<html><body>American Enterprise Institute October 23, 2007 [Edited transcript from audio tapes] <TABLE cellSpacing=1 cellPadding=1 width="100%" border=0> <TBODY> <TR> <TD> <DIV class=BodyText>8:45 a.m. </DIV></TD> <TD> <DIV class=BodyText>Registration</DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>9:00  </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panel I: The Road to Rivalry? Security Challenges in Asia</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panelists:  </DIV></TD> <TD> <DIV class=BodyText>Brigadier Arun Sahgal, United Service Institution of India</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Lanxin Xiang, Graduate Institute of International Studies</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Masafumi Ishii, Embassy of Japan</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator: </DIV></TD> <TD>Michael Auslin, AEI</TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>10:30  </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panel II: Is Growth Sustainable?  Fault Lines in Asia s Economic Future</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panelists:  </DIV></TD> <TD> <DIV class=BodyText>Richard Katz, Oriental Economist</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD>Philip I. Levy, AEI</TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Beth Anne Wilson, Federal Reserve Board of Governors</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator: </DIV></TD> <TD> <DIV class=BodyText>Claude Barfield, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>12:00 p.m. </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Luncheon</DIV></DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Keynote Speaker:   </DIV></TD> <TD> <DIV class=BodyText>The Honorable John D. Negroponte, U.S. Department of State</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>1:00  </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panel III: Transnational Challenges and Regionalist Responses</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Panelists: </DIV></TD> <TD> <DIV class=BodyText>Richard Cronin, Henry L. Stimson Center</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Keiichi Hori, Asian Forum Japan</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Da Wei, China Institutes of Contemporary International Relations</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText>Moderator: </DIV></TD> <TD> <DIV class=BodyText>Christopher Griffin, AEI</DIV></TD></TR> <TR> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR> <TR> <TD> <DIV class=BodyText>2:30  </DIV></TD> <TD> <DIV class=BodyText> <DIV class=BodyText>Adjournment</DIV></DIV></TD> <TD> <DIV class=BodyText> </DIV></TD></TR></TBODY></TABLE> Proceedings: Panel I:  The Road to Rivalry?  Security Challenges in Asia   Michael Auslin:  Good Morning.  Welcome to AEI, and thank you for coming.  My name is Michael Auslin.  I m a resident scholar in Asian Studies here.  We are very happy to have you all here today to join our three panels of distinguished commentators to discuss Asia 2012:  Security Challenges and Opportunities for Development.  Because of our packed schedule and time constraint, I m not going to give an extensive introduction at all but just to set the stage very briefly. Our goal today, what we hope, is to strike a middle ground between the quick response to daily headlines that we often see in the city and the over-horizon estimative approaches that sometimes also take up much of our time.  Our goal, rather, is to take a look at the key trends and coming issues in Asia from the security, political, economic and transnational viewpoints over the next half decade. Our panelists, many of whom traveled from Asia to join us today, will provide, we hope, a roadmap of sorts for policy makers and analysts over the midterm.  As you know, we are particularly fortunate to have Deputy Secretary of State, John Negroponte, join us at lunchtime to give his thoughts on the crucial issues facing this region and what posture the United States should adopt in response. Very briefly before we start, I just want to make a few acknowledgments.  The first one is to thank the Japan Foundation s Center for Global Partnership for their generous support to make this conference possible.  Also, most of the real work that was done, i.e. getting the lights on and the food delivered was done by my assistant, Jenni Gregg.  Jenni, if you could stand up for a second.  If you have a chance to thank her because I was out traveling and doing various and sundry things while Jenni was here making sure everything would come off this morning.  So thank you, Jenni. We do have three panels today.  We are going to try to keep very strictly to our time limits and give us all just a few minutes of breaks in between.  So in order to do that, without further ado, let us go right into our first panel.  I will switch positions and start from there. So our first panel is going to be on security issues which we have entitled, The Road to Rivalry?  Security Challenges in Asia.   We have three distinguished commentators: Brigadier Arun Sahgal of the United Service Institution of India, Lanxin Xiang, Graduate Institute of International Studies in Switzerland, and Masafumi Ishii from the Embassy of Japan.  We will go in that order. I m going to try to bring up your PowerPoint and then, we will get started.  Brigadier, please. Arun Sahgal:  Thank you very much.  I m indeed delighted to be here this morning and share some perceptions on how we look at the security challenges in Asia.  My presentation actually is in four different parts, but due to paucity of time, I would be focusing on two major issues.  That is, the contemporary dynamics, how the relationships in Asia are revolving and secondly and importantly, a view from India. This is the broad outline of my presentation of which, I think, the copy is with you in your folders.  Should you have any questions on that; subsequently, I will be glad to answer. Contemporary dynamics -- from our perspective, we try to look at Asia in series of systems comprising of various subsystems.  Here, we have looked at Asia from six different subsystems.  We believe that if you have to -- the whole edifice of trying to understand Asia from a systemic point of view is to look at connectivities.  Here, if you would focus on -- let s take the West Asian, the South Asian or the Eurasian system.  Some of the overlap you could see has been designed to indicate to you that there is this connectivity.  If you remove this connectivity, then the systems come apart, and if the systems come apart, then they are prone to the problems and the inconsistencies of the subsystems that are inherent in these areas.  So then, you will have a rise of regionalism; you will have several forces playing a much greater role, et cetera.  So this is what we are trying to look at.  And I ll explain it a little further. We are also looking at the Asian systemics in terms of metastability.  What is relevant?  What is -- see, looking to be stable at this point in time is part of an inherently unstable dynamic system, an evolving system.  Here, I ll try to give a highlight - the constituents of this system of systems. The constituents extend beyond Asian systems.  Asia per se is not the sole controller.  There are likely extra-regional influences.  For example, the United States is a virtual Asian power, not in a geographical sense, but it is pervasive all over, and it has a great degree of influence of the events in Asia. Each subsystem has its own systemic dynamics.  South Asia has got its own dynamics, but the implications of those dynamics will cross subsystem and then, impact the other system.  So this is something which we are trying to look at.  I ll give a greater explanation as I go along. So in Asian system of systems, while we have competitive forces in terms of geopolitics, economics, social, culture and technology, then we also look at cooperative forces in terms of trade, development and geopolitics.  And to provide a contextual relevance to all this, we look at the landscape.  What is the context in which these systems are operating? First issue is there is this whole issue of historical legacies without closure.  We have the China-Japan equation which still has not formulated even after 60 years.  Then, there is this China-Taiwan issue.  Then, the Japan-Korea issue -- the Korean issues are getting even greater salience now with the portents of unification of Korea emerging on the horizon.  Then, there is this India-China equation which is like a yo-yo; it keeps improving, diving back into the old systems, and it is on an ongoing transitional relationship.  Then, there is this proverbial Indo-Pakistan relationship which still has not found any viable stability in the sub-region. Then, there is exclusive regional equations that we find China is extending its footprints in South Asia.  This is based on two primary early causes.  One is that China is looking for linkages in the Indian Ocean region.  This is being done through proxies with overriding relationships in terms of infrastructure development, arms sales and defense cooperative relationships.  The second issue that is emerging now is China is also acting as a part of a Eurasian system that has come into play and trying to exert its influence, not only directly itself but part of the larger Eurasian construct, and I ll talk about that in a moment. There is this East Asian trilateral and quadrilateral too -- basically, from our perspective, we are looking at the emergence of two major subsystems developing in Asia which are inherently confrontational in terms of what they are trying to achieve.  There is this emergence of what we call Eurasian axis - close relationship between Russia and China.  They are trying to push these relationships both on the eastern and the western frontiers.  The eastern frontier is in East Asia - China s role at the six-party talks, China s role in Korea.  The western frontier is in China; Chinese extended footprints in West Asia - Chinese-Iran equation, the Chinese assertion for Caspian energy resources.  The whole issue correlate that with the Russian resurgence and attempts of assertion both, again, in East as well as in West and Central Asia. So the whole issue is at -- the linchpin of that -- the recent example everybody is looking for is what has happened in Indonesia.  Indonesia is now being carved out as a frontier post, so to say, of both these - in the Indian Ocean region straddling the most strategic of the strategic straits called the Malacca Strait. Then, we have the SCO and CSTO.  You are all familiar with the recent exercises.  The SCO has really transgressed now from a benign economic forum into a more assertive anti-terrorist but closely forming a security block.  Along with that is the CSTO which has now, again, gained prominence, and the highlight of that was the recent exercise in September in Russia where a large number of Chinese and Russian and the Central Asian forces took part. Now you transplant this in the dynamics that are taking place in Afghanistan.  When you look at that, what we are seeing from our little perch is that there are trench lines being created as far as Afghanistan situation is concerned.  I m saying it here because the audience here would like to know this.  The trench lines in terms of the northern areas of Afghanistan are slowly being converted into no go areas.  Our understanding of the situation is that even if the ISAF mandate was to - I will not say collapse - but if it were to get reduced and there would be a diffusion in that mandate for whatever reasons, then NATO starts unraveling for large number of reasons and we can discuss that.  I m talking about 2012, please.  I m not talking about 2007.  I m talking about 2012.  We have done some simulation exercises on that.  When you see that, you come to a conclusion that there would be a greater regional assertion, and a regional assertion would be read by the Russians-Iranian combined through the organizations like the CSTO and the SCO.  So these organizations are not to be looked upon only in terms of economic, trade and et cetera, et cetera.  They have to be looked upon also from the larger geopolitical construct. Then, there are visions of empire -- that is something we can talk about when -- In the competitive politics, we also have linkages beyond Asia Pacific.  China -- what is China all about?  China is not only linkages within Asia.  China also has linkages -- and the prima donna of the linkages is the United States and the linkages with Europe.  There are strong consumers -- manufacturing base needs these markets.  So they have to have linkages with extra-regional and looking for that, they are looking at passages.  They are looking at corridors.  The trade corridors become important.  Here, the maritime dynamics of these sea lanes of communication becomes very, very critical issue. Then also, what is being seen by us in Central Asia is, a new Silk Road routes are emerging which are providing the Chinese an access to Europe by land routes.  These are multilane corridors which are connecting to Central Asia and things like that. South Asian system has its own interesting paradoxes.  The Chinese need a direct access to Indian Ocean and they are building what we call strategic land bridges.  The strategic land bridges are the connectivities which the Chinese are trying to make with Western China as well as the Yunnan province.  The Yunnan province connectivity is to the Gulf of Akyab through Myanmar, a 535-kilometer pipeline, and the Gwadar is the linchpin of the investment connectivity.  So this is what -- energy, quest for control over access - I already talked about these issues. I ll come now to a view from India.  This map denotes an interesting formulation.  The red dots are inimical interest around India, essentially, China on one side and Pakistan.  The deep purple are what we could look at as states that are not really proxies but more pleasantly disposed towards China and not so pleasantly disposed towards India.  The light purple, if you see, is far away.  The blue is looking slightly different but blue like Japan, Australia, and India.  From Indian perspective, the so-called access of democracy is not the East Asia, Pacific region.  There is no connectivity.  So what a lot of the India does -- and India would like to ensure happens, has to be looked upon from this perspective, from the so-called access of democracy, unless there is a movement westwards and we have common connectivities.  For example, with Japan, and Japan wants to invest more heavily - I guess it does not care - we have a greater connectivity or we have a greater joint collaboration in Southeast Asia, there is going to be a problem because India would have to secure its own interests, have to manage this environment.  We also talked about a greater extended region which is essentially is from Central Asia to Northern Indian Ocean region and towards West Asia to the Malacca Strait of the South China Sea.  Here again, there is very little comfort for us.  That comfort -- although it is a relatively more comfortable environment, but this environment is getting saturated.  This environment is getting saturated by larger number of forces.  Now, with the emergence of this - what we call the East Asian access, the number of acrimonious players is increasing in Indian Ocean region.  So that is an issue that we have to be concerned about. So this is what I have talked about.  Immediate land instability and conflict is all around us.  There are external critical influences in having little moderating impact.  There is lingering historical baggage.  There is a cooperative potential but essentially unutilized at this point in time. Immediate maritime periphery -- benign.  I ll give you a small example.  Recently, I was in Beijing and I was in a panel discussion with friends in CIISS, the PLA think tank, and I talked about Asian energy for the Asians.  The theme was we have the highest degree of energy resources in Asia and the biggest energy consumers are in Asia.  There is a requirement that we must join hands together and do something about this in order to ensure our own economic development.  But the perspective from the Chinese side was -- let s say, it is a greater global issue and one of the issues I dared say so, that Japan was not even conceived by them as a part of a possible relationship.  So it is an interesting perspective.  So there is going to be this competition, and this competition is going to remain a very major source for us. The U.S. is a major Asian-Pacific stakeholder.  We acknowledge that, but I dare say to this audience, we see there is a decline in strategic footprints of United States and this is going to have its own impact.  The bottom line in this whole issue is that if there is a decline in America s footprints, then the regional players would have to devise their own strategies in order to fill up the gap. The second issue which I talked about earlier was the connectivity.  The other members of the axis of democracy are too far apart to make any difference.  So therefore, sometimes in India, despite this very good relationships with United States and it wants to build very strong and purposeful political, economic - in that order - and strategic relationship - particularly in that order - you have to understand as to why we have to be more accommodating and play a role of relative reasonableness vis-�-vis the other players who denote primarily the red color around us and the shades of red. In the end, I have tried to highlight in these two slides how to build up Asia.  Presently, Asia is in low trust system.  There are very limited connectivity.  Every subsystem is operating on its own, carving out its own relationships and getting caught up in the wider balance of power relationships either as a proxy or as a supporter to that wider balance of our relationship.  What we are trying to look at is a high trust system, and a high trust system in which each one would play a much bigger role, a more cooperative role and build up relationships in Asia which will support the cooperative structures which I have talked about in my presentation.  The copy is with you.  I m sorry I have not had the time to put it across.  So with that, I ll close.  Thank you very much for your attention. Michael Auslin:  Thank you very much.  I should mention, of course, that you have the full biographies of all our participants in your packets, and that is why I have not gone through and discussed each of their eminent qualifications.  We are going to move right on now to Lanxin Xiang from the Graduate Institute of International Studies who will give us a view more oriented towards China. Lanxin Xiang:  Thank you very much, Mike.  Within the limited time, what I intend to say are two things.  One is:  What is wrong with the assessment in the United States, in particular, about Asian security since the end of Cold War?  The second is:  What would be, in my view, the possible remedies for these assessments? The basic point I want to make is that since the end of Cold War, the Asian security issue has certainly become a hot topic, not so much because of the serious attention being paid to Asian security issues, rather than it is, at least from academic community point of view, this is one area they can invest a lot of energy to rescue the very much bankrupt international relation theories which have failed in Europe, obviously, as far as Cold War is concerned.  So they tried to figure out, Well, maybe there is a case we can make in Asian security, precisely, because it looks so chaotic, so complicated.   There is bound to be a rivalry one way or another because it is an easy bet, in other words, because you look at maps, so many flash points from Taiwan, Korea, subcontinents, the Spratlys, the Sino-Japan, US-China, so it is easy to bet at some point one of the flash points is going to explode.  Therefore, they are going to prove their theory is correct. So far, I think these predictions seem to be, if not entirely wrong; certainly, it is off-base as we can see especially in this town.  The preoccupation for the past 15 years about the rise of dragon and a variety of other struggle for mastery in Asia, the concept of the history issue will bring in a major geopolitical rivalry among Asian countries; and of course, the Taiwan Strait itself could explode.  All these predictions, so far, have not been realized in any way.  The reality is, since 1997, there is no major conflict, not to mention war.  There are many disputes but these disputes seem to be, not easily, but certainly, it is managed in a relatively peaceful and reasonable way including the very difficult issue between China and Japan on the issue of history which I, myself, also engaged in this debate in the past. So what are the foundations of this judgment about almost -- I think it is almost an overwhelming view that there will be major confrontation in Asia-Pacific.  I think -- several arguments basically. One is reading of the European history, and basically saying, Europe is the past; Asia is the future.  I think this is not so much misreading of Asian history, but it is misreading European history, especially for Asian scholars who - it seems to me - are less familiar with the European history where the mastery flow for power in Europe has entirely different context.  I do not believe there is an Asian identity to begin with.  No matter how you argue, there is no Asia.  Therefore, Asia, as a region itself, is rather a Eurocentric creation.  Therefore, it is very difficult even to talk about Asian security, Asian regionalism which is even a worse concept. Recently, I was in Paris debating with the French.  The French, of course, invented almost all isms, but even the French began to worry about whether or not using Asian regionalism is a useful concept to describe why Asia has cooperated rather than go to war. So in my view, it is that the correct reading of European history - if you want to apply to Asian security setting - the best example, in my view, would be Anglo-German relationship before the First World War rather than anything else.  That is, there is enormous potential for great powers in Asia-Pacific region to misread each other s intention, rather than actually going into a war based on real conflict.  On that issue, I do not think I need to cite -- I will say Henry Kissinger has made the best case.  The Germans -- why the Germans should offer the British that, We are going to help you protect the British Empire.   The British automatic reaction is, We want to take over.   So you offer something the British do not want and you want something from British you do not really need.  This is where I think the great power of misconception could take place.  This is what I see is more a problem than the actual conflict in their basic interests so far.  So this is the historic analogy.  Certainly, it is an incorrect analogy. Now, there is another aspect, that is, IR theories argument about institutions.  Here, I m talking about the more liberal side of the argument who also come to the same conclusion that Asia will be a conflict-ridden place.  That is to say that these are the groups who emphasize on regime theories, institution building and the basic - I have been saying - well, there is just not enough institutions there.  Therefore, there is deficit as compared with the most stable areas such as European Union and many other regional organizations where Asia - it seems to me -- to many IR theory scholars that it is hopeless because they are unable to build real institutions or sub-institutions.  In reality, I think there are too many institutions already but not necessarily as normative, formalized institutions.  I can see from Brigadier s slides, and also you can list - at least, I can list at least twenty-five formal/informal institutions already there.  So that is not necessarily a reflection of Asian system without collective security institutions. Well, I have several other criticisms, but I do not have enough time to go into history of philosophy and the misunderstanding of Chinese intentions.  I basically want to argue that.  However, despite my criticism of the past assessment in United States, in particular in the Washington area, which, as a community, I have been associated for a long time, we have to see there are real potential for conflict.  I m not necessarily led to the other direction saying this is a peaceful player -- everybody want prosperity, want peace, or using Chinese propaganda of a harmonious world to explain why Asia will not have a conflict.  That is not, of course, what I mean. What I do see the roots of conflict:  One, as I already said it, there is a strong potential of misreading each other s mind or intentions.  Therefore, the institution that really lack in Asian Pacific is an institution or mechanism of explaining each other s long-term strategic vision, including United States.  I m particularly worried about the US-China relationship in this perspective.  So far, there is no reliable channel of laying out each other s strategic vision.  Let s say, ten years or fifteen years from now, what exactly they intend to do.  Both sides are guessing each other s intentions, and it usually leads to the spiral of arms race and other defensive measures from both China and the United States.  The space issue is a typical example.  The Chinese somehow downed a satellite.  It turned out to be such a big deal.  I do believe it is a big deal if I were American.  Of course, it is a big deal, but how do you explain?  What is mechanism you can explain to each other?  Here, I think this is what really, is lacking in Asia. Of course, there is also the problem of the value systems.  This is, I think, probably even more serious a source of conflict in the future.  I do not subscribe to the argument of Asian value as the Singapore leadership tends to do for the past - almost twenty years.  I must say not even Beijing likes that idea, not to mention the rest of Asia.  However, I think there are some fundamental misconceptions about Asian-Pacific especially about the so-called rise of the major powers there.  I understand Indians prefer to say, We are emerging.   Never use the word rise is only reserved for China.  I think even that is a wrong language.  There is no rise of China.  If we think that what China is doing really is restoring its traditional position.  If we are thinking it is a process restoration - sorry, I have been debating with the French a lot on these - if it is a restoration issue, then you will see nothing the Chinese is doing is really new.  Have we never seen trade deficit before?  Of course, I mean a surplus - we always have a surplus until the 19th century - huge surplus.  Have we not seen accumulation of huge quantity of hard currency?  Well, yes.  We sucked in the whole world s silver, up until the 19th century - those days of course. So what else is really new here?  Is the Chinese embracing of world market reflecting Chinese going liberal, accepting western values?  Now, this is another misperception.  The Chinese actually invented world market globalization.  