USIP president Richard H. Solomon gave the keynote address at the U.S.-China Business Council Gala Dinner on June 3, 2004. His speech, "Managing the Great Asian Transformation: Challenges and Opportunities in U.S.-China Relations," discussed the dramatic changes under way in Asia as a result of China's economic transformation. Solomon urged the United States to seize the challenge of managing this transformation to minimize prospects for conflict and maximize opportunities for cooperative development.

Earlier this year the noted columnist Robert J. Samuelson wrote a searching op-ed piece for The Washington Post entitled "The China Riddle." He began, "China is the question, but what is the answer? Everyone recognizes that China's emergence as an economic superpower is a surpassing development, even if we don't know its full significance." He added, "No one much talks about this, because it's hard to know what to say."

When Bob Kapp invited me to make this presentation I asked myself the same question: "What can I usefully say?" With so many economic and security specialists struggling to grasp the significance of the dramatic changes now under way in Asia, it takes more than a little presumption to assume I can come up with something worthy of your time and attention. But I decided to take on Bob's challenge because—at a time when our country is preoccupied with urgent and weighty security challenges in Iraq, Afghanistan, and the Middle East—it is critical that we not lose focus on a great transformation now under way in Asia.

Our country—the world—now faces two long-term foreign policy and security challenges. One is the turmoil and violence in the diverse countries stretching from North Africa through the Middle East and Central, Southwest and Southeast Asia that we generally refer to as the Muslim World. The other is the dramatic economic growth that is now transforming South and East Asia, with India and China as the centers of growth. The first challenge is weighted toward security issues—terrorism and the proliferation of weapons of mass destruction; the second toward issues of economic growth. These transformations will be with us for decades to come, and we had better get our responses to them right. Even in their early phases they are restructuring international relationships, with profound consequences for America's security and economic interests as the 21st Century advances.

I was also tempted by Bob's challenge because of the opportunity to share with you some of our work at the U.S. Institute of Peace. Congress established the Institute two decades ago as a center of innovative research, education, and training on non-violent approaches to managing international conflicts. Given the way the world has changed since the end of the Cold War, our mission has never been more relevant; and our programs are in ever-greater demand. The Institute's activities this past decade have focused on stabilizing conflicts at flashpoints around the world—the Korean Peninsula, the Balkans, Afghanistan, and now Iraq. And our programs relating to Asia are designed to find ways of preventing conflicts in the region from escalating into violence—or, better yet, fostering their resolution. But more on that later.

World-Transforming Changes

I have been studying and working on Asian affairs since the late 1950s. In those days the issues were the future of the Sino-Soviet alliance (just then coming apart), and whether communist China or democratic India would win the race to economic modernization—a race that is still on! The second half of the 20th Century saw China go through the turmoil of Chairman Mao's last years—the great famine of the early 1960s produced by his Great Leap Forward, the Cultural Revolution—and then the rapid dismantling of Mao's legacy by Deng Xiaoping. In late 1978, Deng completed the normalization of relations with the United States and put China on a development track that has been sustained for twenty-five years—a strategy of opening up the country to the world and setting domestic economic growth as the nation's first priority. That policy is now paying off for China in ways the old Chairman would find astounding, if inconsistent with his revolutionary values.

America's dealings with China during the Cold War years were—shall I say—rather straightforward and defensive: a containment strategy derivative of our approach to the Soviet Union. And then came the 1971 "Nixon shock" of engaging Chairman Mao—to counter the shared threat from the Soviet Union. Suddenly we started asking ourselves the question that still bedevils columnists like Samuelson and policy wonks of all political persuasions: is China an opportunity, or a threat—or both? Virtually every president since Richard Nixon has begun his term questioning the value of relations with China—whether because of concern for the security of Taiwan, or human rights abuses, or trade disputes—only to conclude that there was more benefit for the United States in collaboration that confrontation.

