SPARROUGH: What in your opinion, are the national priorities of the current Chinese leadership?

DR. SHAMBAUGH: I think one has to begin when they're considering how the Chinese leadership looks at their own national priorities, to start with the maintenance of internal social order.

This is a country that has undergone dramatic economic change, which has produced dramatic social change over the last twenty years.

But in the last three to four years, the economy has deteriorated, albeit still growing, it's suffering deflation, unprecedented levels of unemployment, unprecedented levels of social unrest, the highest we?ve seen in China since the Cultural Revolution of the late sixties--

Both urban unrest and rural unrest. Much of this is sporadic, other elements are organized. So I think one has to start with the maintenance of internal social order.

One way to do that is to maintain higher levels of economic growth. So I would probably rank that as the second priority of the leadership, and to get out of this deflationary spiral that they've been in.

There are many economic problems that they face with overextended bank lending, you know deficit, increasing deficit spending, various trade problems, investment deterioration from Japan, and so on.

But they've obviously got to prime the economy, to keep growth at a six to seven percent level. Officially it's at the seven percent level, although most economists think it?s more in the five percent range.

And that is their threshold, the Chinese government's threshold, for maintaining employment, and acceptable levels of unemployment. It goes below five percent, they're in trouble.

Third priority is to maintain a peaceful relations with its neighbors, that will contribute to the development of the economy. And the first goal of social stability.

That means with Japan, that means with Russia, that means with India, with the Southeast Asian countries, and above all, the United States.

And the next priority, I would say, in this order, would be the reunification of the country with Taiwan. Or Taiwan with the mainland.

These other three priorities, I think come first. Taiwan is not at the top of the list. And then finally, it may seem obvious, but to maintain the Chinese Communist Party in power.

This is a regime that I think is indeed endangered. It?s certainly embattled. And it is not beyond the realm of possibility that it could collapse like other communist party states did earlier in the 1990s.

And they're facing a number of problems, and they know what the stakes are. They're facing economic problems, social unrest, high levels of corruption in the party, and lack of legitimacy on a number of other indices.

SPARROUGH: It seems that the priorities you mentioned are in contradiction; that reunification of China, of Taiwan with China, would rub the other priorities somewhat the wrong way.

Endanger the leadership if they fail, certainly cause perhaps their economic isolation. How much are they willing to risk other priorities for the unification of China?

To what extent are they willing to risk other national priorities for the reunification of Taiwan with the mainland?

DR. SHAMBAUGH: Well China's goal is of course, the peaceful reunification of Taiwan with the mainland. That is not only official policy; that is indeed the desired outcome.

China does not wish to resort to force, or coercion, to resolve this problem. They have actually very little objective interest in doing so.

It would bring tremendous international isolation of China, would make the sanctions and the ostracism that China experienced after the 1989 Tiananmen massacre, pale in comparison.

Investment would likely dry up, and the regime would be in danger. Indeed, a war would have unpredictable consequences, so it is not at all in the Beijing leadership?s interest to go down this course or path, to reunify Taiwan.

And it certainly will not behoove their economic modernization goals, or the other goals of maintaining themselves in power. Although oddly enough, one of the few cards of legitimacy, if you will, that they have to rely on is the nationalism card, if you will.

The reunification of the country, and now having had Macao and Hong Kong reunified with the PRC, unification of Taiwan is a very valuable tool to maintain popular support for the regime.

So oddly enough, by, if push came to shove, and if force and coercion was needed, it would mobilize domestic support in favor of the regime--

Even though it would have horrific consequences externally, and I think militarily, they would not be successful in subduing Taiwan.

SPARROUGH: Are you saying that they don't now have the military capability to intimidate, or to occupy Taiwan?

DR. SHAMBAUGH: Exactly what I?m saying. They have the military capability to terrorize Taiwan, and they certainly have the capability of the ballistic missiles, to attack and destroy many key targets on Taiwan.

But beyond ballistic missiles, my reading of their military conventional capabilities are that they're totally inadequate to a range of potential scenarios.

They do not have the submarine fleet, or the surface combatant fleet needed to blockade the two principal ports of Taiwan, or the major naval base at Tsoying.

They certainly do not have the navy to quarantine the island, they do not have the air force necessary to achieve air dominance over the Taiwan Strait, which of course would be necessary for any kind of amphibious operation.

And finally, they have nowhere near, and will not for at least fifteen, twenty years, the amphibious landing capability, the lift capability to move the necessary number of troops, which are estimated at 750,000 forces, across that hundred-mile body of water.

