STAFF: Are the ground rules fully understood?

Q Yeah.

STAFF: No doubt about attribution. We're on background. (Cross talk.)

Q They're Defense officials --

STAFF: Defense officials, right. (Inaudible.) And they're going to start off by giving you a kind of brief overview. And then when you have a question, if you just ask the question of either individual, they'll decide which one to take it on. If you want to ask of a particular individual, this is Defense official number one, and this is Defense official number two, okay, and we can keep the transcript clean for everybody.

With that, I turn it over to Defense official one to give you a brief overview, and then we'll get into some questions. Thank you.

DEFENSE DEPT. OFFICIAL: Well, thank you all very much for giving us the opportunity to brief you on the 2007 China Military Power Report on this Friday before a three-day weekend. I appreciate you all turning out.

Let me run through a brief overview, and then we'll jump into your questions.

This year's report reflects our view that China is an emerging regional political and economic power with global aspirations. These trends make China an important element of today's strategic environment.

The President has stated his satisfaction that the United States and China have a good, constructive relationship. Certainly the relationship has improved in all fields -- political, economic and military, since the EP-3 incident.

In our military-to-military relations, we have a lot going on. This includes high-level visits in both directions; ship visits; officer exchanges, including mid- and junior-grade officers; exchanges between military educational institutions; and dialogue on avian influenza, humanitarian assistance and disaster relief.

Following President Bush's meeting with President Hu last year, we are looking to open a dialogue on nuclear policy, doctrine and strategy with the PRC. We see this as an important area for discussion that we intend to control carefully, so that we have consistent messages. The discussion would not include force structure or operations.

As you know well, U.S. policy encourages China to emerge as a responsible international stakeholder. China benefits tremendously from the existing international system into which it is emerging. China needs to take on a greater share of responsibility for the health and success of that international system.

We see China's future as uncertain and as dependent in large part on the strategic choices that China's leaders make as China's power and influence grows. These include choices regarding economic transition and political reform, rising nationalism, internal unrest, proliferation of dangerous technologies, adopting international norms, and growing military power.

The future of the U.S.-China relationship is not foreordained. In his March 2006 National Security Strategy Report, the President stated, quote, "Our strategy seeks to encourage China to make the right strategic choices for its people while we hedge against other possibilities." Unquote.

Inherent in the U.S. strategy is a hope and aspiration for the type of relationship that our two countries could have, and a realistic recognition of the uncertainty in China's future and how that future could see a China on a more negative path.

At the Department of Defense, it is our job to watch the growth of China's military power. It is our job to maintain deterrence of conflict. Those two jobs are complicated by the fact that while China is embarked on a significant military modernization, the transparency of China's effort, while improving, is far from complete.

Congress mandated in 2000 that we publish a report annually on a classified and unclassified basis. The 2007 edition of this report is what we are releasing today. The report is a Department of Defense product transmitted by the secretary of Defense to the Congress, but it has been cleared by other agencies at both expert and senior level and across multiple drafts.

In 2003, the Council on Foreign Relations published a report on China's military development that issued a double warning not to overreact to the large scale of China's military modernization, and not to underreact. We have tried to maintain the same balance. Our tone is intended to be factual, descriptive, analytical and detailed. We're not attempting to prove that China is or is not a threat. The report lets the facts speak for themselves and the readers make their own judgments.

The report calls attention to an impressive program of modernization in virtually every field of military endeavor from missiles, aircraft and submarines, to doctrine, training, force structure, and research and development. As our own Quadrennial Review Report notes, quote, "China has the greatest potential to compete militarily with the United States and field disruptive military technologies that could, over time, offset traditional U.S. military advantages." Unquote.

Now, with that context, I'd like to briefly summarize some of the specific developments that we see in China and that we address in this report.

We see an emphasis on building capacity for sea- and land-based anti-access and area denial, combined with the beginnings of a power-projection capability that has ramifications well beyond a potential Taiwan crisis. China has five submarine acquisition programs, both foreign and domestic and both conventional- and nuclear-powered.

China has at least 10 varieties of ballistic missiles deployed or in development and is qualitatively improving some of its older systems with improved range, mobility and accuracy. China has over 900 short-range ballistic missiles opposite Taiwan. China is pursuing a more credible and survivable deterrent force. China is developing its own new triad to include road-mobile, solid-propellant intercontinental-range ballistic missiles that can reach many areas of the world beyond the Pacific; qualitative improvements to certain older systems; and a new submarine-launched ballistic missile for development aboard a new class of nuclear-powered submarine.

This year's report highlights the initial threat availability of the DF-31 ICBM. We do not say with certainty that the DF-31 has achieved its formal initial operational capability, but we do say that it has reached a stage of development such that it could be employed in actual military operations. And we do note the continuing progress and development of the longer-range DF-31A missile.

