NARRATOR: China is one of the world's oldest civilizations and the world's most populous nation. Yet China remains a land of great mystique to many Americans. What do we really know about China?

Dr. RONALD MONTAPERTO: China's overwhelming and I think defining national objective is to see China arise or to ascend to the status of a great power.

NARRATOR: But as China emerges as an economic giant and a rising military power, some wonder: Is there cause for concern?

KENT WEIDEMANN: I mean, clearly, if you take a snapshot and look at where we are with China today, we are in a very difficult situation with both sides being suspicious of the other.

YU SHUNING: China does not pose and will not become a threat to any country. But it will not ever bow to threats from others.

NARRATOR: What does China's status as a rising power mean for international security? And what will it mean for Sino-U.S. relations?

NARRATOR: Tensions between the U.S. and China began with the end of the Chinese civil war in 1949, when the communist regime under Mao Zedong took power and the nationalists, whom the U.S. had supported, were forced to flee to the island of Taiwan. Despite their defeat, the U.S. continued to recognize the nationalist government in Taiwan as the legal government of China, as did other nations, and Taiwan was given the Chinese seat in the United Nations.

In its isolation, China turned toward the Soviet Union. But this alliance only lasted until the late 1950s when the two countries split over ideological differences, border disputes, and the refusal of the Soviets to aid China's nuclear weapons program.

In the 1970s, China and the U.S. entered a period of detente. Soviet intervention in Eastern Europe has convinced China that the U.S. was the less threatening of the two superpowers and, thus, China moved towards more cooperative relations with the U.S..

In 1972, President Nixon visited China, and the result was the Shanghai Communique which stated the U.S. policy of recognizing only "one China." And in 1979, the U.S. formally recognized Beijing as the legitimate government of China. This was the beginning of the U.S. policy of "comprehensive engagement."

Mr. WEIDEMANN: Comprehensive engagement is, first, premised on the realization that China is a rising and an increasingly powerful power in the Asia-Pacific region and of increasing economic and political influence on the global stage, as well.

NARRATOR: Kent Weidemann is the deputy assistant secretary of state for East Asian and Pacific Affairs.

Mr. WEIDEMANN: Also, I think based on the realization as we head into the next century, it is going to be in the United States' interests to seek to develop a kind of partnership with this new rising power, as opposed to drifting into a state of kind of adversarial relations.

NARRATOR: Comprehensive engagement has been U.S. policy for the past 20 years. But it's an ambiguous term for conducting relations. What does this policy mean in real terms?

Mr. WEIDEMANN: The key thing that drives our policy towards China overall is assuring U.S. national interests in the Asia- Pacific region and globally are served. And what that really means is that, first and foremost, America's security is ensured in the face of a rising new power on the global scene, and that we, therefore, develop a positive relationship with China to the extent that it does not become, as I mentioned earlier, a latent enemy or a real enemy.

NARRATOR: Comprehensive engagement has opened up relations between East and West, providing a forum for high level meetings to discuss issues such as Taiwan, fair trade, proliferation, and human rights. But some critics feel that these talks have not resulted in enough action.

Ambassador JAMES LILLEY: What you try to do is to get a policy process going of dealing with China, and comprehensive engagement is not that.

NARRATOR: James Lilley was the U.S. ambassador to China from 1989 to 1991 and to Taiwan from 1982 to 1984. He is currently a resident fellow at the American Enterprise Institute.

Ambassador LILLEY: What you try to establish with China is that there are incentives for cooperation and there are disincentives for non-cooperation. You have to build this into your policy.

NARRATOR: But a large part of the problem is that the United States and China do not always view comprehensive engagement in the same way and this has led to misunderstandings in the past.

Counselor YU: Well, the U.S. administration has repeatedly stated that it adopts a constructive engagement policy towards China. We hope that the U.S. Government will match these words with deeds. Containment is the legacy of the Cold War, which must be abandoned.

NARRATOR: Yu Shuning is the press counselor at the Embassy of the Peoples' Republic of China in Washington, D.C.

Counselor YU: But we still hear voices of containing China from some quarters in the United States. We think this is both unhelpful and dangerous because it will obstruct the normal development of Sino-U.S. relations. Therefore, we hope that the U.S. Government policy toward China will not be affected by this outmoded Cold War thinking.

NARRATOR: Problems in U.S.-China relations were discussed at this press briefing in April 1996.

HARRY HARDING: So, with the policy of engagement, I think, was a missed opportunity in that it involved, as I've said, dialogue without purpose, interaction without coordination.