So, ballistic missiles, yes, beyond ballistic missiles, they don?t have a lot that they could bring to bear against Taiwan effectively.

And they certainly, if they somehow or another were to paratroop or occupy the island, they would have to face pretty fierce resistance in the process.

SPARROUGH: How credible would a ballistic missile attack be? Wouldn't that just unify the Taiwanese against the mainland, bring US aid to Taiwan, and sort of make them pariahs?

DR. SHAMBAUGH: There are two schools of thought on the effects of a ballistic missile attack. One school is that it would be effective to terrorize the island, and force Taiwan to capitulate to whatever terms the mainland dictated to it.

I don?t buy that. I don't think Taiwan, the Taiwan population, or the government there, are about to capitulate. We saw what the missile war between Iran and Iraq, that went on for months and months, did.

That didn't make either of those two countries capitulate. We saw what the aerial bombing of Kosovo took, to get Milosevic to capitulate, not to mention Saddam Hussein.

So the PRC's 200 short range ballistic missiles are not about to bring that effect with Taipei. But the big question is, beyond ballistic missiles, what do they do then?

Say they fire a salvo of a hundred of these missiles at various targets on Taiwan. Then what do they do? How can they follow up?

And that's where their real military inadequacies are glaring; naval, air, amphibious, and sub-surface.

SPARROUGH: How do they react, however, if by chance, or by design, the Taiwanese officially declare independence?

And that puts the ball in the Chinese court, they have said, and threatened to use armed force. Is that a hollow threat? Wouldn?t they have to do something?

DR. SHAMBAUGH: It?s not a hollow threat. If Taiwan proclaimed independence, they have threatened that they will have to, have no choice but to use force.

And undoubtedly, they will. What kind of force, one can only guess at. No doubt they?d throw every ship they had at Taiwan, every plane they had, simply try to overwhelm Taiwan's defenses through sheer numbers.

Certainly, ballistic missiles would play a role, electronic warfare, information warfare, also would play a role in the opening phases of such a campaign.

But they are not prepared to allow Taiwan to go independent. Now if Taiwan were to proclaim its independence, that is the one condition under which the United States would not become involved in the situation.

So we're looking really at a force on force, China versus Taiwan, scenario there. And if that?s the case, over time, and with tremendous losses, the mainland could probably subdue Taiwan in a matter of months.

But with tremendous losses.

SPARROUGH: Let's shift to US policy. How can the United States avoid that cataclysmic clash, that would result, if Taiwan moved towards de jure independence?

What policy should the United States follow? Is its present policy good?

DR. SHAMBAUGH:Well, I don?t think that Taiwan is moving towards de jure independence, and I think they have a rather more realistic view of the costs of going down that path.

Even the recently elected president, Chen Shui-bian, who previously did embrace the idea at least of a referendum on independence, if not actually independence, he has backed away from that.

Many members of his party have backed away from that, most Taiwan citizens understand that that would bring the PRC down on their head.

So, I don't think Taiwan's going to go down that path, to begin with, and precipitate such a conflict. But the role for the United States here is significant, but it's not determining.

This is a problem that goes back to the civil war between the communists and the nationalists. It's been a problem of sixty years in the making, it's a very difficult, intractable problem within the Chinese domestic context.

And it?s not for the United States to resolve; it has to be resolved by the two parties themselves. The US can do two or three things to facilitate that resolution. One, maintain the environment in which they can speak to each other--

Make the Taiwanese feel secure, about the American commitment to their own self-defense. Make the PRC secure that the US is not trying to break Taiwan away from Chinese sovereignty, nor trying to contain China more broadly.

The US, I think, can also contribute by showing restraint in arms sales to the island. Maintaining self-defense as dictated by the Taiwan Relations Act, yes, but offensive systems, and a range of things that Taiwan has asked for, I don?t think are conducive to the stability in the area that?s necessary for both sides.

Finally, China is the one that can play the greatest role here, by liberalizing their own political system, and giving Taiwan an incentive to reunify.

Under the current political system in the mainland, Taiwan has no such incentive.

SPARROUGH: Good. Let me go back to weapons sales. You then would not favor a theatre missile defense, or the four Aegis destroyers, armed missiles to Taiwan? Those sales?

DR. SHAMBAUGH: I would not favor theatre missile defense for Taiwan, even if it were technologically a proven system, which it is not.