The report highlights technological advances that give Beijing new options. The report also addresses discussions beneath the surface in China over the future of Chinese nuclear doctrine. Although China asserts that its nuclear doctrine has not changed, these discussions suggest a debate exists over the continued viability of China's long-standing no-first-use declaratory doctrine. We also address uncertainties and ambiguities within the existing no-first-use doctrine that leave questions about conditions under which China might use nuclear weapons first.

The report describes two manned attack cruise missile programs that provide extended range, accuracy and survivability beyond the short-range ballistic missile force. The report discusses expeditionary forces, airborne and amphibious lift and associated new equipment. The report discusses China's cyberwarfare capabilities, including growing capabilities in computer network attack.

And finally of course the report addresses China's robust, multidimensional counterspace program, one element of which we saw with the January 11 direct-ascent anti-satellite test.

In the first instance, these developments are relevant to a Taiwan contingency, which is a problem in the here and now, but they also pose long-term concerns. And all of these developments take place amidst a prevailing lack of transparency, which remains a real problem. China's defense budget is increasing by double-digit percentages per year, a rate that is fueled by China's remarkable economic growth and that China has sustained for over 15 years. This trend continued with China's March 2007 announcement of a 17.8 percent defense budget increase for this year to an official level of about $45 billion.

For a comparison, I would note that our Japanese allies' annual defense budget has held constant at about $43 billion for the past decade. However, we are convinced that China's real defense spending is substantially higher in the range of $85 to $125 billion in 2007. The discrepancy between the official budget and what China actually spends is emblematic of our concerns over the lack of transparency.

In 2005 in Singapore, the Secretary of Defense said, quote, "Since no nation threatens China, one must wonder why this growing investment, why these continuing large and expanding arms purchases, why these continuing robust deployments?" The relative lack of transparency in the developments that I have just enumerated and the knowledge that in dealing with China much is left on the table -- off the table, are what drive the uncertainty and the questions about China's intent.

This is not just a concern for the United States. Many aspects of China's military programs lead other nations to question China's intentions and to adjust their own behavior. The 2007 Council on Foreign Relations report on China underscores this point with its finding that, quote, "Many of China's neighbors and potential adversaries are closely marking China's military modernization and making adjustments to their own defense plans and expenditures that help to balance China's growing military capabilities," unquote.

Our report raises these questions but does not try to answer them all. Our report discusses weaknesses as well as strengths of the Chinese military. It discusses what we know of China's long-term strategy, which seems to be a patient but determined effort to build up China's comprehensive national power to maximize its options for the future.

It makes clear that the issue of Chinese military power is not just a U.S.-China issue but an issue of interest to the entire Asia-Pacific region and perhaps even an issue of global concern. The report notes, for example, China's absorption of weapons and advance technology from abroad and explains why we were so concerned by the prospect of the European Union lifting its arms embargo against China.

In conclusion, we think the report has a lot of interesting information in it and we hope it will contribute in a responsible fashion to the many debates that are ongoing with respect to the military dimensions of China's modernization.

And with that summary as context, we'd be glad to take your questions.

Q (Off mike) -- about terminology. Could you explain a little further with regard to the DF-31 status what you mean by initial threat availability? And also, could you say a little bit more about what's referenced in the report of China developing methods to counter ballistic missile defense?

DEFENSE DEPT. OFFICIAL: I can address that question. When we say initial threat availability, what we mean is that the system is available and could be used if China's leaders determine that they wanted to. The distinction between initial threat availability and initial operational capability is that right now we assess that DF-31 may not be fully integrated into the force structure, may not have all the requisite supporting personnel/equipment that we believe they would need to have to be considered fully operational. So I mean it's a distinction that says that the system is ready or available now but it's not necessarily fully operational.

Q Kind of like the U.S. missile defense system? (Laughter.)

DEFENSE DEPT. OFFICIAL: Let's not try and compare where theirs is with ours. But it is what the respondent said it is.

Q What about the other subject I asked -- the question I asked about their ability to defeat missile defense systems.

DEFENSE DEPT. OFFICIAL: We don't go into analyzing Chinese force capabilities against U.S. force capabilities. We analyze the Chinese capabilities as we see them and for what they are, in the report.

Q My point is, what did you mean by that phrase, "developing methods to counter ballistic missile defense." I mean, the U.S. is developing a missile defense system, so it's a relevant question.

DEFENSE DEPT. OFFICIAL: Well, that's the intent of it we see in there, but we don't go into making judgments about how far along the path are they towards achieving their intent.

Q But what are they doing in that field? I mean, are you talking about anti-missile missiles, or some other capability that would --

DEFENSE DEPT. OFFICIAL: We can't talk about that in the detail in an unclassified report.

