was taking 
place. If you want to synthesize his answer down to just a 
phrase, it was, ``China's doing this because they can.''
    Ambassador Russel. That is----
    Senator Corker. So, for years, they could not. They were 
not strong enough. Now they are a rising nation, and they can 
do what they are doing because they can.
    I listen to you, and, I am not in any way trying to be 
critical of you as an individual, but I hear all those things, 
and it does not appear to me that it is having the desired 
outcome. Now, maybe over the next 20 years, as you build these 
capacities, maybe that is the case. But, I am concerned that, 
over the next 20 months, something happens that ends up 
creating a conflict or things get out of hand. I am just 
wondering what are some of the other things the administration 
might consider to ensure that something really catastrophic 
does not occur?
    Ambassador Russel. Well, thank you, Senator.
    We believe strongly that diplomacy is the right vehicle for 
addressing this set of problems. We also think that one 
critically important step will be for all of the claimants, not 
only China, but particularly China, to define its claims 
clearly in ways that are consistent with international law. 
Because the risk of an incident and confrontation that you 
allude to is driven by ambiguity over who is claiming what, and 
on what basis. And so, we have, therefore, urged China to set 
aside the legally ambiguous construct of a nine-dash line and, 
instead, make its claim--and we do not take a position; its 
claims may be valid--but, make a claim in terms that are 
consistent with international law.
    Number two, to pursue diplomatic or legal means to address 
it. We are also, as I mentioned, strengthening the capacity of 
the partners on an ongoing basis. I do not think this is a 20-
year proposition, but it is not an overnight proposition, 
either.
    China's--by its own assertion, China's interests lie in a 
stable and peaceful periphery. China has said--China's leaders 
have said that they want quiet in their environment in order to 
concentrate on development and social and economic growth. They 
have not achieved stability or quiet. To the contrary, they 
have generated real strains in their relationships. And so, the 
watchword that we advocate, in the first instance, is 
restraint, and big countries have a big responsibility to 
exercise it. Secondly, there are a range of very practical 
crisis-prevention and crisis-management initiatives that are in 
play in the region. And Secretary Kerry, who will be in the 
region for a seventh time to attend the ASEAN Regional Forum in 
August, is a strong advocate for, and has held in-depth 
discussions, as he will again in August, on some of these very 
practical confidence-building measures and crisis-prevention 
measures that include hotlines and that include agreements on 
handling unplanned incidents at sea.
    Senator Corker. Well, thank you for being here.
    I am going to turn it over to Chairman Cardin and go vote 
so folks back home will have confidence in me. Okay? 
[Laughter.]
    Thank you.
    Senator Cardin [presiding]. Secretary Russel, let me thank 
you for not just your leadership on the bilateral relations 
between the United States and China, but your work in East Asia 
and the Pacific and the manner in which you have worked with 
this committee and with the United States Senate. I do 
appreciate the close relationship and the sharing of 
information as we do the rebalance to Asia. I think it is been 
in the best interests of the United States.
    And, as you point out, the bilateral relationship between 
the United States and China is multifaceted. There are areas 
where we have common interests, and we can, hopefully, find a 
path forward. One of those, quite frankly, is a peaceful 
resolution of the conflicts within the China Sea. It is not in 
China's interest to see military flareups or have this become 
expanded, because they depend upon commerce on the China Sea, 
as we do, as the region does. So, in my conversations with 
Chinese leaders, I think that they truly do not want to see a 
military flareup on the China Seas, and they want to keep the 
lanes open. But, it will take real leadership to have the rule 
of law prevail rather than the force of one country in 
determining the territorial disputes.
    We have a common interest on the environment. And it seems 
to me we can work together on that. We have some common 
interests in trade. The United States market is very important 
to China, and commerce between China and the United States is 
very important to America's economy. So, we have a lot of 
common interests. And, as you point out, we have some 
significant challenges.
    The Chinese progress on basic human rights is still very 
troublesome. The ability to express views contrary to the 
government in a safe and peaceful manner is certainly very much 
in question. The freedom of religion is a major issue and the 
protection of intellectual property. It is clear there are a 
lot of issues that need to be managed between the United States 
and China.
    I found one thing you said about U.S. intentions which I 
could not agree with you more on. Our intention is for China to 
continue to grow and be a constructive player in the region. We 
are fully prepared to compete with any country in the world, 
including China, as long as it is on a level playing field. But 
we also need markets for our products. And as China's middle 
class grows, it provides consumers to buy American goods. So, 
our intentions are clearly for China to continue its economic 
growth, and do it in a way consistent with the respect for its 
neighbors, and to be a constructive player in the region.
    But, I must tell you, in my conversations with Chinese 
leaders, I do not think they believe that. Seems to me they 
believe that we are interested in holding China back and that 
the rebalance is more about keeping China isolated than it is 
about every country in the region growing.
    So, can you just share with us your view, if you agree with 
me--if you disagree with me, please let me know--as to how we 
deal with creating better trust between the United States and 
China, and do it in a way that does not compromise our 
positions on issues and our values, that we are pretty clear 
about what we expect in that relationship.
    Ambassador Russel. Well, Senator Cardin, first of all, 
thanks for your kind words, and thank you particularly for your 
leadership, especially on the Asia Subcommittee.
    I very much agree with the points that you made in your 
statement. And I am very focused on the question of building 
strategic trust, both between the United States and China, but 
also between China and its neighbors, because the uncertainty 
and the concerns that China's neighbors and many Americans feel 
about China's long-term intentions, which, among other things, 
is fueled both by its problematic behavior with regard to 
territorial disputes, but also the opacity of its military 
modernization, represent an impediment to real progress, both 
in the bilateral relationship, but also in regional growth.
    I believe that one of the essential ingredients to 
developing real trust, as opposed to papering over differences, 
is direct, high-level dialogue. China is a one-party state, and 
the ability to speak directly to Chinese leaders is uniquely 
important. Since taking office, President Obama has met with 
the Chinese President or the Chinese Premier, I think, 
something on the order of 19 times, which is extraordinary. 
But, Secretary Kerry, along with other senior officials, 
similarly have maintained a very robust rhythm of high-level 
meetings interspersed, as I mentioned, by telephone calls and 
so on. And the S&ED, which is 2 weeks out, represents another 
important vehicle, both for the high-level direct dialogue, but 
also for the important stakeholders in our respective 
departments of government and agencies who are working on 
projects or wrestling with disagreements through the course of 
the year, to meet in person and to take stock of what they have 
done, and to chart a program of work ahead for the coming year.
    A second area that is essential in building trust, I 
believe, is promoting people-to-people connections. And through 
our comprehensive high-level people-to-people dialogue, through 
our various educational exchanges, through our outreach 
programs to Chinese citizens and NGOs, and, frankly, through 
Chinese language training programs for Americans, we are 
ensuring that the next generation gets a firsthand 
understanding of what the other culture and the other system is 
all about.
    Thirdly, the economic relationship, as you mentioned, is 
hugely important. And, as China increasingly develops its own 
intellectual capital and acquires something worth protecting, 
we are confident that our messages about the need to protect 
intellectual property will start to ring true, because the 
Chinese are suffering both from counterfeit materials, but also 
from a lack of innovation.
    And then, lastly, as I alluded to, greater clarity in 
China's military modernization will be an important element of 
creating trust between China and the United States and its 
neighbors. We have a strong military-to-military dialogue that 
involves high-level exchanges. The Secretary of Defense has 
recently been to China. We have got other visits in the works. 
And we are working hard to remove the uncertainties and the 
ambiguities in connection with our military-to-military 
relationship, including by going so far as to include China in 
some of our multilateral exercises.
    Senator Cardin. Well, thank you very much. I think that 
gives us an agenda to work on this. It is not easy. I think 
people-to-people exchanges have been extremely helpful. When I 
was in China, one of my most enjoyable meetings was with 
students. It is a country that guards itself pretty carefully 
when it comes to expression of views. So, I have found students 
to be very refreshing in that regard. And I think we do have a 
real challenge on our hands to develop that trust, consistent 
with our positions on issues, so it is very clear that, for our 
strategic partnerships to grow, there are areas that need to be 
understood, and that that comes from the framework that we have 
two different governments. We understand that. And our goal is 
to improve that relationship and to make the progress that is 
important for U.S. interests.
    We are going to take--we are going to go to the second 
panel. Senator Menendez is going to be back in about a moment, 
so we are going to take a very short recess, and then Senator 
Menendez will reconvene the committee for the purposes of 
introducing the second panel.
    Ambassador Russel. Thank you very much, Mr. Chairman.