NARRATOR: Harry Harding is a specialist on Asian affairs and is currently the dean of the Elliott School of International Relations at the George Washington University.

Dr. HARDING: And increasingly, I think there is a sense both inside and outside the Clinton administration as to what the purpose of engagement should be. And that is that you try to integrate China as a emerging power into the international community, both globally and regionally. In other words, unlike containment, this is a policy that does not seek to exclude China, but to include it.

NARRATOR: China's inclusion in the international economy provides an avenue for U.S. entrance into China's growing economy.

Ambassador LILLEY: I think, first of all, we've got great common interests in economic cooperation. This is the key to China's success. They are good at making money. They are good at making products. They have expanded their market. They've brought people out of poverty. They've expanded access to the world. China has changed remarkably in the last 15 years because of economic development. The United States has participate to in that. It has to be a major player.

NARRATOR: China's emergence into the global economy has been a big boost for the businesses and people on the mainland. China's path to modernization has been slow, but profitable. China is gradually moving from a planned economy to a market economy, with the state reducing its control of local businesses.

China's GNP rose 11.8 percent in 1994 and 9 percent in 1995. Trade is booming. Two-way trade between the U.S. and China has risen from $2.3 billion in 1979 to roughly $48 billion in 1994. And China is working towards attracting foreign investment.

Counselor YU: Well, we have more exchanges with the foreign countries on the political level and on the economic level. We have introduced a series of policies for the foreign investors, so that there will be a better environment for the foreign investors to come to China.

NARRATOR: China's population of 1.2 billion people offers an enormous market for foreign products and services. But it is important to remember that while China's modernization strategy may parallel Western practices, the result will be a distinctively Chinese system, run by the Chinese.

Ambassador LILLEY: Things will change and my own suggestion is that you work on the economic aspect, but it will never come out the way you think it's going to come out. Their capitalism will have Chinese characteristics that will make it quite different from ours. Accept that fact and live with it.

NARRATOR: In the 1980s, China started to modernize its military forces. China also modified its national defense strategy. It has discarded the notion of a "People's War" in which sheer numbers of soldiers would ensure victory. Instead, China has focussed on better trained officers and high-technology equipment.

China has reduced the size of the People's Liberation Army by over one million people, bringing it down to about 2.2 million. China has bought SU-27 airplanes to upgrade its air force, and Kilo-class submarines from Russia to modernize its navy. But all of these improvements have caused some nations to question China's intentions.

Mr. WEIDEMANN: Are we worried about its military modernization program? I think at this point we would say no. That China is coming from so far behind, has such a long way to go in terms of developing a truly modern military with force projection capabilities that it is does not pose by any objective standard a threat to its neighbors alone, nor of course to the United States, which is very far away.

Could it in time become a military threat? Yes, it could, of course. And that gets back to our strategy of comprehensive engagement.

Dr. MONTAPERTO: China wishes to be a great power. They see the key to this -- they even have a phrase for it. It's called "Building a rich country with a strong army." And the idea is to build a world class economy that will support the building of a world class military force.

NARRATOR: Ronald Montaperto is a senior fellow at the National Defense University.

Dr. MONTAPERTO: The Chinese clearly understand, the Chinese military clearly understands and supports the judgment that overall military modernization, in turn, judged as equipment modernization, getting new ones, must await the production or must await the ability of the nation to produce resources sufficient to sustain it. So, they're taking a very, very gradual and a very, very incremental approach.

NARRATOR: China has used the Gulf War as a model for their modernization. China believes that advanced technology will be the decisive factor in future wars. According to the Chinese, however, force would be used only as a matter of self-defense and not to attack another nation for economic or territorial gains.

Counselor YU: First, China's defense policy and the military strategy are both defensive. Its armed forces are for the purpose of self-defense only. Second, the Chinese government has strictly controlled its defense expenditures at the lowest possible level required to ensure national security.

NARRATOR: Yet questions remain regarding just how much China spends on its military.

Counselor YU: Our defense expenditures have been low, both in absolute terms and in terms of percentage to the country's GDC. From 1979 to 1994, despite nominal average annual growth of 6.22 percent, when allowing for price rises, China's actual defense expenditures registered a negative growth of -1.37 percent.

NARRATOR: Estimates of defense spending range from China's official figure of about $7 billion to the International Monetary Fund's estimate of about $40 billion and the World Bank's estimate of almost $63 billion. These estimates vary according to estimates of purchasing power and the inclusion of estimates of other sources of military funding, which do not appear to be included in China's calculation.