I dare to say, even William McNeil, the most famous Eurocentric historian of global history in recent years began to change his mind.  He had to add a new chapter on who invented world market.  So it is misperception in the United States, in particular, to see China participating in international economic system at receiving end of globalization.  It is a reactive -- simply accepting a free market, laissez faire economic philosophy.  Therefore logically, that would lead to -- is eventually, this will lead to Chinese efforts to get rid of its bad political system or it is a principle of political governance - domestic governance.  I do not think this is a correct assessment.  If Chinese system did not work in the past, it will not work in the future, will not work now.  So the question whether or not China should be democratized - it is a very popular phrase in Washington D.C. - I would strongly challenge that argument.  The real issue we need to ask is why we need to have China accept a western style democracy rather than seeking some kind of middle-of-the-road approach and try to figure out its own way of the political system.  In other words, the fundamental issue for me at this moment is we need a fundamental shift in our language context.  In this, I m very fully in line with the French - the post modernism - and the Europeans in general. Let me conclude since I m running out of time.  I simply want to say:  Who did not get Asian security issue wrong?  I think the Europeans did not.  You do not see the same kind of debate in Europe - the worry about dragon and so on - but precisely because the Europeans themselves have moved beyond Westphalian system.  They are using a different language - a language Washington D.C. may not understand.  I think it will take time or maybe a Democrat Party come forward, but I doubt even Hillary Clinton would understand the European language.  So thank you very much.  I will stop here. Michael Auslin:  Thank you very much, Professor Xiang.  Minister Ishii, please. Masafumi Ishii:  Thank you, Michael.  Looking at the lineup, I think Michael is asking me to be bureaucratic and diplomatic part, but I m going to try to do is to be practical - to give you the practical view and personal view. I ll talk about basically three or four things - overall assessment of what is going to happen in Asia from the viewpoint of Japan, I ll talk a little bit about the future of Japan-China relation, and the potential of Japan-India relation.  Then, I will end with a few practical recommendations or questions to be answered by you. The overall assessment -- in a word, Japan is the past.  I think China is the present.  I think India is the future.  Having said that China is the present, I think China will have to face with a lot of uncertainties, difficulties in the years to come - five years, ten years.  India will emerge as a major economic and political power, I think, beyond ten years from now. Take the example of aging.  I do not have time, so I will just take the example of aging as one example to show Japan is the past and China is the present and India is the future. When we talk about aging, we take the figures called dependency ratio.  Dependency ratio is a ratio of the population who are not working.  In other words, below fourteen and over sixty-five divided by the total population.  So the more the ratio is, the working population has to support more non-working population.  That means aging.  Japanese dependency ratio started increasing from mid 1990s already - more than ten years ago - and it is now 33 percent.  That means two people have to support one.  China is still declining but amazingly enough it will start increasing from mid-2010, a few years from now.  So that means China is catching up with Japan with ten to fifteen-year gap.  Aging in China is dramatically developing maybe because of the One Child Policy.  And the dependency ratio in India will continue to decline until 2040.  Then the increase after 2040 will be very, very mild.  So basically, what it means is we need to be careful about the future of China.  We need to be mindful of the uncertainties China has to face with in dealing with the stability in the region.  And in whatever future endeavor, we need to involve India.  I think that is the message. Second, what is the future of Japan-China relation?  I m afraid, if you talk about the five years now, we will continue to be in a difficult period.  But after that, I think we will have a much, much better future.  And the key word after five years from now is the, I think, common interest.  Well, democracy, maybe, but common interest.  I think I vote for common interest. Why am I pessimistic about the near future?  Many reasons -- I mean, historically, it is quite new that both countries see themselves as a major power, both in terms of economic terms and the political terms.  We need sometime to get used to that kind of new strategic situation.  And you know, Japan is already the past, so we are losing confidence rapidly.  We need to be able to find new source of national strength.  We need to be confident again.  Until we become confident, I think what is happening in China -- we have seen is a lot of -- we do not like it basically.  China has its own problem as well.  I think China s problem will continue to be the lack of legitimacy.  I think the system needs legitimacy for better stability. But why am I optimistic about the future of Japan-China relation, because of the clear existence of the common interest.  I ll take three examples.  Economy -- China has been the number one trading partner for Japan in the past four years.  Trade volume is more than $200 billion.  Environment -- whatever happens in China will have a big impact on us.  We have all the reason to help China for better environment, and there is a huge business over there.  I mean, what if every Chinese drives a Toyota Prius.  There is a very big market.  And we have most state of the art technology in Japan.  So I think many Japanese companies are going for that market.  So it is a win-win situation.  Last example is, I think, energy.  In a word, Russia has been helping us in realizing that is the common interest.  I think we have more incentive to have a collaboration among Japan, China, and Korea, three major consumers in the region.  Rather than divided by Russians, we need to get together.  And I think China has taken that point already.  They called energy ministers meeting of five countries last December.  Who are called?  Japan, China, Korea, U.S.  Who else?  Indians.  No sight of Russians.  So I think China does share the same viewpoint with us in terms of energy as major consumers. Now, moving on to future of Japan-India relation, I should say there are a lot of potentials, lot of potentials.  You know the bilateral relation -- you know the volume of Japan-India bilateral trade volume?  It is 8.5 billion compared with 200 billion between Japan and China - 8.5 billion.  It is nothing.  And you know the number one trade -- number one import of Japan from India?  It is prawn.  It is prawn.  Number two item, industrial diamond.  There is a huge, huge potential and we are going for that.  You know that in the past three years, a number of Japanese companies operating in China has been doubled from 230 to more than 450.  Direct investment has been increasing fairly rapidly.  And I think beyond the bilateral context - I think multilateral context - you may have noticed that this year only, we have done the multilateral naval joint exercise involving Japan, U.S., and India twice already - April near Guam, September in Indian Ocean.  So you have to watch what is going to happen in that area and we will do that every year I think - Japan-U.S.-India joint naval exercise every autumn.  I think we will do that. Now, my last point -- I mean, I think that I m not too pessimistic about the future of the relations of -- among these three major powers or five major powers.  But the question is, as the two gentleman already said, is how to connect them, how to introduce a better infrastructure to connect them.  And I think obvious things we are going to do is we will try to strengthen Japan-U.S. security alliance.  That is a core from Japanese viewpoint.  We will do that.  But beyond that, I think after February next year, you will see the revival of Japan-U.S.-Korea trilateral.  I think those are trilateral.  This is a trilateral among allies.  And you will continue to see Japan-U.S.-Australia.  This is also a new alliance.  So this, too, will happen anyway.  It is happening.  And maybe Six-Party will continue to be there as a mechanism to talk about the nuclear issue.  What is the future of Six-Party still unclear because unless and until we solve nuclear issue, I think there is no point in using Six-Party as a confidence-building mechanism because in order to be confident with each other, you need to solve the nuclear issue. So I think for the time being -- in five years, I see Six-Party as a mechanism for the nuclear issue, but beyond five years, maybe we can use that as a future infrastructure for the confidence-building in the North East Asia.  But these are the obvious things which are already going on but I think, I will end up with -- I will end with three questions as I predicted -- as I told you in the outset. The first question is the future of East Asia Summit.  What is going to happen?  What should happen?  East Asia Summit, as you know, is a loose infrastructure that includes Japan, U.S., China, ASEAN-10, Australia, New Zealand, plus, more importantly, India.  And our intention has been to use it as a base for economic integration.  Without involvement of the United States, there is no point in using this as an infrastructure for security.  Economic integration -- can we come up with a better economic integration among these countries?  You know, the Professor Xiang talked about the Asian value.  When Japan first proposed East Asia community with more seats, our idea was to include Australia and New Zealand and India.  So it happened as we proposed.  But when we first proposed it, I think people like Prime Minister Mahathir was saying that Australia is not Asia, so we say that, Who cares?   I mean, it is not the value; it is a geographical destiny for the economic integration.  You need to be able to involve Australia and New Zealand.  You need to be able to involve India.  And in this city, we often talk about APEC, right?  APEC is great.  We support APEC, too.  In APEC, there is Taiwan.  It is very important for us to bring up the institution that includes Taiwan.  But the shortcoming of APEC is that it does not involve India and there is no hope for including India in near future.  There is a twenty-five-country waiting list; once you open up the door, you end up with a forty-five-country meeting and that means nothing.  So we will continue to commit ourselves to APEC, but I think our heart is always more with the EAS as a base of economic integration.  So I just want to know your opinion about it. Second is Japan-U.S.-China dialogue.  What do you think about it?  The reality is Japan has been asking China to join to that and we end up having to track 1.5 type, track 2 type trilateral Japan-U.S.-China.  Are we ready to do it in a government to government level?  I think Professor Xiang was talking about misunderstanding, misperception, and lack of communication.  I do see some errors in doing this.  We are almost ready because we have been proposing that - not 100 percent yet.  I m wondering if China is ready or not.  My impression is China is now more ready for doing that.  They are more confident and there are more things to talk about among three now.  So I bet, perhaps, $100 for that to happen before 2012 - $100 maybe, not thousand dollars perhaps. Last question -- Japan-U.S.-India-Australia, what are we going to do about this?  This quadrilateral started at the time of the tsunami.  We call this Tsunami Four.  These four countries worked as a core group for coordinating the International ACE Corporation at the time of the Indonesian tsunami.  Well, this quad is often talked about in relation to democracy - sort of a league for democracy or something.  Maybe, maybe, but I think how we see it in Japan is a little bit beyond democracy, more practical thing.  What can they do?  Security of sea lane of communication -- can we use this in the future as some sort of loose coalition of countries to secure the security of sea lane and communication?  In five years, maybe.  This corresponds to the membership of the annual Malabar joint naval exercise: Japan, U.S., India and this year, joined by Australia and also Singapore.  I think there is some prospect about this - using this as a mechanism for securing sea lane of communication - loose gathering.  If that is the case, the most challenging question is how about inviting China into this, after we become confident?  After all, when we talk about energy -- I think they talked about the new [indiscernible] land communication.  I m sure we will depend more on the sea lane of communication because after all, the most of the resource exists in Middle East.  So what I mean is that China does share the common interest in securing the sea lane of communication through Indian Ocean.  I say why not?  Not now, but after we become confident among the quad plus perhaps Singapore and plus perhaps countries like UK.  Once we get confident about the mechanism, we may try to involve China.  And if China is ready to do it, I think that is a splendid way to bear the burden to the internationally sort of responsible stakeholders.  So I end here. Michael Auslin:  Thank you very much.  Obviously, you can tell from the comments of our panelists, we could probably just talk about this all day long.  Maybe we will do a future conference just on the security issues which encompass so much else of what we are going to talk about.  We will open it up for discussion but I want to start it off by asking our panelists briefly to consider the factor of domestic politics in all of these.  We asked for a five-year outlook and some of what we have talked about this morning can spin out twenty years or more.  There are certainly historical lessons I think to be learned about the failure usually to come to common interest or get to high trust systems without having gone through often systemic conflicts as we saw in World War I and World War II.  So I think that that is, again, another issue of discussion, but in all of the countries that we are talking about, all of the major players, there will be very important domestic shifts in the coming five years.  In Korea and Taiwan, we are heading into electoral seasons right now.  In China, they have just finished up the congress which will set the stage for a turnover within five years.  Japan may be entering into a period of more political paralysis.  So the question of domestic politics knocking the ball off the line, so to speak, on all of these processes, do you think that that is significant or do you think that what you are talking about is a gestation period that will actually transcend whatever is going on domestically? Arun Sahgal:  Yeah, absolutely right.  I mean, domestic politics is a big thing.  Perhaps you are aware that long-labored India-U.S. nuclear deal is in a bit of a limbo.  But what I would like to say is that yes, domestic politics will have a say, but in case of India it is an evolving issue and evolving issue in terms of the fact is that is the political leadership in the country -- the old leadership, that is, by major political parties like Congress and the right-wing BJP.  They understand the strategic ramifications of right decision making, the timings, and they would go along with it.  But the regional formulation and the other players are not so confident and then, there is a huge ideological construct in our left-wing parties.  So what I will try to suggest is there will be delay, there will debate but eventually, it will fall in place. And that also goes for my comment for quadrilateral.  Please do not look for an immediate Indian position changing overnight.  But India will remain committed to the dialogue - I can say with some degree of assertion, but it will like to play a much lower key role than it would be.  And it has also got to do with the internal debate within the country is that we are talking in terms in India of a national security strategy based on growth and interest, both hand together.  The growth strategy essentially meaning is that we need a ten to fifteen-year period of internal consolidation to be able to play a much more bigger, meaningful, externalized role.  That is the kind of consideration that the people are talking about. Lanxin Xiang:  I do think the domestic factor is crucial in the case of China.  I do believe that despite all my criticisms, there is one group of which actually got China right, at least, in certain sense is the Neocons who actually say it, who always consistent about link between domestic and foreign policy while many other mainstream panda hugger, whatever you call them, tend to separate the two things saying, Well, China has a basic fundamental national interest to protect; therefore, they can just separate from --.   But in my view, the 17th Party Congress is a crucial moment for two reasons.  One is China pretty much declare that we will not accept the Western value political system despite the quotation of democracy, maybe twenty times, which is misread in the Western press.  Now, what you really need to read is the key word socialism in Chinese characteristics.  This is emphasized at least fifty, sixty times.  Now that is one area I think - that is what I m saying - could be source of value conflict with the United States in particular. The second thing is -- I look at the composition of the Member Central Committee; you do see quite a drastic increase of the military presence - I will say, almost 80 percent increase.  Now, what does that mean?  Everybody s guess whether or not Mr. Hu actually is in control PLA or is not in control PLA.  It is hard to judge but then, you would look at each of them, what they are doing, who promote them.  The picture is clear.  They are very clear.  It still needs time to consolidate it.  I put it mildly now as far as the military; therefore, security policy is going to be quite influential -- very much influenced by the military opinion as well. Masafumi Ishii:  I think we need five more years to see stronger political parties -- stronger government.  I think that the coming five years will be a very, very difficult years from the viewpoint of domestic politics - ups and downs in Japan - I m sorry, in Japan being paralyzed.  But I think you simply cannot stop the trend moving around you and you need to catch up with that; otherwise, you will be just left over.  And the one worried about the U.S. -- I think whoever comes in because -- partly because of the uncertainty U.S. people see in the future of China.  I think, I dare say, the importance of Japan will increase rather than decrease in the mind of Americans; we are very confident about it. Michael Auslin:  Absolutely.  Of course, I should have mentioned the American political system is well rotated.  We have about fifteen minutes for questions.  We want to open it up.  We do have two mics that will be coming around the room.  I ask you to please stand, just tell us who you are, where you are from, and please make sure that your question is a question, so we can get to as many people as possible, so if you just want to raise your hands and I will call on folks.  Why do we not start with the lady in yellow right here. Chatrine Siswoyo:  Thank you.  I m Chatrine Siswoyo from American University.  I actually have two questions.  Would that be okay? Michael Auslin:  Sure. Katherine Siswoyu:  Okay, thank you.  Okay, my first question is actually about the role of Indonesia.  As a neighbor, how do you see Indonesian role in the region and what it could have done better?  And then, the second question is about China.  When you mentioned that the preferred language for China is becoming the world power now is restoring its way, do you see that ordinary people of China are ready for the restoring process?  I mean, observing the unjust development that happening right now.  So thank you. Arun Sahgal:  Indonesia -- me?  Okay.  No, there is nothing wrong with Indonesia is doing but what is happening is what we are -- incidentally, we have shared a maritime boundary.  Indonesia is just fifty nautical miles away from our Andaman and Nicobar Islands, our island territories.  Also, the major naval presence on the western side of the Malacca Strait is the Indian Navy.  So for practically every single situation that happens in that archipelago, we have a role to play.  Therefore, we are extremely involved and interested in the developments in Indonesia.  Apart from its domestic politics - which there is no time to talk about -- but what we are looking at is that Indonesia is slowly getting drawn into this balance of power relationship.  The Russian president goes to Indonesia, signs big deals in terms of selling Kilo-Class submarines, operation of military -- has also large amount of technological assistance and contracts for gas.  Indonesians reneged on their already made commitments to Japan and other countries in terms of liquefied petroleum gas supplies and to Korea.  And then, we also see the Indonesians signing a large amount of deals with PLA to enhance its missile and proprietal systems.  What we are not concerned -- we are not concerned so much about this development per se; we are okay with that.  But what is happening in the South East Asian dynamics is concurrent problems.  So South East Asian countries are getting worried about as to why this is happening.  And is Indonesia being brought within the ambit of the so-called initial signs of this developing axis which I have different perceptions in this region, primarily, because of the sea lanes stability which the minister talked about.  The sea lane stability is going to be a major issue and right now, it is deemed by the Chinese and the other Chinese interests as a part and parcel of a western-oriented system which has a total control.  Is it diffusion of that control that has been talked about?  That is the issue we have to look at. Lanxin Xiang:  The China coalition I think is very simple.  I just checked out the best selling list in China.  These days, of course, everything about Confucius is selling.  Now, what worries me is whether or not the leaderships going to misinterpret this in a modern way rather than post-modern way, which the latter way is what I would prefer.  If you would interpret modern way, meaning nationalistic way about our tradition which is using that for the purpose of that, then it is worrisome. Rob Warne:  Rob Warne, consultant.  I d like to ask Minister Ishii.  He pointed out that Japan needs to have confidence and needs to restore its robust attitude.  How do you go about doing that?  How will you accomplish that? Masafumi Ishii:  Ask Prime Minister.  Identify the area where Japan is strong; invest limited resources on that.  I think as simple as that.  We will try to be at frontrunner for whatever new, mainly in a technological aspect.  But we can even use things like aging as a base for new industry.  We will have the most advanced experience failure and success of aging.  But if we establish a new industry for coping with aging, I think the frontrunner of everything new -- I think that is the direction we are going for. Michael Auslin:  That is a great point.  Thank you.  Other questions?  Let s go in the back.  There is a hand there and we will come up front again. Mike Choi:  Hi.  I m Mike Choi with ITA.  Professor Xiang, you mentioned a need for institutions where perhaps U.S. and China can talk about their long-term strategic visions.  I guess I m wondering since U.S. is based on short-term election cycle especially if you view from China s perspective, when the U.S. foreign policy structure is so constantly in flux, how do you see U.S. and China having a consistent long-term dialogue and long-term strategic visions? Lanxin Xiang:  I truly think the current system is not working, that is the government-government level and the military-military kind of second channel, none of them seem to be effective, precisely because -- first of all, you talk about the short-term vision of the U.S. government.  Yes, Henry Kissinger used to say, Which telephone number are you going to call in Europe.   Yes, you have a White House phone number but you know his mind is elsewhere.  Then, in China, you do not have a telephone call.  The problem is that the institution in China, the Military Commission, which is officially under the party, has no civilian member except Hu Jintao himself.  The foreign ministry, if you try to talk with our chief foreign military spokesman about military, they would refer you to talk to military.  It is a very chaotic decision making process.  So therefore, the only thing it may work, in my view, is at a top level, summit level, or at least, at a level of person with presidential mandate on both sides.  Could be Nicker Bundy [phonetic] versus Dai Min Guo [phonetic], I do not know who these two suppose to be but there is no such thing.  It is impossible so far.  And do not forget China been debating about NSC for at least 10, 15 years now to establish equivalent of National Securities Council.  It did not work out precisely because of the nature of the system. Michael Auslin:  Other questions?  We have one on the front, right here. Male Voice:  Thank you very much, Chairman.  My name is [indiscernible].  I m from the Chinese Embassy.  I got a question to the panelists and it seems there is one missing in your remarks it is about the Korean Peninsula because we are talking about in five years from now on.  So my question actually to the panelists:  What is your perspective, presumably, after the post-nuclear Korean Peninsula?  Thanks. Arun Sahgal:  Move ahead but remain unresolved. Michael Auslin:  Succinct.  Anybody else want to jump -- but your question presumed a post -- Male Voice:  Post nuclear issue -- let s assume the nuclear issue would be solved, [indiscernible] partners. Masafumi Ishii:  I think I tried to touch up on that a little bit - Six-Party.  It is after -- that is going to happen to unification to a great extent I think.  If you assume that there is a unified Korea, I think that will bring in many new elements - bigger country, missile technology, used to have nuclear technologies.  Can we maintain united Korea as nuclear-free country?  If we can, we still have some other issues to address.  What will happen to U.S. force in unified Korea?  Are they ready to keep them?  Are they ready to keep the forward deployment of U.S. forces?  It is open question.  If U.S. is asked to leave, what will happen to U.S. force in Japan?  There will be no longer threat of North Korea.  What is the rationale of having forward deployment of U.S. force in Japan?  How can we explain that to the public?  I personally think there is still rationale but how can we explain that to the public?  And if that means we need to say goodbye to U.S. forces in Japan as well, what will be the framework for maintaining a better security in that region.  