[Recess.]

    The Chairman [presiding]. This hearing will come to order 
again.
    Let me apologize to our witnesses. We have one more vote 
going on, but I thought that we have probably enough time to 
listen to both of your testimonies and maybe begin some 
questioning before we will have to take one more vote and 
another short recess.
    But, we are pleased to be joined by two incredibly 
important witnesses--J. Stapleton Roy, distinguished scholar 
and founding director emeritus of the Kissinger Institute on 
China and the U.S. at the Woodrow Wilson International Center 
for Scholars, here in Washington; and Dr. Aaron Friedberg, 
professor of politics and international affairs, at Princeton, 
which is a university that is in service to the country, but 
located in the great State of New Jersey. So, we welcome you 
here.
    As I said to our State Department witness, your entire 
statements will be included in the record. I would ask you to 
summarize them in about 5 minutes or so, so we could enter into 
a dialogue.
    And we will start with you, Ambassador Roy.

 STATEMENT OF HON. J. STAPLETON ROY, DISTINGUISHED SCHOLAR AND 
FOUNDING DIRECTOR EMERITUS OF THE KISSINGER INSTITUTE ON CHINA 
AND THE UNITED STATES, WOODROW WILSON INTERNATIONAL CENTER FOR 
                    SCHOLARS, WASHINGTON, DC

    Ambassador Roy. Thank you, Mr. Chairman, particularly for 
holding this hearing on an issue which is of vital importance 
to the United States and to the peace of the world.
    The United States, in my judgment, has a sensible and 
constructive policy framework for dealing with a rising China, 
but successful implementation of this policy will require 
patience and perseverance.
    East Asian countries worry about U.S. staying power in the 
region. The United States rebalancing strategy is, in essence, 
an effort to demonstrate to our friends and allies in East 
Asia, and to China, that the United States has both the will 
and the resources to remain actively engaged in East Asia, 
politically, economically, and militarily, as we regain our 
economic health.
    Fortunately, top leaders in both China and the United 
States have concluded that unchecked strategic rivalry between 
the two countries is not in the interests of either.
    They have set the strategic goal of striking a stable and 
sustainable balance between competition and cooperation in the 
U.S.-China relationship. Accomplishing this will not be easy. A 
major driver of the growing strategic mistrust between China 
and the United States is the understandable desire of each side 
to have a military balance that favors its own interests. This 
is a natural preference, but it will not contribute to 
containing strategic rivalry between China and the United 
States. This is the heart of the strategic problem between the 
United States and China. We do not know whether a solution can 
be found, but finding a solution is worth the effort.
    In pursuing the goal, both China and the United States are 
confronted with serious contradictions in our position in the 
western Pacific. If we do not manage these contradictions 
properly, the strategic goal of constraining our strategic 
rivalry will be a vain hope.
    In China's case, it must deal with the fundamental 
contradiction between its commitment to peaceful development 
and its equally strong commitment to defending China's 
sovereignty and territorial integrity. If China strays from the 
path of peaceful development, its hope of achieving the China 
dream of the great rejuvenation of the Chinese nation will be 
hopeless.
    Adhering to the path of peaceful development is easier said 
than done, because China is embroiled in territorial disputes 
with six of its neighbors. An additional aspect of this issue 
is that domestic influences on China's foreign policy are 
becoming stronger, limiting China's diplomatic flexibility. 
This has long been a problem in handling China's relations with 
Japan, in large measure because domestic attitudes in China 
toward Japan, and historical memories are so strong, that 
Chinese leaders must take care not to let the spearhead of 
nationalism turn against themselves. Historical revisionism in 
Japan is also a major contributing factor to the current 
tensions affecting Japan's relations with China and South 
Korea.
    In the case of the South China Sea, domestic influences on 
China's handling of the issue have become more intense over the 
last decade, and China's skillful diplomacy in Southeast Asia 
of a dozen years ago has largely been undone by China's more 
assertive approach to territorial issues in the South China 
Sea. China's leaders recognize the problem, and they are giving 
high-level attention to trying to strengthen China's diplomacy 
with its neighbors. They had a special conference, in October 
last year, chaired by Xi Jinping, to address this question. 
But, China has still not found a satisfactory method of 
managing this contradiction, and this is contributing to the 
rise in regional tensions.
    In the case of the United States, let me just cite two 
contradictions in our approach. The first is, the relations 
between our two allies in Northeast Asia--South Korea and 
Japan--are not good. They are marked by significant tensions. A 
second contradiction for the United States is that two of our 
allies--Japan and the Philippines--are locked in territorial 
disputes with China over uninhabited islands that are of no 
interest or importance to the United States. There is no 
question in my mind that the United States will stand by our 
allies if they are subjected to aggression, but we do not wish 
to be dragged into an avoidable conflict with China over small 
issues, from our standpoint.
    For all these reasons, we cannot be complacent in looking 
to the future, although I think there are grounds for optimism 
that we can actually handle these problems and steer them in 
the right direction.
    There are troublesome negative aspects in our bilateral 
relations with China that, if not handled correctly, could 
increase regional tensions and damage the interests of both 
countries. We have not yet been able to stabilize the balance 
between cooperation and competition in the relationship.
    In the United States, the sharp increases in China's 
defense spending, beginning in the mid-1990s, are feeding 
concerns that China poses a potential threat to the United 
States position in the Asia-Pacific. In my view, conventional 
diplomacy will not be sufficient to limit and hopefully reverse 
our strategic rivalry with China.
    It is the normal responses of human nature that have led to 
confrontations throughout history, and we can see this pattern 
unfolding in the crisis in Europe over Ukraine and in the 
rising tensions between China and Japan. This is normal 
behavior. You do something I do not like; I respond with 
actions that you do not like. And you have this back-and-forth. 
This is the reason why rising powers have more often than not 
gotten into confrontation with established powers.
    It was unconventional behavior on the part of China and the 
United States 42 years ago that achieved the breakthrough in 
our relations that led to the establishment of U.S.-PRC 
diplomatic relations. Similarly, it took a leader of Deng 
Xiaoping's courage and foresight to state, 35 years ago, that 
territorial problems between China and Japan are too 
complicated for the current generation to resolve, and should 
be left for future generations to resolve. By taking that 
unconventional position, Deng greatly facilitated the positive 
development of Sino-Japanese relations over the next quarter 
century. We need to be equally daring in our approach to 
stabilizing our relations with China.
    In conclusion, let me stress that China's economic rise has 
benefited China's neighbors and the region as a whole. All of 
China's neighbors have an interest in continuing economic 
cooperation with China and do not support a containment 
strategy that would divide the region. Their interest is in 
responsible Chinese behavior as a major emerging power, not in 
constraining China's growth. When China, in their eyes, behaves 
irresponsibly or seems ready to act coercively, they want the 
assurance provided by the reliable presence of a militarily 
strong country, such as the United States, that can offset 
Chinese growing power.
    At the same time, no regional country wants to be forced to 
choose between China and the United States. If the United 
States, in regional eyes, seems to be mishandling its relations 
with China in ways that make China a more nationalistic or 
dangerous neighbor, confidence in the United States regional 
role decreases.
    In short, our skill in dealing with China is directly 
linked to how successful we will be in retaining the confidence 
of our friends and allies in East Asia. This is a healthy 
dynamic. It rewards responsible behavior on the part of both 
China and the United States, and it creates disincentives for 
irresponsible behavior. This is important, because the central 
purpose of U.S. policy in East Asia is to have a positive and 
constructive relationship with China.
    Thank you.
    The Chairman. Thank you very much.
    Dr. Friedberg.

