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Recent Developments in China

Address by

The Honorable

James R. Lilley

Former United States Ambassador to China

May 6, 2004

It’s very good to be at the Los Angeles World Affairs Council and talk to people like the man here from the Shanghai American School, Chinese friends, American friends—it’s like “This Is Your Life.”

We’re talking about a personal family engagement with China over nine decades, roughly from 1916 to 2004.  Father, Standard Oil; older brother, Frank, military and World War II; and myself, academic, intelligence officer, businessman, and last, but not least, diplomat and what Marshal Green, another diplomat, described us as “extinguished diplomats.” Before I became an extinguished diplomat for a long time I participated in what you might call the “second oldest profession”—or was it the first?  I don’t know.  Anyway, I see China through a prism.  I would not be presumptuous enough to generalize about China’s 5,000 years of history.  Having said that, my observations are irrelevant if I don’t deal with context and historic evolution.  Only this way can we make sense of what has consumed our daily lives—at least my daily life—in order to detect patterns, trends and rhythms.

There are always historical parallels and allegories in China.  If one looks back into the Tang Dynasty, roughly from 600 through 900 B.C, one has the famous Emperor Xuan Zong who fell in love with a voluptuous concubine called Yang Gui Fei. He got into trouble because she was very demanding and very greedy so he had to make a choice whether he would go with the empire or go with Yang Gui Fei. Yan Gui Fei lost and he had her strangled in front of the troops.  Now if you jump ahead to Chairman Mao in the ‘70s and you see him and his wife Jiang Qing, you wonder if Mao read enough Tang dynasty history.  In any case, as pointed out, China goes back a long way.  In the 15^th century, China’s per capita income was probably the highest in the world and at that time there were 100 million people in China and where were we?  Let’s look at these eras because you cannot escape your past in dealing with China. 

My father got there in 1916 and it was the era we called “the era of gun boats, oil camps and bibles.”  Oils For the Lamps of China, Alice Tisdale Hobart: Standard Oil developed this little can with a chimney and a wick on it and the peasants had light.  They gave it away free and then charged two coppers for kerosene, three, four and five and made a mint—oil for the lamps of China.  Gun boats. The 15^th infantry in Tin Sing when I was there in 1936-37, the home of General Marshall, Stillwell, Rittemeyer, the 4^th Marines in Shanghai, the gun boats came up the Yangtze River. We felt secure with the infantry, the Marines and the Navy. And the bible. Read Pearl Buck, The Exile, The Fighting Angel, read about the Boxer Rebellion and how the Chinese felt about the Christians in the year 1900.  So you know that this is part of our history in this early period of what we call “semi-colonialism, semi-feudalism” — those are Mao’s terms.  And out of this came China’s humiliation and it became manipulative and it became resentful and it sought and played on victimization.  Consular courts, foreign concessions, foreign privileges, unequal treaties.  We had privileged positions.  We lived in a beautiful house with five, six, seven servants, idyllic, but outside there was chaos.  We lived this very privileged life.

 History: The Boxer Rebellion.  When the Chinese Foreign Minister mentioned to our distinguished Secretary of State after he had imposed sanctions on China, after the Tienanmen massacre, he said, “You foreigners are like the eight powers marching on Peking.”  Our Secretary of State said, “What the hell is he talking about?”  He said, “Charleton Heston, 55 Days in Peking.”  Remember that?  The lightbulb went on and we had historic collections right there, but it all ended in 1937.  The foreign position evaporated.  The Japanese invaded and occupied most of China. A civil war broke out, the Japanese occupation, corruption, inflation, stagnation, cowardice in China was rampant, it was ripped apart. Out of this came chaos and this burns in the minds of Chinese today.  We cannot have chaos, we cannot have chaos again.  Justice says we cannot be humiliated again.  So these trends are there in their mentality in dealing with us. 