But even taking the accepted estimate of about $29 billion, that still only constitutes a little more than one percent of China's GDP. In fact, using this estimate, China spends only 24 dollars per capita on its military. The U.S., on the other hand, spends almost $1000 and Japan about $430.

From these numbers, most analysts concur that China today poses no threat to either the Asia-Pacific region or to anyone else.

Dr. MONTAPERTO: The status of China's military forces today is that they're starting from a very, very low base and they are gradually and incrementally getting better.

NARRATOR: So, the question arises, when might China become a threat?

Dr. MONTAPERTO: I have never really heard anyone who plans or who thinks that China is our next military threat. One must be prepared for all contingencies. But assume that that were true, even if that were true, China is years away from being in a position where the combination of capabilities and intentions would be such that they would pose a threat to U.S. vital interests or the interests of our friends and allies.

NARRATOR: While modernization is normal for any military, some analysts feel that China is worried about American policy in Asia.

Ambassador LILLEY: Now what is the real problem is looking out from Peking, what do they see around them. It isn't Le Teng-Hui's visit to Cornell or the American carrier battle group, it is the United States trying to establish a united Korea under Seoul allied to the United States. The Chinese fought the Korean War over that. You've got to be very careful how you move on this. It is a renewed Japanese-American security alliance, strengthened, broadened, deepened. China sees this aimed right at them.

Then you bring in Taiwan, not the trip, the F-16s, the frigates, the French Mirage fighters, you're building up their military capability. Unsinkable aircraft carrier. MacArthur. Move down to the South China Sea. The United States takes a much stronger position. Sea lanes are critical to us. There will be no use of force. The Americans are expanding their interests in the South China Sea. America takes a stronger position on human rights and democracy in Hong Kong.

Move over to Vietnam. Rapid normalization with Vietnam. Senator McCain says this is to deal with Chinese hegemonism. Move over to India. We're starting to warm up the military relationship there. What does this look like from Peking? Encirclement.

NARRATOR: This is the crux of the problem. China and the U.S. look at the world through different lenses. While stability is a common aim for both countries, differences in politics, culture and economics have hampered cooperation on some issues.

Ambassador LILLEY: If you work out common cooperation, primarily on economic and strategic matters, then you get the process moving, and then you have to deal with individual instances. North Korea, South China Sea, Taiwan, future relationship with Japan, India, and China's relationships with Russia.

NARRATOR: The issue of human rights abuses continues to plague U.S.-China relations. People still remember the massacre at Tiananmen Square in 1989 and the subsequent crackdown on political dissidents.

The release of dissident Harry Wu in 1995 as a concession to the U.S. offers some hope that there will be change. But political repression remains a sticky problem, one which the United Nations has been unwilling to confront and one which the U.S. cannot change on its own, and one which China sees as a domestic issue.

Intellectual property rights have caused tension in trade relations. These tensions almost ignited into a trade war in 1995 over illegal copies of music and video tapes. Again the Chinese are taking some action, but at a pace too slow for many Americans.

Proliferation is also an issue of concern. Sales of Silkworm missiles to Iran and alleged sales of ring magnets to Pakistan have forced the U.S. to debate the imposition of sanctions and risk hurting bilateral relations. By contrast, China's signing of the Non-Proliferation Treaty has persuaded some that China is mending its ways.

Mr. WEIDEMANN: We do have lots of empirical evidence of China's having taken a much more responsible attitude towards proliferation over the past several years.

NARRATOR: But China's nuclear testing policy is worrisome as well, especially in light of the two tests China conducted in 1995.

Mr. WEIDEMANN: At the same time, I must point out, we are concerned that China continues to carry on underground nuclear tests, is the only nuclear power to be doing so. But still, it asserts that at the end of its testing period, the end of this year, it will sign the CTBT.

NARRATOR: China does support a "no first use" policy and the signing of the Comprehensive Test Ban Treaty. But China also wants to maintain the right to conduct peaceful explosions, something the U.S. opposes.

At the top of all these points of conflict remains the problem of Taiwan. Taiwan has been the biggest sticking point in China-U.S. relations for almost 50 years.

Mr. WEIDEMANN: Let's look at the Chinese position. Their position is that Taiwan is a part of China and, therefore, an issue of national sovereignty, about which they have very strong nationalistic feelings. And they see it as essentially, therefore, an internal matter in which the U.S. has no business interfering. We simply can't accept that particular interpretation.

Counselor YU: Well, the Taiwan issue is most sensitive and important issue in our bilateral relations. So, we think if we are to develop some relationship between the two countries, this issue must be handled properly. This means that the U.S. Government wants to stick to its commitment to recognize only one China.