STATEMENT OF DR. AARON L. FRIEDBERG, PROFESSOR OF POLITICS AND 
   INTERNATIONAL AFFAIRS, PRINCETON UNIVERSITY, PRINCETON, NJ

    Dr. Friedberg. Thank you very much, Senators. It is an 
honor for me to have this opportunity to express my views.
    The relationship between the United States and China is 
clearly mixed. It contains elements of cooperation as well as 
competition. In my view, the areas of cooperation are less 
impressive and less substantial than is sometimes claimed, 
while the sources of competition are deeper and more profound 
than many prefer to believe.
    I think that the current and emerging competition between 
the United States and China is not the result of misperception 
or misunderstanding. And, unfortunately, I do not believe that 
it will be alleviated by dialogue or high-level meetings, as 
important as these may be.
    The competitive aspects of the relationship, in my view, 
spring instead from two deep sources. First are the classic 
dynamics of great-power politics. China is a rising power. 
Rising powers, historically, have wanted to assert themselves 
to reshape the rules, the institutions, and sometimes the 
territorial boundaries that were put into place when they were 
relatively weak.
    A second factor, which, in my view, is important, but does 
not always get the attention it deserves, is ideology. We often 
hear it said that China is no longer a Communist country, and 
therefore, there is no basis for ideological friction or 
mistrust between China and the United States. While it may be 
true that China's leaders are no longer Marxists, they are 
still Leninists, by which I mean they continue to be committed 
to one-party rule, and they regard the United States and other 
democratic countries as posing an existential threat to their 
regime. It is in part for this reason that they want to push 
back American's presence and influence in Asia.
    As regards the future of United States-China relations, in 
my view, if China's power continues to grow, but if it 
continues to be ruled by a one-party authoritarian regime, the 
competitive aspects of the relationship are going to grow, 
while the areas of cooperation are going to dwindle. I should 
say I do not think this means that conflict between the two 
countries is inevitable. I do not believe that is the case. 
But, I am afraid that the risks of conflict will grow. And 
indeed, this is precisely what appears to be happening today.
    In the past 5 years, China has used stronger, more strident 
language and more assertive and, at times, forceful actions to 
assert its claims to control the waters and airspace off its 
eastern seaboard. Chinese spokesmen and some Western analysts 
have sought to deny that any shift has taken place or to 
explain those changes that have occurred as mere reactions to 
the behavior of others, or as the byproduct of competition 
among bureaucracies, or the unauthorized actions of a handful 
of rogue PLA officers, or a reflexive response to popular 
nationalist pressures.
    With the passage of time, it seems to me that these claims 
have become increasingly difficult to sustain. Beijing's recent 
behavior appears to be deliberate, purposeful, and coordinated, 
but it suggests an adjustment in tactics and time lines rather 
than a fundamental shift in strategy. China appears to be 
pushing harder to achieve its long-standing goals of expanding 
its own regional power and influence while constricting the 
power, influence, and position of the United States. In the 
long run, Beijing evidently hopes to displace the United States 
and to restore China to what it regards as its rightful place 
as the preponderant power in the Asia-Pacific region.
    In addition to advancing its claims to control most of the 
water and resources off its coasts, Beijing is using calibrated 
threats in an attempt to intimidate its neighbors, to 
demonstrate the inadequacy of U.S. security guarantees, and, if 
possible, to drive wedges between the United States and some of 
its regional friends and allies.
    China's increased assertiveness, I think, reflects a mix of 
arrogance and insecurity. Since the onset of the global 
financial crisis in 2008-2009, many Chinese analysts and 
policymakers have concluded that the United States has entered 
into a period of unexpectedly rapid decline in its power and 
influence. Chinese planners appear to have concluded that, at 
least for the next several years, the United States will 
continue to be strategically preoccupied and financially 
constrained, and that, if they play their cards right during 
this period, they may be able to create facts and consolidate 
their position.
    But, this near-term confidence, I think, is mixed with 
longer term concern. Among other factors, slower economic 
growth and continuing revelations about the extent and depth of 
official corruption could threaten internal stability and 
regime survival. A more assertive stance may enable Beijing to 
achieve victories that contribute to its proclaimed goal of 
``national rejuvenation'' and enhance the CCP's legitimacy by 
casting it as the defender of China's honor and greatness. 
Regardless of the results, however, the regime appears to 
believe that an atmosphere of increased tension and friction 
with foreign rivals can help it to rally support and deflect 
possible public resentment from its own inadequacies and 
failings.
    China's recent actions are deliberately dangerous. Its 
leaders are manipulating risk, or playing chicken. They are 
knowingly creating hazardous situations, in the hopes that 
others will back down. I think there is an element of bluff, 
here. I do not think China's leaders seek armed conflict. They 
certainly do not seek it with the United States. And, as a 
result, I think that, if faced with a firm response, they are 
likely to adopt a more cautious stance. Nevertheless, even if 
it is not intended to do so, the kind of behavior in which they 
are presently engaged could all too easily lead to 
confrontation and escalation.
    In the long run, China's assertiveness may turn out to be 
counterproductive and even self-defeating. If its Asian 
neighbors respond by increasing their own capabilities and 
working more closely with one another and with the United 
States, they may be able to block Beijing's initiatives and 
balance its power. But, such an outcome is not automatic or 
inevitable. In the absence of an effective American response, 
China may yet be able to successfully pursue a divide-and-
conquer strategy, intimidating some of its neighbors into 
acquiescence while isolating and demoralizing others. Indeed, 
this appears to be what Beijing is attempting to do: reaching 
out to Washington, proclaiming its desire for a new type great-
power relationship with the United States, while at the same 
time ratcheting up pressure on some key targets, especially 
United States allies--Japan and the Philippines, as well 
Vietnam.
    Just very briefly on the question of an American response. 
For most of the last two decades, the United States has pursued 
a mixed strategy toward China, seeking to engage it through 
trade, diplomacy, people-to-people contact, and so on, while at 
the same time taking steps to preserve a favorable balance of 
power in East Asia, even as China grows stronger. In my view, 
it is neither feasible nor, at this point, necessary to abandon 
this mixed strategy in favor of something radically different. 
What is required instead is a readjustment of the blending of 
the two elements; and, in particular, an increased emphasis on 
the balancing portion of America's strategic portfolio.
    The current administration began to move in this direction 
in 2011, with its announcement of a pivot toward Asia. But, its 
efforts to date have been, and I think are widely perceived in 
the region to be, inadequate. There is growing concern on the 
part of friends and allies that, despite the rhetoric of its 
leaders, the United States may lack the resources, the focus, 
and perhaps the resolve necessary to withstand Chinese pressure 
and sustain a position of leadership.
    A variety of measures, I think, are necessary in order to 
counteract this. I would just emphasize two themes. On the one 
hand, I think it is necessary for the United States and its 
allies to take steps that impose some costs on China for its 
more assertive behavior. And, on the other, it is essential for 
us to increase the capacity of our allies, as well as our own, 
to deter and, if necessary, to defeat attempts at coercion. 
Among the various steps that are needed, I think one in 
particular stands out, and it is a long-term problem. The 
United States has to develop, articulate, and fund, together 
with its allies, a military strategy that will enable it to 
continue to project power into the western Pacific under any 
circumstances and despite the ongoing deployment by China of 
so-called antiaccess area denial capabilities.
    Our position in Asia is built on our alliances, and those, 
in turn, rest on assurances that we will come to the aid of our 
allies if they are threatened or attacked. Without an effective 
and timely response, Beijing's ongoing military buildup will 
begin to call the credibility of our assurances into question, 
and this could weaken our alliances, increase the risk of 
aggression, and potentially endanger the peace and stability of 
the entire Asia-Pacific region.
    Thank you.
    [The prepared statement of Dr. Friedberg follows:]