Q Could you -- on page 13 there's a discussion of Chinese -- perhaps a Chinese doctrine of preemption. Would you discuss what that looks like, how that's -- maybe compare and contrast it to the U.S. doctrine of preemption?

DEFENSE DEPT. OFFICIAL: This is a question that the Congress asked in the actual legislation, which is Section 1202 of the National Defense Authorization Act for Fiscal Year 2000.

One of the things that we've attempted to do with this report is to make sure we're addressing Congress's interest areas. So in trying to do that, we identified certain things that we're seeing in China's modernization, its force structure, that would enable them to conduct preemptive or surprise attacks, and we highlight some of those.

Q (Off mike) -- so that I can understand it. Is it a different kind of capability or doctrine than what the United States embraces? Or --

DEFENSE DEPT. OFFICIAL: Well, there are -- I mean, you can't draw a direct comparison because there's two different military forces. And what we're doing with this report is we're asking a question: If China is developing towards a preemptive strategy. So I can't -- you know, we don't know in fact if they have one, but we're looking at the capabilities that they're bringing on line. And so we're trying to address the Congress's question. But I wouldn't --

DEFENSE DEPT. OFFICIAL: Yeah, we do really focus on China qua China and not try to compare across things, whether it's the strategy and doctrine, or the capabilities and systems.

So that's one of the aspects in terms of what Congress is asking us to focus on in the report.

STAFF: Go ahead.

Q Sir, can I ask about -- you talk quite extensively in the report about China's interest in securing energy flows, particularly oil flows, Straits of Malacca and what not, bilateral agreements they're reaching with sometimes rogue states to ensure that. Can you talk in more detail about to what extent the military investment is focused on that issue, particularly the naval build-up, and what extent you think that is focused on ensuring the free flow of oil in the future?

DEFENSE DEPT. OFFICIAL: There's a discussion in the front section of the report that talks about the Chinese view of comprehensive national power and the elements that make up comprehensive national power. And so on the one hand, while you can say some of this is certainly driven in the first instance towards their concerns about Taiwan, some of it is also driven towards their sense of what it means to be a nation with comprehensive national power and their own definition of that.

And many of these capabilities and acquisitions serve both purposes, and so while I would -- I think we still say in here that, you know, Taiwan is probably the primary driver of much of this, in some respects they're more and more intertwined.

Do you want to comment on it?

Q But specifically on the energy security issue. I mean, I know you can't look into their minds, but Taiwan being sort of the highest priority, you talk a secondary importance of the anti-aircraft issues, in the Pacific particular some of the regional security issues, and then there's the oil issue as well. I mean, would energy security rank second or a close second? I mean, can you put it somewhere, rank those in terms of after Taiwan what comes next?

DEFENSE DEPT. OFFICIAL: Well, rather than doing a ranking, I think it would be useful to say, though, that China's concerns over the vulnerability of its energy and other resource supplies and the sea lanes used to transport those is increasing, and that increased concern over that vulnerability may end up shaping how they view their force planning for the future.

We talk about in the report Chinese expressed interest in perhaps pursuing larger power projection capabilities like an aircraft carrier, for example. This -- yeah, this reflects, I think, their concern and their thinking about, you know, the types of capabilities that they would want to have if they were to pursue a farther reaching sort of maritime strategy.

But I wouldn't -- I don't know if we could say -- if we could rank it, but I would say that that concern is increasing and that increasing concern could be having an effect on how they're thinking about their future military forces.

Q I just want to turn to Bob's question on missile defense, but maybe ask it a bit differently. The Bush administration has said repeatedly that the limited missile defense that they envision are for small launches from a rogue state, specifically Iran, North Korea. That has not satisfied the Russians, as we know. What has been the Chinese public stance toward our missile defense system? And even if you can't talk about what they're doing, have you seen their counter-missile defense efforts accelerate sort of in response to the accelerated focus here on creating a missile defense system?

DEFENSE DEPT. OFFICIAL: The Chinese government has made public statements -- and I would even point to their defense white papers -- that do express some concern over missile defense.

In response to your second question, I really couldn't get into the detail that would indicate, you know, an acceleration of, you know, the elements of their ballistic missile forces that appear to be designed to counter missile defenses. I just can't do that.

DEFENSE DEPT. OFFICIAL: They made the comments of concern about missile defense. They've also acknowledged, for example, that there are countries, like North Korea, that do create problems with ballistic missiles and that create reasons why some countries would want to have ballistic missile defense. So they're recognizing that it's a complicated issue.