We need to be very creative about that.  I think that is where -- that is why I think we are now seeing a development of trilateral reason like Japan-U.S.-Australia.  I think if after the unification, there is no U.S. force forward deployment, we do not mind having a helping hand coming from the south, whatever small it is.  So I think those are the issues we have to address. Michael Auslin:  To build off of that for a second, I would like to ask each of the panelists to consider from the viewpoint of the region, what role you believe the U.S. should be playing over the next five years, either discreetly or as a springboard to the following period.  I mean, the Brigadier talked about the possibility of a diminishing U.S. strategic footprint.  Minister Ishii, you mentioned the EAS of which United States is not a member.  So to consider very briefly, if you would, from the point of view of the region, where you see the United States; where it should be going.  We have the bases for Asian cooperation just on the panel here, so if we could move that to the next level. Masafumi Ishii:  I think we need a continuous engagement of the United States in the region as a stabilizing factor.  We need it; China needs it; India needs it, too.  I think China needs it for somehow being more confident about the future of Japan.  So when we start talking about the security infrastructure, we will try to involve you as a part and parcel of that framework.  That will continue to be the case.  Economic integration, I do not know.  East Asia Summit is interesting endeavor.  That may work as a sort of incentive for the United States to keep their eyes on what is going on East Asia or East Asia community.  It is kind of a lure -- sort of in our mind.  And also, it will make, perhaps, things like Japan, U.S., FDA, or EPA, or economic integration at least symbolically more relevant.  So I think there are many ways to engage United States even if U.S. is not part of EAS. Lanxin Xiang:  I think I agree.  Even China wants U.S. to be there.  There is no doubt about it.  Now, whether China wants U.S. to assume leadership roles is another issue.  Once again, I think the U.S. strategic vision - what exactly the U.S. wants in that area - is not clear.  U.S. has been building, let s say, Canberra, Tokyo, and Washington kind of access Chinese interpret as petit NATO.  Now, that is not very a pleasant word, of course.  It is a small NATO for a long-term containment against China.  At least, that is the perception if they want to build things like that.  And the Tsunami Four you talk about.  If it becomes a pure democratic alliance, then of course, who is the undemocratic enemy target for the future?  So you have all this group building that may cause concern if there is no clear interpretation what the U.S. intends to do.  This is I think is the most important issue for China, at least. Arun Sahgal:  I share the sentiments of the Minister Ishii.  We also look at a continued engagement of United States in the region with very, very important part and we look at this engagement, both from the Western perspective as well as the Eastern perspective which basically means that we are also looking at American to remain committed in Afghanistan for the immediate future that is in the perspective of 2012 we are talking about.  Build up relationships in Central Asia because Central Asia is an important area particularly the Caspian energy resources and the new linkages that we need to look at. And here, I may as be a little unpopular but I would like to strongly suggest that we need to calibrate response vis-�-vis Iran because in the new scheme of things, Iran is emerging as a center of gravity particularly as the Eurasian Block, so to say.  I m using this word loosely.  It is not a security originally but these continuing forces that is emerging and Iran is becoming a centerpiece of that.  So that again is -- and Iran can be leveraged both positively and negatively.  So that is an issue. But as far as the eastern part is concerned, certainly, the South East Asia as well as in Eastern Asia, we would like Americans to be there because of the primacy of their naval power, the primacy of their engagement with the region, and also, in terms of providing - well, I m a military man, so I do not use diplomatic language - as a strategic hedge, in terms of ensuring that the balance of our relationships remain balanced, at least, from our perspective in the next 10 to 12 years.  And that is what we are looking at.  I mean, we are looking at very selfish reason and that is why -- that is one of the logics and the reason that we have -- despite tremendous amount of internal dissonance, we have agreed and going ahead with this Malabar and then a series of exercise.  They are not too distinct but the whole idea is to build up a relationship and capacity and understanding within the region and particularly, the littoral states around us.  Thank you. Michael Auslin:  We have time for one more quick question.  We have a hand up here.  The young man in the blue -- Max Tedford:  Yes, I m Max Tedford from American University.  You all touched a little bit on this already but I would like to direct my question to Mr. Ishii.  I was hoping you could comment a little bit about the U.S.-Japan military strategic alliance and maybe a little bit about the proposed structure changes during the Two-Plus-Two Talks in 2005.  Maybe what sort of progress you have seen with that -- the transformation of the alliance and a little bit about how you see the implications of that - sort of being to show themselves throughout Asia. Masafumi Ishii:  It is an ongoing thing, so it is a little bit boring to talk about this, perhaps.  But core of the transformation is to make the presence more flexible -- strategically flexible.  For that, U.S. is ready to get Marine out of Okinawa and to be positioned in Guam.  They are ready to consolidate bases in Okinawa while the strategic importance in Okinawa remains the same.  I think we are proceeding reasonably well but because of the political situation in both countries, we will see a few stumbling blocks in coming months and years.  We are still striving in maintaining our navy in the Indian Ocean as well, so that is part of why alliance in wider sense.  So you know how difficult the political situation over there now.  But system is there; we are proceeding slowly but steadily.       Panel II: Is Growth Sustainable?  Fault Lines in Asia s Economic Future     Claude Barfield:  I m sorry.  I wonder if we could be seated please so we can get started on the second panel. Good morning.  I am Claude Barfield, a resident scholar here at the American Enterprise Institute, and I would like you to all sit down. Male Voice:  [Speaks away from microphone] Claude Barfield:  That is right.  There is no free enterprise here; it is command and control, at least with the beginning. Okay, the title of the second panel is, Is Growth Sustainable?  East Asia s Economic Future.   When I looked at that I thought, You know, this could be read in a number of ways.   Is growth sustainable, East Asia s economic future?  It could have to do with internal questions of different models of growth.  And we look at the three panelists who will be talking about Japan, China and India, that immediately comes to mind, over-simplifying.  You have a contest between the large developing countries, India and China, which is sometimes -- it is said that it is between the tortoise and the hare.  That the democratic decentralized Indian political science and economy, with all the problems of the fractionalization of democracy and yet moving, it seems to outside observers, fairly steadily if more slowly forward, versus a highly authoritarian government in China, which can move on a dime and has moved forward quite rapidly economically but has the challenge of how you juxtapose or how you balance political reform or political advance with economic advance. And indeed, in listening to the first panel this morning, particularly Professor Xiang, and also there is very timely for us a piece in the Financial Times this morning which is titled, Russia and China Challenge the West.   The point of the piece is that unlike thinking, at least in some political science and relations theory, that you would move in China particularly from an authoritarian government, which would change as you gradually opened up its economy to investment and trade, it looks as if that has certainly to date has not happened.  And indeed, we are seeing an experiment in the ability of a government, of what will become the largest economy, to be able to maintain an authoritarian government while it is presiding over a relatively open both trade and investment.  And indeed, Professor Xiang made the point this morning that there is a misinterpretation in the West that somehow the Chinese will change, that the Chinese intend - and he cited the current Congress as the proof of that - to maintain that particular combination. Then, one could argue I suppose that there is even a third model that Mr. Katz will be talking about.  We forget about this today, but Japan for four decades after 1945 was, at least in the minds of the West and the United States, the model for Asian growth.  And the question there is the degree to which after this decade of being, as it were, out of the center, Japan has revised its model, its economic model to the extent that it can now move forward back to a growth path of the normal developed and not a developing country. So you got the internal models.  But then it occurred to me, finally that this all could mean a model of Asia per se, that is, an Asian model versus the models of the rest of the world whatever the internal differences.  And there I was thinking I was talking with Mr. Katz that it is very timely here in 2007 if we think about ten years ago with the Asian financial crisis, there was all this discussion that the Asian model - and we lumped all these countries together - had reached an end point that it would not be able -- at least for many countries it would not be able to go forward as it has.  We see the remarkable recovery.  We also saw some economies, particularly the Chinese economy which is, by and large, insulated. Today, interestingly enough though, I do not want to push this too far, you will find the situation where there is at least financial turmoil in the West.  And in which, at least until now, this seems not to have spilled over into Asia, whether or not there is an Asian model.  So there, as I say, are a number of interpretations that we could have. A couple of points about the panel: We must finish at a quarter of 12 because our lunch speaker is under time constraints and so that I ll ask the three speakers to follow the guidelines of ten to fifteen minutes. I m going to go in the order that we have in the program - Mr. Katz first and then Philip Levy and then Beth Anne Wilson.  You have got, as Mr. Auslin pointed out to you, you have got full bios; I ll just tick off a couple of things in each case. Richard Katz is the editor of Oriental Economist, which is a monthly newsletter on Japan and the semiweekly TOE Alert.  He is also the author of two recent books on Japan Japan: The System that Soured: The Rise and Fall of Japanese Economic Miracle; and Japanese Phoenix: The Long Road to Economic Survival. Philip Levy is a resident scholar here at the American Enterprise Institute, and he deals with international trade and international development issues.  Before coming to AEI, he was in the Bush administration first as a staff member of the Council of Economic Advisers, and then on the policy planning staff of the Department of State. Finally, Beth Anne Wilson is a senior economist at the international financial division of the Federal Reserve Board.  She currently covers India and has followed emerging market issues since 1999. I want to get started with Mr. Katz. Richard Katz:  Thank you very much.  I m very happy to be here.  Let me try to go through briefly four points.  One is one of the medium term and short term perspectives for Japanese economic growth.  Secondly, what are some of the political and -- maybe it is not four - geo-political ramifications of that.  I guess there are four.  Third is a sort of what the Fukuda administration will or will not do about these problems, which is sort of a subset of two.  And finally, the U.S. response or range of responses to that situation.  So let us begin. Everybody agrees that Japan is, more or less, now operating at full capacity.  In other words, employment is, more or less, towards full employment, capacity utilization of factories and equipments and store shelves, whatever.  So the question is what is the trend growth?  What is the sustainable trend growth going forward? The conventional estimates are between 1.5 to 2 percent.  I lean more towards the 1.5, but certainly fewer people can disagree.  But basically, in any economy, the growth you can have over a long period of time operating at full capacity is basically how many additional people are working every year and how much additional output can each person produce. Well, Japan has got a problem on both sides.  One is that the working age population is now shrinking.  And you see in the period from 2000 to 2005, about half percent a year; 2005 to 2010, about seven-tenths percent a year; 2010 to 2015 over one percent a year.  That is a lot of shrinkage of workers, which automatically deducts in this period from growth potential.  What makes it even more difficult, economically and politically, is that the working age population is shrinking faster than the total population. Which means, for example, if you have a situation, say, in the coming five years or the current five years where the total population is basically the same - a shrinkage of one-tenth to one percent a year - but the number of workers or working age people is shrinking minus 0.7, which is six-tenth percent faster, then even if the per worker output remains the same, the per capita GDP will actually fall six-tenths of a percent a year.  We then consider that some of this population is gradually getting older, and older people cost more to support than younger people because of health care assisted living, whatever.  That even if the numbers in terms of per capita income will remain the same, the actual living standard would actually fall. Now this has ramifications economically but has tremendous political ramifications - you think about budgets, you think about the fight over consumption tax.  This is one of the reasons why the LDP lost the election for the upper house in July.  They have a whole debate about whether they should or should not raise the consumption tax and they are heading into the election within the next year or two that will determine who is the Prime Minister.  And they do not want to do it but they feel economic pressure to do it so it is a very, very big political issue and it explains a lot of the political indecisiveness paralysis in Japan. Now, we are now in a situation where jobs are growing, but because they are hiring so many part-timers because they are paid lower wages, that the number of actual hours of work has not been growing really for the past fifteen years.  So the sole source of growth has been growth in output per hour - that is the sole source of growth.  So unless you can get an acceleration of that growth per hour, then because of the drop in the working age population, you are actually going to -- your growth rate will shrink.  You have got to accelerate, just run faster just to stay in the same place in terms of growth ability. So do we see an acceleration of growth?  We have a lot of people saying so.  We hear GE Japan is back; it is doing a lot of reform for the activities accelerated.  Well, there has been a lot of reform but as we know from the experience of the U.S. and other countries, when you have a really big ship it takes a lot to turn it around.  You need a certain critical mass of reform and you need a long gestation period before the results finally come to fruition. There really is no acceleration reform in productivity.  If you look at the productivity figure, you can see -- I do not want to blind you but you can see that it follows very closely with the GDP numbers; it is very cyclical.  You could then do a trend line.  So if we have, for example, the 1991 to 2001 trend line and above it 1991 to 2007, we see there is no change; there is no acceleration.  And these gray boxes are two-quarter moving averages, and if we were seeing acceleration of productivity, all the gray boxes, at least most of them, would be above the trend line.  In fact, they got more below the trend line than above.  There is no acceleration productivity.  There has been a lot of reform, yes.  But it requires even more reform and what you got is political leaders in Japan saying, Hey, we swam a third of the way across the river.  Look how far we have come.  We can stop right here.   Well, that is the route to drowning, as far as I can see. And now with a divided government, indecisiveness, I think it is not the case that Fukuda is going to turn the clock back.  I think people who say that are being way, way, way too pessimistic.  There is a lot of reforms that are already baked into the cake that have a life of their own and those are going to continue.  But, and the momentum and the need for reform is going to continue because of the aging of the things, sort of political compulsion to do something is going to continue.  But what to do?  I think that the additional top-level government policy-led reform is really going to slow down and that is a problem.  It is going to take a while to shake ourselves out of - [indiscernible] what Mr. Ishii talked about a five-year interregnum.  Mr. Ishii is right about that.  It is a subject to discussion with Q&A but certainly for some period of an interregnum. Now, let me go one more point on this then move on, which is how would we know if the kind of reform we need is occurring?  Well, if you look at the U.S. experience, the U.S. productivity revolution, it was not nanotechnology; it was not a so-called new economy.  The two-thirds of the acceleration of growth in U.S. productivity did not come from the so-called new economy sectors of IT.  It came from the old economy sectors consuming the IT or just taking off-the-shelf technologies under the pressure of globalization and higher competition to improve themselves - and that is retail, and that is banking, and that is rust belt manufacturing.  And the same thing is true in Japan. So if we were seeing real reform, Japan s weakest sectors would be really reforming and we would see that most reform in what is currently the backwards sectors which can really zoom by just catching up to the world benchmarks.  Instead, what we are seeing here is that the biggest reform, the biggest change of productivity is occurring in the sectors that are already the strongest.  So Japan is having the most reform where it is least urgent and the least reform where it is most urgent.  The dual economy which is a productive, competitive, globalized Japan, and insulated, protected, weak Japan, that still continues.  And the political issue of dealing with that is very, very difficult. Let s move on now to the demand side.  This is more of the short terms.  The trend line, we are talking about one-and-a-half maybe decelerating with aging, maybe accelerating with more reform, but somewhere around that level.  This is an extremely unbalanced and risky economic recovery.  This is the gray bar is the share of investment of trade surplus or consumption in GDP.  The share of it is investment amounts, so it is a level of 16 percent of GDP; yet, in the last five years, investment by businesses that provided 34 percent of all the growth in GDP.  There has never been a recovery in the last fifty years where investment has played such an inordinate role for such a long period of time. The trade surplus is now about 4 percent of GDP, yet it has provided 37 percent of all growth in the last five years; that is absolutely remarkable.  So Japan s growth is hinged to its ability to have ever larger trade surpluses with the rest of the world, which means the rest of the world has gotten ever larger trade deficits, which primarily means right here.  Okay? Now, what about consumption?  Well, again, consumption is 54 percent of GDP but only 34 percent of growth.  This has not been a consumption-led recovery, and why?  Because the wages are at the lowest share of GDP they have been in a couple of decades.  And the reason for that is that the strategy for recovery is really a covert transfer of income from households, either as workers or as savers.  From them to either the corporations to create profits or to the banks to pay off bad debts so the banks could pay depositor zero and gradually write off the bad debts to these zombie companies. So it looks like non-performing, well, the problem has been solved; and from a financial standpoint it has and that is a terrific thing, but there was a cost.  And costs are fine.  There have got to be costs; someone has got to pay.  But this was done in a very covert way and built in a situation where wages are still now suppressed, even the error of recovery, which means consumption cannot grow.  So Japan s will to grow depends upon its export machine. Now, which then brings us to - this is the trade surplus record share of GDP - the fact that the idea of decoupling, that Japan has decoupled from the U.S. because now it is exporting to China, I think they are just totally wrong.  We have a huge correlation, except for this drop in export area here, between Japanese GDP and U.S. GDP.  There has never been, in the post-war period, such a close correlation over an extended period of time between U.S. and Japanese GDP.  And, you know, the U.S. is the dog and Japan is the tail in this case, all right?  Now, why?  It is because the U.S. is the market.  Japan s global exports mirror U.S. global imports. People say, Well, Japan is exporting to China.   Yeah, Japan exports to China, but if you look at those exports, Japan s exports to China did not correlate with Chinese growth.  They did not correlate with Chinese investment.  They correlate with Chinese exports to the U.S., except for this one period where there is the anti-Japan boycott in China because of Koizumi going to Yasukuni Shrine.  So in other words, Japan s ability to export to China depends upon China s ability to export to the U.S. Now, this is Japan to Asia-ex China which is twice as a big a share of Japan s exports as China.  Again, Japan s ability to export to Asia directly depends upon Asia s ability to export to the U.S.  In fact, Japan s exports to Asia correlate just as well as that with China s exports to the U.S.  Get that.  So Japan exports to Asia, Asia exports to China, China exports to the U.S.  The end of the road is here; here is the domino:  So if the U.S. is not importing as much, guess who is not going to sell as much? Now what about this capital investment?  Well, the Japanese capital investment depends upon Japanese exports.  So much of that investment is for big manufacturers exporting where else the service industries will supply those manufacturers.  So if the exports stop, the capital investment stops; the train stops. That is a strategy which was very risky.  Suppressing internal living standards to solve a non-performing loan problem, to solve the - to have raised corporate profits and basing yourself on the U.S. locomotive.  Politically it was horribly risky and the LDP got thrashed for it in July.  They got that It was the economy, stupid all over again.  And Shinzo Abe thought the economy is in great shape.  It was not.  Good GDP numbers were not translating into the lives of ordinary people and the LDP was punished for it. These charts explain a lot of politics in Japan in my view.  Now the problem for Japan is look at U.S. imports.  The growth rate is decelerating.  It is still positive, but it is decelerating as the U.S. goes to a growth slowdown.  Now, the most common projection is the U.S. will experience only a growth slowdown, not an actual recession.  I think it is probably true.  I m pretty bullish of the U.S. given the circumstances relative; it has been pretty resilient.  But the economists say that the odds of a U.S. recession are about a third to 40 percent.  That is a pretty high risk.  So that is a very high risk strategy.  If the U.S. has a recession, Japan is going down.  It is just like in 2000.  So it is not the most likely case, but it is a risk scenario that Japan s policy makers need to pay attention to, not to mention U.S. policy makers. Now, geopolitical ramifications of this: look at Japan s weight in the world.  Japan s share of GDP is declining.  This is the purchasing power already adjusted, and this is China s.  It is very, very clear who is getting the stronger weight, who is getting the lower weight.  This is all about imports - creating dependency relations where people use you as their market.  China is not only an export superpower, it is becoming an import superpower.  And also, unlike Japan, importing manufactured goods and importing goods in the same industry for exports, which create dependency relationships which has geopolitical ramifications. So this is only up to 2004 because that is the data.  Well, if you look China has already surpassed Japan, and also look at the rate of growth.  So by 2006, who knows who might be up here?  And the next couple of years can be even higher.  You are talking about a nation with an awful lot of weight in the world relative to Japan.  China imports more for most Asian countries than does Japan.  In fact, Europe imports more from a lot of Asian countries than does Japan and, of course, does the U.S. Now, some of the implications here: The U.S. has an interest in a strong Japan, very clearly.  And when the Bush administration came in, they worked really, really hard to help Japan solve the non-performing loan problem and that was a very good thing.  And the U.S. fortunately had in Koizumi somebody that we are going along with because he believed in economic reform.  He even follows a particular recipe [indiscernible] the best even if he did not quite do as much as he pretended he did, but still, right direction.  God bless him. He also believed Japan to take a more active role on the world stage.  He did not agree with everything the U.S. did, but in terms of the old debate about Japan being activist or let George do it, let Uncle Sam do it, Koizumi was saying, Japan has got to take a bigger role.   So on both security and economics, he was basically moving in a direction that the U.S. wanted - that is terrific.  Now the U.S. has taken the point of view that Japan s economy is in great shape, which it is not.  So its sole focus is really on security. My fear is that on the one hand, the U.S. needs a strong, vibrant Japan not to contain China; that is impossible and undesirable, but to integrate Japan into the global community and as a counterweight to arise with Japan as a balance.  So the U.S. needs a vibrant Japan.  Japan needs a vibrant Japan.  