And I would not favor TMD for two reasons. One, technological, one political. Given the flight distances and times from the mainland to Taiwan, there is no way, in my judgment, that any TMD system would be anywhere near effective enough against incoming SRBMs, not to mention decoys and penetration aids.

That they could, the PRC could overwhelm any TMD system that Taiwan or the United States could put there. If the United States puts us there, then that also means that there are serious intelligence and other military links to the US military--

Which is the second issue, the political consequences of TMD. That in effect, would reconstitute the US-Taiwan military alliance that was abrogated in 1979.

If you constitute a military alliance with Taiwan, you are in effect creating an independent Taiwan, and provoking far, very unnecessarily Beijing.

And that is one of the three conditions under which China has said it will attack Taiwan. So TMD is a non-starter, on both technological and political grounds, in my view.

Aegis radars, to my mind, do fall within the defensive needs of the Taiwan military, to be able to track aircraft and other ballistic missiles, and other movements that may be coming their way, far inland.

At the moment, they only have the capacity to see in as far as Wuhan, with the two E2T, early warning aircraft that the US has sold to them.

But if they really did face an attack from the mainland, they're going to need to see far more broadly than that. The question is, what do you put the Aegis systems on?

Do you put them in early (inaudible) class destroyers, or do you put them on other platforms? And there I think is the key issue; the radar system is defensive, the platform can be offensive.

An offensive system of any nature is destabilizing to this cross-force balance, and that applies to AMRAM missiles, Harm missiles, and other submarines.

You know, I?m not in favor of the sale of those sorts of weapons that would permit Taiwan to carry the battle to the mainland. So-called offense-defense issue.

Sell Taiwan weapons to defend itself against an attack, yes. Carry the war to the mainland, no.

SPARROUGH: One last question. What do you think the probabilities are that there would be coherence in US policy, now that it?s become somewhat of a political football in this election year campaign?

Where those in Congress are pushing ahead, many of whom I think you would agree with me, don't have a great deal of knowledge about China, China-Taiwan relations, or even the whole East Asian situation.

Is there a chance that the United States might not follow your prescriptions for policy?

DR. SHAMBAUGH: Well, you're quite correct to say that the China policy has become politicized. That's a process that started in 1989, with the Tiananmen massacre.

Prior to that time, we had a bipartisan consensus in the United States about how to deal with China. Since 1989, we've had anything but a consensus.

We had a very vocal, vociferous debate, and debates are healthy in democracies. China is probably the single most important strategic issue for the United States in the next administration, and I daresay, many years to come beyond that.

How we deal with that strategic challenge is of major consequence, and we should have a major national debate on it. But we should have an informed debate on it, not one full of cliches and ignorance.

You know, many of the people on, in, that participate in this debate are very, to my mind, very ideological, and ill-informed. And don't know many of the facts on the ground in either Taiwan or China.

Nor do they know the history. There is very important history here, of American commitments to both sides. Private commitments and public commitments. And Congress would want to just sort of write the script all over, starting afresh.

Can?t do that, if you?re going to have credibility in foreign policy in the world. So, debate, yes, I think it's healthy. I myself would call for major hearings of the Senate Foreign Relations Committee, as we had during the time of the Vietnam war.

It's that sort of focused debate, rather than this debate through the op-ed pages, that we, we seem to be experiencing. But there's no doubt that this is the singular most important challenge for the US next, next administration and beyond.

SPARROUGH: Finally, is there any credibility to the threat of a direct Chinese attack upon the United States?

DR. SHAMBAUGH: Any time you're potentially in a military conflict with a nuclear power, there is always the threat of nuclear retaliation, or the use of nuclear weapons.

China adheres to a no first use policy, the United States does not, I would point out. China has said it would only attack if attacked.

China has a minimum second strike capability that they are very nervous about, and if the United States goes down the path to national missile defenses, NMD, it's going to endanger that second strike capability--

And cause China to increase several-fold it's ICBM strategic arsenal. But if there were a war between the US and China, over Taiwan, there is a potential, there?s always a potential for the use of nuclear weapons, particularly if you're the weaker party--

And you have to fight an asymmetric war. I don?t think China would strike first, but it is an element of their arsenal, and under certain conditions, they would have to consider using it.

SPARROUGH: Terrific. I think there are a number of things there that are going to be very, very helpful.

Can you think of anything, if you were me, I should have asked?

DR. SHAMBAUGH: Well, you know, I think there are broader questions about the pattern of China's military modernization.

What are they trying to do? How far are they coming? How far behind are they? You know, their own defense industries, the Russian dimension, you know, why are they turning to the Russians?