The third period came in 1949 when the Communists took over the mainland.  You had the coming together of China, but the first thing that occurred in 1950 was the Korean War where Kim Il Sung, the Great Leader of North Korea, had convinced the Chinese that he could take South Korea in three weeks and the Americans would not intervene.  Well, wrong—three million dead Koreans, 33,000 dead Americans and a half million death Chinese—this was a horrible, horrible mistake he made.  Then the Chinese lost Taiwan.  They could have taken it in early 1950 with but Kim Il Sung said, “Hold off.  I’ll take South Korea, then you take Taiwan.”  Well, of course the minute he invaded South Korea we ordered the 7^th Fleet into Taiwan and it’s still there.  So, the Chinese remember this and they remember about war and they remember that war characterized this period.  That we were all foot soldiers in the covert war against China using paramilitary activities, Asian drops, penetration, covert propaganda to try to change China.  We hadn’t read Jonathan Spence’s book that told us how futile foreigners were in changing China. We went ahead and did it—we were young, full of beans and we paid a terrible price. 

My classmate, Jack Downey, spent 21 years in a Chinese jail because his plane crashed in Manchuria just as mine came back safely. We paid a price and we made these mistakes. And we fought the paramilitary war on into 1975 in Vietnam.  We had fought in Laos for three years in 1965 through 1968.  We learned techniques.  We weren’t as unsuccessful as we were in the ‘50s.  We had an operation going in Laos that succeeded partially.  We had an operation going in Tibet which had some real coups in terms of ambushes and capturing the documents and prisoners but it didn’t work.  They were too big, they were too strong and you don’t fight a guerilla war on the land, on a growing power with any chance of success.  Your borders are too porous, your revolutionary base is too large, and that’s what happened to us in Vietnam and it’s what happened to us in Laos.

But we fought it and gradually it fizzled out. We also found that it fizzled out because we used World War II tactics, which didn’t work in Asia.  There was no French maequi, there were no people who worked with us that fought against the government in charge.  We thought they were there, but they weren’t.  In fact, one of my friends said if he ever actually found a guerilla in China he would stuff him and put him in the Smithsonian.  We didn’t find them and a lot of men died in this process.  But we learned through this process as we moved into our next phase. The crucial phase started in 1971, this was in the classic and historic breakthrough that was achieved by Zhou Enlai and Mao Zedong, Nixon and Kissinger.  But not before we had this military thing sort of trail along after us in Asia because the Chinese, in looking at our paramilitary activity and looking at what they called their own revolutionary lapse, saw in east Asia ripe areas for revolutionary penetration. They fought and supported Communist parties in Malaya, the Philippines, Thailand, and Indonesia, all without any success.  So they’ve had their flops, too.  Their movements were wrapped up; they supported a bunch of half-baked Communist leaders, just like they supported Milosevic in Yugoslavia, Ceavsescu and Romania, Pol Pot in Cambodia and Hoxha in Albania.  They know turkeys, they supported them and they supported these stupid revolutionary movements in Southeast Asia militarily and they flopped. 

But they came out of it educated, we came out of it educated and we realized that the real problem wasn’t in these half-baked guerilla movements in Southeast Asia or in America’s pinpricks in the great belly of China.  It was in the Soviet Union—that was the problem, and when the Soviet Union started to beat up on China on the borders in 1969, they turned to us.  They used barbarians to fight barbarians. It’s a concept in their history that makes sense to them. They turn to us, not because they loved us or appreciated our technology and our fine culture, it’s because they needed us to keep the Soviets off their backs because Brezhnev was talking about surgical strikes at their nuclear facilities—all this kind of talk was going on. 

So they turned to us and something came out of this.  There was a whole series of things that took place.  There was, first of all, the growing intelligence cooperation against the Soviet Union.  It started out with briefing the Chinese in 1971-72 on using our advanced technological means to tell them what the Soviets had on their borders. This led to the breakthrough in 1975, when I was in the Agency and we came up with this idea, of setting up sites in northwest China which looked right down on Russia’s nuclear underground testing and their rocket shots and this became a mainstay of our cooperation. 

Afghanistan, we cooperated there.  Chinese crews served weapons, individual weapons—AK47s, and American management.  At that time, if you think back, that was revolutionary war against the Soviet Union, and it did contribute to the end of the Soviet Union because we cooperated.  We cooperated in Cambodia, and the Vietnamese were eventually driven out.  We cooperated in a number of areas in sites and then in supplying the Chinese military with avionics for their fighters.

