James R. Lilley - China Hands: Nine Decades of Adventure, Espionage, and Diplomacy in Asia

July 15, 2004
The Heritage Foundation


China Hands: Nine Decades of Adventure, Espionage, and Diplomacy in Asia 
July 15, 2004

Ambassador James R. Lilley

Hosted by:
Larry M. Wortzel, Ph.D.
Vice President for International Studies,
The Heritage Foundation

[Transcription begins at minute 6:59] James Lilley:
Thank you Larry. I’m mildly infirm, so I’ll do this sitting down. 
First of all, “This is your life,” as I look out at this audience and see people like Jim Przystup, Carl Ford, Mike Pillsbury, Dave Laux, David Tsai, Bill Triplett, John Tkacik, where does it all . . . if I missed somebody, They’re all here, and I’m very honored that they chose to take this time during their lunch hour to come and hear me. And I also think this will be fun, this isn't going to be a tedious exchange on China that puts everybody to sleep or makes them angry. I think we can make it some fun, because China is fun. And I also want to comment about Larry Wortzel. This isn’t some mutual back-massaging program, but you can see it in my book – long before Larry made his speech -- that he was one of the “Magnificent Five”, heroism in the time of stress. And, well, that’s it.

I’m reminded of that anecdote about George Shultz, when he would invite an Ambassador into his office at the State Department, take them over to his globe and ask them “what country do you represent?” And the guy would answer, “India” or “Cambodia” or “Chile”, and Shultz would say “No! You represent the United States, this place.” And it would rock the various guys back, but it made its point.

But I start off by saying, why do we get involved this way, because I think the Past is Prologue, and there are lessons of history that matter and are relevant to what we do today. Continuity and change are the processes by which we work, and what do I mean by this, I think in 1979-80, 25 years after the years of economic stagnation and political turmoil in China, Americans came to China and demonstrated to the Chinese clearly the value to China of American technology, business contracts, modern training and management and the win-win concept in economic cooperation. The group that came over were the oilmen from Texas. I just came back from Dallas and Houston and I can tell you the oilmen from Texas made a lot better impression than the old China hands travelling around, they’re funny, they know their business, they immediately connect with the Chinese. I was privileged to be with this group, and I was also privileged to be with George Bush Senior the day he laid out in front of Deng Xiaoping the Penzoil contract for offshore exploration, and Deng had lost a jack-up rig in the Gulf of Bohai. He had a great semi-submersible off of Hainan that he couldn’t run because the instructions were in English and Norwegian, and it was a self reliant stage in China, and finally he just said “get rid of this junk,” get rid of this stupid oil minister, and we’re going into contract with the Americans. And Bush laid it out in front of him and a couple of months later Hugh Litke [phon.] of Penzoil came up with the first real proposals that I think eventually lead to the reforms, or contributed to the reforms, of November 1978 that changed China and changed the world.

But I’m here to put this unprecedented change into context relying on nine decades of direct involvement, of my father, an oilman, my brother a military officer, and myself, whatever I was -- an academic, a business consultant, an intel officer and a diplomat. I was a diplomat. My friend Nick Eberstadt says, “Lilley proves you can be an ambassador without being a diplomat.” What I am now is, of course, what Marshall Green called an “extinguished diplomat.”

I am through the business now, and before that, as you know it's in the book, that I spent 27 years in the . . . (is it the second or the first oldest profession?) . . . carrying out these various escapades in China. I think we learned a great deal, and I’ll try to apply some of this to what we face today but I think you have to take a step back from our consuming daily lives, and take a look and try to detect these patterns and lessons, historical parallels and allegories which are relevant.

In the 15th century it is reported that China had the largest per capita income in the world. Earlier, the Chinese Tang dynasty between the 6th and 9th century, way outshone its European counterparts in terms of openness and cosmopolitanism and their advocacy of the free markets, and some people think that Chairman Mao should have spent a lot more time studying Tang dynasty history because when Xuan Zong ran into problems with Yang Guifei, his voluptuous concubine, and she got very corrupt, he had her strangled in front of his troops. Now, Mao faced this with Jiang Qing for years and never did it, maybe he should’ve read a little more Tang Dynasty history and we would’ve been spared the Gang of Four.

But getting on in context and why we write these books, I tried to, for reasons of clarity, stake out four periods of time in which we directly engaged China . . . and our analysis of those times . . . and what they meant and what was happening and how this affected Chinese thinking.