                Prepared Statement of Aaron L. Friedberg

                              introduction
    In the past 5 years China has used stronger, more strident language 
and more assertive, and at times, forceful actions to assert its claims 
to control the waters and air space off its eastern seaboard. Chinese 
spokesmen (and some Western analysts) have sought to deny that any 
shift has taken place, or to explain those changes that have occurred 
as mere reactions to the behavior of others. With the passage of time 
such claims have become increasingly difficult to sustain.
    Examples of China's growing assertiveness continue to multiply. The 
most recent include Beijing's unilateral declaration of an Air Defense 
Identification Zone that covers Japanese-controlled islands in the East 
China Sea in November of last year, the deliberate near-collision of a 
PLAN vessel with the U.S. Navy cruiser Cowpens in December and, in the 
past 2 months, the deployment of oil rigs and a small armada of naval 
and maritime patrol vessels into waters claimed by Vietnam.
    These developments raise three questions:

  --What explains Beijing's increased assertiveness?
  --What are the likely implications of this behavior for China's 
        relations with its neighbors and with the United States?
  --And how should the U.S. respond?
Explaining increased Chinese assertiveness
    With the end of the cold war, China began to pursue a consistent 
and generally cautious strategy for dealing with its neighbors and with 
the United States. This strategy reflected the wisdom of former party 
chief Deng Xiaoping who, in the wake of the Tiananmen Square massacre, 
the fall of the Berlin Wall and the U.S. defeat of Iraq in the first 
Persian Gulf war advised his colleagues that China should ``hide its 
capabilities and bide its time.''
    At least until recently Chinese strategy has evidently been 
governed by three axioms:

  --``Avoid confrontation'' (especially with the United States, but 
        also with China's wealthy and powerful neighbors).
  --``Build `comprehensive national power' '' (a concept Chinese 
        analysts use to refer to all of the various dimensions and 
        instruments of national capability).
  --``Advance incrementally.''

    Regarding this last point: Chinese policymakers assessed that they 
were in a relatively weak position and needed time to build their 
strength, but they did not believe that they could or should remain 
passive. To the contrary, over the last two decades they have sought 
opportunities to enhance their country's influence and strengthen its 
position, while simultaneously attempting to erode and constrict those 
of the United States. The ultimate aims of Chinese strategy appear to 
be two-fold:

  --To preserve the Chinese Communist Party's monopoly on domestic 
        political power.
  --To displace the United States and restore China to its rightful 
        place as the preponderant power in East Asia.

    Beijing's recent behavior suggests an adjustment in tactics and 
timelines rather than a fundamental shift in strategy. China is pushing 
harder to achieve its long-standing goals. In addition to advancing its 
claims to control most of the water and resources off its coasts, it is 
using calibrated threats in an attempt to intimidate its neighbors, 
demonstrate the inadequacy of U.S. security guarantees, and, if 
possible, to drive wedges between the United States and some of its 
regional friends and allies.
    China's increased assertiveness reflects a mix of arrogance and 
insecurity. Following the onset of the global financial crisis, many 
Chinese analysts and policymakers concluded that the United States had 
entered into a period of unexpectedly rapid decline in its relative 
power and influence. With their country's fortunes seemingly on the 
rise, some argued that the time had come for China, if not to abandon 
``hiding and biding,'' then at least to adopt a more forward-leaning 
posture in its dealings with the rest of the world. Chinese planners 
appear to have concluded that, at least for the next several years, the 
United States will continue to be strategically preoccupied and 
fiscally constrained. If it plays its cards right during this period, 
China can ``create facts'' and consolidate its position.
    Near term confidence is mixed with longer term concern. Among other 
factors, slower economic growth and continuing revelations about the 
extent and depth of official corruption could threaten internal 
stability and regime survival. A more assertive stance may enable 
Beijing to achieve victories that contribute to ``national 
rejuvenation'' and enhance the CCP's legitimacy by casting it as the 
defender of China's honor and greatness. Regardless of the results, 
however, the regime appears to believe that an atmosphere of increased 
tension and friction with foreign rivals can help it to rally support 
and deflect possible public resentment from its own inadequacies and 
failings.
Implications for regional peace and stability
    China's recent actions are deliberately dangerous. Its leaders are 
manipulating risk or playing ``chicken''; they are knowingly creating 
hazardous situations in the hope that others will back down. Even if it 
is not intended to do so, such behavior could easily lead to 
confrontation and escalation.
    In the long run, China's assertiveness could also turn out to be 
counterproductive and even self-defeating. If its Asian nations respond 
by increasing their own capabilities and working more closely with one 
another and with the United States they may be able to block Beijing's 
initiatives and balance its power. But such an outcome is not automatic 
or inevitable. In the absence of an effective American response, China 
may yet be able to successfully pursue a divide and conquer strategy: 
intimidating some of its neighbors into acquiescence while isolating 
and demoralizing others. Indeed, this appears to be precisely what 
Beijing is now trying to do: reaching out to Washington and proclaiming 
its desire to form a ``new type great power relationship'' with the 
United States, while at the same time ratcheting up pressure on key 
targets, especially U.S. allies Japan and the Philippines, as well as 
Vietnam.
How should the U.S. respond?
    For most of the last two decades the United States, like China, has 
been pursuing an essentially constant strategy. Despite occasional 
shifts in emphasis, successive administrations have sought to engage 
China, primarily through trade and diplomacy, while at the same time 
taking steps to preserve a favorable balance of power in East Asia. In 
addition to maintaining and selectively strengthening its own military 
capabilities, Washington has sought to bolster relations with its 
traditional treaty allies and to build quasi-alliance relationships 
with other countries (including Singapore and India) that share its 
concerns about the possible implications of China's growing strength.
    The objectives of U.S. strategy have been, first, to ``tame'' China 
by giving it a stake in the preservation of the existing international 
order and second, in the long run, to transform it, encouraging the 
evolution of its domestic political system away from authoritarianism 
and toward something more closely resembling liberal democracy.
    It is neither feasible nor, at this point, necessary to abandon 
this mixed strategy in favor of something different. What is required, 
instead, is a readjustment of the blending of the two elements and, in 
particular, an increased emphasis on the balancing portion of America's 
strategic portfolio. The current administration began to move in this 
direction in 2011 with its announcement of a ``pivot'' toward Asia 
(later renamed the ``rebalance''), but its efforts to date have been, 
and are widely perceived in the region to be, inadequate. There is 
growing concern on the part of friends and allies that, despite the 
rhetoric of its leaders, the United States may lack the resources, the 
focus, and perhaps the resolve necessary to sustain a position of 
leadership.
    Among the measures that will be needed to alleviate these fears, 
one in particular stands out. The United States must develop, 
articulate fund and (together with its allies) implement a military 
strategy that will enable it to continue to project power into the 
Western Pacific, under any circumstances, and despite the ongoing 
deployment by China of so-called antiaccess/area denial capabilities. 
America's position in Asia is built on its alliances and those, in 
turn, rest on assurances that it will come to the aid of its allies if 
they are threatened or attacked. Without an effective and timely 
response, Beijing's ongoing military buildup will begin to call the 
credibility of those assurances into question, weakening U.S. 
alliances, increasing the risk of aggression, and potentially 
endangering the peace and stability of the entire Asia-Pacific region.

    The Chairman. Well, thank you both.
    I have let you both go over time because you had a lot of 
good things to say, insights, which will mean that we are going 
to have to take a brief recess. We have one final vote. I think 
we will--Senator Corker and I both know how we are voting. We 
will come right back, and we will get into a line of 
questioning, because you have raised many issues beyond the 
questions I originally had.
    So, this committee will stand in recess, subject to the 
call of the Chair.

[Recess.]