So we went into this period with a new sense of purpose on both sides.  We had a common objective, and then it began to change. It took on the coloration that we have today. I trace this back to a 1977 trip that George Bush Sr., made back there as an unemployed man—he’d just been dropped—Carter won the election and Bush went back. We knew that the Chinese offshore oil had been a flop.  Their jacked-up rates were turning over, they lost some people, they didn’t know what to do with the semi-submersible rig they had bought from Norway, the instruction books were in Norwegian and they were in a mess. We knew that Deng Xiaoping was coming back into power and he said, “What the heck am I going to do about this?” and we said, “Try a risk contract.  We do all the exploration, we do the exportation.  If we hit oil we share the production.”  And Deng said, “I like it.  Let’s do it.”  He could do that and he could wipe away generations of the Three No’s: “no foreign joint ventures, no exportation of resources, etc., and he did it. And about fifteen months later he announces and carries out his historic plans for the reform of he Chinese economy. And that’s what you’re seeing today, the incredible fruits of what this man did, driving ahead with China and changing its form.  His party changed China, fundamentally.

But the relationship was never transquil.  It always had a cyclical nature to it—up and down, up and down.  Reagan comes in and says, “I’m going to reestablish official relations with Taiwan,” and they explode in rage.  They come to him and say, “You’re going to cut off all arm sales to Taiwan.”  He says, “Go to hell.”  And you end up in a standoff.  Relations go down. Reagan goes to China in 1984 and he says, “It ain’t so bad.”  He gives a speech and he’s a very charming guy and tough as hell, they found that out, and relations take off.  Enter George Bush 41, and what happens?  Tiananmen Square. Everybody saw it, they saw the demonstrators—and they saw people dissemble about it afterwards.  People were horrified and disgusted.  I was there, and I can tell you relations hit rock bottom, especially when the leading dissident asked for refuge in our embassy and stays there for thirteen months.  He was there and we went through this tortuous period of trying to get this guy out of there, China accusing us of internal affairs interference, supporting a criminal, etc. and eventually we let him out.   It’s a long complicated story, but it hit bottom and then we take off again.

Enter Bill Clinton,  “I’m going to link human rights progress with taking away Most Favored Nation [status],” and bang, they go down again, with the Chinese saying, “We’re not buying.” And Clinton changes his policy and declares a victory and moves on.  They didn’t do anything. They didn’t change anything; however, the Americans always can spin.  In any case, these things go up and down, up and down. In 1999 we accidentally bombed their embassy in Belgrade and they’re storming the streets, and in 2001 one of their F-8 aircraft hit one of our EP-3 reconnaissance planes, they capture the crew, they keep them there.  It all gets shaken up with George Bush 43’s reign but it gets solved in eleven days and all the guys come home and we get the plane back, sort of carved up, but we get it back.

So, what it tells us is the cyclical nature of this thing.  Don’t ever get complacent. Something is going to happen, a bomb is going to drop, something is going to happen in Taiwan. But speaking of that managing the China-U.S.-Taiwan relationship is something you hear about. “Flashpoint” is used very loosely.  Everybody talks about this very dangerous situation between Taiwan and China.  Read what they say.  Semantics are purple prose thrown at each other.  Independence, use of force, arms sales to Taiwan, one country-two systems, deployment of missiles, back and forth, back and forth, and we love it.  We eat it up.  It looks like there’s going to be trouble. 

At the second level, something else is going on.  Three-quarters of a million Taiwanese are living in China, $100 billion worth of investment, the highest level of investment in trade that they have ever had in March 2004 just as the Chinese are raising hell over the election of Chen Shui-bian, the so-called independence man of Taiwan.  So what does that tell us?  It tells us “play it at different levels—don’t get wrapped up in semantics, pay attention to it.” We can’t ignore it; you must pay attention to the basics, the fundamentals, the things that drive this relationship, this interdependent relationship that centers around money. Money: the global supply chain, Silicon Valley, Taiwan, China, manufacturing, technology transfer, management, investment.  It works.  It’s very, very successful and you saw visionary men begin to arise.  You saw this visionary in China called Deng Xiao Ping who did his economic reform--but when it came to political reform he would have no part of it.  Nobody changes this system by going outside of the Communist party, and people die because he is not a Jeffersonian liberal.  We found that out. He’s a Communist party member, he may look and act like Harry Truman but he ain’t Harry Truman.  And Chiang Ching-Kuo, another visionary and pragmatic man from Taiwan arises and he said to us as early as 1982, “I’ve got four points I’m going to carry out.  One is I’m going to democratize Taiwan,” it was a totalitarian authoritarian state,  “I’m going to Taiwanese it.  I’m going to get these Mainlanders out from running this place.  This is going to be run by Taiwan.  They are 85 percent of the population.  I’m going to keep this place prosperous.  I’m going to make money for Taiwan, build it up and I’m going to open up to China.” He said this five years before they opened up and the idea was that if the United States could get it right that a prosperous and stable Taiwan was a better partner for Beijing than a torn insecure unstable Taiwan, and the way you gain stability was to give them the spiritual support plus some help in building up their defenses.