And the first of one of course was 1916-1937 when my father arrived and was selling oil for Standard Oil and if you want to read a book about this period it’s “Oil for the Lamps of China” by Alice Tisdale Hobart, a very, very perceptive book. This was the period as you know of foreign privilege, oases of privilege, that we had throughout China. We were stable while China was in turmoil. And we had gunboats to protect us, and we had unequal treaties, consular courts, extraterritorial rights, foreign concessions. It was a good life, and I point out that out at Tsingtao “where the daisies cover the country land”. It was the era, as I say, of gunboats, oil cans and bibles. You had the 15th Infantry in T'ientsin which produced Wedemeyer, Marshall, Stilwell, and you had the Fourth Marines in Shanghai and you had the fleet, the Augusta, Houston, Canopus coming out to Tsingtao and Chi-Foo, we used to call it, every summer with soldiers and marines and sailors it was a great period for us.

My brother oldest brother saw some of this through his eyes and he saw what was happening and he put that in his diaries and I put that in there. But if you flip over and see what lessons the Chinese drew from this period, of course it was humiliation and victimization . . . was burned into their heads. The Opium War 1840, the Boxer Rebellion of 1900. Charlton Heston may be our hero leading the Marines into Peking after 55 days, but he is demon in the Chinese eyes, he humiliated them.

It is interesting, if you want history, the Chinese foreign minister when he was here in 1990, raised with the Americans when we were sanctioning China after Tiananmen, he said “that was like Eight Power March”. Someone asked me “what the hell was he talking about?” Well, that was Charlton Heston marching on Peking, and it was the "Eight Power March" to free the entrapped diplomats from the Chinese barbarians. That's . . . he made the reference to that . . . it came out.

The second period, if we look at the first period of victimization and humiliation burned into their minds, you go into the second period that started in ‘37 and ended Caucasian foreign domination. The Japanese invade. They humiliate the Chinese and us; it was the end of our era, and following on were civil war between the Chinese Nationalists and Communists, the economic breakdown of the system, I think . . . read Graham Peck’s book about this, it is a very telling book. It's about corruption, it’s about cowardice.

My brother Frank, a religious idealist, a lieutenant in the field artillery got into this situation and saw the torture and disintegration of society, the changes, the officers, the dragooned peasants, and the exploitation of taxes. All these things came in on him, and changed his perception of China. He was very sensitive person, subject to depression, and it got to him, particularly, the torture of prisoners. And unfortunately he went to Japan next, and he was posted in Hiroshima (Kure) naval base. So it broke him.

This period again I would say -- if you want to choose one word -- I would say “chaos.” Why? China has always feared chaos, but this period was the real breakdown of the whole system, the Yellow River dikes breaking and massive starvation, the inflation. And what it drives today is order at all costs. The individual in the Confucian sense is not important in this process. And we must have order. And of course the people that brought order were the Chinese Communists when they took over and ended in 1949. Whatever they did, they did restore a measure of order and at a terrible price. This then was followed by 1949 to '72, which I deal with as a period of hostility. It starts really with the Korean War. This happens in as you know June 1950 when the 7th Fleet goes into the Taiwan Strait and we eventually engaged the Chinese in Korea and bloody direct battle. And we had our McCarthyism, they had their weird, strange, revolutionary movements in Southeast Asia, the Three, Five-Anti Campaign that eliminated the landlords. It was an ugly situation on both sides.

We were struggling over China’s vassal states, whether they they be in Vietnam, Korea, Thailand. The struggle took place around the periphery of China. And this is when I entered the scene as a young soldier in the covert war against China. The conception at that time -- the concept -- was that we can change China through paramilitary means, covert propaganda, espionage -- learn about it and change it. And we got into the “Third Force Movement” -- with Carson Chang, Chang Fa-Kuei, Tsai Wen-chih. I think David Laux can tell you more about that.

We got into huge fabrication networks and refugee debriefings. That, and the simple purchasing of stay-behind operations that lied, and were done-up in the backrooms of Kowloon. We bought-into these things, but the important, I think, thing is that it didn’t matter that much. It didn’t get us into wars or kill many people. But it did . . . it misrepresented what was happening, and it taught us some very serious lessons which we could’ve applied this year and last year in Iraq.

Authentication of sources -- you let that go and you are in real trouble. Especially in Iraq where it counts. We didn’t do it in the 1950s in China. We got it wrong, our paramilitary operations were wrapped up. My colleague at Yale, Jack Downey spent 21 years in a Chinese jail because his operation was compromised and because he went on a plane going in to exfiltrate an agent. Mine were put in maybe a hundred miles from his. I didn’t get on the plane, mine came up but eventually disappeared.

All these operations, whether they were paramilitary across the Taiwan Strait -- Frank Holober has this in his book, “Raiders of the China Coast.” He talks about the few successes -- and the many failures -- but this was what we did. We did our thing wrong.