    The Chairman. This hearing will come back to order.
    Thank you both for your forbearance.
    You have both raised some very interesting points. So, let 
me ask you both. China: strategic competitor? Strategic rival? 
Strategic problem? Ever, potentially, a strategic ally?
    Ambassador Roy. All of the above.
    The Chairman. I was afraid that was going to be your 
answer.
    Ambassador Roy. No, seriously. I was, for 45 years, a U.S. 
Foreign Service officer, and spent 9 years working on the 
Soviet Union, and even longer than that dealing with China 
during periods when it was a hostile country and during periods 
when it was a friendly country and we were expanding our 
relations rapidly. Elements of cooperation and of competition 
are inherently part of relations between major powers. And 
certainly China is a major power. I do not think that getting 
rid of strategic rivalry between the United States and China is 
a realistic approach to the relationship.
    But, calibrating the balance between cooperation on common 
interests and the rivalry elements that are part of major-power 
relations is what diplomacy is all about. And it does not, and 
should not, drive us in the direction of conflict if we can 
stabilize the strategic rivalry. The reason why we talk about 
trying to create this new type of bilateral relationship is 
because, if you do not constrain the strategic rivalry, it can 
drive you in the wrong direction and result in hostile rivalry, 
which returns you to a negative cold war type of relationship, 
which we are far away from in our relationship with China.
    The Chairman. Dr. Friedberg, I would like to hear from you, 
too. And one of the things that you said in your testimony, 
that I noted, was that this mixed strategy that we have--that 
maybe what we need is an adjustment, I think you said, of the 
blending. And can you speak to the overarching question I just 
asked Ambassador Roy, as well as--well, what is the blend--what 
should the blending look like?
    Dr. Friedberg. As far as whether China's a competitor, a 
rival, a problem, and so on, I think it is all of those things. 
I think we have to acknowledge the extent to which, in fact, 
there is this competitive or rivalrous component to the 
relationship. And I do not think we have always been as candid 
as we need to be in acknowledging that fact. For reasons that I 
indicated, I think the competitive aspects of the relationship 
are growing in intensity. I agree with Ambassador Roy that part 
of our objective should be to contain that and prevent that 
from spilling over and contaminating and coloring the entire 
relationship.
    I do not think it is inevitable that China and the United 
States need to be in a zero-sum relationship, enemies in the 
ways that the United States and the Soviet Union were during 
the cold war. But I also do not see much prospect for anything 
resembling an alliance or a genuine deep partnership between 
the United States and China for the foreseeable future.
    As far as the mixing of elements, in our strategy, with all 
of the debates about our policy, since the end of the cold war 
at least, in fact, both Republican and Democratic 
administrations have pursued a broadly similar strategy for 
dealing with China, and it has had these two components: 
engagement--obviously, the diplomatic part of the engagement 
goes all the way back to the late 1960s and early 1970s; the 
economic piece has become much more important, clearly, since 
the early 1990s.
    But, at the same time, I would say, from the mid-1990s 
onward, successive administrations have also sought 
deliberately to strengthen our position in the region to 
maintain a balance of power that is favorable to us and to our 
friends. And we have done that in three ways. One is by 
maintaining and strengthening our own military capabilities in 
the region. So, the pivot, in that sense, is not new; it really 
goes back to the Clinton administration. We have also tried to 
strengthen and build on our traditional alliance relationships, 
particularly with Japan, Korea, and Australia. And we have also 
developed what I would call quasi-alliance relationships with 
other countries in the region to whom we do not extend security 
guarantees, but who share with us, to some degree, a concern 
about the growth of Chinese power, including a small country 
like Singapore, and a very large one like India.
    What has happened over time is that we have modulated that 
blend, or changed that mix of elements. When the current 
administration first came into office during its first couple 
of years, it sought to play up engagement with China, as with 
Russia, and to downplay the balancing part of the formula. 
Since 2011, I think, in response to increased Chinese 
assertiveness, the Obama administration has sought to increase 
the balancing piece of the portfolio. I think they were correct 
to do that. My concern is that they have had difficulty in 
following through.
    The Chairman. Let me ask you--so, Ambassador Roy, you 
talked about patience, that it will require patience. And I 
often hear this when I travel in the region, when I speak to 
regional leaders who come here. I often hear about this element 
of patience. And I understand that. Except--or maybe you can 
help me and the committee understand how--as we exhibit 
patience, how do we also deal with issues like the intellectual 
property rights issue, the counterfeit issue, the cyber theft 
issue, currency manipulation? Those are all economic elements 
of this competition, even though those elements are not, 
obviously, legitimate--in international norms, legitimate 
competition.
    And so, how do we press those issues? How do we press 
issues about right of freedom of passage, navigation in the 
South China Sea? How do we press our--I hope, our human rights 
issues, even though I think we have increasingly been reluctant 
to do that? We do it, but it seems to me it is--the tier is all 
the way down there, in terms of pursuing human rights issues, 
whether it be in China or the way they treat Tibet.
    For both of you, give me a sense of how, as we engage, do 
we at the same time robustly pursue the very essence of this 
competition that we hope to be in in a more legitimate 
international way, when there are hundreds of thousands of jobs 
being lost in the United States, billions of dollars being 
lost. Patience has, obviously, its limitations.
    Ambassador Roy. It is a very good question. And it is one 
of the frustrating----
    The Chairman. We only ask good questions here at the 
committee. [Laughter.]
    Ambassador Roy. Well----
    The Chairman. No, it is not--that is not--I would like to 
think that is true, but it is humorous, if nothing else. But--
--
    Ambassador Roy. When you would like to see changes in other 
countries, where you have only a very limited ability to 
actually force them to make the changes you would like to see, 
you need to have patience, and you need to understand the 
processes that would be most effective in accomplishing this.
    And, frankly, one of the reasons why I was comfortable 
representing a country that takes a high profile on human 
rights issues is because our high profile on human rights 
issues is a function of the fact that, from the beginning of 
our republic, we had built-in violations of human rights that 
were fundamental. We had slavery embedded in our Constitution. 
For 70 years, we tried to solve it through a political process. 
We failed. We fought a bloody civil war, and then we 
reinstituted Jim Crow laws that persisted for nearly 100 more 
years.
    When I was Ambassador in China, we created a linkage 
between human rights in China and most-favored-nations 
treatment and wanted fundamental improvements in seven areas of 
human rights in 1 year. Well, if the United States takes 
centuries to deal with fundamental human rights problems, why 
do we expect that other countries can deal with them overnight? 
So, that is why I say we need patience.
    Now, I have also reflected on this. If other countries had 
set the goal during the 19th century of forcing the United 
States to give up slavery, would it have been helpful? What 
actions would they have taken? Well, in fact, I think there 
were some factors that influenced us. For example, Britain 
eliminated slavery. So, in other words, some countries were 
setting a behavior pattern which actually influenced thinking 
in the United States. I have found that the power of example is 
much more useful in dealing with other countries on human 
rights issues, or on intellectual property protection issues 
than simply haranguing them about it.
    Now, on the intellectual property issue, the reality is, 
the countries that produce intellectual property are the ones 
most devoted to protecting it. And countries that do not 
produce intellectual property tend to think that theft of 
intellectual property is in their national interest.
    When I was a diplomat in the Republic of China on Taiwan, 
back in the 1960s, they were defiant on piracy issues. For 
example, they said, ``Your textbooks are too expensive for us. 
We are a developing country; therefore we are going to steal 
them, and too bad.'' And that is the way they behaved. And it 
took us decades to force a friendly government to begin to 
respect our intellectual property interests. So, that was an 
example of a country that was determined simply to act in its 
own interest, because, at the time, it was not producing 
intellectual property.
    Now, one of the reasons why I am optimistic, in the long 
term, about China's moving toward greater respect for 
protection of intellectual property is because, unlike some of 
the countries I have served in, China has big ambitions about 
becoming a creator of intellectual property. And if you create 
intellectual property, you cannot do so effectively if you do 
not protect it.
    I have had meals with Chinese movie producers who described 
the types of movies they could produce and the ones they could 
not produce. And the ones they could not produce were the ones 