Mr. WEIDEMANN: Yes, we also believe there's a one-China policy, but that recognizes a position that's set both by people in the PRC as well as by those in Taiwan.

NARRATOR: While the U.S. acknowledges a "one-China" policy, U.S. response to the military exercises China conducted in March 1996 in the Taiwan Straits have left doubts in some minds as to just what that policy means.

Mr. WEIDEMANN: We're not seeking to dictate the terms of ultimate solution on Taiwan with respect to its future. We know that that's a matter between China and Taiwan to work out. And in the meantime, we do not seek in any way to pick a fight with China or to provoke it. Our actions were, frankly, in response to what we saw as kind of a provocation on the part of China with respect to Taiwan.

Dr. MONTAPERTO: I think there was an important message that we sent there.

Ambassador LILLEY: Don't use force. That is a very clear, emphatic message. There is no force solution to the situation in the Taiwan Strait. It must be done diplomatically, politically and economically,

Dr. MONTAPERTO: The Chinese have interpreted this to mean that we're defending Taiwan. Maybe even the Taiwanese now believe that we're out there -- that we will be defending Taiwan. Also, I think that particular action did help, if that's the right word, to solidify within China this view that the U.S. is following a policy of containment. Those are the costs, but we can work with those costs. I would say that in dealing with China, first you need to be firm.

Counselor YU: We said that the Taiwan issue is the internal affairs of the Chinese people in which we do not brook any foreign interference.

NARRATOR: So, where does this leave U.S.-Sino relations? And what lies ahead for the future?

Mr. WEIDEMANN: Basically, the U.S. views China as a country which is first and foremost focussed on its own economic growth and development, which really follows the pattern that we've seen for the past 15 years or so, since China opened its doors to the outside and launched its program of economic reform and modernization.

Counselor YU: China's policy of reform and opening up, as well as its political stability and its high rate of economic development, have contributed to the prosperity and stability in the Asia-Pacific region. A stable, developed and strong China will make greater contributions to world peace and stability.

Dr. MONTAPERTO: When the Chinese think about strategic things, what they're really thinking about is ways that they can establish the kinds of relationships that will enable them to build up their economy and to build the base that will make all other things possible.

NARRATOR: Due to China's focus on its economy, many analysts believe that this should be the focus of U.S.-China relations and that perhaps economic forces will bring about democratic changes in China.

Ambassador LILLEY: Get on an even keel with China, get competitive. Import-export loans, soft loans, technology transfer, investment. Work with their capital markets, develop their autonomy in their central bank. Help them modernize their infrastructure. Help them develop their energy resources. This is where you play the game.

Dr. MONTAPERTO: If U.S.-China relations are stable and, hopefully, cooperative, that means there will be peace and stability in the region and we can all go about doing what we do best. And that is, building our economies, and trading, and doing all those things that make our lives better.

Dr. HARDING: Integrating a new rising power into the international system is the most difficult, the most difficult task of international diplomacy. It has rarely been handled successfully. And given the uncertainties surrounding China's future, the task of integrating China with the rest of the world will be, doubtless, extremely difficult.

NARRATOR: But even though the task of integrating China will be difficult, most analysts believe that it is something that has to be done for a variety of reasons: China's economy offers great market potential. China's rising military power makes it an important force in Asia. And China has been key to U.S. efforts to resolve the conflict on the Korean Peninsula.

Cooperation and negotiation are vital to regional stability, but these things must be done carefully.

Mr. WEIDEMANN: Obviously, nobody needs a new Cold War and, therefore, we're trying to build a relationship with China that would avoid that.

Dr. MONTAPERTO: I don't think China is a threat to the United States, and I think we're decades away from seeing that. I cannot resist saying, however, that if we do act in that manner, we are likely to bring that about, and I think that would be a terrible, terrible mistake.

Counselor YU: Maintaining a normal relationship with the United States is our goal.

Ambassador LILLEY: China is not a threat, it's a challenge.

ADM SHANAHAN: China is a nation in dramatic transition, economically, politically and in its leadership. The country's gross domestic product is growing at a 6 to 8 percent annual rate, and this growth is forecast to continue into the next century. By 2010, China could be the dominant economic and military power in the Far East.

It is high time for the United States not only to determine our own long-term interests in the Far East, but also the common interests we have with all of the major players in that area of the world. Not just China, but also Japan, Korea and, by no means least, Russia. We need to get on with this effort by developing a structure for highly selective constructive engagements while the window of opportunity remains open.

For "AMERICA'S DEFENSE MONITOR," I am Jack Shanahan.

Produced by the Center for Defense Information