And this led to the big breakthroughs in 1987 I told you about, the incredible, almost miraculous, progress they’ve made on the economic and cultural fronts—education, sports, all of it, and the one remaining factor is the political front.  We’ve tried to take a hand in this, we tried to help this process along, we knew it was important to defuse it to our own interests, so I conveyed a message to the President of China, Jiang Zemin, from Lee Teng-hui, the President of Taiwan, that he would not declare independence. I think this helped for a while, we now hear stories through Singapore that the new president of Taiwan, Chen Shui-bian, who was elected on March 18^th 2004— it’s still contested but it looks like he’s going to get it — has sent notes on his inaugural speech to the Chinese indicating that he will stick with the so-called “Four Nos”, which include “don’t change the name of Taiwan, don’t change its territory and don’t change the flag.”  The key issues of independence, sovereignty, unity, association.  He will then give the Chinese the semantic assurances they think they need.  Whether this works or not we don’t know.

I think the other factor we have to realize and I try to deal with this without getting emotional about it, is the important element of symmetry in the relationship with China. I can’t think of any country in the world where symmetry is more important and I think this has proved time and again in our relationship with China.  It started with Kissinger, Nixon, and Mao.  It had to have that element of seize the moment, seize this strategic element and move it and get the compromises and agreements you make together to push this process forward. They did it. They did it very successfully and then came Brusinski who established this relationship which led to the normalization of relations with China.  But even before that, there was this extraordinary chemistry between George Bush 41 and

 Deng Xiao-ping.  Bush was the head of this two-bit 26-man post in Peking, not even an ambassadorial post, in 1974 and Deng was vice premier, he had just come from seven years in a cow pen, purged in the cultural revolution.  But somehow these men saw in the other one the future leader of his country. Their relationship was sometimes ascorbic, but I was privileged to see the two men work and that meeting they had in 1977, I think, was historic.  But it didn’t stop there.  They met again in 1989 in Houston and they talked about defusing the Taiwan situation. About eight months later Deng’s people announced not the liberation of Taiwan, but the peaceful unification with Taiwan.  I can’t say this has really happened, it was just a chronological coincidence.  Something happened. 

When Bush went over there in 1985 I was privileged to go with him.  He asked Deng if he could see the new leadership.  Who were the men who were going to take over?  He introduced us to this one man and stood there, spoke English, handsome fellow.  He was on the standing committee of the Politburo, only five members at the time, and he voted with the students and he was purged.  But he was part of the new leadership and you see that today in the fourth generation leadership that’s coming up now. You look at these people and they are a different breed; they’re college graduates, engineers, practical, sensible men, but they will keep tight political control.

But again in 1989, when we had the crisis over Tiananmen, we slapped these very tough sanctions on China and I was the messenger that delivered a lot of them.  Bush took the risk of telling Deng, “We have to do this to you,” but he softened it up with trips by Nixon and Kissinger in the fall of 1989 to explain the rationale. Then he said to Larry Eagleburger and Brent Scrowcroft over there to tell the Chinese secretly that we would sustain the strategic relationship.  Unfortunately the trip got exposed and was made into a caricature.  Bush was savaged.  The Chinese saw us “coddling communist dictators”—remember that phrase? Bush was smeared.  But he preserved the strategic relationship and by the time I left there in 1991 we were getting agreements across the board from the Chinese.  We were restoring things that had been broken and we made it move forward.

So I say don’t ever shortchange symmetry. You do need the good Chinese expert, whether it’s Dick Sullivan or Mike Oxenberg, who was up at Stanford.  You need these guys around. If Dick Cheney’s going to China as Vice President he’d better take some along with him.  And if somebody else is going over there take them along.  I know sometimes we’re a pain in the neck, but put up with it.  It helps. 