And they [too] got involved in really bad shows. The lunatic social engineering of the Great Leap Forward, followed by the Great Proletarian Cultural Revolution, followed by Mao, in the midst of all this wild, screwy chaos, saying the “East wind prevails over the West wind.”

We demonized China, they demonized us. It wasn’t hard to demonize them in those days. But we learned, I think, lessons of our paramilitary engagement in those years, and I touch on this in the chapter on Laos where I was engaged for three years in paramilitary operations in the Vietnam War.

And I would say we derived four lessons from this, some which may be applicable today, some maybe not.

The first is: you don’t take on an enemy when he has free rein in his infiltration. I’m talking about Ho Chi Minh Trail, Sihanouk Trail, the porous China-Lao border areas . . . you can’t control their infiltration of men, supplies, weapons.

The second is: in that insurgency, if they have a large base area to supply them as they did then China and North Vietnam or as the Iraqi insurgents in the Arab world around them, it is very hard to fight them and defeat them. In our case, with China and North Vietnam, it was impossible despite limited successes in the early stages rescuing pilots, ambushes, blowing up munitions dumps, shooting down their aircraft, we were going to lose, we couldn’t win.

The third of course is: to go up against a fanatical ideology, and the case of the Vietnamese was their commitment to communist-nationalism -- they would die for this. It is very hard to fight against that. That can crack later on as it has both in China and Vietnam, but at that time it was an overwhelmingly powerful force.

Finally: what we learn as we move into some of our democratic successes -- which I talk about, too, in places like Korea -- was to break off the radicals from the mainstream. That sounds very obvious, but that's exactly what we are trying to do in Iraq today, and we succeeded in doing this in Korea and Japan, and to a degree in Taiwan. When you can separate the mainstream in Korea from the radical fringe, [the radical fringe] dried up, we took the water out of their pond and we moved in, and the Koreans themselves moved in, to democracy. So, these are some of the lessons we derived from this period of experimentation, failure, and minor successes.

Then the fourth period came along, and I was fortunate to be involved in that after fighting them all those years, is to get involved in what we call a rapprochement-reconciliation period which started roughly in 1971 with the seizing-the-moment, with the common objective of stopping Soviet expansionism, we had visionary, tough men, Nixon, Kissinger, Mao and Zhou Enlai.

It was never tranquil it was never straight-line progress, but progress was made because of these extraordinary men that did this at their time. This protecting their interests and compromising where they could. And out of this came programs with the United States with China, after our initial breakthrough on the offshore oil we began deal with them on military matters to work against the Soviet Union, the F-8 “Peace Pearl”- avionics, the Afghan war where the Russians were defeated by cooperation between China and US, Saudi Arabia, Pakistan, and of course the “Northwest” sites.

Now, because of my misguided loyalty to my former employer, I don’t say much about this, but it was the glue that held us together that held us together in crises. I know that. It was monitoring Soviet strategic weapons from joint sites in Northwest China, all I can talk about is the planning . . . it never happened . . . if you want to know what happened you’ll read the New York Times, don’t listen to me. [Laughter] But it made a difference and I wanted to acknowledge that.

I would say what lesson emerged from that as we go through our period of Chinese humiliation, chaos, hostility and then rapprochement, a few principles emerged; the first I would say is, militarily: deter adventurous military action by China . . . and that can take many forms, but you have to be able to deal with their military.

I think second you have to find common ground with them in the peripheral states where originally we contested them, and I’m talking about North Korea, Southeast Asia and Taiwan. You can find common ground and, largely based in each case, on economic leverage, but the military factor, in my view, begins to decrease as you began to use your most effective leverage in the economic field. In the sense of North Korea, it is their absolute greatest weakness, which is their economic break down. And if you use that effectively, I think you can get things done, in the strategic weapons area. In Taiwan-China, it is the tremendous dynamism of it, it becomes more important as economic cooperation, integration than it is to keep harping away on these old themes which they do ad nauseam, of which the American China-watchers do ad nauseam: "Three Communiqués," "Taiwan Relations Act," "Use of Force," Taiwan Independence," deployment of missiles, anti-missile defense . . . on and on it goes . . . examining these feces endlessly. And you go over, and over, again the same ground, and you look for some positive thinking, and they aren't on top of it. So I say, "get with the times, seize the moment."

I think, third, you've got to focus with the Chinese on world problems; we've got them now. And the Chinese know in spades they have one hell of a HIV/AIDS problem and I think we played a role in pointing that out to them, lifting up the rug and having little animals scurry out. Terrorism, drugs, triads, all of these things we can work with them on. Emphasize the positive. And again, shift the emphasis in these so-called flash points from military confrontation to peaceful economic association through cooperation.