Where are we today in our relations with China? If "9/11" shattered our concept of national security, China's economic emergence is now shattering our notions of the Asian region and our relation to it. Gone is the 1980s conception of "Japan as number one." And while there remain security concerns about China's emergence—primarily the enduring issue of Taiwan's future—the anticipation of a coming conflict with China, to paraphrase the Bernstein and Monroe book of 1997, is now overshadowed by concerns about our growing economic interdependence with China: its absorption of American manufacturing jobs, its large holding of our national debt, its inflation of prices for commodities such as steel, cement and oil, and our dependence on its exports of inexpensive consumer goods. At the same time, since 9/11 there is heightened recognition of the significant benefits of cooperation with Beijing on security issues ranging from eliminating the North Korean nuclear threat, stabilizing the Indian Subcontinent and the Taiwan Strait, and countering global terrorism.

China's Economic Boom . . .

China's spectacular economic takeoff is turning out to be one of the major national, regional—and potentially world-transforming—developments of our time. Chairman Mao may have given China political unity—after the 20th Century decades of warlordism, Japanese occupation, civil war, and "revolutionary" political turmoil—but Deng Xiaoping's reforms of 1978 are truly revolutionizing the country! By single-mindedly holding to Deng's development strategy, China's third and fourth generation leaders have seen their economy grow at rates approaching 10% per year for a quarter-century. Today, China's GDP—according to official PRC estimates—is eight or nine times greater than it was when Deng's reforms were initiated, and per-capita income is up by an estimated 700 percent. More than 200 million Chinese have been lifted above the poverty line, and the country is rapidly developing a domestic consumer economy as well as being a platform for export-let growth.

Ironically, this impressive record has trapped the Chinese leadership in the global competition for that most valuable of all contemporary resources—not gold, not territory, or even oil, but JOBS! China needs to absorb into a labor force that already numbers 760 million a yearly increment of more than 11 million workers. If you consider that 157 of the world's 223 countries have populations under 11 million, that's quite a challenge! And having raised expectations that "getting rich" is not only glorious but a goal within reach, China's leaders are running the race of job creation just to keep up with the expectations of a billion activated Chinese.

As with the leaders of all countries who have signed on to the agenda of globalized national development, to fail at job creation—much less to put people out of work—is to create political instability. Indeed, as we all learned from the fall of Indonesia's Suharto after the Asian economic crisis of 1997-98, people put out of work can readily be mobilized to put their leaders out of work! China's leaders can thus be expected to single-mindedly pursue policies that will keep their people employed—no matter what the impact on markets and employment in other countries.

This national fixation on growth has made China, for now, the engine of economic development throughout Asia—a role that Japan might have played but has largely failed to do, a role that the United States has played for half a century and continues to perform, if in declining proportion. Today China's economic expansion is starting to realign relationships in Asia in a fundamental way. South Korea's exports to China now surpass exports to the United States; and the same can be said for Singapore and Taiwan. Last year almost all the export growth in the Philippines, Malaysia, and Australia was due to Chinese demand; and Japan's emergence from its decade of economic malaise is largely due to exports to China.

China is now absorbing a predominant share of the foreign direct investment that in the 1980s powered the takeoff of what we not long ago referred to as the Asian "tiger economies." Its low cost and quality products are preempting the export markets of Taiwan and Singapore in computer chips. When the Multifiber Agreement expires this year, China is likely to out-compete Cambodia, Indonesia, the Philippines, and other exporters of textiles and apparel. Even Mexico, the country that Ross Perot told us would generate that "giant sucking sound," is finding that China, with its skilled, disciplined work force and low labor costs, is pulling away its markets in textiles, footwear, toys, sporting goods, plastics, textiles and apparel, and computer and electrical components. The same can be said for Laos in furniture, Thailand in motorcycles, and a good share of the bicycle markets of Japan, Taiwan, and Europe.