that could be easily ripped off inside China. They could not 
make any money, and therefore they simply did not produce those 
types of movies. But, in other areas, there were better 
protections, and therefore they could move ahead.
    So, I have discovered, in dealing at the highest levels of 
the Chinese Government, there is an intellectual understanding 
of the importance of protecting intellectual property, but it 
is a country that, historically, in modern history, has not 
produced much intellectual property, and therefore, there is a 
habit of ripping off intellectual property from others.
    I recall 10 years ago, when we began to clamp down on 
downloading free music from the Internet, that our college 
students were all busy ripping off intellectual property. And 
we began to tighten the screws on them, and I think it is been 
substantially improved. But, in the process, our young people 
continued to think they had some----
    The Chairman. Yes. But----
    Ambassador Roy [continuing]. Right to----
    The Chairman [continuing]. We did something about it.
    Ambassador Roy. We did something about it.
    The Chairman. And that is a--one of the fundamental----
    Ambassador Roy. Well, I think we are actually making 
progress in this area. And if you talk to Microsoft and some of 
the other countries that have--companies that have been working 
on this, long term, it is not that there has not been progress; 
it is simply there has not been enough. And therefore, they are 
continuing to push ahead, and I think that the U.S. Government 
has to support those efforts.
    The Chairman. Let me turn to my colleagues.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman.
    Ambassador, Doctor, thank you both for being here.
    We had a group of Chinese businessmen here a couple of 
years ago, and I made some comments to them and used the word 
``competition'' among other kinds of things, and then realized, 
in talking with them, that they do not view us that way at all. 
Now, these were businessmen.
    If we were having this same kind of hearing in China, and 
they had two witnesses that were talking about the United 
States, how do they view us? How does the citizenry generally 
view us? I know that is very diverse, with that many people. 
And how does the government actually view the United States? We 
look at them as competition, we look at them as a growing 
threat. Those are some of the words that you all have used. How 
do they view us?
    Dr. Friedberg. Well, of course, as you indicate, it is a 
country of 1.3 billion people----
    Senator Corker. Yes.
    Dr. Friedberg [continuing]. So there are a lot of----
    Senator Corker. Yes.
    Dr. Friedberg [continuing]. Different opinions, although 
they do not all have the opportunity to be expressed because--
--
    Senator Corker. Yes.
    Dr. Friedberg [continuing]. Of the character of the Chinese 
political regime. I think the Chinese strategic elites, so the 
people who worry about China's strategy and about the United 
States in particular, do see the United States as a strategic 
competitor, as a threat to China's interests. As I indicated, 
they believe that, for ideological reasons, the United States 
is fundamentally opposed to their current regime, seeks to 
encircle them, to block them from achieving their rightful 
place in the world, potentially to destabilize them from 
within, and so on.
    So, I think there is a deep-seated suspicion of the United 
States. And, in part, I believe that is one of the reasons that 
Chinese leaders and strategists want to extend their influence 
in the region and would like to see the influence and presence 
of the United States diminish, because they see us as 
threatening.
    Throughout this broader swath of Chinese society, I think 
there is a much wider range of views. People in business see 
many opportunities, of course, in dealing with the United 
States. I see many Chinese students coming to the United States 
and studying. And, in many cases, they are very enthusiastic 
about American culture and society and so on.
    Senator Corker. But, the people who make the decisions and, 
therefore, set the policy, see us the same way we see them.
    Dr. Friedberg. Well, I think it is even darker. I think 
they really--as I said, I think they really believe that we 
want to----
    Senator Corker. Yes.
    Dr. Friedberg [continuing]. Contain and bring them down.
    Senator Corker. Yes.
    And you agree with that, Ambassador?
    Ambassador Roy. I think that represents one aspect of it. 
But, there is a very strong different aspect to it. China's big 
goal, the China dream, is to modernize China. Chinese leaders 
at the very top recognize that they will greatly slow the 
process of modernization of China if they do not have good 
relations with modern countries. So that, going way back to the 
1980s, when we established diplomatic relations, China has 
attached high importance to improving and sustaining relations 
with the modern countries of the world. These are the countries 
to whom they sent the students that they needed to get educated 
to bring back the skills that were part of the modernization 
process. And I still encounter an understanding of the 
importance of that factor. It is a stabilizing factor in a 
highly competitive relationship between the United States and 
China. China still wants good relations with the United States, 
because, otherwise, the Chinese dream is a fading chimera that 
they will never get closer to unless they are able to maintain 
the close relations with modern countries.
    But, modern countries have modern ideas. And what is 
significant, for somebody like me--who served in China as a 
U.S. Government official from 1978 to 1981, and then was there 
as Ambassador, and now I visit it--is the whole nature of 
thinking in China about political change, about government 
structures, has changed over the last 30-40 years, because all 
of a sudden, at every level of Chinese society--in the 
government, in the educational institutions, in the business 
community--you have people who have been educated in the West. 
They do not see our system as something that can be 
transplanted to China, but they understand that, in dealing 
with corruption, a free press can be helpful. Can China really 
address corruption within the Communist Party if it has a 
judicial system that is controlled by the Communist Party? So, 
already you are beginning to see different language coming in.
    If you look at the language of the Third Plenum Communique 
that came out in November of last year, all of a sudden they 
are talking about rule by law, because the corruption is when 
officials do not abide by the laws that are on the books, but 
simply arbitrarily exercise their power. And they are talking 
about having checks and balances on the exercise of power. 
Well, this is something that we addressed back in the 
Federalist papers in the 18th century. And yet, that type of 
discourse about exercising power in the sunlight, having the 
people serve as a check on the exercise of power, putting power 
in a cage so that it cannot be arbitrarily used, all of this is 
language taken from that Third Plenum document that emerged 
last November. You did not find these concepts part of the 
discourse in China before.
    So, this is how countries change. They have exposure to 
different societies. The modern ones are the ones that 
influence them most. And then they begin to borrow from those 
societies, and gradually you find that they are talking about 
issues in a different way.
    Again, I emphasize one other point. China's the only 
authoritarian country in the world which has age limits on 
their senior leaders. China's top leaders are expected to step 
down around the age of 70. We have had Presidential candidates 
who were near the age of 70. In China, you cannot have that. 
And they have put a two-term limit in effect, which means that 
the top leaders can only serve 10 years. And the replacements 
have to be 10 years younger or they will be over the age limits 
at the end of the period.
    So, one of the advantages of a democratic system of 
government is that we can change leaders, and changing leaders 
is often the only way that you can change bad policies. But, 
now China has generational shifts that are also built into a 
regular process of changing leaders, so that when we get the 
next change of leadership in China, in 2022, the people will be 
under 60 years old who take the top positions. They will have 
no memories of the cultural revolution. They will have spent 
their entire lives, adult lives, under conditions of reform and 
openness, with ready access to the outside world.
    Do we really expect that those leaders are going to use the 
same types of governance concepts inside China that the old 
generation, that was not university-educated, or, if they were 
educated, it was in Russia, or the Soviet Union, back in the 
1950s? No. That is not the way humans behave. People reflect 
the experiences they have as part of their maturing process. 
And the experiences that the last 30 years of Chinese have had 
are radically different from the experiences they had before 
China opened itself up to the outside world.
    But, we are talking about change over a period of decades, 
and that is why I talk about the need for patience and 
perseverance in dealing with China.
    Senator Corker. If I can ask just one more question.
    The age issue you mentioned certainly would wreck the 
United States Senate. [Laughter.]
    The Chairman. Present company excluded.
    Senator Corker. That is right. [Laughter.]
    So, it is understandable to see why you would undertake, 
from their perspective, cyber theft. It is enriching them. They 
can move ahead decades quickly by ripping us off. You can 
understand that counterfeiting and all of those things. Again, 
it is not proper, but, it is in their interests to rip us and 
other countries off to pursue a more rapid growth there. And it 
is unfortunate that they condone that. And I realize, over 