I’ll just deal briefly with process. I just mentioned this earlier and I try to stress this, having been witness to it, is the very important role of summitry in the Chinese-American relationship. The suffocating banquets you have to go through, that's all right. That's part of the drill. Seven, ten courses, Maotai, good lord, you’ve got to engage very heavily on the highest level. And it was done by Nixon and Kissinger, Mao and Zhou. It was done by Brzezinski and Deng (with the help of Mike Oxenberg), it was done by George Bush and Deng, which was the most important one since Nixon-Mao, and it was done by Brent Scowcroft and the Chinese leadership. It stopped around 1993 and it never really been picked up. And I think you need this very much, so . . . and you need the right kind of person to support your summitry player. They have very good staff work on their side, we've had good staff work in the past by Mike Pillsbury’s hero Dick Solomon, by Mike Oxenberg, by other people of this caliber. I think that this kind of a combination, you have got to spend a lot more time on.

If you look at the examples, I ran through the offshore oil thing in 1977 when Bush raises this thing with Deng Xiaoping about offshore oil. In '79, when he saw Deng in Texas, Houston, I was the note-taker, and the emphasis in that meeting was of course giving Vietnam a bloody nose, which we covertly supported. Also, [Deng] asking Bush to help in bringing about reconciliation with Taiwan. And perform a role in this. I warned my leader to be very careful on this one. The landscape strewn with the wreckage do-gooders who try to do this thing and get swallowed up by the Chinese.

But he did indicate an interest, and yes, we like to see you get together with China and Taiwan, and it may just be coincidence in September of that year, Ye Jianying came out with his points which included “peaceful unification” rather than “liberation” -- coincidence, I’m sure.

But in 1985 when Bush saw Deng again, he had one request of him; again, I was the note-taker. “I want to meet Chinese youth, I want to meet the new generation leadership” And an attractive Chinese was standing there with his Mao’s suit and he said, “who the hell is that?” I said Hu Qili, and Hu Qili was part of that new generation of leaders. As you know, Hu Qili fell in June 1989 over his stance in the Standing Committee of Politburo where he voted with Zhao Ziyang against the crackdown and -- in the Tiananmen Papers -- for greater free press, more independent student union, more independent trade unions, etc.

Finally, I think in 1989, Bush took the ultimate risk of keeping the strategic relationship going -- notice I don’t say “partnership”, I say “relationship” -- by sending Brent Scowcroft and Larry Eagleburger over on a "secret" mission, that was the mistake. Of course, they did keep the relationship alive, good-cop bad-cop, tough sanctions, and a way to work ourselves out of this. And, having been the guy in the field that was carrying it out, I can say it worked. What they passed on to Scowcroft and Eagleburger, and what we tried to do on the ground, led to the alteration of the relationship in a favorable direction.

It led to release of Fang Lizhi and his wife and his child. It led to amnesty for some of the people in Tiananmen, and it led to lifting marital law in Peking and Tibet. On their side, the Chinese got a starting up the World Bank loans again on humanitarian grounds, they got "most favored nation" extended, and they got the Japanese Third Yen Loan package. So out of this came, I think, again, a visionary move of seizing this moment and pushing the relationship ahead in very difficult times. So the importance of the personal relationship is certainly there.

I’m just going to spend one or two minutes talking about the intelligence picture, because I think that is also relevant to what is happening today. You’ve all seen the report on Iraq and the interest that stirred up. I think we have to look very carefully what we are collecting on China, and . . . it's not necessarily "group-think" . . .but it's political correctness. And I've seen this happen before in the intelligence community. I think Mike Pillsbury knows what I’m talking about. There were some real tyrants in the community that points of view that were brilliant in their writing but biased in their perceptions, and maybe that helped at the time, to load up the movements with intelligence, but . . . you can’t do that . . . the State Department can do it -- the Agency can’t!

And I think we got to be very much aware of political correctness. The idea that there is a strategic partnership with China that is the most important bilateral relationship in the world, and that Taiwan is an obstacle to progress in that relationship. I think our experience tells us that is a false concept, and the people that try to load-up the intelligence to advance that position are not doing their country a favor.

I think we to look at that very carefully, they try to paint the Chinese moves in the best possible light.

I think there are also serious gaps, which we have identified, which I will not go into, but they're there. They are discovered by outside people looking at product finding that some of the things that have bedeviled us today were quite clear had you had a clear view politics in Taiwan -- and not been living in your own covert little world . . . and not reading the newspapers. I think that it very important! And that was missed! And I think some of the problems we've had derive from that inability to pick this thing out early.