Maybe even China needs a vibrant Japan. But the reforms required to get a vibrant Japan are going to cause political problems in the LDP and we are going to get this whole trade-off between people we support because they agree with the U.S. and it is this or that particular security stance, versus people who really want to do the right thing on economics.  This is Shinzo Abe, who is not against reform but basically he did not think about it.  He was a way, way, way on the backburner.  All he cared about is revising the constitution.  And the U.S., in this situation, supported Shinzo Abe when it was very clear the guy was doomed.  If people want to discuss the whole new notion, then we can do it, but the point I m saying is this trade off between economics and security.  Now, what I m arguing with is economic vibrance and positive security rule are two sides to the same coin, and the U.S. is going to have some dilemmas to face in an unreformed Japan. So let me stop there and pass the baton. Claude Barfield:  Thank you very much.  That was a fascinating start.  Now we turn to Phil Levy who will give us the same fascination with China. Philip I. Levy:  Thank you.  Well, I actually have the easiest task by far of all the panelists up here. Whereas with India and Japan, one needs to think about all the vagaries of economic development, all the shocks and mishaps that can occur, with China, it is somewhat different.  With China, we have scientific development, which means that we know that per capita GDP should quadruple by 2020, and with a number of fairly straightforward calculations, some assumptions about population increase and so forth, has an implied annual growth rate of 12.5 percent.  And so taking the time line for the conference seriously, by 2012, China s economy will be 80 percent larger than it is today.  So there you have it. Or if you prefer Rodrigo de Rato over Hu Jintao, the IMF World Economic Outlook just came out last week.  For those who have not gotten through reading it yet, they forecast only through 2008.  But what was striking was that they forecast fairly positive things and very much more of the same.  They described China as the biggest contributor to world growth, which is a little bit odd and I think a lot of Richard s points here are very well taken.  They are a part of a chain and, in fact, in some of the discussions that occurred after the release of the World Economic Outlook, they noted as how this is sort of a technical description if you look at the size of the economy and what was happening, but not the sort of end-market driving force for very much the reasons that I think Richard laid out. And I thought the IMF was really rather daring in its prediction that things will keep going pretty much as they are.  And that would be a lot of the substance of my remarks is to why that is daring since that is something of a forecasting norm.  But you will note that if you look at what they are predicting for GDP growth, it will only go through 2008, you would have this is sort of showing where we have been - 10.4 percent, 11.1 percent, 11.5 this year and then some moderation.  They state that this is assuming that some of the measures that are being taken to reign things back in will be effective.  You see with inflation that it has spiked up.  We will come back to that, but again assuming there will be sort of moderation. The last column may give one pause a bit and I ll sort of do this in colorful charts in a second, but this does not look so much like steady as she goes.   You have just seen rather large numbers for current account surplus as a percentage of GDP and still growing fairly rapidly.  But anyway, so we got two predictions now about basically forecasting fairly rosy scenarios for China in the future and I could yield the rest of my time, but the mandate here was to find fault in this.  So let me sort of point out a number of reasons why there is cause for concern with the China forecast. So with a sort of a very distinguished figure from AEI s history, Herb Stein had the insight that if something cannot go on forever, it will stop.  And there are a number of proofs in the appendix.  There are a number of things going on here that will be a lot of what I ll get to, which sort of lead us that there are many, many things in China s current development process which cannot go on forever.  So I would note as a sort of a general comment before getting into these on the error bounds, that when economists do forecasts - for those who are not forecasting mavens - you sort of say the number that you think you are going to have frequently with a continuation of where one is going, and then you sort of express to some extent how confident you are in that number by the scope of the error bounds, how surprised would you be if it were a couple of percentage points higher or lower.  I think in the case of forecasts about China s future, these bounds are huge.  We have very, very little confidence.  I have very little confidence in how well these forecasts have pegged what will happen in the future.  And I would also argue in general, if you are giving your best guess, that July is right in the middle of where you expect things to be.  In this case, I think it is much easier to think of problems that could emerge with these forecasts than to construct even more optimistic scenarios.  I mean if that sounds pessimistic, realize that things like, you know, 12.5 percent growth over thirteen years would be even faster than what China has done remarkably so far.  I ll have a chart on that in just a second. So, I think the overall message that I want to get across is, with China we have an economy that is kind of hurtling forward wildly.  So steady as she goes seems a fairly unlikely outcome to me.  They have careened fairly successfully up until now, but I will sort of enumerate a number of things which could bring that to an unfortunate conclusion. Before I do, just recapping here where China is coming from, and this is the growth from 1993 from the IMF World Economic Outlook forecast through 2007.  And you see these are fairly remarkable numbers.  These are very, very, very impressive and sustained period of very rapid growth; this is real GDP growth.  Now, I always remind myself on this:  It is true that China was emerging from a really astonishing self-inflicted disaster with the Cultural Revolution, where you were not making particularly good use of your factor resources and human capital.  But this is, nonetheless, very, very impressive and the effect of course has been to lift millions of people out of poverty - hundreds of millions. So let me note some caveats to this very, very impressive Chinese growth.  And some of these rules actually sound fairly remiss in some of the things with Japan.  So, there is a heavy dependence on investment.  This is not domestic consumption that is driving this.  And now we get to these trends that cannot continue and therefore are likely to stop.  Hoffman and Kus [phonetic], two World Bank authors based in Beijing, note that you currently have a very, very high percentage of GDP within China stemming from investment.  They forecast on the current trends, if China sort of keeps going with the same path that it is on, that [indiscernible] rises from a very high 37 to a very, very high almost 50 percent of GDP, which means that you are taking 50 percent of your output and rather than consuming it, you are reinvesting.  So to maintain this really rapid pace of growth, you are having to pedal faster and faster. Another feature of the way that China has done this is it has been a fairly capital-intensive growth with relatively little job creation.  So from 1993 to 2005, in Kus report, 1.1 percent per annum job growth.  That is not that surprising when you look at what has been done within the Chinese economy.  You have had financial repression; you have had sort of fairly low interest rates and so the companies have responded with fairly capital-intensive investments.  The problem with that is that one of the major challenges facing the Chinese government is you have got this sort of very large and underemployed rural population pressing in towards the urban centers, and the path that they have been on is not one that necessarily addresses that problem terribly well. And then much like Japan, there is a heavy dependence on international demand and foreign capital.  And the theme, actually, of both the IMF and some World Bank reports has been the necessity for China to rebalance its growth and not to continue on the present path.  This one is -- and they also both note this is not sort of going to be too particularly easy because many of the things that one thinks of that sort of makes such a rebalancing go more smoothly, whether this is a really well-functioning financial system to intermediate, whether these are social safety nets to cushion the changes for the citizenry, those are not necessarily China s strengths. Let me now show you a couple of things just to illustrate the extent to which there has been this independence and to justify descriptions like careening.  Here, we see China s global current account balance as a percentage of GDP.  One thing I would just note about this from a U.S. perspective is in the U.S.-China s bilateral trade surplus with the U.S., it has been a source of concern for a very long time.  It seems like it is certainly when we were in the Council of Economic Advisers staff together, this was a point that was commonly raised, and that was around 2003.  But what you see is that the bilateral surplus is a sustainable thing; that can go on forever.  There is nothing wrong with triangular trade and this is the point that economists frequently made saying why one should not worry about China up until about this point that you can have, you know, one country s exports to a second country s exports to a third who exports back to the first.  Bilateral trade imbalances are nothing to worry about. Multilateral trade imbalances are another story.  And when you have a graph of it that it starts to point almost straight up, this does suggest that there is something there that maybe difficult to sustain.  So that cannot keep going indefinitely at that pace. Another way of looking at the same thing is this is the mountain -- foreign reserves that China is holding.  And it is just an illustration of the same point, but one of the things I would note is not only is this sort of staggering like, again, we have one of these graphs that gets fairly vertical, but it also means a mounting adjustment cost that they are facing as time goes on.  And I ll return to that point.  And this, by the way, in the context, since we are talking about Asia more generally on the [indiscernible], that the regions -- this is something of a regional pattern.  The region s reserve now topped $4 trillion, which seems rather large. Okay, let me just make a note.  The way one would -- one sort of classical mechanism for how you sort of stop those very rapid ascents is you get adjustments in prices, and the key price here is the exchange rate.  And unless you are more perceptive than I am, you will look at this and you will not see the sharp break occurring in 2005; I think it is about the summer of 2005.  You will see that things actually go somewhat horizontal there.  I raised it because that is the point at which the Chinese government says, We have delinked - we are no longer pegging the currency anymore.  And from now on it will respond to market forces.  It will be linked to a basket and it will be allowed to move a certain amount each day.   And since then we have seen really very little - these are three different measures and they all kind of squiggle around, but you have not seen on a multilateral basis any dramatic change in China s exchange rate, and this is the real effect of exchange rates so it is balancing of what is happening with the relative prices. You have seen bilateral changes with the U.S., which sort of addresses some of the political pressure here.  That has been on the order of 10 percent or so, which are what some of this are quite credible estimates that I have heard, and I did not make these things myself, calling for something like a 30 percent or more or greater appreciation of the Chinese currency as a means of addressing those rapidly mounting imbalances that we are seeing.  In the interest of time, let me get to my mounting reservations.  This buildup of foreign exchange reserves is unsustainable.  One of the ways you do reserves -- other things equal, bringing in foreign reserves expands the money supply and you get pressures for inflation.  China has fought this by sterilizing this, which meant distributing lots of government bonds to the banks.  The deputy governor of the People s Bank of China was in town last week and said, We realize this is not sustainable.  It is something that just buys us some time to make the internal adjustments that we need in the Chinese economy.  We are okay for now but this is not sustainable.   And one does -- limits on just how much banks can force fed these bonds as the sort of pressure grows. Now, the point that I deferred from earlier is, as you get those mounting reserves, you get a double cost to adjustment, and it is a cost that grows.  There is a cost because if China were to radically change its behavior and begin to -- rather than saving an immense amount, begin to consume an immense amount and this was reflected then in the global savings investment balance, you would then see a change, a rise in interest rates to the extent that they are holding international bonds in the reserves that would drive down the price of those bonds.  And further, the currency appreciation, given that these are foreign currency denominated bonds, the appreciation to renminbi will again cut the value of China s holdings.  So as that mountain of reserves grows, these costs mount.  These are the costs that one has to face so it is deferring to the future costs that one is going to have to take on. Those are the sort of financial costs that one could put a dollar or yuan value on, but there are domestic adjustment costs as well to the extent that what is maintained in the currency rate to keep certain Chinese exporting industries viable that would not be viable if you had, say, a 15 percent appreciation, you are getting investment in those sectors and the amount is going to have to then eventually move when you do have an appreciation.  It worsens the problem for the future. Okay, we have the question of what is happening with Chinese inflation.  Is it just the pigs?  You have seen - and this was in the numbers that I showed - there was this burst of inflation, and you are getting a bit of a debate about what causes this.  Part of this is because people suspect that there may well be pricing pressures with influx of currency, but the numbers, so far, seem to show that the price increases are limited to the food sector.  And you have had things like blue ear disease with the pigs.  But there are other concerns - there is rising global commodity costs, real estate and stock market booms - all that lead some to wonder is there more inflationary pressure of the sort we actually would have been expecting given China s other policies, and the fact that China has stuck on a mini sort of restrictions on prices leads one to be even more concerned because countries do not tend to do that when they are really happy with how everything is going. All right, so some more reservations which I ll address very quickly.  There is this dependence on international trade and the world trading system is shaky now.  We have seen a 10 percent move against the dollar.  But when I say there has been a 10 percent move against the dollar in the trends currency but not overall, what that is implying is things have gotten much worse for currencies like the Euro and you are seeing a political reaction to that, that Europe is now starting to echo some of the noises that the U.S. is making for quite a while, talking about misalignments in the global trading system and this is spurring protectionism, that this is being seen as unfair and a failure to abide by the rules of the system. Meanwhile, the Doha system, which kind of puts a risk, a strain - the Doha talks of the WTO, a system which put a restrained and bad behavior.  At best, in an optimistic reading, this has been put in cold storage.  Pessimistic reading would sound more like the eulogy.  And China has not really stepped up and taken a leading role in making this work.  You have questions of rule of law concerns in corruption.  We saw the product quality on issues and in my opinion these kinds of issues are likely to mount as you try to maintain the sort of rapid trajectory that China has been on.  As you try to get more intricate linkages, more dependence on production chains throughout China, there is going to have to be more reliance upon some of the sort of standard features of business with ability to enforce contracts and the like. And I would just finally note, foreign investors have been up until now have been treated as a privileged class.  If that continues, you get some potential for unrest; if it does not, then you got a potential for exodus of foreign investors and they have been a driving force.  To stay on good terms with Claude, let me just conclude quickly, it was just continuing the litany.  How will China deal with soaring environmental cost?  By some estimates, this accounts for several percent of GDP.  It is linked with the fundamental issues on rule of law and central control, problems such as the water shortages threatening near-term crises and responding to this will be costly.  That this is not assuming that this is going to -- it is likely to alter the trajectory. I would note there is a potential for security concerns and the extent of that, if you get a conflict, for example, over Taiwan that could have down sending [sounds like] effects on China s tight linkages into global distributive production.  And finally, and certainly not least, China shares some of the looming demographic issues that Richard depicted very nicely.  That their working age population - here, I m quoting my colleague, Nick Eberstadt - will peak and then decline within less than a decade.  A generation from now, China s potential labor force will be no longer larger than it is today, perhaps smaller.  And they are getting the same growth in an aged population with even less provision than Japan and for how to deal with this. So, there are a couple of reasons to be concerned about the rosy forecast that we saw at the beginning. Claude Barfield:  Thank you very much.  With those fairly negative assessments, I assume that Beth Anne Wilson is going to tell us that India is going to [background noise]. Beth Anne Wilson:  [Audio glitch] much.  I ll be discussing India s future.  It is about jobs to continue the demographic theme of the day here.  This is joint work with Geoffrey Keim at the University of Pennsylvania, and these views reflect only ours and nothing to do with the Federal Reserve System. Recent growth in India, as we all know, has been exceptional.  And most analyses, including that done at the IMF, shows only a slight moderation.  Growth last quarter came in at close to 10 percent and the IMF has some slowing somewhere between 8.5 and 8 percent by next year.  Beyond that, regardless of which analyst you look at for growth projections, they all rely on one special feature of the Indian economy when projecting further strong performance, and that would be India s demographic dividend - India s population. India is expected to have the world s largest workforce sometime before 2030, and currently there are over half a billion Indians under the age of twenty-five.  This is critical in a simple growth accounting sense.  While other countries are seeing their labor force to shrink, India will have a huge increase in L in the growth accounting sense. Now, when discussing growth projections, most analysts stop there.  But let s take a closer look at this dividend.  What are the characteristics of India s dividend?  Well, first of all, they are primarily rural and this is even more so for the young.  74 percent of India s total population under twenty-five is in rural areas.  And currently, this rural population is barely literate and certainly not very literate at the secondary level. As things are going now, it does not look like the new generation coming up will be much better educated, and at the primary level enrollment rates are quite large; there is a significant drop off beyond that.  And public expenditure for primary and secondary education in India is far less than its focus on tertiary education and this has traditionally been true.  India has traditionally focused on tertiary education at the expense of primary and secondary.  So for the most part and I think India s school systems, especially at the primary level and in rural areas, are notorious for being bad. So in addition, finally, a large sizable fraction of the population in India is undernourished.  This is much worse for children, especially young children, and it is significantly worse in the rural areas where monthly personal consumption expenditures are about half that of the urban areas.  So these nutrition data have far reaching implications.  There is well known evidence that difficulties in learning, in concentrating and in cognitive ability are connected with prolonged lack of nutrition.  So unlike the engineers and the knowledge technology people so often discuss in the media that are propelling India s growth, India s demographic dividend going forward, its driving force in most growth assumptions is primarily rural, it is poorly educated and it is impoverished.  And this is a huge contrast between the rhetoric of what is going to drive in here forward and the reality, and here is where I see big risks for India. The present development path that India is on, focusing on its knowledge and economy, is inconsistent with employing this demographic dividend.  Growth right now is being propelled by the high skill and the high capital-intensive industries in India.  India will need a massive shift in employment away from agriculture if it is to be as an economic force going forward. And this shift is not going to just happen in 2030.  The ground work for this shift is going to have to be made now and these workers are entering the labor force everyday in India.  So this is a continuing problem; it is a short-term problem and it is a long-term problem for India. Now one question, one important question is why has not this happened already?  India has always had a large population and it has always had a relatively young population.  Why have not we seen already the shift from agriculture to manufacturing?  And I would like to look at that a little bit by first focusing on the agriculture sector. India s agriculture sector is vast; it is enormous.  About 800 million people live in rural areas in India.  60 percent of the labor force and 60 percent of the land area in India is devoted to agriculture.  It is one of the world s top producers of milk, wheat and cotton, for example.  It is vast, but it does not receive a lot of attention in the press.  And I would argue, stepping aside politically, I think India s agriculture sector and its rural sector is extremely important and this is one of the reasons why facilitating the shift and employing this dividend will be important for all other reforms going forward because this is the constituency that you will have to appeal to in order to continue the reform process. India has had quite a notable success in agriculture in the past.  India s Green Revolution is an example of incredibly successful government intervention in a specific sector.  It basically ended India s frequent cycles of famine.  It did not end food and security, but intense investment in India in the mid 60s and 70s led to an increase in the trend agriculture output.  Unfortunately, recently, that trend growth has been falling.  And over the time period where you see remarkable growth in other sectors in India, you are seeing declining trend growth in the agricultural sector.  So much so that agricultural output growth is about a third or even less than the growth in other sectors. This contrasts sharply with the experiences in other emerging countries to which India is often compared.  Productivity in India s agriculture is much less than in China and Korea, and growth is much less.  And you can see this in a sort of a tactile example in the cereal yields.  Poor inputs, poor agriculture, irrigations systems are resulting in a far less yield in cereal in India than in China and Korea, much less.  There is significant room for improvement. Why has this happened?  Why is India s performance so much weaker than other Asian countries?  Well, one reason, and Bosworth and Collins in a Brookings paper have pointed to a significant lack of investment - a significant lack of productivity in India s agriculture sector reflecting a lack of investment.  This chart shows private gross capital formation, basically investment in agriculture and public investment in agriculture in India since the 1960s.  What you see initially is a huge burst of investment growth in India s agriculture sector.  Starting around 1990, that just died out.  And on average, public investment in India s agriculture sector has turned negative and close to zero.  Why such weak investment?  One reason is that the government switched its strategy from one of a public investment in the sector to subsidies, and those subsidies have basically been sort of a jobs program.  You could think of it as just basically funding employment in the area.  It has not led to higher productivity.  And in addition, there have been severe constraints to private sector involvement in this sector.  The government regulations in the agriculture sector are intensely stifling.  Government laws such as the Essential Commodities Act and the Agriculture Produce Marketing Act and the Factories Act control almost all levels of India s output - from production to supply, to storage, to distribution, to marketing, to processing.  There has also been very limited foreign investment allowed and, until very recently, restricted trade.  In addition, there is limited financial intermediation and weak legal institutions.  Especially telling in this area is weak laws governing the determination of land ownership and protections for lessee and lessor.  So it is very difficult to consolidate properties and get economies of scale. And this is very important in India because there are a lot of farmers and the average land holding in India is half an acre.  So there are a lot of farmers farming a lot of little tiny plots of land.  So the Indian governments provide little security for investment and little source of funds. There are signs of improvement; all is not bleak.  There have been a greater government focus on agriculture recently, and there has been a lifting of regulations.  