But the PRC is also becoming a major investor in production capacity abroad. It is now the world's fifth largest supplier of foreign direct investment. It is also the predominant market for the Asian developers in raw materials and intermediate products that China then processes, finishes, and exports on to Europe and the United States. China's growing middle class is both consuming foreign goods and touring regional scenic sites once dominated by American and Japanese tourists.

These developments hold profound political and security—as well as economic—implications for the region, and for the United States. China has taken the initiative to resolve or shelve most of its border disputes with neighboring countries—from the frontiers with Russia and India to the South China Sea. It is structuring relationships to maximize its control over resources and conflicts that affect its interests. Thus, beginning in 1996 it created what has become the "Shanghai Cooperation Organization"—including Russia and four of the "stan" states—to strengthen China's outreach to the strategic, oil rich border regions to the West.

In 2001 Beijing proposed to ASEAN (The Association of Southeast Asian Nations) the creation of a free trade arrangement to accelerate regional economic integration—in the process blindsiding Japan, which was constrained in market opening because of the resistance of its farmers to foreign imports. In 2003 it overcame its reluctance to get out in front on the issue of North Korea's nuclear program to activate the Six Party Talks on Pyongyang's proliferation activities. And it has quietly helped to transform the politics of the Indian Subcontinent by working with New Delhi and Washington to stabilize Pakistan and end its activities as a nuclear proliferator and supporter of terrorism in Afghanistan and Kashmir.

These initiatives have found receptive neighbors. China is developing port facilities in Pakistan and Burma that will enable its navy to surveil and secure its shipping interests in the Indian Ocean and South China Sea. And perhaps most significantly, South Korea now looks to China to manage its hopes of gaining a political solution to its half-century-long confrontation with the communist North. And while Seoul also seeks to maintain its defense relationship with the United States, the emergence on the political scene of a post-Korean War generation less fearful of the North and China is weakening the political foundation of the U.S.-ROK alliance.

If these economic and political trends continue, China will, once again, become the preeminent center of an economic and political order in East Asia—and a major player in the global economy. A recent Goldman Sachs assessment estimates that, in U.S. dollar terms, the total size of China's economy is likely to overtake Germany's in the next four years, Japan's by 2015, and that of the United States by 2039.

. . . and its Bust?

All the above is China's good news. The country seems finally to be realizing the ambition of 19th Century modernizers such as Zhang Zhidong, who saw China's potential to become rich and strong again by combining Western technology with Chinese values (an early variant of today's "Socialism with Chinese characteristics"). But of course there are downsides to such rapid growth.

Specialists on China's economy have alerted us to a number of vulnerabilities that could burst the bubble of the country's dramatic takeoff. While growth is providing employment and raising incomes for many, it is also producing major disparities in development between the coastal provinces and inland regions, a growing gap in income between urban and rural workers, and displacing industrial laborers as unproductive state owned enterprises are closed down. Estimates are that upwards of a quarter of China's work force is under- or unemployed. A huge floating population of 130 million job seekers jams the rail lines as they seek employment in the high-growth coastal cities.

As Chinese leaders at both the national and local levels seek to create employment opportunities to absorb their activated people, they—and private entrepreneurs—are stimulating over-investment in production capacity in certain areas. Aluminum, steel, and real estate are current areas of concern. Excess capacity raises the prospect of deflation due to over-production and eventual unemployment. There is public outrage at the official corruption that has grown with the large influx of foreign capital investment and state bank subsidization of new and non-performing state-owned enterprises. Local officials tax farmers in efforts to finance social services—or to line pockets, provoking significant numbers of under-reported demonstrations. Financial mismanagement and failure of the banking system could well lead to an economic meltdown that would put millions out of work as enterprises went bankrupt.