And that is what intelligence is all about. I think there's also some weaknesses in judging military capabilities based on limited data and projecting assumptions that were not, intellectually or academically, based on solid analysis. That has led to the great controversy over the modernization of the Chinese military: two factions trying to analyze this, one saying "they are ten-feet tall," the other saying "they can’t shoot straight." Uh, this is a caricature of what is going on, it's much a more sophisticated argument.

But you got to be very careful on how you project Chinese military power, looking the database we have, and coming to assumptions that are passed on to the policy makers that have all kinds of caveats and reservations.

So, I say these are things we have to look at very carefully: gaps, biases, moving out of the mainstream of reporting, academics, researchers, think tanks that do produce a lot of good stuff on China. The intelligence community needs to get a hold on that, and spend a lot more time on it. So that is my message, I’ll be glad to open this up to questions, Larry. Where is he? Over there?

Michael Pillsbury: I have read your book, very carefully – twice. And I believe it can be made into a best-selling movie.

Ambassador Lilley: But Cary Grant's dead.

Q: So is Gregory Peck, but Tom Cruise might be available.
A: I'm living in the past . . . 
Q: Brad Pitt . . . I think the audience, I can hear behind me, people are saying Brad Pitt should play you. It seems to me, to make this book into a movie, if you're willing to help, you'd have to answer two big questions, and you haven't answered them in what you've said today. Today, it seems to me, you're talking about policy, and lessons, and it's the Heritage Foundation, so of course, you're talking about that kind of thing. But the book really isn't about that. There's no policy section that says "ok, here are the ten big lessons for the future of China policy." It's completely missing from the book, which is great, because the book has about twenty very dramatic scenes that would make a great movie – and should – and it gives the title a different meaning. The book, I would say, "The China Hands" – those two words as the title, I think you mean that to imply its about your father and your mother and Frank and your own life, maybe at least two of your sons. But actually, the book is about the "China Hands" in the largest sense of Americans and Westerners who tried to understand China and your main point . . . or one of your two main points, it seems to me – this is a question – is that you see China differently because of the lessons of the suicide of your brother Frank, and his personality. If you had not had Frank, then you would have become a China Hand like all the other China hands. That seems to be, I think, the main point of the book. And there's a great scene where you and your parents on Pearl Harbor Attack day, the day is Sunday, you're driving with Frank in the car, and Frank is saying, "look I'm in ROCT here at Yale, I don't really want to do it, I'd just as soon be a conscientious objector, I don't believe in war." And you call him a "pacifist" a little bit later. And he's kind of going back and forth, back and forth, and your father says "no, you need to finish ROTC and go into the Army," and the Japanese bomb Pearl Harbor and then you say that made all the difference, and he goes in. But he still has the back and forth, he's not like you he's not someone who "does it now" and sees the facts. He gets romantically and emotionally attached. And your lesson for the rest of the book, for the rest of your life, and you tell the story again in , ah, Hiroshima, of his suicide note, you are not going to be sentimentally and emotionally drawn-in, you're going to see "facts" and you're going to be dispassionate and you're going to look for America's national interests. Then, the very vivid stories – in Laos, with the refrigerator radio by your bed and the mission reports coming in, the flooding; when you're posing as a graduate student in Hong Kong for six months, when the beautiful Miss Lee comes after you, and you admit there was a dalliance, but you say this was a "dalliance", not (cross talk)
No, the movie is going to focus on Miss Lee, believe me . . . 
A: . . . a beautiful marriage of fifty years . . . 
Q: But you say Sally edited the book and made sure it was factually accurate.
A: She edited all the salacious stuff out.
Q: . . . and Miss Lee comes into your life again later, as you are about to become the first station chief in Beijing . . .the first agent in Beijing . . .
A: Station Unit Chief . . .
Q: I'm sorry, strike that "station" word. And there's Mr. Ko, another Chinese intelligence operative who approaches you at different times . . . So, the second point of the book, it seems to me, is . . . the first point is "the China Hands of America are romantically attached to China," and you were headed down this road. But your brother haunts your whole life, and he affects you, and you become a different person really. And you have a different China-view because of him. The Second point is: "Chinese intelligence is pretty good." The Chinese Intelligence Service – you don't really trash them – you don't say "oh, these guys have misperceptions and they don't know anything" – they're pretty good, and Miss Lee does have some influence on you early on. Then, you criticize CIA – a lot – about China. As a field perspective, you have some heroes. But generally speaking, there's not a long paragraph that says "God bless the CIA's effort on China, because it was right all along." Now, you give some good examples of where the CIA did well. 
A: . . .
Q: Last sixty seconds . . . 
A: okay