States have been experimenting with allowing farmers to participate in free markets instead of state-controlled markets, and the example of trickle down of technology to internet trading sites that are going in rural areas so that farmers have a better sense of market conditions and some development of future s markets on a broader sense for these goods.  But huge risks remain.  Obviously, these small changes have not translated into growth in agriculture yet.  And especially failing infrastructure - and this is a theme in India everywhere - but India s water situation, its groundwater sources are being completely depleted and this will be an enormous risk to the agriculture sector if investment is not put into the water infrastructure quickly. This gives us a sense -- low productivity and a weak investment environment have helped explain why growth has stagnated in agriculture and why you are not seeing a push of labor out of that sector and into others.  But what about the pull factor, why has not manufacturing stepped up and pulled workers more?  Let s take a little bit of a look at India s manufacturing sector.  It is relatively small.  This shows the share of GDP, the white areas, in particular, show the share of manufacturing in total GDP in India, in China and Korea.  What you can see is over the period of India s development, those shares remain remarkably constant and relatively small compared to other countries to which it is often compared.  Now, we all know that manufacturing quite recently has taken off.  It has grown very sharply in the past couple of years.  I would note that this is not outside the historic range yet, and the trend growth in manufacturing is still modest.  To match the experience of other Asian economies, India would have to sustain that type of growth in the manufacturing sector not for a year or five years.  It would have to sustain it for decades in order to come close to what the experience has been in Korea and China.  I think it is dangerous to forecast from three or four years of any experience and say it is on the road right now because they will have to sustain that type of performance for a long time.  Nineteen sixty-five - of those three countries, Korea and China and India all had the same manufacturing output with the relative growth rates they have experience.  The chart on the right shows you where they are now. Not only has output been relatively weak in the manufacturing sector, but employment growth has been relatively weak in the manufacturing sector.  If Phil talked about weak employment growth in China, it nowhere compares to the weakness in employment growth in manufacturing.  Why has output and employment growth in manufacturing been so anemic?  Why has it not been pulling in workers?  Well, India has been extremely close to trade and investment.  And I would note that Korea - as you can see this is a share of total manufacturing outputs -- manufacturing exports is a share a total manufacturing output.  Now Korea had extremely a lot of success with export-led growth over this period, I would note.  And during that time, it did not run sizable trade surpluses.  In fact, it had current account deficits over much in that period.  Foreign direct investment in China, well, well outmatches that in Korea and India. So basically, India is not allowing the global economy to play a significant supporting role in its manufacturing sector, but most of its issues are homegrown.  India has put up a number of roadblocks to development in the manufacturing sector, and nowhere is this more evident than in India s textile and apparel industry.  It is this industry that should dominate.  It should be a major, major world force.  It should significantly compete with China and perhaps exceed what China has done in textiles given India s initial endowment.  Its industry, textiles and apparels, is particularly important because it is a key transition industry for many developing countries.  One of the reasons for that is because it is low-skill and labor-intensive.  It is just the kind of industry that would help pull a lot of these workers. India has the labor endowment.  It has the raw materials - the cotton production and the longstanding tradition in this area.  But the textile and apparel industry has been restricted until very recently to be small-scale.  And what that means is that for decades this industry was required -- firms in this industry were required to have fewer than ten employees or at most twenty employees.  Regulations controlled every aspect of production in textiles and apparel investment, technology, even the fiber content.  There is a significant bias in Indian textile industry and regulations against manmade or synthetic fibers.  But most importantly, and this is not just for the textile industry but for all industries in India, the labor restrictions that are imposed by the Industry Disputes Act require that firms with over 100 workers basically go through a number of hurdles that make it impossible to fire workers. So there is a restriction on how much Indian firms can grow in terms of their employment.  And these laws have biased the development of India towards capital-intensive work and towards high-skill labor because if you can only afford to hire a few workers, you want them to be the most productive workers possible.  And if there were one policy, I think, that would spur India s growth it would be to loosen its very onerous labor restrictions. These kinds of restrictions have had incredible effect in suppressing India s textile and apparel performance.  What you have seen as relatively weak as overall manufacturing sector has been in India in overall exports.  The exports of textiles and apparels and the production of output of textiles and apparels have been even weaker in India.  So instead of dominating Indian manufacturing, this had been relatively weak. There is hope for the future.  There has been a significant amount of reduction in some of the regulations.  The last small-scale reservation was lifted in about 2005 on knitted materials for India s textiles, so it is no longer restricted to small firms.  You have also seen export and import restrictions lessening and other domestic policies such as regulations on fiber content.  And that, you have seen a noticeable improvement in performance because of that.  You have seen a significant -- especially in apparel, you have seen a significant pickup in employment with growth rates in employment on the order of 25 percent and an output growth.  This shows a glimpse of India s potential but you are going to need to do -- the country is going to need to do much more in order to take the demographic dividend that has been given and utilize it, and the risks of not utilizing this are tremendous. So, in conclusion, the long term performance of India, regardless of which analyst you ask and which growth estimate you look at, depends on it utilizing its demographic dividend.  And this is not going to be taking engineers and putting them in very advanced industries.  It is going to be -- that certainly is a significant part of its development, but that is not what the raw material, labor material that India is dealing with right now.  Its current focus on high-tech and high-skilled sectors is somewhat inconsistent with employing this dividend if things are not made more broad.  Significant changes are needed in health and education to make sure that the workers coming up are as high quality as possible.  Improving agricultural productivity to give food security and to release these workers, and you are going to have to have policies that support job growth both in manufacturing and services.  Thank you. Claude Barfield:  Thank you very much, all three of you. Well, to answer on your question, it looks as if India is not going to sweep.  And in fact, after listening to these three, I just wonder what the hell Lou Dobbs is really worried about?  You know there are lots of individual questions that I could -- this is a rich set of presentations I want to get to the audience.  But the one thing, these were intensely focused on the individual economies.  The title of this conference is Asia 2012.  I would like for each with maybe a minute and a half to extract from the individual country and the economics or you can tie it to that, what you have told us about in your individual presentations, tell us about Asia 2012.  And you do not have to link -- the earlier panel did not limit itself to security, so just extract out from your own thinking to 2012 of what does this all mean and where are we going to be. I know that Herb said something that what cannot go on will stop, but he was very careful to say he did not know or no other economist knew when it would stop.  So why do we not start with that and then I will go to the audience - maybe a minute or so with each of you. Richard Katz:  I know a lot about Japan.  I do not know that much about India and China, therefore, not knowing very much I m very bullish of India and China. I think one of the mistakes we have made, and you refer to 1997 Asian crisis, was lumping everybody together, that there was this sort of Japan model in Asia, which there was not.  Japan is actually really quite an outlier when it comes to sort of globalization and certain other trends.  Asia is a very, very different model. China.  The thing about China, which makes me optimistic is what you just said, which is we know we cannot sustain this.  We know we are on a tiger s back, we do not know how to get off, but they are not in denial.  At least the people that I have talked to, you know, in terms of professionals, they know what the problem is; they just do not know probably how to deal with it. And India, you know, I'm just so impressed, and it is a marvelous economics.  How did economy go in the so-called Hindu way to growth forever suddenly have this take-off and all the obstacles are there?  I found the presentation absolutely fascinating.  Somehow at least for the next five years, I certainly see the ability of India to continue along its growth trend and perhaps even accelerate.  And what I ll be interested to know is when you present this kind of presentation to Indian policy makers, what their response is because if they agree with you, then that makes people more optimistic. Philip I. Levy:  I think -- actually I think Richard and I are both dealing with these sort of fairly open economies here, and I thought that some of his charts actually did address this question a bit, where he was showing the dependence on U.S. consumption and one of those really -- I showed how China was very engaged with the world, but I think one of the real salient characteristics is - and you could infer this from the pass-through of Japanese goods as they came is this is an integrated production network throughout Asia.  So I sort of certainly do not want to challenge any.  We do not know exactly when this will stop.  So I will stick by what I said, which is it is very, very hard to forecast down to 2012.  I think China s repositioning within this sort of Asian production network is going to pose a challenge for the region. Now, I guess the one other thing I would mention here is I think China has been having a regional effect.  There is some academic work that addresses this.  But the fact that China has not allowed its currency to adjust and that you have got this sort of very integrated production with the rest of Asia has had, I think, some effect on its major Asian trading neighbors.  It has held them back from having the kind of adjustments that they may have. So as China grapples with this problem, it certainly will have regional implications.  How the balance then gets struck will be an interesting question, but this will be a big deal especially when you are dealing with lots of these sort of global margin industries where sort of give or take 5 percent makes a big deal when you are having sort of really significant realignments. Beth Anne Wilson:  So for the region more broadly, I think that there a number of issues that it will face in the near future, and the biggest and most obvious is how it is going to weather the slowdown in the U.S.  There is -- this has been an incredibly buoyant time in the world economy and if you are not performing well now, I can understand when you would be in terms of economies in Asia. And what is going to happen when the U.S. and possibly Europe slow down, will we see actual decoupling or are we going to see not just a moderation in growth but a significant slowing in the region?  Has the region fully decoupled?  In combination with this will be how is the region going to adjust to the appreciation of its exchange rates, and how is it going to handle the vast accumulations of reserves that had now reached such a critical point that they may risk becoming domestically destabilizing.  And then how is the region going to move from a sort of export-led growth model to supporting its domestic consumption and really becoming an engine within its own country of growth and development.  So those are the challenges I see for the region in the near term. Claude Barfield:  Okay, I want to turn to the audience.  We ve got a microphone.  As we did before, please identify yourself.  I do not mind you making statements and also questions as long it is less than thirty seconds.  Nobody presented charts about changes in domestic consumptions and the degree to which any of these countries is beginning to take up slack, and I m talking more about China and about India and other Asian countries.  Is there less dependence ten years ago or more?  My assumption from what I have read is there is less even though you still -- they are still dependent on the United States and Europe.  But anyway let s go to another question.  Right in the back. Thomas A. Timberg:  Tom Timberg, Nathan Associates.  Growth rates - 7, 8, 12, 14 percent imply lots of need for additional raw materials, which in the case of all three of the countries, a lot of which are going to have to be imported especially if agriculture does not become more dynamic, certainly in the case of India.  Is the level of demand for raw materials, for primary goods, et cetera, something that is sustainable?  Or are we going to have rocketing prices for raw materials that will change production functions, et cetera?  Thank you. Claude Barfield:  I think what I m going to do is to take a couple of questions because the trapdoor opens at 11:45 and we would drop then to the 11th floor.  So let s go on to right here and then here and then you can answer them as we get to them.  And please make your question short, please.  Right here, I think his hand was -- Charlton:  Charlton [phonetic], freelance correspondent.  One comment and one question to Mr. Levy. You talked about IMF prediction.  We know IMF made lots of mistakes in the past.  And for this, I think I am going to consider some other factor into it.  Energy and water and also social unrest affect the economic growth.  Second is, I have a question for you.  China has accumulated so many foreign reserves, and China as a whole is a poor country.  Why do they not use this money to do their poor condition?  And is there some technological problem that they cannot put this foreign reserve into the domestic usage?  Thank you. Claude Barfield:  Thank you.  Someone here -- Ola Ulmo:  Hi.  I m Ola Ulmo from American University.  For Mr. Katz - one of your main points in your book the Japanese Phoenix and also a point you touched on today is for the Japanese economy to reform.  You say that the LDP has to reform.  I was wondering with the new Prime Minister and also the emergence of maybe a stronger opposition, how you would see this playing out in the next -- for the next election and next coming years? Claude Barfield:  Okay, I think that will have to be.  Why do we not -- you guys can decide who is going to -- who wants to answer, which of the three questions.  The raw materials and then the question of reserve Philip Levy:  Yes.  Let me jump in.  Thank you for the questions. On the raw materials, I think we have actually seen a big jump like this and it has been a remarkable thing, especially for the developing world.  You had decades of, you know, predicting secular declines if anyone dare do engage with the world system, and we have seen it go up.  I do not have a good answer for exactly how much more or what sustain [audio glitch].  And I think if you have this sort of slowing in the U.S. that will reduce the pressure somewhat, but this has been the effect and has been striking.  It is also one of the reasons why there is cause for concern about inflation being more than just the pigs. As to the comment, I ll leave my friends at the IMF out of this, but I did share exactly some of these concerns.  That was what I was raising as you mentioned - energy, water, social unrest and more.  As to the question of is there sort of a technical I ll leave technical statements on how central banks can operate to my colleague from the Central Bank.  She will get me for it later.  But I think, in general, the answer to your question is this is exactly what the U.S. has been urging on China, is a more consumption-based economy that you could use resources, that they could structure things whether through imports that they have focused on having a safety net and addressing exactly the kinds of problems.  As you say, it is something like $2,000 per capita income; this is not a wealthy nation.  And that is why it seems when one has the exchange rate arguments, there is an oddity to this where the U.S. is saying, Stop lending us money, and the Chinese are saying, No, no, we really want to accumulate a rapidly depreciating asset.   And that makes for a very strange conversation that may change at some point in the future. Richard Katz:  Just on the raw materials.  The interesting thing to look at is that if you do a scattered diagram of the whole bunch of countries, what you see is that as a country move from poor to industrialized, their energy use per dollar of GDP, their raw materials per dollar of GDP really, really rises.  As they get modernized, as they become richer, it actually declines partly because they are moving from manufacturing to services, but also because clean air and water is actually a luxury good, that is, as people get richer they want more of it.  First they want to fill their belly.  And environments are becoming an issue in China.  China has established goals for decreasing energy unit per consumption per dollar of GDP.  Of course, the GDP is rising very, very rapidly.  So there is a certain cross over point, a crunch point.  I think now we are in a period of rising prices.  But, again, Herb Stein is right about it; it does not go on forever. On Japan, actually I went further on that in the book.  I said the LDP is actually going to fall from power to have reform -- [audio glitch] Claude Barfield:  He only read the first chapter [cross-talking] Richard Katz:  -- and you know, just like in business you need competition, in politics you need competition.  And whether you are in Rome or Tokyo or Moscow or Stockholm or Queens County in New York, if you have the same party running the place decade after decade, that is a recipe at least for rigidity, probably stupidity and perhaps even corruption.  And so what you really need is a situation where parties can contest power, and that is the direction which Japan is moving. I think Koizumi was, in a certain way, an interruption of that process because he sort of purged the most recalcitrant elements of the LDP.  Now he may have been an interruption rather than a reversal of that process.  He [indiscernible] back in another process.  It could be a very interesting time, but Japan is the only industrial democracy that is still a one party democracy, and that to me is not sustainable as a long-term trend and not a good thing [audio gets cut off]     Keynote Speech by Honorable John D. Negroponte     Chris DeMuth:  Ladies and gentlemen, my name is Chris DeMuth.  I m president of the American Enterprise Institute. Our topic today is political and security challenges in Asia, and we are thrilled that John Negroponte, the Deputy Secretary of State would come over to AEI and break bread with us and deliver the keynote talk for our discussions running throughout the day. Secretary Negroponte is one of the cream of the crop, one of the great inspiring products of the U.S. Career Foreign Service of recent decades.  He joined the Foreign Service straight out of Yale in 1960; in the succeeding 37 years, he served with great distinction in eight foreign posts around the world, as well as at Foggy Bottom and at the White House, including ambassador to Honduras, Mexico, the Philippines, Assistant Secretary of State, Deputy Assistant to the President for National Security.  In 1997, he joined McGraw-Hill as executive vice president for global markets but answered the call back to public service in 2001 and, under President Bush, has served successively as U.S. permanent representative to the United Nations, ambassador to Iraq, the first director of National Intelligence, and since February of this year, deputy secretary of state.  He will be speaking on challenges and opportunities in Asia, and we will have a little time for questions and discussions following his talk.  Please give a warm welcome to Deputy Secretary Negroponte.  John D. Negroponte:  Thank you very much, Chris, for your kind introduction and for inviting me to speak at the American Enterprise Institute.  I have great admiration for this organization.  For almost 65 years, AEI scholars have made valuable contributions to our nation, and so I m very proud to be here today. We meet today to discuss an important topic, the Asia of 2012.  It is a topic of personal interest to me, having been involved in the region in some capacity or others since I joined the Foreign Service at the age of 21.  I began my career in Hong Kong in 1961 and spent the better part of the next 15 years working on and, at times, living in Vietnam.  I had an opportunity to work for President Nixon during the United States opening to China, traveling to China with Dr. Kissinger when he was the National Security Adviser.  I enjoy showing guests in my office a photo of me with Zhou Enlai on that trip in 1972 with Dr. Kissinger.  If you need proof that I have been at this since the beginning of our opening towards China, I can show you my full head of hair in that picture.  Since then, I have continued to work on United States policy towards Asia, including as our ambassador to the Philippines in the mid-1990s.  I have had the opportunity to watch the development of Asia for a protracted period and from a variety of perspectives.  And it is Asia's development, present and future, as well as our nation's relationship with the changing Asia that I would like to talk with you today with the focus on East Asia where my career experience has concentrated. First, we must consider what we mean by Asia.  We look at this region as encompassing Central Asia, down through the subcontinent, out to East Asia and down through Southeast Asia.  This is the most dynamic region of the world now and for the foreseeable future.  Asian countries are increasingly driving globalization, drawing together as a region and integrating in every way, including by strengthening ties across the Pacific.  The United States has always been a Pacific power, and we will remain an active leader of a broader Asia-Pacific community.  Asian countries are using their growing wealth to increase their power - diplomatic, economic, cultural and, yes, military power.  By and large, this is a good thing and we are enhancing our cooperation with our Asian allies and partners to address the full spectrum of global threats, especially the war on terrorism.  We do remain concerned about China s rapid increases in military spending and we are encouraging the Chinese leadership to be more transparent regarding its military doctrine and strategic goals.  Transparency and exchanges will most effectively build trust and reduce suspicions.  This will likely remain a focus for us well past 2012.   Asia is changing fast and that dynamism has many positive effects.  The United States has made noteworthy progress in the region over the past several years, in particular, by decreasing the risks of conflict within Asia.  The three traditional flashpoints of conflict in the region remain challenging, but the risks have decreased.  In the Taiwan Strait, the United States is committed to ensuring stability and we oppose unilateral changes to the status quo by either side.  On the Korean peninsula, we have created a multilateral diplomatic process to resolve security issues, especially denuclearization.  And with Kashmir we worked to prevent war between India and Pakistan in 2001, and we have helped to reduce tensions in the years that followed.   Managing established problems like these has been a result of patient, traditional diplomacy.  More broadly, however, the goal of our diplomacy is to help lead our Asian allies and friends towards a confident, responsible global role, working with us and others to use their growing power to help solve global problems.  With our traditional allies like Korea, Australia, and Japan, we are transforming our alliances and building the foundations of truly global cooperation; together we are working as allies in the war on terror.  We are increasing our economic competitiveness through free trade agreements like the one we passed with Australia and the pending agreement with Korea, which we strongly urge the Congress to pass.   We are also transforming our relations with both India and Pakistan; we have good relations with each country, and we are tackling challenges in the region and beyond.  This was not something that was supposed to be possible.  With India in particular, we are developing a global partnership between the world s oldest and largest democracies.  In addition, we are building new partnerships with large developing nations in Asia like Indonesia.  We can see the early progress in the 850 Indonesian peacekeepers deployed to Lebanon as part of the United Nations peacekeeping force. And then, of course, there is China whose rise is and will remain one of the major events of our time.  We recognize that China is a major player in an international community, and we are encouraging China to play a responsible and stabilizing role in the global system.  This requires patient, creative diplomacy and we are now working productively, if painstakingly, with China across a range of global issues from Sudan, to climate change, to the nonproliferation challenges posed by North Korea and Iran.   So as we look forward to the Asia of 2012, what must our focus be?  I would suggest three major challenges: regional security architecture, burden sharing, and addressing global issues.  We understand the need to build greater security within Asia for 2012 and beyond.  The U.S. Alliance System, our bilateral defense treaties with Japan, Korea, Australia, the Philippines, and Thailand have been for generations, and remain today, the cornerstone of peace and security in Asia.  They have served and continue to serve our national interests, and they have enabled the region to prosper.  Our alliances are enduring and indispensable, and we have consistently noted that they are not aimed at any third country.   