time, as you mentioned, that may well change as they develop 
their own.
    If they view us as a threat, and they view us as 
competition, what is in their national interest, relative to 
the silly disputes that are taking place in the South and East 
China Sea, which immediately, as you all mentioned in your 
earlier testimony, provokes a response, ``They do something; we 
do something''? How is that, again, in their overall strategic 
interest to cause us to want to engage more fully in that way 
because of their breaking of international norms?
    Dr. Friedberg. Well, if I could start by just saying 
something on the previous issue, because I think it is related, 
I will give you the glass-half-empty view. It seems to me that 
the Chinese regime, although it has evolved and changed, and 
Chinese society has changed in many ways, maintains its 
commitment to the preservation of one-party rule. Its interest 
in reform is not rooted in principle so much as in practicality 
and a desire to maintain its control. And it has proven to be 
quite smart, sophisticated, but also ruthless in suppressing 
dissent and maintaining the dominance of the CCP. I think there 
is an anxiety on the part of the leadership about the future, 
for reasons that I suggested. And the ways in which the regime 
has sought to bolster its legitimacy, particularly since the 
decline of the appeal, such as it was, of Marxist-Leninist 
ideology, has been to emphasize economic growth and 
improvements in welfare, but also, increasingly, nationalism 
and this idea of a Chinese rejuvenation, the great Chinese 
dream, and so on.
    So, these disputes, although they appear to be over 
insignificant pieces of rock, actually are potentially 
extremely important, and I think, from the point of view of the 
regime, may be useful, or they may see them as being useful, as 
a way of rallying and mobilizing popular support behind the 
government and deflecting frustration and resentments outward 
against historic rivals, like Japan, and, to some degree, the 
United States.
    These disputes are about resources and about who is going 
to be the dominant power in the region. China is seeking to 
establish itself in that position, in part by forcing others to 
give way in the face of its pressure. But, I do think that 
these disputes have an internal function, and it is related to 
the regime's concern about maintaining domestic control.
    So, yes, in the long run, I hope that Ambassador Roy is 
right and that we have this peaceful evolution, but, in the 
shorter term, I am concerned that the regime, in its efforts to 
maintain its control, may be undertaking dangerous and 
aggressive external policies.
    The Chairman. Senator Rubio.
    Senator Rubio. Thank you.
    I wanted to return to this notion of--Secretary Russel, 
about--you used this term, ``the China dream,'' which I have 
heard used to describe the situation in China, their ambitions 
for their country. As it is been described to me in my visits 
to--in my visit to Asia, and by others since--and there might 
be some dispute about it--but, they view the China dream--they 
describe it as follows: that China views itself, from a 
historical perspective, as the world's great power, that they 
view the last 150 years as an aberration in world history, and 
they are simply now reemerging into their rightful place. And 
``their rightful place'' means not simply displacing the U.S. 
as a dominant power in the region, but, in fact, in some--in 
many respects, behaving like the dominant power, vis-a-vis 
their neighbors and the way they act toward their neighbors. I 
think that is further compounded by what is no doubt over the 
last 10 years not just a massive expansion in their military 
capabilities, but by increasing assertiveness, for example, in 
their claims in the areas within the nine-dash line, their 
territorial claims, and potentially their claims on navigation 
rights, which is something that we should care about deeply.
    You described it as simply a desire to modernize the 
country, but others have described it as much more--much deeper 
than simply that, that, in fact--and perhaps you discussed this 
earlier, but that the China dream, in fact, is about 
establishing themselves as the world's dominant power in a 
zero-sum game with the United States and the established 
institutions under the post-World War II world. What is the 
right way to view their mindset and--so that we can understand 
better some of the policy decisions they are making?
    Ambassador Roy. It needs to be viewed in its historical 
context in order to have some idea of what they are talking 
about. The two words that have generally characterized the 
goals of China's reformers, going back to the Qing Dynasty in 
the late 19th century, have been wealth and power. This was 
what they wanted China to recapture. China used to be a country 
that had wealth and power, and then it lost it during its 
period of decline and exploitation by more powerful countries.
    And so, right up through the 20th century, the goal has 
been restoring China's wealth and power. That is not a bad 
goal. All countries, in a sense, aspire to it. But, there are 
aspects of it which are dangerous. And one aspect of it that I 
find particularly disturbing is in the documents coming out of 
the 18th Party Congress, which was 2 years ago, in talking 
about why China needed powerful armed forces. They did not 
simply relate them to the defense needs of the country and to 
the economic development needs of the country, protecting their 
economic development. They said they needed powerful armed 
forces commensurate with the country's international standing. 
That is a very dangerous concept. It means that China is now 
saying, ``We need powerful armed forces because we are emerging 
as a great power.''
    And this represents a type of great-power chauvinism which 
I think is inherently dangerous. I cannot get anybody else to 
pay attention to what I see as a very dangerous phraseology 
emerging in that document. When I discuss it with my China 
colleagues, you know, they do not pay much attention to that 
phrase. But, to me, it is very disturbing. What does it mean 
for China to have powerful armed forces commensurate with its 
international standing? When its economy overtakes that of the 
United States, which might occur in the near future, does that 
mean they need armed forces that are bigger than those of the 
United States?
    So, in other words, I see two sides of this. I see a China 
which has legitimate aspirations to restore its wealth and 
power, and I see a China which also may have the typical 
ambitions of somebody who is getting strong enough to be the 
big bully in the block.
    Senator Rubio. I guess, from their actions, though, you can 
deduce the following. I think this is a safe statement, and you 
are certainly an expert on this, so I am glad we have the 
opportunity to talk to you about it. Since the end of World War 
II especially, we have had an established international order 
that involves resolving disputes through mediation and other 
methods----
    Ambassador Roy. Right.
    Senator Rubio [continuing]. And so forth. There is been an 
economic order, as well, involving all sorts of things, from 
trade to currencies. And what I take from the actions I have 
seen recently is, the Chinese attitude toward this is, ``We did 
not write these rules, we did not participate in their 
creation. They were written in a way to benefit the West or 
others, and we do not necessarily feel like we need to comply 
with them. In fact, we would like to reorder or rewrite, to 
some extent, by changing facts on the ground, in some 
instances, how all of this operates, moving forward. And as a 
rising power, we intend to do so.'' And that includes, by the 
way, increasing, not just their military capacity, but their 
willingness to use that capacity, at least now, to various 
different means to assert their territorial claims. So, in 
fact, they are not just--this is not just a rhetorical----
    Ambassador Roy. Right.
    Senator Rubio [continuing]. Challenge that they pose. We 
are beginning to see this reflected in the actions that they 
are taking.
    Ambassador Roy. This gets into the question of whether 
China's a status-quo power or whether it is trying to overthrow 
the status quo and establish a new one. I actually find that 
the truth, as I see it, is that China is somewhere in between 
that. And common sense tells you that when a new power emerges 
into an existing system, the existing system has to make 
certain accommodations. And if the system will not make the 
accommodations, then the rising power will want to change the 
system.
    But, in fact, the existing system is accommodating China to 
a significant degree, but not to a 100-percent degree. So, for 
example, China sees the World Bank and the Asian Development 
Bank as largely controlled by Western countries and, in the 
case of the Asian Development Bank, by Japan. And so, they are 
talking about setting up an Asia Infrastructure Investment 
Bank, which will be largely funded by billions of dollars from 
China and which will engage in reconstructing a new Silk Road. 
In other words, they will engage in infrastructure projects 
leading into Central Asia and the Middle East. So, they are 
thinking big in these terms.
    But, this is not the same, to me, as being anti-status-quo. 
It simply means that China wants more accommodation for its 
interests, and the question of whether we can maintain the 
stability of the international system is partly the degree to 
which China will accommodate itself to the existing 
institutions and the degree to which the existing institutions 
will accommodate themselves to the fact that China has growing 
stature in the world, has growing financial resources, it 
swings more weight in the world. It is now a giant factor in 
international trade, which is one of the reasons why our 
Transpacific Partnership has the door open for China to 
participate. Because what would be the sense of having a 
transpacific partnership in which the country that has the 