These disturbing prospects may well increase as China integrates into the global economy—as it committed itself to do by joining the World Trade Organization in 2001. China today imports vast quantities of raw materials—27% of the global steel trade, 40% of cement, 20% of aluminum, and a quarter of the world's copper trade. In the process it is bidding up prices and stimulating investment in production and transport capacity by foreign suppliers all over the world—Australia, Chile, Peru, Canada, Brazil, South Africa, and Central Asia as well as the OPEC and non-OPEC oil exporters. In 2003 automobile sales in China increased by 70% and its oil imports were up by 30% over the preceding year. Cambridge Energy Research Associates reports that China is now the world's second largest consumer of oil (after the United States). Its imports over the last four years account for 40 percent of the entire growth in world oil demand.

The Chinese economy thus has a growing impact on foreign markets even as it is increasingly vulnerable to destabilization by forces beyond the country's borders: a global recession; political trends that disrupt supply or substantially increase the price of key imports such as oil; and a drop in foreign direct investment.

These external factors can be precipitated, as well, by China's own actions: a failure of its over-extended banking system; internal political turmoil—perhaps triggered by corruption scandals or the impact of population or environmental pressures—that drove away foreign investors; a health care crisis precipitated by another SARS epidemic or HIV/AIDS. In short, today's China boom, as with the Japan boom of the 1980s, or our own "dot-com" bubble of the late 1990s, could lead to a destabilizing recession, with profound consequences for economic and political stability both within China as well as in the growing number of countries increasingly tied to China's takeoff.

And Then There is (still) Taiwan!

And there remains one issue that, if mismanaged, could produce a security crisis that would destabilize the positive trends surrounding China's growth: Taiwan. This remnant issue of China's civil war is in many respects a great success of American policy. A small island under martial rule until 1987 has transformed itself, under U.S. protection, into a thriving economy and global trader, a dramatic example of a democratic political transformation.

But Taiwan's very success is creating the conditions for crisis. The island's economy and society are increasingly integrated into those of the mainland—in the process raising fears among Taiwanese of losing their autonomy, their identity, through absorption into Beijing's "one country." Beijing's handling of other peripheral regions—Tibet as a "self governing" area, or of Hong Kong as a special administrative region—has given Taiwanese little confidence that the government in Beijing would honor any "two systems" agreement designed to safeguard their economic and social systems. Thus, the government of Chen Shui-bian, as with Lee Teng-hui before him, struggles against the pulling forces of integration.

PRC Premier Zhou Enlai told Henry Kissinger in 1971 he thought that—following normalization of U.S.-PRC relations—it would take only a few years for Chiang Kai-shek to submit to pressures for reunification. Chairman Mao, two years later, told Nixon and Kissinger that it was best if the U.S. maintained control of Taiwan for a hundred years—given the primacy of the Soviet threat—but that eventually China would have to fight to gain control of the civil war's last holdout. Deng Xiaoping said a hundred years was too long to resolve the issue, but that Taiwan could keep its own way of life—even its own military—for a time. Jiang Zemin said force might be used to resolve Taiwan's status if the island did not enter into negotiations in a few years.

If China's leaders have been shifting ground on the Taiwan issue, successive American administrations have yo-yoed back and forth between the commitment—backed-up by U.S. military protection—to see Taiwan's future evolve peacefully, and the growing interest in developing positive political, security, and economic ties with Beijing. Thus, the Bush administration has played out a pattern familiar to six preceding administrations: asserting in its first year that the U.S. would do all that was necessary to enable Taiwan to defend itself, only to shift after 9/11 to developing security cooperation with Beijing and cautioning Chen Shui-bian against provocative initiatives that would unilaterally alter the status quo.

Beijing today seems to assume that economic and social trends across the Taiwan Strait are working in favor of eventual reunification. Yet its handling of Tibet and Hong Kong, and the SARS crisis have done little to create the conditions of trust that would lead to some form of voluntary political accommodation. A Chen initiative—constitutional revision, a political referendum—designed to resist these integrating trends risks provoking a confrontation with the mainland. Both the People's Liberation Army and America's Pacific Command are quietly preparing for such a contingency. Chen's initiatives are putting at risk the reality of Taiwan's autonomy in hopes of some political evolution that would guarantee the island's independence. And he is gambling that the U.S. military will protect his domestic maneuverings.