Still, we recognize that the structures for peace and security are not as developed in Asia as they could become.  We also realize that a multilateral structure that adds value to the diplomacy and security cooperation among the powers of the Asia-Pacific, including the United States, would be of great benefit to the region.  We do not know what form this multilateral arrangement might take.  But one idea to which we are giving serious thought is the potential to use the Six-Party Talks, in particular, the Working Group on Northeast Asian Peace and Security, as the beginning of a more lasting structure for peace and security in Northeast Asia.  As we work diplomatically to denuclearize the Korean Peninsula, and if one day we reach a peaceful settlement on the peninsula, that might be the right time to elaborate this idea of a broader, multilateral structure for security in Asia.   Our second challenge for the coming five years is to encourage Asian countries, especially the large rising powers like China and India, to share not only the benefits of globalization but also more of the burdens.  As nations increasingly become players in the international system, they must play a role in the maintenance and strengthening of that system.  At the same time, international institutions conceived a generation ago must adapt to Asia s rise; that is why, for example, the United States supports Japan as a permanent member of the United Nations Security Council. Economically, the integration of the Chinese economy into the global economy has lifted hundreds of millions out of poverty.  India s remarkable economic growth over the last decade can also be attributed to the dismantling of the protectionist economy in 1991 and its dominance of certain global technology sectors.  Now is the time, as beneficiaries of the global trading system, for Asian powers like China and India to take the lead in trade liberalization under the WTO s Doha Round.  The world needs and expects today's global winners to be tomorrow's pacesetters, not to lag behind the pack. Sometimes being a leader requires difficult choices and national sacrifices for the greater good.  The entire world has been shocked by the ongoing repression in Burma against monks and demonstrators.  The international community has spoken; on October 11th, the United Nations Security Council president called for an end to the crackdown and the beginning of a true dialogue with opposition forces.  We hope that China and India will urge the Burmese generals to work with the United Nations special envoy, Ibrahim Gambari.  Now is the time for Beijing and New Delhi to forego energy deals that put money in the pockets of the junta and to suspend weapons sales to this regime.  This is the burden of maintaining the credibility of the United Nations and the international system.  Finally, we will continue to work with our partners in Asia to tackle threats that could imperil our freedom and our economic well-being.  Let me just touch on a few of those global challenges.  With regard to terrorism, Indonesia and Philippine local police and national militaries have killed, captured, and arrested terrorists and their networks.  When these nations asked for help, we responded with police training, information sharing, and other assistance.  In Indonesia, the world's largest Muslim majority nation, as well as an increasingly successful democracy, we have aided the police force, providing counterterrorism training and necessary equipment; in the Philippines, we have worked with the government to deny terrorists safe haven and to target top Al Qaeda-affiliated leaders.  On climate change, the United States is working to develop a comprehensive policy that marries environmental stewardship with the steady supply of energy that is needed to fuel economic growth not only in our country but, especially, in poor and developing nations.  A major weakness of the Kyoto Protocol was its exclusion of the world s two largest developing nations and two major carbon emitters, China and India.  For this reason, and to support the United Nations framework convention, the President called a recent meeting of major economies.  As we look to 2012, we must continue working with our friends in Asia, making them part of a solution to the climate change challenge.  Finally, there is nonproliferation and, in particular, the threat posed by North Korea.  We recognize the challenge before us.  Dealing with the North Koreans is never easy, and we do not have any false expectations.  We proceed always with President Reagan s maxim in mind:  Trust, but verify.  Still, President Bush believes that the Six-Party Talks is the best approach to achieve the goals we all share, the denuclearization of the Korean Peninsula and a life of peace and opportunity for all Korean people.  The Six-Party Talks are beginning to yield fruit; we expect the key nuclear facilities at Yongbyon to be disabled by the end of this year.  There is still much difficult work ahead but we are pursuing this with urgency and prudence, and I believe that we are on the right path. Ladies and gentlemen, Asia is the most dynamic region in the world, and it is becoming increasingly the center of our attention politically, economically, diplomatically, and militarily.  Yes, there are great challenges before us in the region.  But the history of United States engagement with nations of Asia is and remains a good story both for us and for the Asians.  We will draw on this proud tradition as we tackle every challenge before us.  We will remain deeply engaged in Asia, and I'm confident that the United States will help shape a freer, more peaceful, and more prosperous Asia.  Thank you very much.  Chris DeMuth:  Thank you.  Secretary Negroponte would be happy to take a few questions.  I will call on you and ask that you introduce yourself - your name and affiliation - before asking your brief question.  The Secretary is attending a policy symposium, not a press conference.  And so I would like to ask members of the press to hold back a little bit so that our other guests could ask questions.  Male Voice:  Mr. Secretary, what great views you have given on Asia.  And I m sure everybody like -- my question -- that you already answered half of my question about China s expansion and global affairs.  What China is saying that U.S. is interfering in China s internal affairs, my question is quickly that, Mr. Secretary, you have been in the region and you have a great experience there as far as Asia is concerned.  As for the expansion of China in the military and internal affairs, including Burma and elsewhere, do you think that there is a threat from China to India?  And how can you tackle the threat from China as far as the expansion of military and in other areas?  John D. Negroponte:  Right.  Thank you for your question.  First of all, I think China and India have had historical tensions but I m not aware that those are active at the moment, and I think that the era of tension between China and India may be part of history.  My sense of China s behavior is that it is an expanding economy; it is growing rapidly at truly impressive rates of nine, 10 percent per year.  My sense is that the principal concern of the leaders of that country - and that is certainly what they tell us; that is what President Hu Jintao tells President Bush - is the internal development of the Chinese economy, the need to create some 25 million jobs a year.  So I think that is their focus. There are areas of external tension to be sure but, probably, the most important one is in the Taiwan Straits.  And as I mentioned in my remarks, I think that issue is being managed and it needs to continue to be managed very carefully by all concerned so that there not be any unilateral changes in the status quo.  And other than that, our policy has been to seek China s constructive participation in the rest of the world, whether it be the denuclearization of the Korean Peninsula, the sending of an engineer battalion to Darfur, working on various issues around the globe where we think we can have a constructive partnership with the People s Republic of China. And, lastly, on the increases in military expenditures, we are concerned that China is spending for defense at a rate that is even faster than its economic growth rate.  But I think the main point we would make is that we need greater transparency into what it is they are doing, what their plans and intentions are, so as to avoid any misunderstanding or miscalculations about China s military intentions.  And so, we want to deepen the dialogue with China in the area of increased military transparency.  Chris DeMuth:  We are going to take two questions around the corner.  Rob Warne:   Mr. Secretary, Rob Warne.  I want to thank you for your excellent remarks.   John D. Negroponte:  Were you not in Vietnam?  Rob Warne:  We were.  We served together.  John D. Negroponte:  One of our heroes way back when.  Rob Warne:  Oh, well, hardly.  But I wanted to follow up on your point that you made initially, and that is the need for a multilateral discussion among the Asian allies of the U.S. and others.  Could you please spell out how that might be brought about through the Six-Party Talks?  What do you envision?  This seems to be one of the great weaknesses now that we do not have a fulsome discussion among officials.  John D. Negroponte:  Well, Rob, it is - we have got a start.  You mentioned the fact that there is the Working Group, and I did in my comments.  Maybe backing up a bit, people have long commented that one of the differences between East Asia, for example, and Western Europe is that East Asia does not have the kind of different multilateral, multinational structures for peace and stability that exist in Europe - NATO and OSCE, all the different fora that exist in Europe, which can serve as a channel for various national energies.  So I think it is that notion that has given rise to interest in the Working Group on Northeast Asian Peace and Security.  The discussions have begun.  They are still very tentative, and we do believe that more progress has to be made towards disarming the Korean Peninsula; that is the priority task.  And then, next, as I suggested in my remarks, restoring peace on the peninsula through a final peace agreement of some kind, and between ourselves, the Chinese and North and South Korea.  But in parallel with that, we think that we can have this discussion about what some structures might be.  But I do not think I would want to prejudge at this stage where that discussion will turn out, but we think it is an important opportunity and one that we ought to pursue in the months and years ahead.  Lanxin Xiang:  Yes, Mr. Secretary.  My name is Lanxin Xiang, one of the panelists today.  I was struck by your using of transatlantic language of burden sharing.   Now, if you could not succeed in making the Europeans pay or share, how can you make the Chinese do this if you do not put them - no, what I m trying to say, if you do not put China in the cornerstone category of your Asian relationship?  John D. Negroponte:  Right.  Well, here is what I would say to that.  If you want a different word, let s say if we want to talk and debate the terminology, maybe we could use the term that my predecessor Robert Zoellick used, which was responsible stakeholder.   And I think the notion is that being part of the international system is not simply being a nation situated in the East Asia-Pacific region and exporting its export-driven economy goods at will to the rest of the world and not taking on any other kind of responsibilities, particularly when you are the most populous country in the world and are also a member of the permanent five of the United Nations.  So I would say responsible stakeholder, which means taking on some of the responsibilities and, yes, burdens, in the broadest sense of the word, of being such an important and influential country.  And I think that we are making - I think our dialogue -- and I m responsible for the senior political dialogue with China.  I think we are making some progress in that area, whether it has to do with the Korean Peninsula or Africa or other parts of the world.  Ran Su Sen [phonetic]:  Thank you very much.  My name is Ran Su Sen from the Chinese Embassy.  You already touched a bit about the possible Northeast Asia --  John D. Negroponte:  I did not know I ll be getting questions from the Chinese Embassy here.  Male Voice:  {indiscernible]  John D. Negroponte:  I m kidding you there. Ran Su Sen:  Right. John D. Negroponte:  Maybe, that is how to make me want to be asked a question by the press.   Ran Su Sen:  No, you already touched about the possible Northeast Asia peace regime.  I would like to push you a little bit and -  John D. Negroponte:  Sure.  Ran Su Sen:  You know, just a couple of days ago, when the Lower House [sounds like] Summit, they issued that the possible peace regime should be discussed around three parties or four parties concern.  So my first question is who are going to participate in that kind of creation of the peace regime?  And the second is what is the relationship between the possible peace regime and the Six-Party talk?  Thank you.  John D. Negroponte:  Here is my answer to those questions.  First of all, with regard to peace on the Korean Peninsula, I mean, clearly the two most important parties are North and South Korea.  But both China, People s Republic of China, and the United States of America were involved in that conflict.  And, therefore, we think it would make sense for the four parties to discuss the ultimate peace arrangement in the Korean Peninsula.  With regard to the relationship between the peace arrangement and the four-party or the six-party talks, I do not think there is a formal connection to my recollection; there is not a working group on that subject.  But clearly, these are issues that need to be synchronized.  It is a logical next step, once you have got the peninsula denuclearized, to work towards restoring the peace agreement.  And when you think about it, it is a vision of peace in Asia that makes a lot of sense.  And it seems to me - and I think we all want to believe, we want to hope - that what Mr. Kim Jong Il has done is to make a strategic decision to accept the denuclearization of the peninsula.  But as a consequence to that, as part of that, peace would be restored and there would be greater opportunities for North Korea to interact with the other countries of the region and benefit more from the opportunities that exists for its development.  Female Voice:  My question is how do you see the perception of Asian leaders of Miss Rice not attending ASEAN on its 40th anniversary as the symbol that U.S. sees Asia insignificant?  Thank you.  John D. Negroponte:  Right.  A couple of things.  First of all, I did represent us at the ASEAN meeting and I am the Deputy Secretary of State.  And secondly, I m somebody who spent a lot of his career in Southeast Asia; I spent four years in Vietnam, three years in the Philippines, and a couple of years as the Deputy Assistant Secretary for Southeast Asia.  I do not sing as well as Miss Rice plays the piano, and she played extremely well at the session the year before; as you know, at the ASEAN meeting there is always a performance by the different ministers.  But the reason in seriousness that she was unable to attend this year, much to her regret, is that as you know, we had a very intense ongoing debate about the situation in Iraq and it was preparatory to General Petraeus s and Ambassador Crocker s testimony here in Washington.  And as a consequence, she and Secretary of Defense Gates had to go to Iraq at exactly that time.  And if it had not been for that requirement, that pressing and urgent requirement, she would, of course, have gone to the ASEAN foreign ministers meeting, and I m sure she will attend next year.  Elizabeth:  Mr. Negroponte, before your engagement in Asia, you were Ambassador in Latin America.  And I would love to ask you a question about that.  I m Elizabeth, a Norwegian journalist.  And according to a Norwegian documentary, you personally were responsible for major human rights abuses in Nicaragua and Honduras and El Salvador in the 80s with General Alvarez.  This is according to one of your - the guy who was ambassador before you.  So I was wondering what you have to say to these claims from these Norwegian -?  John D. Negroponte:  You know, I have answered that question so many times.  If you found that in the record, I m sure you have also found my replies.  But in brief, there is nothing to those allegations.  I supported our government s policy of promoting democracy in Central America and, in fact, Honduras transition from military rule to civilian rule during the time that I was ambassador of that country.  And I think the question has been answered so many times that I do not feel the need to elaborate here at this meeting.  Stanley Kao:  Thank you very much.  My name is Stanley Kao with TECRO.  Two back-to-back events last week in Washington, D.C. sent a very powerful and equally encouraging message to Asia.  One is that Congressional Gold Medal and Mr. President s receiving his Holiness Dalai Lama for the first time in public.  And the second would be, of course, the President and the First Lady and Secretary Rice standing up for the demonstrators, you know, in Burma.  I think it has once again reaffirmed that freedom, democracy and human rights, and the rule of law remains the core ingredients of the President s freedom democracy agenda.  So I was just wondering -- and of course, in recent days, we also have some sliding back of democracy - Mr. Putin s Russia and just concluded Party Congress.  In Beijing, Mr. Hu Jintao reiterated that this inarguable, tight one-party control over China s political process and over 1.3 billion population.  So I m wondering if in the remaining term of President Bush s term and into beyond 2012, this freedom, democracy, all these we consider universal values will remain something the United States would like to preach as well as to promote.   John D. Negroponte:  Of course, you are right to say that the issue of human rights and democracy are core values not only for our foreign policy but for our society as a whole.  And I have no doubt that in the future, just as in the past, advocacy of human rights and democracy on the one hand, and a free market approach to economic development are going to be core precepts, core elements of our foreign policy.  At the same time, there will be specific instances where we advocate in a particular way, such as you mentioned, in the case of the Dalai Lama, whom the President received the other day, and the case of Burma.  But we also recognize that this is not a perfect world and that progress on these issues is not going to be achieved overnight.  But it remains a fundamental long-term goal of our policies and where possible and where consistent with other important national interests, we will press as hard as we can on this front.   Chris DeMuth:  That is a good note on which to close.  And we must close, and I apologize to the many people who had wanted to ask questions.  I would like to thank everyone for coming.  We look forward to a continuing dialogue in our conference this afternoon.  Most of all, I would like to thank Secretary Negroponte for his very fine presentation.  John D. Negroponte:  Thank you very much.   Panel III: Transnational Challenges and Regionalist Responses   Christopher Griffin:  Ladies and gentlemen, if I may ask you to take your seats we are going to go ahead and get started, please.  Good afternoon and welcome back.  Thank all of you who have been around for the full process all day going for the marathon at this point, and greatly appreciate your sticking through.  My name is Chris Griffin.  I m a Research Fellow in Asian Studies here at AEI and delighted to be moderating this panel on Transnational Issues and Regionalism in Asia, how the countries in the region are responding to challenges that affect them all and have, of course, a distinguished panel to discuss these issues.      Richard Cronin is a Senior Fellow at the Stimson Center, joined there in July of 2005 after a distinguished career at the Congressional Research Service, which everyone in Washington is familiar with.  Without it, I do not know how any of us would get by in trying to be scholars.  He just returned from a trip to Thailand, Cambodia, Laos, and Vietnam on September earlier this year, doing research looking at Mekong-related issues and has a great view, I think, on sort of the -- what I described --the substantive -- the real issues of transnational challenges and regionalism in Asia.      Also joined by Mr. Da Wei, who is a fellow at the Chinese Institute of Contemporary International Relations which, I m informed, is the largest think-tank in China and I m therefore going to take it for granted that it is the largest think-tank in the world, unless instructed otherwise.  He is also a visiting scholar at the Atlantic Council and is a specialist largely on Sino-American Relations but on other issues pertaining to Asia.  Finally, Mr. Keiichi Hori is with Asian Forum Japan, a Tokyo based think-tank.  He is an editor for a book that comes out every year looking at broad issues that Japan must face and is kind of an expert, I would say, across the board on the challenges that his country faces.  Delighted to have them all here today.      One last thought before we begin with Dr. Cronin, then Da Wei and Mr. Hori, who have about 10-15 minute presentations.  You were here this morning so you have a sense of how it goes.  Just kind of a conceptual problem that I have, looking at this panel, that I hope that our panelists will help me out with to some degree is that when I think about this issue broadly, there is clearly a substantive element of what is going on.  There clearly are transnational challenges that the countries in Asia face; there clearly are regional mechanisms designed to respond to these.  At the same time, sort of as a working title whenever I think of it, especially thinking of the Sino-Japanese relationship as it looks at transnational issues in Asia, that the term that comes to mind as often as not is regionalism as rivalry.  That very often, it seems, that the approach to these instruments, be it ASEAN Plus Three, ASEAN or East Asian Summit, seems to have a very intense aspect of gaining national advantage and trying to put national agendas to the forefront, while engaging these countries and issues.      So, very much look forward to distinguished speakers and which should be a great discussion.  Richard, if you will.      Richard Cronin:  Thank you, Chris, and good afternoon, everyone.  I must apologize for the fact that I am only showing up for the last panel but, by coincidence, at the Stimson Center we had a big morning meeting with a client about a project we are doing called Regional Voices and Transnational Issues.  So we just had three conferences this year in Dubai and Singapore for South Asia and Bangkok for Southeast Asia, at which in the Southeast Asia Conference last one was when I went to -- my focus was particularly on environment, natural resources and energy.  And after the conference, which included more than 30 people from nine different Southeast Asian countries - we tried for Burma and did not make it - and an equal number of disciplines talking about this whole range of trans-boundary, transnational issues or what people are calling non-traditional security issues.  After that conference, my colleagues and I all went on the road interviewing more people.  So I was in Phenom Phen, Ho Chi Minh City, and Hanoi and Vientiane talking to a whole range of people on these issues, as you might expect, everyone from officials to NGOs and also international observers and U.S. officials, et cetera.  So, that is kind of preface to this so by coincidence, of course, I m talking about the same issue which is great.  But the downside is I was not able to be here this morning and I apologize for that.  Broadly speaking, I think when we look at globalization, whether we are talking about Southeast Asia or other parts of the more developing world -- I m sorry, we are talking about transnational issues and non-traditional security issues, we are talking about various impacts of globalization, you know, to sort of, in a nutshell, what is the big problem.      So globalization is the driver; among other things globalization and penetration of the cash economy and the global economy into even the most remote parts of Southeast Asia, in this case, is both a generator of growth at the macro level but also a destroyer of livelihoods.  So that is one of the problems -- is that, often, these developing countries are not in a position to replace those lost livelihoods.  And so you have this huge transfer of resources and wealth from the countryside where most of the people live who have lost their lands - in many cases, lost their resources, lost their fisheries - to the city in the form of manufactured goods or hydroelectric power or whatever.  There is a very destabilizing aspect to this globalization phenomenon; it intensifies the development environment dilemma, among other things.  We are talking about forest, minerals, fish and marine products, and water, especially.      So, right now, following up on Secretary Negroponte s talk and some questions that came up, I mean, broadly speaking, or right now, China, in a way, is the great sucking sound in terms of its insatiable demand for natural resources, energy, and industrial inputs.  It is not that China is alone at all; it is just that China in Southeast Asia epitomizes this phenomenon.  Some [indiscernible] the problem with China is just the spillover of the huge -- you know, the dynamism of the Chinese economy.  So what comes down the road from Kunming may or may not have anything to do with what is happening in Beijing in terms of policy making.      The other thing that goes along with globalization in Southeast Asia is regional economic integration.  Now, Chris, you mentioned regionalism and I will have more to say about that later.  But, for instance, in the Mekong basin and even with regard Indonesia in terms of sea transport, there is an element of build and they will come.   Right now, the Asian Development Bank is busily building roads and bridges all over the Mekong region, connecting the Mekong to China, to the north and to the Malay Peninsula and even India southward.  Along these new roads come all the problems we associate with transnational issues - disease, drugs, human trafficking, illegal labor movement, and the accelerated exploitation of resources and environmental damage.  So every time a new road is built or improved, here come the logging trucks and then these companies build their own roads into the trees and then they start hauling them out.  Every time a hydropower plant is built it not only damages the fisheries and creates other problems but it also facilitates mining, which, again, pollutes rivers.      These are really serious problems.  