largest trade relationships with the countries that are members 
of the partnership is not within it?
    Senator Rubio. I guess that my final question is, Is it 
fair to say that, among leading policymakers within the 
Communist Party in China, they view international relations as 
a zero-sum game, that, in order for them to increase, someone 
else has to decrease? Is that----
    Ambassador Roy. No. In fact, who am I to say what their 
secret thoughts are? But, I have not encountered that view in 
any of the senior-level conversations that I have been 
privileged to be part of.
    Senator Rubio. So, what about this, then? Is it fair to say 
that there are commentators or others within--and others close 
to the decisionmaking process--that view the United States as a 
declining power and China as a rising power?
    Ambassador Roy. I would say that is almost a universal 
perception in China, at the moment.
    Senator Rubio. Universal, meaning----
    Ambassador Roy. But, it is not just----
    Senator Rubio [continuing]. Among their political 
leadership?
    Ambassador Roy. I encounter that perception in Korea, in 
Japan, in Southeast Asia, and in Europe. In other words, I 
think there is a very dangerous perception out that the United 
States is a declining power because of the fact that we have 
not recovered in a robust fashion from the global financial 
crisis of 2008, and they see us as having a frozen political 
system that is unable to address our problems effectively. And, 
frankly, that perception is out there widely in the world. And 
I think it is wrong, because I think it leads to a 
misestimation of the latent capabilities of this country. But, 
frankly, we are feeding those misperceptions by not addressing 
our domestic problems more effectively, in my judgment. I mean, 
this is what I bring back when I travel abroad.
    And there is a second point that I will make, in terms of 
whether we are a declining country or not. I was in the Foreign 
Service and in the government a long time. During the first 30 
years of my government career, every time I returned to the 
United States, it was better. We had an interstate highway 
system. We switched to jet aircraft. Things worked better. And, 
for the last 20 years, every time I return to the United 
States, I am ashamed to see that our infrastructure works less 
well, is less modern than you see in other countries. If you 
have been to China and ridden on their high-speed rail system, 
it makes you ashamed to take an Amtrak train to New York. You 
can barely stand up on it. And in China, the trains go at twice 
the speed and are smooth as silk.
    So, this disturbs me, as an American, because--I hate 
walking up escalators that do not work. [Laughter.]
    And in Washington, that is an everyday experience. And we 
are talking about technology that was developed at the end of 
the 19th century, and somehow we cannot even keep our 
escalators working. Dammit, I wish that Congress would----
    [Laughter.]
    Ambassador Roy. [continuing]. Address these types of 
issues.
    Senator Rubio. We have a bill on escalators this week, do 
we not? [Laughter.]
    The Chairman. Well, I am glad, Ambassador, we have given 
you a forum to express those----
    [Laughter]
    The Chairman. As one of the members here trying to get a 
highway mass transit bill done----
    [Laughter.]
    The Chairman [continuing]. We are all in favor of that.
    Let me thank you both. I do have two quick questions. I 
want to take advantage of your expertise, here. And I leave 
this open to either--the first one, open to either one of you, 
and then the second one is for Dr. Friedberg.
    The way I see it--I also sit on the Senate Finance 
Committee, and the way I see it, China adopting a market-
determined exchange rate would not only help rebalance their 
economy domestically, but certainly would go a long way toward 
correcting some of the imbalances that exist in our bilateral 
trade relationship. How quickly do you think that China will 
move toward a market-determined exchange rate? And what, if 
anything, can we do to encourage or support that within China? 
Any of you have--either one of you have any views on that?
    Ambassador Roy. It is going to take time. I think it may 
happen faster than we think. China is not comfortable holding 
trillions of dollars of foreign exchange reserves, much of 
which is in dollar-denominated treasury instruments. And 
therefore, it is actively seeking to increase trade that is 
settled in renminbi. And it is reaching agreements with 
bilateral trading partners to settle the accounts using China's 
currency.
    But, China still does not have open capital accounts. And 
until it moves to open capital accounts, it cannot become a 
reserve currency for other countries, effectively. So, they are 
not there yet, and they are not ready for that step yet, but 
they are definitely setting that as a goal. And I think we 
would be blinding ourselves if we think that we can simply 
assume the dollar will remain the principal international 
trading currency, given the current trends we see in patterns 
of international trade.
    They have already made quite rapid progress, in terms of 
the percentages in which their trade accounts are settled in 
nondollar currencies. So, it is something, I think, that we 
need to pay very close attention to.
    We are financing ourselves 50 percent through foreign 
borrowing. You know, in World War II, we financed it entirely 
by domestic savings. But, now we are financing it by foreign 
borrowing. If we ever reach the point where we have to borrow 
in foreign currencies, then we lose control over the terms of 
repayment. And that is what bankrupted Asia during the Asian 
financial crisis. Because the short-term dollar rates were 
lower than borrowing in local currencies, and because the 
currencies seemed stable, they were borrowing in short-term 
dollar terms, and all of a sudden the financial crisis caused 
the exchange rates to go gaga, and all of a sudden, Indonesia 
was bankrupt overnight because of that. We do not want to move 
in that direction, and that is one reason why we need to get 
our financial system functioning well.
    The Chairman. Let me turn to Dr. Friedberg.
    So, with reference to our rebalancing to Asia and your 
comments about, while you think it is right, you think it lacks 
the robustness that is necessary, you mentioned the capacity--
helping the capacity of our allies to be a deterrent toward the 
type of actions that we might be concerned with by China. If 
you were to say--if you were sitting in the administration and 
you would say, ``Here are the three, four top things that I 
think we should do,'' what would they be? I did not 
particularly care for rebalancing or pivoting, because I do not 
think we have ever left. The only question is, What is the 
degree of our engagement?
    Dr. Friedberg. Well, the first one is very easy to say, 
but, I realize, very, very difficult to accomplish. I think we 
are going to have to increase defense spending, in the long 
run, and, in particular, we are going to have to increase the 
resources that are devoted to the kinds of capabilities we need 
to counter this emerging Chinese antiaccess area denial 
network. I do not think that is going to happen anytime soon. I 
think we are trying to make do with what we have. But, I think, 
in the long run, that is not going to be adequate.
    Related to that, I think we are going to have to develop 
and articulate a coherent and credible strategy for enabling 
ourselves to project power into the region under any 
circumstances in order to maintain our security commitments. 
One thing about the so-called rebalance or pivot, or whatever 
one wants to call it, that I think was not particularly well 
handled, was the premature discussion of the so-called air-sea 
battle concept, which attempts to begin to answer this 
question, but was not ready for prime time and has caused a lot 
of problems and confusion. Nevertheless, I think there is a gap 
there that needs to be filled. We have to have a credible story 
that we can tell ourselves about how we would use our forces if 
we needed to do so, and also to tell our allies. And we do not, 
at the moment.
    I think, as far as assisting our friends and allies, there 
are a number of things--and again, some of these things are 
currently being done, and perhaps they could be done more--the 
kinds of military exercises that we have engaged in, we are 
about to engage in with the Philippines, also with Japan, which 
demonstrate to any observers that we are prepared to use force, 
if necessary, to help our allies defend themselves in 
contingencies that might involve intrusion in their territorial 
waters, and so on, I think send a powerful deterrent signal. 
There are kinds of capabilities that our friends and allies 
would like to buy, some of which we sell, some of which other 
countries, like Japan, may be willing to sell, which increase 
their situational awareness, enable them to better patrol and 
control their territorial waters and airspace. I think those 
things make sense.
    We ought to be encouraging, even where we are not directly 
involved, the kinds of connections that are growing up among 
countries in the region that are intended to enhance their 
defense capabilities. Japan and Australia are talking about co-
developing a new submarine for Australia. That makes sense, I 
think. Japan and India are engaged in naval conversations and 
maneuvers. Those things make sense. Even when we are not 
directly involved, we should be encouraging others to do things 
to help to maintain a balance.
    The Chairman. Well, thank you both for your very valuable 
insights. This obviously will be a continuing source of the 
committee's attention. We look forward to engaging you along 
the way as we have different issues to pursue.
    This hearing's record will remain open until the close of 
business tomorrow.
    And, with the thanks of the committee, this hearing is 
adjourned.
    [Whereupon, at 4:20 p.m., the hearing was adjourned.]
```