The United States continues to straddle the Taiwan dilemma, determined to at once prevent a security crisis while ensuring a mutually acceptable accommodation. A military confrontation across the Strait would be a lose-lose-lose situation for all three parties involved, and for regional stability.

Managing the Great Transformation

Where do these trends and challenges leave us? Asia has entered a period of profound transformation, which is driven in growing measure by China's new role as an engine of regional economic growth and by its interest in regional stability. The political and security polarization of the region that characterized the Cold War decades is giving way to constructive, if wary, associations among former adversaries. And there are now instances of countries turning to Beijing for support in their security objectives—most notably South Korea. Yet Asia remains vulnerable to economic destabilization or a security crisis over Taiwan or North Korea, or Pakistan*. China is becoming the preeminent market for many of the countries of the region. The irony is that the United States is China's major export market, and it remains the primary guarantor of regional security, even as public support in the region for forward-deployed American forces is weakening. East Asia, in structural terms, could be said to be morphing from a region of national power centers in equilibrium toward a Sino-centric region.

This is a more promising context than Asia of the titanic struggles that rent the region from World War II through the Cold War. It is a more constructive environment than the political turmoil and sectarian violence that now threatens stability in much of the world from North Africa and the Middle East through Southwest, South, and Southeast Asia. Our challenge is to manage complex and subtle relationships that are driving Asia's transformation so as to maximize the prospects for economic growth, political and social reform, and security. We cannot assume that this evolution will be peaceful; indeed, the road ahead will have its bumps and potholes. And we will be on this road for the better part of a generation.

China's fourth generation leaders are highly focused on the challenges they face. They are well aware of the self-initiated disasters that befell the "rising powers" of the 20th Century—the Soviet Union, Germany, and Japan. Zhou Enlai told Henry Kissinger in their first encounter in 1971 that China carried the burden of its size and long history as Asia's preeminent power center. That concern was reflected in the Shanghai Communiqué, which asserted that "China will never be a superpower and it opposes hegemony and power politics of any kind." Today, Hu Jintao and his supporters in the China Reform Forum propagate the notion of a "peacefully rising China." Given the country's dramatic growth and increasing activism in foreign affairs, translating this slogan into reassuring policies will be an on-going challenge.

What can China and the United States, individually and in tandem, do to make this transformation productive for all concerned? A stable security environment is the fundamental context for sustaining economic growth and positive social change. East Asia's most urgent security problem is the Cold War's last remnant in the region: North Korea, with its failed economy and its nuclear and weapons proliferation activities. Beijing and Washington are now working in tandem to advance a six-nation framework for dealing with this issue, although it is not clear if the lethargic Six Party Talks will produce a useful outcome.

The U.S. Institute of Peace has put forward a comprehensive approach to ending the Korean War: replacing the 51 year-old-armistice with a broad political settlement of the confrontation on the Peninsula—perhaps in a United Nations framework—in return for the verified dismantling of North Korea's weapons of mass destruction programs. Less ambitious concepts abound. What is clear is that sustained, multilateral efforts are needed to deal with both the proliferation danger posed by Pyongyang's nuclear and missile programs, and the threat to regional stability of its failed economy.

Without progress in the Six Party Talks, the risks of broadened proliferation and on-going confrontation with the North can only increase, along with continuing economic malaise, refugee flows and great human suffering. A successful resolution of the Korean confrontation would create prospects for revival of the North Korean economy, reform of its political system, and greater regional stability. Success in the Six Party Talks would also raise the possibility of a new collective security forum or structure in Northeast Asia—something the Institute is now exploring with a number of potential member states, China among them.