In a way, the highest visibility issues would be, for instance, haze -- in terms of transnational or transboundary issues would be haze, for instance, from burning forests and peat in Indonesia that have actually, more or less, shut down business in Singapore and even Kuala Lumpur on more than one occasion.  But, really, the Mekong is still, for me, the mother of all transboundary issues.  And the grave threat to the Mekong, which still is actually one of the freest flowing rivers in Asia, certainly, and, in fact, even in the world -- but China s dams on the Upper Mekong and Yunan province -- China is building an eight-dam cascade; the third dam they just built is at Shi Huan [phonetic] is the world s highest concrete arch dam by a hundred meters, higher than Hoover and will hold 15 billion cubic meters of water in its reservoir.  So that is a big problem.  But then, downstream, Laos wants to be the battery of Southeast Asia and Laos contributes the largest flow to the Mekong, apart from the dry season.  Vietnam is both an upstream and downstream country but all this hydro-power development is threatening, actually, the core hydrology of the Mekong, particularly the flood [indiscernible] in the row of the Great Lake and Tonle Sap River in Cambodia and its connection with the Mekong Delta.  So, Cambodia and Mekong Delta, where 70 or more percent of people depend on fish and other products associated with the river - for instance, agriculture - for their livelihoods, these livelihoods are being threatened and there is no smooth replacement of these jobs with urban jobs.  So you can see the problem.      The biggest obstacle to dealing with these issues is fourfold -- obstacles are fourfold: governance and lack thereof -- inadequate governance; capacity -- inadequate capacity, human capacity, techno capacity, et cetera; corruption; and a lack of understanding of the issues.  Experts in the region will tell you, We tried and tried.  We cannot find a way to get to the top leaders and in presenting information the way that they as lay persons can understand and it is a great source of frustration.   So there has been a lot of research, like the Mekong River Commission does a lot of hydrological research, et cetera.  It is just [sounds like] on shelves or you can read it on the web if you like.  But even they say they cannot figure out how to package it in a way that they can get the understanding.  A lot of the leaders are generally aware of these problems but if, say, the President of Laos reads an article about the fate of the freshwater catfish in lower Mekong, he is not able, really, to connect it with his desire to make his country the battery of Southeast Asia.  So there are some big problems there in understanding.      And I would say, well, the most important things we should think about here is the urgency of the need to prevent transnational and non-traditional security issues from becoming traditional security issues.  I could mention just two examples; you know, one is China and the Mekong.  And it is not just Vietnam s extreme concern about what China is up to and its rising power, but it is also about the countries that if China takes all the water - and I m exaggerating here - then the lower Mekong countries do not have enough for themselves.  And so the idea promoting cooperative water management is an uphill struggle under the circumstances.  And there are no regional organizations - either ASEAN, the Asian government banks, greater Mekong sub-region project, the Mekong River Commission, and wider than ASEAN -- you know, ASEAN Plus Three.  So there is no mechanism where these issues have been effectively addressed, and the haze in Malaysia and ASEAN s inability to really do anything about it.  We could mention the situation in Burma, too, in terms of ASEAN s issues because Burma is creating a spill-over of refugees, illegal labor, all those other things apart from human rights issues.      Let me just tell you a couple of things.  One of the things I learned that was really interesting was I asked people on the road, especially: Okay, you have all these pragmatic governments that are growth-oriented, growth-driven, authoritarian.  Why would they really care that much about human security?  Why would they care that much about human trafficking, trafficking women, exploitation of labor, et cetera?   Drugs are a little more understandable but what they come back with is it is not their kind hearts; it is that increasingly all these phenomenons are being syndicated in criminal organizations, which themselves are transboundary.  So Malaysian and Chinese syndicates are very active in the Mekong region, for instance.  And to them, this is a threat to the state.  The authority of the state is being challenged by non-state actors in this case, and that goes way back in terms of the history of state making and state breaking in Southeast Asia. I was going to say something just briefly about the U.S. role and expectations of us.  Everybody wants us there; everyone is disappointed with our lack of engagement with the region.  They do not care about Iraq.  What they care about is that the U.S. is so preoccupied with Iraq; it does not have any time to look at them and to look at their bigger strategic picture.  I think that is probably a good place to start -- stop.  Thanks. Christopher Griffin:  I am going to be running a power point for you, so hopefully, this will work out.       Da Wei:  Okay, thank you.  Thank you, Chris.  Good afternoon, everyone.  I m very glad to be here and to share with you my view on the East Asian regionalism and the transnational threat.  Just now, Mr. Cronin already mentioned many detailed threats in the region, so what I can offer here is a more general view and it is about China s academic scholar s view towards those issues.  As Chris mentioned, I m not a specialist in Southeast Asia but -- so what I can say is just an international relations studies scholar s view. When Chris invited me here, I feel it is quite ironic for me because, maybe, just five years ago or, maybe, six years ago, I myself is a skeptic of the Asian regionalism and one of my friend who is a researcher at my institute is an expert on that issue and I always debate with him:  It is useless to push for the regionalism in East Asia because they have no consensus on that issue.   But five years later, I sit here and I think it shows a change in China and, maybe, at least in my mind, that the Asian regionalism is developing in China.   I have basically three questions on China s view and the challenges in our perspective and how can we address those issues.  Okay, the first thing is China s view towards -- our first view -- I think, the first thing in Chinese perspective is Asia s regionalism is still in its initial phase; that means there is still a long way to go from Chinese perspective because as everybody knows here that there is no common concept in the region.  What is Asia and what kind of integration do we want?  Which country should be included or not?  What kind of regional regime or institution do we want?  So there are many versions, many debates, both in the region and in China.  There is no consensus right now in China, so China is quite open for all the [indiscernible] mechanism in the region right now.  China already participate, I think, almost all the East Asian regional mechanisms right now, like 10 plus one, 10 plus three, 10 plus six, and like ARF, like APEC, like, you know, Shanghai Corporation Organization, and so on.  The reason for China to participate in all these institutions is to explore the possibility through all kinds of organization to see what kind of regional mechanism we can achieve in the future in the longer term.  So this is my first point. My second point is, actually, I mentioned it when I started, that I think the regionalism participation already changed China.  One Chinese scholar say -- he called it Influencing the world and changing the echo [sounds like] or changing China itself .  Just like what I said just now, before mid-1990s, I should say, most Chinese scholars are not believer in regionalism.  Most Chinese and the Chinese intellectuals, scholars, are realists; they do not trust the multi-lateral organization at that time, including me.  At that time, I think the reason why China participate all these mechanism is China want to improve its political relations and economic relations with the neighboring country, especially, the Southeast Asia.  So, actually, China involved in the multi-lateral mechanism through bilateral angle, try to improve the bilateral relations by participating in the multi-lateral organizations.  But several years later, I think, at least in China, among the intellectuals, among the scholars, I should say a kind of common identity or Asian identity is developing in China, though it is still, as I said earlier, in its initiative phase.  But it is developing.  China s political relations with Southeast Asian country improved great.  I think the mutual trust enhanced and of course, trade enhanced and China now feels more comfortable to the multi-lateral ways to the multi-lateral mechanism.  I think the average Chinese view towards multilateralism already being changed.  I should say that in this issue the Chinese government, especially our Foreign Ministry, lead the average Chinese people and lead the academic circle.  They are our Foreign Ministry officials; already, they went ahead before us. This is not my personal view.  I share -- my colleagues also have the same feeling.  They always told me that, Wow, you see?  Our Foreign Ministry goes so far, far beyond what we can expect before.   So I think that is a good thing.  This is the trade between China and Asia from 1990 to last year, I think - 2006, a dramatic -- of course, another bad one is China s economic rise.       The third view I would like to say is I think the Asian regionalism is a process of socialization because many people kept on criticize Asia and regionalism as inefficient, including me, because we have so many mechanism in the region but it seems many of them do not have [indiscernible] force.  I think it is true and this criticism to some extent is right.  But we realized that in those years, we realized that the process itself is very valuable; maybe it is more important than the outcomes.  So the multi-lateral cooperation itself, or process itself, can create a norm just like China and ASEAN country have -- we signed the Code of Conduct in the South China Sea and, actually, the process itself can also create the concept like the Cooperative Security or Comprehensive Security.  The process itself also changed China s view, so I think the process itself is very important. The last point about China s view is I think a single Asian community is still premature.  Maybe if it is a purpose of China, it is a long-term purpose; it is a long-term goal, not a near term goal, and because still there is no consensus.  All these are about China s view towards future Asian multi-lateral cooperation.  Another thing is China think that ASEAN s role should be respected in the process.  Many people say ASEAN is the driver of the regional cooperation.  I think that view is accepted by China because one reason is it is effective; ASEAN already been the driver for many years.  Another reason is in the history of ASEAN countries, as you know, suspicion toward China -- and China very cautious in the interaction with them so let them play the leading role.  And the third reason is also in Northeast Asia we have three relatively bigger countries:  China, Japan, and Korea.  To make the whole East Asia cooperation possible, we should let the ASEAN play the driver s role.  The third point about future regionalism is China think 10 plus one and 10 plus three, currently, are the main channels for China because it is very effective.  People say that there are four wheels if we use car as a matter for the regionalism.  So ASEAN itself is one wheel, and 10 plus three is second wheel and three -- 10 plus one is the third wheel and the China, Japan, and the Korea summit in 10 plus three is the fourth wheel.  That is the car and ASEAN is the driver. Next is my assessment about regional and the transnational challenge in next five years.  Actually, the biggest regional challenge for us is how to keep this regional integration momentum go forward.  As we know that in the region we have several big rising powers like China, India, also Japan, and we have some new members in the East Asia Summit in the 10 plus six - we have Australia, New Zealand, and India.  Also, still in the region, because of the rise of China there is still suspicion to watch so-called China threat.  So, from China s perspective, how to keep the momentum, you know, go further.  If we say the ASEAN is the driver but it is a small horse while we have a big wagon behind this small horse, can this wagon go ahead?  This is, I think, one of the challenge.  Another challenge is the regional cooperation in Northeast Asia.  Just now, Secretary Negroponte already mentioned this.  This is a very important point.  I am very glad that he said that it is also a purpose of the United States maybe after the peace agreement on the Korean Peninsula.  All in all, if we want to push the Asian integration, the whole Asian, the Northeast Asian cooperation, especially China, Japan, the Koreas, integration is very, very important.  And also, of course, we also have traditional hotspots; I will not touch this.  Then we have some transnational challenge.  Just now, Mr. Cronin already mentioned many and also analyzed a lot, so I will just pick one or two.  One thing, I think very important in the future is still the financial crisis.  Actually, it is very interesting that the East Asians cooperation integration is a kind of crisis-driven cooperation.  We had financial cooperation after the 1997 financial crisis.  We have the cooperation in the public health after the SARS.  So I still think the financial crisis is possible to have in the future from Chinese perspective like, for example, the appreciation of the value of renminbi.  Will that cause any financial crisis in China and then raise the transnational crisis?  It is still a big problem.  And, of course, energy security especially I think -- one thing is the so-called the transportation security in Southeast Asia.  And another thing is in China, Japan, the Korea are three big consumer of the energy in the region.  So how to cooperate that if the energy market have some sudden shock in the future.  And also, we also have environmental crisis especially like Mr. Cronin mentioned, the international rivers; I think that is very important.  Mekong River and also in Northeast Asia we have Heilongjiang; it is also international river -- Songhuajiang. And other issues.  I will not touch everyone but I would say maybe there is something new beyond our consideration.  People always say that the generals are preparing for the last war.  I think actually the scholars are also preparing for the last crisis.  All this crisis already happened in the past but I do not know what beyond that.  I think that is a big problem for Asian countries.  So the regional response -- I can say something about what we have already done.  I think the most effective channel so far from China s perspectives --10 plus one, 10 plus three because we already have many financial cooperation in the [indiscernible] control in disaster relief and in environment protection, just like after financial crisis, in the framework of 10 plus three, we have the Chiang Mai Initiative.  They have very good staff towards the financial cooperation in the region.  And we also have the ministers of public security meeting among China, Japan, and Korea in the 10 plus three framework.  We have also in that frame, China, Japan, and Korea have the surveillance network for the sand storm, for the acid rain, the environment protection efforts. And with the Southeast Asian countries, China and ASEAN have the dialogue mechanism of the public health ministers.  We also have the training course, classes, for the disaster relief.  And also, we are going to establish the surveillance network for the regional disease and, also, the dialogue among those environmental ministers.  But the problem is that the integration is not deep enough and there is no bonding force.  So, too many statement but not enough cooperation, at least.    So in the future I think what we can do is, first, of course, to continue our 10 plus three, 10 plus six, and 10 plus one cooperation because that is the regime; that is the framework that we can produce some effective agreement among those countries.  Like we can push the financial crisis further, maybe from the Chiang Mai Initiative to a kind of so-called Asian Monetary Fund, something like that.  And we can also establish the energy security regime, especially in the Northeast Asia - China, Japan, and Korea for the investment for the energy reserve and also for the pipelines planning. Okay, the last point is what can the U.S. do?  I think, of course, the U.S. can encourage the deepening of the Asian regionalism.  I think though the U.S. has not participated in many those regimes or mechanisms, but actually almost all of the Asian countries pay a lot attention to American s response just like several years ago when Asian country planned to have the East Asia Summit and they noticed the American s response very carefully.  So I think the American role is very important and the U.S. can encourage the original country to further our cooperation, especially in the financial cooperation and the energy cooperation because it is kind of win-win solution. When the country signed the Chiang Mai Initiative, one of the reason why it cannot go further is that the regional country are worrying that maybe the U.S. is unhappy about that and maybe that will harm the IMF s role in the future financial crisis.  So I think how to balance that and U.S. can encourage the countries to go further because that is also good for the U.S. s interest.  Another thing is, of course, the U.S. have the bilateral alliance with the regional countries.  So by improving their capability to deal with the transnational threat, then those countries can play their role in the regional cooperation. The last point is to promote the Northeast Asia regional regime.  I will not elaborate that further.  Another last point is, the U.S. can consider its U.S. think if whether or not to participate in the East Asia Summit, the 10 plus six to make it into a 10 plus seven.  If U.S. do that it is also a very good channel for the U.S. to play a role in the Asian regionalism.  Yes, that is my presentation.  Thank you. Keiichi Hori:  Thank you, Chris.  Good afternoon, everyone.  Let me start by saying that I really appreciate this opportunity provided by American Enterprise Institute to join you today representing my organization, Asian Forum Japan, or AFJ.  And I m very honored to be able to participate in this panel with such distinguished scholars like Dr. Cronin and Mr. Wei and especially, Mr. Wei.  This is my first meeting with Mr. Wei but I feel like we have met before.  That is because his organization, CICIR, has maintained working relationships with my organization AFJ for the past 20 years.  So we hold symposiums each year alternating between Tokyo and Beijing.  So this year, it was held in Tokyo in July.  So it is very nice to see you again. And also, I would like to extend my special thanks to today s moderator, my friend Chris Griffin.  I hear from my peers in the Japanese media and, yes, I have to admit he is much more famous than me even in Tokyo.  Well, now let me move on to the theme of this panel today, which is how Asia as a region may walk together to respond to transnational challenges and how Japan should act toward these challenges. Well, you should be aware that the numerous comprehensive multinational frameworks have already been established.  There was an ongoing debate as to whether comprehensive frameworks such as the ASEAN Plus Three or the East Asia Summit cannot surely evolve [indiscernible] to the community like the EU.  But you will know these comprehensive regional frameworks [indiscernible] only as a forum for building confidence in membership.  They have produced very little in the way of concrete, specific results in resolving common issues.  On-going debate over the future direction that regional frameworks for East Asia also remains unresolved.  It is well known that the Japan and China engaged in a fierce behind-the- scenes debate.  Well, regarding which country should participate in the first EAS in the December 2005, the leaders of the country participate in these frameworks are well aware that the slow progress is a reality.  It is fair to say that we are now still forecasting and promoting dialogue and the building confidence.  Indeed, Asia s comprehensive multinational frameworks remain at a very early stage. Regarding those security-related issues, Asia s three [sounds like] has not built an effective framework for considering how to respond to traditional as well as new types of security threats.  The frameworks were still the largest potential for dealing with these issues is ASEAN Regional Forum, ARF, which was set up in 1994.  ARF got underway with the initial aim of building confidence between membership.  Members had climbed the second stage for preventive diplomacy and the third stage for concrete resolution under consideration.  ARF is beginning to take an interest in wider global issues as well.  Since 2002, each meeting has discussed international terrorism with reference to the global development since the September 11th.  The chair s statement will be staffed [sounds like] at the Manila meeting in August of this year refers to the issues involving the Korean Peninsula, Myanmar, East Timor, Middle East, Iran, Iraq, Afghanistan, terrorism, non-proliferation, and the demilitarization. Well, as you can see that these topics cover almost all of the world, the coming major global security issues; that this five days.  No specific actions were set out; in other words, ARF is not yet at the stage where it can function as a security organization that allows its members to take effective coordinated action against common threats.  Currently, the forum is only able to do bare minimum of attempting to reach consensus on security-related issues.  However, we should remember that next year ARF will be celebrating its 15th anniversary.  In Japan s feudal period, boys were said to come of age when they reach 15.  Perhaps now, we can say that next year ARF may finally reach adulthood.  Well, I think it is a big problem if adults do not take definite responsible action.  Furthermore, the items in the chair s statement that I referred earlier another abstract issue for the future, but related to on-going crisis.  So we are faced with a choice.  Well, do we take immediate action to achieve an effective resolution of these issues?  Or do we leave the resolution of these issues to other countries and, instead, use our passion [sounds like] only to build the regional frameworks?  So I think East Asia is standing at the strategic crossroads.  Well, here I would like to suggest that Japan as an East Asian country faced with this choice should consider whether pursuing regional frameworks for a regional reason is the best policy.  In other words, should Japan cast doubt on the very premise that the transnational issues are best solved by the region?  Of course, it is important to be at friendly relationships and achieve stability in the region.  We can recognize the ARF serves just such a function.  However, if regional frameworks cannot deal adequately with the individual specific issues and threats, then we will have to think of alternative courses of action.  It is meaningless for us to prioritize the construction of regional frameworks if our response to immediate issues is delayed.  Then for Japan, where one of the alternatives to regionalism -- I would like to take two of the most potential alternatives.  One is NATO.  At the NATO Summit in November 2006, U.S. President George W. Bush announced the global partnership initiative.  The initiative called for joint military exercises and the joint strategic planning by NATO and other parties including Japan, South Korea, and Australia.  It provoked much debate as a new framework for the alliance in this age of terrorism.  The president s initiative did not come to fruition due to the objection of countries like France, which also strongly oppose the United States over the Iraq war. However, the initiative was partially reflected in the decision to promote dialogue with NATO s so-called contact countries.  And the image [sounds like] 2007, the Nicholas Sarkozy wanted to draw a line between himself and the previous Chirac administration, became president of France and was reported to announce that France would completely rejoin NATO s military command in the near future.  The traditional conflict between the United States and France over NATO looks like it may be starting to change, and this raises the possibility that debate on the expansion of roles that the NATO plays may be accelerated. Also some of the candidates of the 2008 U.S. presidency election advocate the new alliance with NATO and its core.  For example, Rudy Giuliani - he proposed that NATO should be open to the Asian countries in order to tackle global issues.  And John McCain, he favors strengthening alliance between NATO and the countries including Japan, South Korea, and [indiscernible] to create a league of democracies.  As such, we are forced to say insisting frameworks with geographical limits is an outdated approach. The other alternative to regionalism -- we can also consider that the numerous frameworks for dealing with individual issues have effectiveness in dealing with global problems.  The Proliferation Security Initiatives, also known as PSI, which was architected by AEI senior fellow Ambassador John Bolton, provides valuable insights in this regard.  That is because this result-oriented partnership can be applied to various issues not only limited to the merely countering in the proliferation of weapons of mass destruction, for example.  To meet numerous global threats, we should, of course, emphasize framework such as regional organizations in the United Nations.  However, recognizing the need for such frameworks when they are effective in solving problems is not the same as prioritizing the framework simply for the purpose of preserving the frameworks themselves. Finally, I would like to comment on the recent Japan s initiative regarding alliance that go beyond this region.  In Japan there exists a silent section of population with strong love and affection for the United Nations.  Well, recently the leader of opposition Democratic Party over Japan or DPJ, Mr. Ichiro Ozawa said that if his party want power in Japan, it would not hold back from participating in International Security Assistance Force, or ISAF, in Afghanistan with the use of military force.  He claims that [indiscernible] of the mission have been directly approved by the United Nations resolution.  Japanese participation would not violate Japan s constitution and that Japan will be able to use its military forces.  