Q: You give the example of the source in Hong Kong in '68, '69 and '70 who's able to give feedback on the Chinese desire to open relations with us. You give several other examples where there are good penetrations, and where the CIA does well. But generally speaking, it's an enormous effort to get the facts about China correctly, because number one, of our own perceptions, our love and romanticism of China, and number two, Chinese intelligence is so good. So, those are the two things I would put in the movie, and I would arrange for all the twenty scenes – I've only given one just now, about the drive in the car with your brother – am I wrong? About these two themes? As the main points of the book, and also, why didn't you tell these stories today? They really make the book – it's not a policy book . . .
A: [Wortzel] Put that microphone down . . . [laughter]
Q: [Lilley] Well, where do you start . . . I think that there is . . . my son was struck with this idea that Frank affected me and I became more of a detached person because of that. And there may be some truth to that, but I think the other thing is that I had a very different personality than he had. He was an achiever, a person who sought absolute excellence, was subject great depressions and high points, and always thought his successes were selfishly achieved, and was very critical of himself. When they set the world record in the 400-yard freestyle relay, his reaction was that "I swam the slowest time." When he entered that that august association called "Skull and Bones" of whom John Kerry and George Bush were both members, he was a member of that, his idea was "well, maybe I’ll get out of my selfish mood and talk to some other people." That isn’t part of my makeup. I think if you get ahead . . . I would revel in it. [laughter] I wouldn't sit there and think “Lilley you're a selfish bastard.” Even before he died, I come out differently, if I was elected captain of an athletic team I’d be very impressed with that. He wasn't, he'd say "well . . ." And when he set the record at Exeter, he said "well, I hope my brother breaks it next year so my name doesn’t have to stay up there." He was different in that sense. The seeds in him and the seeds in me were different. I think on the other things, Mike, the publisher asked me to do some talking in the last part of the book, in the epilogue about summing up the lessons, and where do you think it should go? Now, maybe that's policy maybe it isn’t. I think if you come out with some startling principles they are probably, eventually, going to be proved wrong, or become contaminated. the lessons we learned are spelled out, and Jim Mann does this very well in his book "About Face” . . . the key time in 1980 where the American policy emerges – it's in there – is that if we see that Taiwan has got these four principle of Chiang Ching-kuo, which we knew about before he went: number one, I’m going to democratize Taiwan; number two, I’m going to Taiwanize it; number three, I’m going to keep prosperity; number four, I’m going to open it to China. And then, you come in on top of that, and arms sale to Taiwan are not a provocation to China, they are to make Taiwan more secure and stable and enable it to deal with China with confidence, and with both American spiritual and material support. 
I say the proof is in the pudding. In 1987, not solely because of what position the US, but in good part because of that, and this was done by my colleagues Paul Wolfowitz, Rich Armitage, Gaston Sigur. They fashioned this, and we carried it out. It worked. And it worked in the [Asian Development Bank] when we linked -- and it is in book -- when we linked avionics to the F-8 to Taiwan acquiescing the name change, and China entering the ADB. Again it's this idea that you combine giving Taiwan confidence in its military security and stability, at the same time opening to China. 
Q: Like the [inaudible]
A: Yeah, and if you want to stretch a point, the F-16s in September 1992. Two months later, they are talking in Hong Kong about meeting together, and five months later, they are meeting in Singapore for the first time. 
And the horrible cry that came up from the Chinese watchers [about the F-16 sale] “this is end of the relationship, you done it, you broken the communiqués, China will never accept this.” Read your bloody Chinese history. We had a dinner party with a Chinese military officer that night, it was announced, and you know, he said "you've done a naughty thing and we will not forget this," and then he said, "let's have another drink." [Laughter] I’m not belittling this thing, its front and center today and it’s a big problem. but a lot of the problem is . . . some of the problem . . . is that if you think in Taiwan because you have security and stability and US support and then you move away from China. I think that’s moving away from the implicit understanding we had previously. I know John Tkacik has problems with that, but that is the stream that I see. You got to work out new arrangements, because it’s a very different kind of situation. When we were there, it was Taiwan coming to us for weapons. Now [in 2004] we are trying to push weapons down their throat. That's a new arrangement, in a democratic society where the purchases are laid in the table before the Legislative Yuan, and you've got to adjust what you do to these new factors and I’m sure our friends at State are doing this, but we haven’t seen it yet. As Mark Twain, what was it? Wagner’s music is better than it sounds. 
[transcript of answers]
A: Tibet: We have made demarches to the Chinese about that situation, about the torture Tibetan prisoners. That we said that we got a note from a prisoner, I don't think is a very smart thing to do. Because there are only two or three people involved in this thing, and it was sleight-of-hand game. And I think this man would’ve been put in real jeopardy had that come out and they'd've been able to associate it with my visit, and what he did. But I think I can say, that we have made numerous demarches on Tibet, and one of the earlier operations we had against China was all documented in Ken Knaus's book “Orphans of the Cold War” is that the tremendous support we gave to Tibet. Military, political, spiritual you name it. It didn’t work As in some way because our Laotian operation didn’t work. Because you couldn’t take on that huge country and run it, run a successful insurgency operation.