Of the many aspects of the global security environment transformed by 9/11, none was more sudden than the realization in both Beijing and Washington of shared security interests. Concerns in our domestic debate of China as an emerging "peer competitor" have receded, with a new focus on cooperation on issues of WMD proliferation, terrorism, and even collaborative approaches to crisis management and the failed states problem—the subject of a recent workshop involving the Institute and a leading Chinese think tank. The most challenging issue affecting bilateral and regional security remains Taiwan. China's conception of this problem today is less that of resolving a residual issue of the civil war and increasingly one of seeking to benefit from the island's economic vitality and preventing an outcome which would set a "breakaway" precedent for other peripheral regions—Tibet, Xinjiang, and Hong Kong.

This is not a matter likely to be resolved soon. Buying time is likely to be more productive than buying or building weapons. China now has the internal stability and the resources to pursue a more creative approach. The challenge to both Beijing and Taipei is to transform the character of their communications across the Strait from threats and unilateral initiatives to those that would gradually build confidence that a negotiated accommodation would benefit both sides, as does the trade, investment and social contact that continues to increase across the Strait. Four years ago, the Institute hosted a "track two" dialogue between senior personages from Beijing and Taipei. Our objective was to stimulate fresh thinking and a search for common ground. Unfortunately that effort was not sustained. We remain prepared to resume such confidence-building activities at the request of both parties.

If security can provide the stable context needed for national development, economic expansion—as we have seen—is anything but an orderly, risk free process. As China now advances its economic reforms and its engagement with the global economy, we are seeing the impact on international markets of an economy of China's size—especially one expanding at a sustained high rate of growth. There is thus a growing agenda of bilateral and multilateral issues brought on by China's emergence: matters of market opening; subsidization of exports; protection of intellectual property rights; the proper valuation of the Yuan; China's impact on global commodity markets; and so on.

These matters are beyond exploration here. What should be noted is the growing web of bilateral and multilateral institutions that will manage these complex and often politically contentious issues. The China-U.S. Joint Commission on Commerce and Trade has now been upgraded to yearly ministerial-level problem-solving meetings on issues ranging from currency valuation to workers rights. The State Department has opened a dialogue with China's National Development and Reform Commission at the under secretary level. The Treasury Department has developed a technical cooperation program that is engaging officials of China's central bank on banking and currency issues. And USTR will be pressing Chinese counterparts on bilateral trade-related issues through the efforts of a recently established office of Chinese affairs.

I should also note the impact of our private sector: American universities are training thousands of Chinese MBAs; and our business community is bringing advanced practices of enterprise management to China, even as individual enterprises pursue their own interests in the China market.

These bilateral mechanisms will function in a context of China's deepening participation in multilateral economic institutions: the WTO; free trade agreements, especially with ASEAN; and APEC. China is now being brought into G-8 consultations—initially at the deputy finance minister level. There is also some talk of developing an Asian currency bloc—a decades-long process that holds some risk of organizing East Asia into a regional trading bloc.

These mechanisms may not protect China—or its trading partners—against the current risks of a "hard landing," but they do provide fora for working out policy differences. And the internal pressures generated by high-speed growth are likely to impel further reforms of China's domestic economic management structures, and the marketization of its economy. In short, there are internal, bilateral, and international processes at work that will help manage the growing impact of China's economy on the global scene.

What about the social and political effects of China's rapid growth? As noted earlier, development is mobilizing "from the bottom up" millions of rural and urban workers who seek employment and higher paying jobs in the rapid growth regions of the country. In Chairman Mao's time such mobilization was tightly controlled from the top down, from the leadership center, in mass political movements. Today, China's leaders seem barely in control of the social forces generated by the economic takeoff. They face a challenge that confronts leaders in all developing countries: that as the population attains higher levels of education and income, pressures for political participation concurrently increase.

Today the Communist Party leadership seeks to dissipate such pressures by preventing the emergence of organized opposition on any significant scale—even as they experiment with political reform in the villages and townships. Beijing's current efforts to block the adoption of a system of direct election of leaders in Hong Kong illustrates the dilemma and the public pressures that will only increase as development advances. An economic or political crisis that puts large numbers of workers on the streets could well lead the party to use repressive measures to maintain control. Such action, as occurred in the spring of 1989, would not only again wound the society and pit the party against the population, but also produce an international backlash—a combination that could seriously destabilize the economy.