Mr. Ozawa s UN-centered position may be mere domestic political tactics but in my opinion I must say I do not agree with that at all.  Well, in January 2007 then-Prime Minister Abe became the first Japanese Prime Minister to take a speech at the NATO headquarters.  In May 2006, during former Prime Minister Koizumi s administration, the then-Foreign Minister Aso also made a speech at the NATO headquarters.  And in November of the same year, he announced that Japan would pursue a policy of creating an arc of freedom and prosperity.  The statement showed Japan s desire to actively contribute to the expansion of freedom and prosperity in the belt stretching from Southeast Asia to South Asia and Central Asia to the Middle East and Eastern Europe.  Well, Mr. Aso may have unveiled this policy on the assumption that he would follow Mr. Abe as Japan's next prime minister.  But, of course, in September, Mr. Aso lost during the Liberal Democratic Party presidential election.  Although Prime Minister Fukuda asked that Mr. Aso to join his cabinet as his Foreign Minister, that Mr. Aso refused therefore.  Well, as such, the possibility of hearing the Fukuda administration once again use this phrase arc of Freedom and prosperity may be law [sounds like] as still the concept itself may well continue to have an influence.  Just as NATO may be considering its move into Asia, Japan, too, is seeking to expand its influence into Europe. Of course, there are numerous problems that must be resolved before Japan can take coordinated action with NATO.  Japan cannot take true effective action until the problem of Japan's right to collective self-defense is resolved.  This is also a necessary condition for the effective operation of PSI. Opinion polls show that Prime Minister Fukuda is achieving approval rating of 50 percent since assuming power.  Unlike his predecessor, there is no sign of him making an immediate move to address constitutional issues.  Once again, Japan is postponing the opportunity to deal seriously with its constitutional issues.  However, even in opposition DPJ, Democratic Party of Japan, there are quite a few lawmakers who believe that Japan has to exercise the right to collective self-defense beyond the framework of the United Nations. In closing, I, too, would like to make a strong appeal to the Japanese government to respond to global security threats not as a topic for the future but as a pressing issue for the present.  Thank you very much. Christopher Griffin:  Okay, thank you Mr. Hori, that was -- all three wonderful presentations.  I m going to open up the floor to Q&A in just a second.  First, I'm going to use the moderator's prerogative and ask a quick question to panelists myself.  Once again, tremendously enjoyable presentations, each of you.  For Rick, one of the really interesting things that came out was your description of the problems around the Mekong Delta seems to be the question.  And to bring in a point that Da Wei made that the ASEAN Institutions, the East Asian regional institutions, have been able to overcome their historical incapacity to respond to any issue at times of crisis.  The Chiang Mai Initiative came out of the East Asian financial crisis and that seems problematic as a precedent to begin with, that there has to be a crisis before there is a response.  It seems looking at East Asian -- and especially in the Southeast Asian context, there is an alternative precedent which is even more frightening, that there is a crisis such as we are seeing today in Burma followed by no response. And when we get back to the question put as to when does a non-traditional security issue become a traditional security issue, it seems that a crises surrounding the Mekong River around which there is no collective response could very quickly lead to that process of a non-traditional issue becoming a traditional one.  I am interested as to what you see as the prospects for preventing that type of issue or where you see impetus coming from to respond to it.  Both for Da Wei and Mr. Hori that seem to present two different views of Japan's and China's responses to East Asian regionalism.  That the term that Da Wei used was main channels that both the ASEAN Plus One arrangement and the ASEAN Plus Three as being the main channels.  What struck me coming out of -- it is very similar to a term used in December 2005 during the East Asian Summit, describing ASEAN Plus Three as the primary vehicle for East Asian regionalism.  And [audio glitch] and Mr. Hori's speech very much emphasized that Japan is seeking alternatives to East Asian regionalism. It is interesting that where do you see in the balance of your two countries kind of individual perspectives, of course.  You do not have to negotiate an agreement here -- that do you see some settlement on a primary vehicle, so to speak, as ASEAN Plus Three expanding to the Ten Plus Six framework?  In the future, where do you see that limit coming to as being the true primary vehicle for regionalism?  Thank you. Richard Cronin:  Chris, well, ASEAN'S insufficiency to solve regional problems -- most of the people I have talked to in Southeast Asia are fairly pessimistic about ASEAN'S ability to really deal with these issues.  And Southeast Asia, or Asians generally, tend to be pretty pragmatic and so the most straight-talking people these days anyway, in Southeast Asia, for instance, like the Vietnamese, say how bilateral solutions are really the only way to resolve these issues, although, certainly, Vietnam aspires to play a bigger role within ASEAN.  The main hopeful ideas I heard were really the hope that the new ASEAN Charter would actually mean something at some point down the road.  And, in particular, the charter is supposed to do away with the old non-interference consensus kinds of requirements and allow countries to move forward even in ASEAN minus-one-type -- ASEAN minus-situations, that is, a cluster of countries under the new charter could reach agreement on issues among themselves. And also that what ASEAN agrees to by lesson [sounds like] and consensus is still binding on other ASEAN members.  But that is all well and good but then you get to the issue of political will and national rivalries and jealousies over sovereignty, et cetera.  And so I do not know; I think there is no easy alternative to ASEAN and in the Ten plus One, Ten plus Three, then you have the rivalries - China, Japan, et cetera.  So that is a tough one and a lot of people that I have talked to think that, actually, we need some kind of parallel track-two-type organizations to address specific transboundary issues like haze, for instance, or overfishing in the South China Sea and other South Pacific areas. And then, finally, just mentioned the -- well, Burma, nobody has got an answer for that, do they?  However, the charter could help in the sense that Burma could become further isolated and, in time, there has got to be some solution to this but nobody -- I do not think anybody has any good ideas as to how to get there. Just finally the -- when do non-traditional issues become traditional ones?  I think that we will soon be approaching a problem in the Mekong and that is that there is no cooperative water development.  And yet, the World Bank and the MRC and the ADB are really pushing regional -- you know, big push for hydropower in the region; the ADB is building a regional power grid, which is primarily a hydropower grid.  So push is going to come to shove fairly soon in terms of the fact that there is not enough water; there is not enough there for everyone to do what they want to do.  And also, traditional ways of solving water issues do not apply in the Mekong because it is not a matter of giving it up or dividing up the water - you get this much, I get that much; it is because of flood pulse [sounds like].  Monsoon flood pulse is critical to the whole ecology of the river.  And so far, there has been no solution to that. I am talking long but I would just say this is my project at Stimson is to find a way to bring transparency to what all the countries are trying to do and underscore the lack of cooperation and the consequences if these patterns continue.  I mean, one thing that is really happening is that because of the lack of coordination even within countries, even within sub-regions of countries or sub-basins, they are damming up every tributary when they should be building cascades of dams on a few of the tributaries and leaving the others open for fish migration and reproduction.  So there is a huge problem with this lack of coordination.  Anyway, that is -- we have a big project on this, trying to shed some light on it.  Thank you. Da Wei:  Maybe I would like to say something about the China and the Japan s different view you mentioned.  I think it over and over just now and there is no, of course, easy solution.  I think at least in China, it may be wrong and in China there are two kinds of explanation in terms of why Japan are not so active in the Ten Plus Three mechanism and maybe try to frame another alternative.  There are two kinds of explanation.  One is, of course, all this mechanism are not so effective; they are inefficient.  Another is that Japan is worrying that China may dominate those mechanisms.  So I think if it is for the first reason, I think, yes, it is not very efficient but it can only solve the problems very slowly, slowly, and gradually.  But if we try to introduce some new mechanism, especially, like my friend Hori mentioned, like the expansion of NATO or something like that, maybe that can solve some problem but that can also create some new problems. So another reason -- if China will dominate the region, the mechanism, I think many Americans scholars already argued very strongly that there is still great suspicion towards China in the region, so it is not so easy for China or maybe impossible for China to dominate.  And actually if Japan joined that process very actively, that even harder for China to dominate if China want.  So just now, Chris asked us if there are any balanced solutions.  I do not know, but I think maybe the solution is Japan should play a bigger role or more active role in the existing regional mechanism like Ten Plus Three and East Asia summit, then try to view the kind of common identity especially between China and Japan and to -- I mean to enhance our mutual trust.  Then it is also easier for Japan to introduce some new mechanism without creating new problem.  So I think I m not going to exclude all other alternatives that Mr. Hori mentioned, but I think maybe you should do that in the midterm or longer-term way.  First we should try to establish mutual trust first.  Thank you. Keiichi Hori:  Well, I think what I m going to say right now may not be the direct answer to your question.  But, well, as Chris mentioned in the beginning, I m involved in editing the annual publication, a Japanese publication, the Nippon No Ronten or The Issues for Japan.  Well, in 2007 edition, AEI s Dan Blumenthal gave us his article.  And his article, well, he refers to the now-famous Mr. Zoellick s phrase of responsible stakeholder in saying that China is great power; it is required to act properly.  And he also said that Japan and the U.S. should cooperate for the Chinese democratization.  And I agree with his point of view completely.  And, well, but Mr. Zoellick s phrase, I think, has been misunderstood in both China and Japan or, also, even in the United States.  Well, some people say, especially in China and Japan -- some people have focused only on the word stakeholder and they say that U.S. has recognized China as a great power at last.  Wow, it is remarkable.   I think that they are failing to see the -- well, the attached adjective, the previous phrase, responsible ; I think this phrase is much more important.  And, well, Zoellick has [indiscernible] huge emphasis, much more bigger emphasis on the phrase, on the responsible. So, well, how can we move China in a direction of responsible?  That is the question for us.  Well, that is something we have to think for creating a regional reason, the regional framework effectively, so that -- well, I think that China is a major political power, as everybody knows.  So I think its leaders have the answer to this question.  So, I would like to have some opinion about these words.  What is the response in China s view or China s recognition or understanding?  I would like to ask this question to Mr. Wei. Da Wei:  Sorry.  What is responsible for China?  Yes, of course, different country have different definition of that, but I think we can raise -- we can use some cases to show what is responsible.  I think just like Burma -- we talked about that just now.  Of course, according to the American s perspective or from Japanese perspective, China or maybe India or other countries policy are not responsible stakeholder there.  But from Chinese perspective, we think that responsible action or policy is try to resolve that problem rather than, as I mentioned before, creating new problems in the process of resolving the problem.  Like, for example, if you impose a very tough sanction, from Chinese perspective that may raise some new problems like the collapse of the regime, the collapse of the country; then some new problems like drug trafficking and maybe domestic war -- something like that.  So, China think that may be not the best choice.  Then we should use -- try other ways just like support the U.N. s efforts there.  So I think that is China s view about what is responsible.  And China is not saying that the crackdown is something legitimate; that is not China s policy.  But China think we should resolve the problem in an effective, in a constructive way, rather than in a simplistic way.  I think that is maybe the difference in understanding of the responsible stakeholder, yes. Christopher Griffin:  Well, we have been selfish among ourselves.  We are almost out of time.  We have about fifteen minutes left for questions and as before, please state your name and organization and -- I see your hand up first.  So, there will be microphones coming around. Ruan Zongze:  Thank you very much.  Ruan Zongze.  I came from the Chinese Embassy.  I would like to just share an anecdote with you about responsible stakeholder.   As a matter of fact, I directly asked Bob Zoellick what he really means about responsible stakeholder.   I asked the question in this way:  I think in China while we do not have any problem with stakeholder, but we do have a problem with responsible.   The question is, responsible to whom?  Is it responsible to America?  Responsible to the international community?  Or is it just responsible for Chinese?  Well, I think different people may have somewhat different interpretation for that.  So what I would like to see here is probably, so far, we have not yet go there, the absolute consensus of the responsibilities.  But if we look at what is happening in China, particularly in Asia, we will see.  Just now, I very much appreciate Negroponte s points of view.  China has played a very constructive role in Sudan, in Myanmar, in climate change, in non-proliferation, all these.  Can you not see this as a responsible way, a contribution to the world stability or for that?  And also I think we are talking about East Asia, particularly after the 1997 financial crisis.  It is very obvious that China has to play a part, which it becomes the engine of the economic recovery in the whole East Asia.  America probably complain that China exported too much to America.  But for China, for Asian countries China is a huge market which should drive them out from their financial crisis to one way or another.  So, just very brief comments about the responsible stakeholder.  Thank you.  Heather Callan:  Hi, I m Heather Callan, visiting from Loyola University in Chicago.  And my question is directed to Mr. Cronin, but if Mr. Wei and Mr. Hori have anything that would be great also.  You mentioned some of the environmental and human rights issues that are affecting the region and, also, the organized crime groups which our transnational actors have taken hold of some of these for their own benefit.  And it is this that is causing some worry among the governments and not out of the goodness of their heart; maybe from this worry that they are taking action.  So my question then is what, if anything, can the international community do, governmental or non-, to help with some of these issues?  And I know that, also, there is the issue of maybe an Asian regionalism not well-established or accepted.  So what can we do to promote as a region their reaction?  Or if there is actually something that the international community can do more than just to pressure the governments to take action? Richard Cronin:  Thank you.  Well, first of all, my point was that the governments have a strong self-interest in addressing these issues.  And in a number of areas, I mean, [indiscernible] addressed fairly cooperatively, anyway, with the participation of international agencies and other countries.  And so, you know, SARS, avian flu, general issue of pandemics -- I mean, basically, the outside world is trying to build Southeast Asia as a kind of a bulwark against the spread of pandemic diseases that tend to originate from China.  And they are probably doing that fairly effectively.  These countries are working with Interpol on human trafficking, drugs, and crime.  And of course, we have an FBI presence in every embassy in the region -- well, almost every.  I think I do not know for certain.  But I think when it comes to these kinds of human security issues, the real issue is not whether we can help or whether we could or should cooperate more, but it really has to do with whether governments can deal with the underlying causes of these things, and the underlying cause being this sort of development environmental divide or dilemma and the displacement of people from their traditional livelihoods without adequate replacement. So I think that is what they have to deal with.  I mean, superficially, we can improve cooperation on these issues but the governments have to recognize more from whence these problems are coming.  Thanks.  And I think the Asian Development Bank could be more responsible in dealing with these issues because its network of roads and its help to improve navigation on the river and all these things are promoting development that  also -- it is an uphill push to protect the environment at the same time [inaudible].  Thank you. Rajov Kenev [phonetic]:  My name is Rajov Kenev from the Washington Semester Program, American University.  My question goes to Mr. Da Wei.  First of all, I personally disagree with the Secretary, Mr. Negroponte, for his view of Sudan because America was so reluctant to go into Sudan crisis.  And the high [sounds like] Chinese invasion [sounds like] of Sudan and economic involvement is somehow hypocritical because Sudan is to the same as the new holocaust of Israel, the genocide.  What is the Chinese view on this present situation and the genocide system in Darfur? Da Wei:  Okay, well, this question actually already goes beyond Asian regionalism.  But maybe, I can try to explain some Chinese view though I m not Chinese government official.  I think what happened in Sudan -- basically, from Chinese view, the reason is very complicated.  I m not African expert but my understanding is that the reason behind that is many ethnic and the tribe conflicts there, and of course, different religion there.  And, of course, it is actually a transnational threat there in Africa because it is not a Sudan problem.  It is also related to Chad and other countries.  So to accuse Sudanese government -- holocaust or kill intentionally, ethnic cleansing, something, I think maybe it is too simplistic and not helpful to resolve the problem.  So I think from Chinese perspective, we think this issue, this problem, should -- just like in Burma -- to solve through constructive road.  That means China and other countries and international organizations press the Sudanese government and accept the UN peacekeeper there, try to keep the situation there stabilized.  I think that is the basic policy of the Chinese government because we think if we only press the Sudanese government and accuse them for everything, I think it is not only -- maybe, it is unfair and it is too simplistic; maybe not helpful to solve this problem, I think.  Because there are so many factors behind this tragedy, not only in A kill B, or A doing ethnic cleansing against B.  It is not so simplistic.  That is my understanding. Christopher Griffin:  And, [audio glitch] at the front table here for the last question. Rob Warne [phonetic]:  Rob Warne.  I wanted to go back to you, Mr. Da Wei, but the other panelists, too.  It seems to me there are two issues that have not been addressed that should be.  The first one is the Doha Round; that offers perhaps the greatest incentive for economic expansion in the region but I did not hear it really mentioned at all.  The second one is APEC; while you listed it in your chart none of you have mentioned it all.  President Bush has gone each of the last seven APEC meetings, underlying the U.S. emphasis on these 21 nations working together.  Why not and why have you not focused on it? Da Wei:  The reason why I did not talk much on APEC is, frankly speaking, I personally am not very confident toward APEC.  I think it is not so efficient in the past so that is the reason why I did not mention it too much.  But I still hope it can play a bigger role because the U.S. is part of that and APEC covers the whole region and it covers not only economics but also the security issues after September 11th.  So I think it has a good framework there but I still think we need something with bonding force there to -- can force all the governments to implement.  But there is not, so that is the reason.  I hope it can have some real thing in the future.  Doha Round, I m not economist so I did not mention that, but I think Chinese government really support that and hope the talk can be resumed. Richard Cronin:  Thank you, Rob.  Well, two things.  On Doha, I do feel that the obstacles to the Doha Round are part of the problem in Southeast Asia and other developing parts of the world.  So that it is not just that Doha -- completing Doha would expand trade and investment; it is that completing Doha could deal with the situation of U.S. and European subsidizing Japanese -- subsidize agricultural goods, forcing down prices to farmers in each region.  And then I think the problem with these developing regions is that, particularly, the poorer countries, they simply cannot make enough policy changes, make them rapidly enough, developing infrastructure they need to take care of all the people being forced out of the farm, so to speak, by the global trade and agricultural trade. APEC, I agree with Mr. Da that it is useful and there are a number of issues that have been dealt with under APEC.  But as he said, even -- you know, we [indiscernible] on to 9/11 issues - terrorism, transportation security, that sort of thing - and far away from trade and investment liberalization.  And I think the perception in Southeast Asia is APEC really -- they do not expect that much of APEC, but what they do value about APEC is that it gets the American president together with Southeast Asians and other Pacific-rim countries periodically.  And we do that because it is kind of our football; it is our vehicle. Male Voice:  [Inaudible]. Richard Cronin:  Yes, one day, but he gets out there anyway, he talks.  He does not go to the --you know, the big disappointment was that the president proposes a U.S.-Southeast Asia summit meeting and then - pffftt - he left Singapore holding the bag to explain why he was not going to come and why was he not going to make a stop in Singapore on his way to Doha.  So, that speaks volumes, I think, either about U.S. attitudes towards Southeast Asia or about the extent or preoccupation of the administration with this mess, morass, in Iraq. Christopher Griffin:  Before I hand the dais over to Michael Auslin, who brought this entire event together, of course, along with Jenni Gregg, and for some concluding observations on the day, just three quick comments just on the panel that just really strike me.  The first is on the question of responsible stakeholder.  You may have a problem with stakeholder, too, since the last time I checked, that is someone who works for a company but does not own any shares in it.  So there may be some issues there. The second -- that, overwhelmingly, as we talked about these issues, we keep on coming back to the question that -- trust in China.  Does Japan trust China?  Does the United States trust China?  Can Africa trust China?  And as we talked about these issues, should we even engage them?  That is the recurring theme that has been coming up just in the last hour-and-a-half.  But, again, from Dr. Cronin s presentation the takeaway is it does not really matter if we trust China; if we do not manage some way to respond to these transnational issues, they may explode in our faces in ways that none of us can anticipate and maybe [audio glitch] Richard Cronin:  [Audio glitch] one word in there?  I mean, part of the problem with China is that it is no different in its behavior than any other country, except that it is a 500-pound gorilla and when it comes to, say, the Mekong, China will not join the Mekong River Commission; it will not share significant data; it does not tell anybody what it is doing; it does not tell the ADB what it is doing in terms of its hydropower projects.  And you know, we have seen the reports about the problems of the Three Gorges Dam.  Consider this 292-meter dam up in Yunan and Sichuan, and you can see why people are nervous. Christopher Griffin:  And with that, [indiscernible] we will stay up here and -- Michael Auslin:  Absolutely, thank you.  Contrary to Chris kind invitation, I m not even going to try to sum up what we did here today.  I will let you know, though, that speaking for AEI we are, I think I can say, thrilled with this beginning of a conversation to talk about the changes coming in Asia.  We will be continuing to discuss these issues.  This for us is a kickoff of an examination of the changes, an examination of how the U.S. should proceed, an examination of really trying to understand what our Asian partners and friends and all the countries in the region are thinking about the future and how they are acting about the future.  And so we are particularly grateful to all of you for coming here.  I notice we have a very good representation of students; I m very impressed.  I could not get my students at Yale to sit through one panel, let alone three.  So I appreciate not only your participation but your very good questions.  Mostly, of course, I want to thank our panelists who have come from far and wide just for the opportunity to be here on a panel for an hour to contribute their expertise and their thoughts and become, as I said, part of this larger discussion and debate that we are having at AEI. So with that, I would like to bring everything to a close and to thank this panel and to thank all of you.   [End of file] [End of Transcript]  </body></html>