What are they getting from the Russians? Those sorts of questions we didn't get into, we just talked about their forces in the context of Taiwan.

SPARROUGH: Okay, I could have asked you, why they're buying so much from Russia. The (inaudible) destroyers, the SU27s and 30s, can?t they produce them on their own?

DR. SHAMBAUGH: Well, the very fact that China has turned to Russia for several advance systems, is an admission of virtually complete failure on the part of their own defense industries, to meet the needs of a modern, or even semi-modern military.

The Chinese defense industries have been hampered by a number of problems for many, many years, and they're not getting any better.

They're beginning to address them in structural reorganization, but technologically, this is a defense industry that?s producing weapons of 1960s quality.

Therefore, China has no alternative, while they're waiting, while they?re restructuring their defense industries, but to buy abroad.

The problem is, they are under sanction and embargo by the United States and the European Union, and cannot go to the Western arms market, as a country in their position might normally do.

They've got no choice but to turn to the Russians, and the Israelis, for certain systems. They're also highly constrained by the amount of money available to buy on the Russian and the Israeli market. They don't have a great deal. The Russians have sold China roughly $10 billion worth of weapons over the last ten years. $1.5 to $2 billion a year. That's not going to buy you very much.

The cost of modern weapons today, and I would point out that what China has purchased, which has attracted a lot of media attention, is not very great in numbers, and is not even state of the art. You know, SU27s, they've got 48 of them. In fact, they've crashed two of them in the last year. They have one of two (inaudible) destroyers that are delivered, those are very capable destroyers--

I'm not trying to diminish it, but it's going to take some while for them to learn how to operate it, and incorporate it into their fleet.

Four diesel electric Hilo submarines, two of which have had severe maintenance problems, and have not left port for over a year.

And so on. S300, you know, anti-aircraft missiles, the SU30 sale has not fully been consummated yet. So there is no doubt, they are buying from Russia, they have no choice but to buy from Russia. The question is, how do they integrate that into their force structure, and how do they maintain these systems?

For example, the SU27 has to be returned to Russia every thousand hours of flight time, for engine overhaul. That is a dependent relationship on external sources of supply.

And spare parts. Again, the Chinese indigenous defense capability is really very poor, particularly in aircraft and submarines.

And the hired level, the kinds of high tech systems that they need most are precisely the systems they show no ability to produce themselves.

SPARROUGH: Do you think the AEW system, (inaudible) system produced by Israel, will that sale go through, do you think?

DR. SHAMBAUGH: I suspect the first one will go through; the question is whether the next three go through.

Oh, Israel has been outfitting a Falcon airborne early warning--sorry.

Israel has signed a contract to supply four early warning aircraft systems for China. And that system is being put on a Russian plane that the Chinese bought from Russia several years ago.

A Lucian 76 transport plane. Thus far, the first one has, has been mounted on the plane, and the plane is ready for delivery to China.

The United States has asked Israel not to go through with that deal, Israel has said that there is no US technology involved, and they plan to go through with that deal.

But my hope would be that they not go through with the other three. And that Israel sees the broader security picture here, and that this might endanger American forces.

After all, America is its most important ally in the world.

SPARROUGH: Good. That's terrific.

DR. SHAMBAUGH: Other than that, I think we've covered it. One has to recognize, despite the People's Liberation Army?s many weaknesses, that they for the first time in the last five years, are focused on correcting those weaknesses.

Both in hardware and software terms, they're undergoing multiple reforms simultaneously, downsizing of the force structure, reconfiguration of the force structure.

Joint force training, combined arms, better recruitment of more educated soldiers, better retention, even building up an NCO corps for the first time.

There are multiple reforms underway that have begun. And that is to be noted. A modern military is much more than simply hardware, and as any soldier and officer will tell you.

And that?s where the Chinese really have the furthest to go. But the fact of the matter is, they've started down this road, and if they continue, in fifteen or twenty years, they will have not only the hardware, but they will have a much more proficient force, capable of projecting power beyond their borders.

SPARROUGH: Including amphibious warfare?

DR. SHAMBAUGH: Yes, that is one of the high priorities, needless to say, being driven by a Taiwan scenario. But, their preoccupation with the Taiwan scenario is distorting a broader military modernization effort.

In other words, they're putting scarce resources and concentrating on things that they may need, in order to coerce or take Taiwan, that are not necessarily what they should choose to do if they're trying to build a comprehensively strong military over a longer period of time.