Larry Wortzel: Q about paramilitary CIA operations against China in the Cold War . . . if you had to do it all over again, how would your

A: Well, if we look back. After our initial failures and looking for the quick fix and the network of agents in China that we were sold a bill of goods on, and trying to get operations turning refugees around in Hong Kong and Thailand and sending them back up into China, which didn’t work. It’s the tradecraft of . . . what we tumbled on were what we were looking for authenticated sources, and we almost got too much wrapped- around authentication because the process of getting an agent was more important than his take. And that is also a danger in this, but we turn a various means of getting authentic information where they were outside their control situation, and that meant [their] embassies, and overseas audio operations. And at one time they were, as I understand it, reasonably successful, I saw the take on some of them, they were good. My sense is that handling defectors in the right way, and creating a climate whereby they will come to you, and you will be able handle in a way, and play them in place. This was done in Southeast Asia in around 1960 in a very effective way, where we initially cracked the Chinese intelligence service. And it was done by a walk-in, because he knew that our ambassador was a man who had dealt with China, and he admired him, what he did, and he walked in, and we had an old China hand in there to handle him. A man who walked across China and spoke it fluently and that was the one contribution he made to his career – was his handling of this guy and handling him extremely well and opening up the whole Chinese intelligence apparatus in Southeast Asia . . . not the whole one, but at least a very clear look into it. You could work it. I think again, what’s worked for us, in my understanding, is to recruit people who come out for period of time to establish a relationship either through an access agent, or through other means, through surveillance, through phone taps, whatever it is, to get a complete picture of the guy and then bring in the right case officer to make an approach to him, and have him go back to China. I mean this happened in, I won’t give a specific period, but it happened, and this man came out with Central Committee directives, and it was authentic stuff. And it was rather important at the time.