It’s also very important in this long evolutionary process with China, I think, to have timing; to seize the moment.  If you have a dissident in the embassy, in Peking, for 13 months and are surrounded by people with AK47s who harassed, look for signs to get this thing solved and when you see those signs emerging you take advantage of them. The sign was that China wanted to get back its World Bank loans and keep Most Favored Nation status.  That was the leverage and we got martial law lifted in Tibet and Peking and got freedom for some of the dissidents, and we got Fang out.  But you have to move quickly on some like that.  You have to move very decisively and quickly like when their plane crashed into ours in 2001—April 1—and you got it solved in 11 days because you sensed that the Chinese wanted to get this thing out of the way and they also knew that their military had lied about the nature of the crash.  They said the Americans turned into it; this is baloney.  It defied the laws of physics. We had a man there who had flown EP-3s and explained this. 

Seize the moment when you have the Chinese tide going with you. Their concern about the Soviet Union was very strong. Then you add on to them a dimension of security they didn’t have before because you know about Soviet strategic weapons programs. Things you never knew about before.  So, I think those things are terribly important whether it’s offshore oil, northwest sites, getting dissidents out, taking care of an air crash.

I try to point out, as I get into the book, that out of the tragedies can come real progress.  My brother died, he was broken by his experiences in China and by his serving Japan right next to Hiroshima.  He saw these places that he knew as a child utterly destroyed and I think it took a great deal out of him but out of this tragedy comes change.  My father was embittered when he left, my brother was destroyed and I moved on.  We see the change coming, we see the tides coming and we have to identify them.  The dynamic is there.  “There is a tide in the affairs of men which, taken, and the flood leads on to fortune.”  That kind of thing.  We saw it  Korea in 1987 that there was a tide moving towards democracy and we had to get with it.  The end result in Korea is not our kind of democracy; it’s their kind and it can be anti-American but, by God, it’s democracy.  We know the nature of the problems are changing. They’re becoming financial.  When we went to China in March this year the one thing the Chinese wanted to talk about was their financial markets.  They really didn’t want to talk about Taiwan and North Korea.  I was prepared to do it, but they wanted to talk to our chairman, who’s head of Paxton and who’s a very successful commodities trader, and economist about what they can do about these very serious problems they have in their financial markets.  Give us a paper, let’s have an exchange, what’s the Japanese experience, what went wrong in Japan, what dragged them down, what are we doing wrong?  They knew what they were doing wrong, but they wanted assurance from us and they wanted fresh thinking on it.  We weren’t wandering into the past. We were talking about the future and how America can participate in their problem at the right time, with ideas that are constructive and help pull them out of what could be a burst bubble. 

We may not be as concerned as they are.  We see Shanghai; we see the big cranes and the roads all through China, four-lane highways, landscapes—things that were just unbelievable. And yet the Mayor of Shanghai said, “Every morning the foreigners come and tell me how great I’m doing and every afternoon the Chinese come in and dump all over me.  So you foreigners, lift the rug up.  We’ll show you what the real problems are.  We have a terrible problem in corruption. We have shrinking farmland. We have great disparities of wealth.  We have this crony capitalism; our loans are made to lousy nonproductive corporations, state-owned enterprises.  We have $400 billion tied up in foreign exchange.  We have the highest savings rate in the world and we can’t make a profit from it.  What do we do?  Talk to us.”  And we did. 

But there are other problems.  It’s not easy to solve.  We have problems with the Chinese in terms of the whole business of Taiwan, we have it in terms of what we consider to be their power projection. They consider us a containment factor, the hegemon, the world power that throws its weight around. They’re concerned about that and they tell us that and they’re preparing against it by building up their military. I’m not an economic determinist but it just seems to me that somehow you can get the two sides of the China Strait to think in terms of building the relationship from the bottom up, working on standardized banking regulations and creating a free trade zone and Disneyland East instead of a place where too many troops and too many missiles are aimed.  That kind of thinking you push into the situation even if it’s rejected, try something else; come up with a better idea. 

So, I’ll end on a note that we may not be able to prevent war, but we can make it much more unlikely and we can cooperate in these areas:  HIV-AIDS, this horrible problem of this sick country of North Korea.  There are things that you can do constructively together, I think, that cement good solid relationships.

Thank you.

Views expressed are not necessarily those of the World Affairs Council, which pays neither honoraria or expenses to its speakers.