China's fourth and subsequent generation leaders thus face the daunting challenge of managing the social and political effects of the country's modernization even as they deal with its economic complexities. If political reform does not move in tandem with economic advance, the country will face increasing internal strains and the danger of destabilizing crisis-driven events. And without greater political opening up and transparency, fears abroad of the way that Chinese leaders will use the great power being generated by their dynamic economy will undercut current efforts to propagate the notion of "peacefully rising China."

Seize the Moment!

As I was concluding preparation of these remarks, Robert Samuelson—the columnist mentioned at the outset—wrote another piece emphasizing the uncertain but expanding implications of China's economic takeoff: "The question about China's economy is no longer what it will to do China but what it will do to the rest of the world. It may invigorate the global economy—or destabilize it. We don't know. . . . In a smaller country, our ignorance wouldn't matter much. But in [the case of] China, it's slightly terrifying."

We shouldn't end this evening in a state of "slight terror." So let me conclude by suggesting that the big issue we face is not the inevitable uncertainties of economic trends, but how we will manage the almost certain dramatic changes being wrought by China's economic takeoff. At a time when we are preoccupied with the struggle against those trying to polarize the world along religious lines, we must not lose focus on the Asian transformation. If we manage our interests in Asia poorly, we could see the emergence of a region structured—in 19th Century fashion—around competing power centers. Our challenge, and our opportunity, is to bring China and Asia into the 21st Century, into a globalized environment of collaborative efforts to deal with the security, economic and social issues of our time.

At the U.S. Institute of Peace there are three perspectives on managing conflict that are relevant to making Asia's transformation a constructive process. First, preventive efforts that forestall the escalation of disputes into violence are much less costly than conflicts fought out on a field of battle. Second, dialogue and the identification of shared interests can help those locked in confrontation break out of a stalemate. And finally, third party facilitation is often needed to help disputants find common ground.

What do these guidelines mean for the evolving situation in Asia? The security challenges in the region are clear enough. We need to proactively defuse the conflicts—on the Korean Peninsula, across the Taiwan Strait, in the South China Sea—that could repolarize the region. We have strong interests in a stable Asia, and we cannot afford to let others manage the security issues, much less let sources of confrontation fester. More than that, we should actively find ways to build confidence among the countries of the region, as by developing positive programs of cooperation on shared threats: terrorism, weapons proliferation, stabilizing the Indian subcontinent, even collective efforts on transnational health threats such as SARS and HIV/AIDS.

A stable environment will give play to all the positive possibilities in Asia's economic development. But as with security issues, we must actively work to prevent the emergence of hostile trading blocs. We have the programs which can bring China into the rules-based international economy—even recognizing that China has the dynamism and potential to outplay us at our own game. But this is only to observe the need to keep our own economic house in order. We have to control our national debt, encourage the educational and scientific programs that will sustain our competitive edge, and support the retraining of workers displaced by the changing structure of our economy—of the global economy.

In sum, China's development and Asia's transformation can be an opportunity for the United States, but it is a transformation we need to actively manage. This is a time to shape the future. As Chairman Mao put it in one of his poems, "Seize the Moment!"

Thank you.

* NOTE: For purposes of this presentation I have focused on what Americans traditionally think of as "East Asia." Increasingly, however, this is too narrow a definition of the region, given economic and security trends. It is more meaningful to look at "Asia" from Beijing's perspective, which would include Russia's far east and the states of Central and South Asia, including Afghanistan and Pakistan as well as India.

The above remarks are from a presentation given by Richard H. Solomon, president of the United States Institute of Peace, to the U.S.-China Business Council on June 3, 2004. The views expressed here are not necessarily those of the Institute, which does not advocate specific policies.