The other operation I think that succeeded, which I don’t deal with here but Ken Knaus's does in his book, is the ambush of a Chinese convoy in Tibet -- your place -- where we got the work papers, which I think opened up China during the Great Leap Forward, we had these sporadic reports that we try to produce in Cambodia and other places in Southeast Asia, which produced something, but these papers gave you the Chinese view of the breakdown in their society during the Great Leap Forward. I think the effective handling of defector from the Ministry of State Security lead to the expose' of Larry Wu Tai-ch'in, the man who had been a mole for what, thirty-forty years in the United States system. That was an effective operation. But succeeding in China is never been easy but I think in the old days it was almost impossible to be able to sustain an agent inside China and I think we have gotten over that. I think we can do that now. Because of the change in Chinese society and because of the changing motivation of the agent pool. There are many more people . . . and we did things . . . we try to do things, David Laux and I, remember the old "overshoes program" when you try to get Chinese who are going back, What a job? A guy who get s Ph.D. in physics, and he goes back to serve the motherland and your going to recruit him to be a spy? Well we tried, maybe one or two had minor successes, but very minor. It’s the old techniques that you use, tradecraft, I don’t know the modern way they can read windowpanes that reflect conversations, key rooms and things like that, I don’t know about that. But I think, Larry, you did an awful a lot of this, you were running around with these guys, you suborned them.
. . . 
A: Well I think my recent trip to China in March this year where I spent 12 days after 8 year hiatus, was revealing. I look back in the past of the Nixon Kissinger "seizing the moment" in '71 and '72, Bush doing in '77, key momenst in history where we intersect with Chinese and acted in ways that advanced the relationship in the interest of the world, I think. And here when we went over China, I was suppose to talk to them about Taiwan and North Korea. And the rest of the group was a bunch of economist. Our head of our group, Bruce Covenor is a very successful commodities trader, Chris Demuth is our president, is a very fine economist/lawyer, Kevin Hasset, John Macon, very good on Japanese economy, they weren’t interested in me, they were interested in them. They wanted to talk to them about the thing that worried them the most, and it wasn’t North Korea nukes, or Taiwan Independence, it was what the hell are they going to do about their screwed up economic system. Their financial system, and what did Japan do wrong? Are we going down the same track? Japan No.1, remember the book? And they go through ten years of recession; they asked Macon, what did they do wrong? "They constructed too damn much for one thing. If shoe fits wear it. They had crony capitalism controlling their allocation of resources and funds if the shoe fits wear it." Then we got involve in some sophisticated Chinese finance and economic people, who talked very frankly, openly and creatively about their problems, and very anxious to follow through because you . . . the one thing you Americans know we don’t know, as well as you do, is how the international financial system works. How can we take Foreign Exchange Reserve over 400 billion, or huge savings, and turn them into something more profitable than sticking them in the mattress or buying United States treasury bonds. What can we do? And of course people like Bruce Covener, "you got to take risk, you got a little market, move fast and decisively." I think they sort of . . . this sounds like "chaos." And my own sense is if you could work with them in this field that is of great concern to them now, I think you can get ties into them that can be creative in terms of Taiwan, the strong economic, financial, commercial flows there. That works into it. And you get at their leadership to work with you as a creative, positive, constructive force. And you get them out of some of there difficulties. I mean they had Zhu Rongji in the 90s that would take decisive action. It looks like our current crew is a little bit more timid, and perhaps not quite as effective in dealing with the problem he dealt with, and they look for outside help because they always do, as they do in Japan, they take that outside help to bolster their argument without becoming a running-dog of the Americans. "The Americans who are good at this say that we can make profit this way." Again, the combined activity, cooperative activity, in these areas of common concern, can pay off, and I think that right now – possibly -- we’re facing a time when China entering the world financial markets and wanting to become more successful, really wants to deal with us on this subject. They were asking us about "how do you Americans control your states economically?" We said, "start by reading the Federalist Papers from 250 years ago." "Yeah, but these provinces, they are out of control." And we went out to central China, and we talk to them, what do you when you get an economic director from Peking “spit,” are you going to listen to them? They are not going to tell us to stop constructing, we got jobs to parcel out, we got factories to build, we got roads to do. Japan, they paved all over Japan with corrupt current construction contracts. And China sees it happening there, this Juggernaut eating into agricultural land, forcing people off their land into the cities. Creating a huge social problem. And the provinces, being only in a limited way, responsive to what the center does. Even when we were in China, remember the old expression they used, “Shang yuo zhence, Xia yuo duice” The guy on top they have their policies, but we work our ways to deal with them. I think this could be an area of greater US emphasis, I think it's terribly important in the Taiwan China context that we really understand this thing, the implication of it. And I’m not sure we do yet. It’s dismissed, as "you’re an economist determinist," or something like this. It’s deadly serious and very important.

A: India: Well, if it makes them nervous you must be doing something right. The Great Game as Rudyard Kipling described it, McCartney and others, is in full flow now. I just read a book on Sven Hedin and Aurel Stein's trips to China, and Younghusband’s expedition to Tibet. India and China are trying to get along, and they are making a big thing on how they are getting along. And China’s link to Pakistan to fight India had softened it. We saw this back in the 1950s when Li Dechuan, the head of the Chinese Red Cross, came to India and they just slobbered all over her. But in the war of 62, relations were really strained, we came in as you know it helped India at that time, and India turned to the Soviet Union, because it was much cheaper and much more active and that sort of thing. I think China views United States military cooperation with India as a negative. They are somewhat obsessed with the idea of American containment, just as we look at their power projection. And in the past I referred to this as the "waltz of the hypocrites," we say “contain you, encircle you, perish the thought, never crossed our mind!” they say “Power projection? We? All our neighbors are our friends!" It’s not true. But I don’t think it’s done in a crude and confrontational way, there is a great deal going for India and United States which is way beyond the military field, probably a lot more important, and you know the area of software development in Chennai and Mumbai. It’s incredible what happening, and this seems to be the real juice of the relationship. We are not going to help India with missile defense or getting a strategic capability, no way. I think the conventional capability is use of that is really for domestic purposes than against Pakistan, I don’t think china is involved in that. So it just seems to me that its not really a threat to the Chinese but the Chinese are paranoid about this. It's their feeling about Taiwan, Hong Kong is many ways quite unreasonable, driven by very ancient feelings of the division and fall of China. I think this is all part of it, and it drives them beyond reason. And in India,if they see American facilities in Singaporeand they see the Taiwan Relations thing, and the U.S. Japan defense treaty, and 30,000 troops in Korea, and Thailand-United States treaty, and Philippines, if you look around, we are in Uzbekistan, we’re up there on the Chinese borders, they come to these conclusions. But I do not think India is necessarily the centerpiece of that. Japan is. Japan is a great deal more concern to them than India.


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