Q I'm just curious that while they're developing the DF-31 and the DF-31A, the inventory that you estimate that they have of the CSS-4 ICBM, which is their longest-range ICBM, hasn't increased from last year. Are you seeing a shift in strategy from more land-based to more sea-based? And what does that actually represent, from your point of view?

DEFENSE DEPT. OFFICIAL: Certainly seem focused on more modernized as a primary focus.

Do you have anything on that?

DEFENSE DEPT. OFFICIAL: I think what -- I would say that yes, you're right; we haven't seen a change in the numbers of the CSS-4. What we are seeing is this focus on a diversification, and I think what -- and we talk about in the report -- is China's efforts to strengthen its deterrent capability by moving from vulnerable silo-based, liquid-fueled, long-range ballistic missiles to ones that are much more survivable -- mobile solid-propellant. That also is fused with the submarine-launched ballistic missile.

So I mean, I think if I was to categorize it, I would say it appears that they're moving from this vulnerable deterrent up to one that's much more survivable. (Pause.)

Q (Off mike.) (Cross talk, laughter.)

DEFENSE DEPT. OFFICIAL: Any rules here on --

(Cross talk.)

DEFENSE DEPT. OFFICIAL: Okay, I'll just go first row.

Q Thanks. Could you just -- perhaps especially for those of us who are fairly new to this subject -- can you explain what -- it follows on from the previous question really -- what kind of capabilities, characteristics the DF-31 and the 31A have that China hasn't had previously?

DEFENSE DEPT. OFFICIAL: The primary differences are -- it's a fusion of being road-mobile and being solid-propellant, and then having the longer ranges. The DF-31 doesn't have as long a range as the CSS-4, as we point out in the report. But when you start fusing that with the mobility and having a solid propellant instead of a liquid propellant, that's a change. The DF-31A has a longer range and that same road mobility, solid propellant.

Q Thank you.

Q The other Defense official referred to their budget, and your kind of sense of the official budget versus the suspected budget, I guess. Can you talk a little bit about why you suspect it's maybe even twice the size of the official budget?

DEFENSE DEPT. OFFICIAL: What I'd like to do is make a distinction between the official budget and what we believe China's actual military expenditures are. And the reason why we say that is that, you know, it's our understanding, and the understanding held by other government organizations, as well as non-government organizations, that there's a variety of funding streams or expenses that go to the People's Liberation Army that are not accounted in the defense budget. And that's why, you know, our estimate, as well as the estimate of others, that we cite in the report, for example, is that it could be substantially higher than what their official defense budget is. Some of those areas, for example, are foreign acquisitions, and some of the research and development which would come out of a different account.

Q Is there another reason, other than masking their true intentions or capabilities, things that they could say as to why they're doing it that way and perhaps not fully disclosing what they're spending?

DEFENSE DEPT. OFFICIAL: It would be difficult for me to speculate on why -- you know, why they're not more transparent. I could just observe that they are not being very transparent with how they're doing their budget.

Q Just building on that, is the PLA totally out of like commercial businesses now?

DEFENSE DEPT. OFFICIAL: I think it was around 1999 that there was an order to put them out of business, and I think largely they are.

Q So there's no funding streams coming from something like that -- (off mike)?

DEFENSE DEPT. OFFICIAL: There might be some smaller direct support type of activities that are going on, whether it's farming or, you know, uniforms, that kind of stuff, which would have value but is not -- it's not like operating a fully functional commercial business like a hotel or some of these other things. But that's difficult to calculate as well.

Sir, with the purple shirt on.

Q One of the terms used in the report was this informationization, which sounds quite a bit like our network-centric. Would that be a correct assumption?

DEFENSE DEPT. OFFICIAL: I would be hesitant to draw a direct parallel, but I think that certainly China's ideas on what informationization is would be informed by their understanding of network-centric warfare. I think when they say informationization, it's really their understanding of how information technology is now a pretty significant component of the modern battlefield. So it's, you know, intelligence, surveillance, reconnaissance, precision strike. So it's the role of information, information systems, information technology. So I'd probably say it's not a direct parallel.

Sir? Go ahead.

Q What does the report say about the implications of China's pursuit of an aircraft carrier?

DEFENSE DEPT. OFFICIAL: It doesn't really address the implications, it just addresses what we understand to be China's interest in pursuing an aircraft carrier. It talks about some questions that we have over the status of the ex-Varyag aircraft carrier, but it doesn't address directly the implication.

How much time do we have?

Q (?) All day. (Laughter.) We've got nothing else to do.

DEFENSE DEPT. OFFICIAL: Ma'am?

Q Have you been seeing any signs that China's becoming less transparent in the last two years since Rumsfeld made his famous speech at Shangri-La?

DEFENSE DEPT. OFFICIAL: No, and I would even say perhaps to the contrary. If you look at the last defense white paper that was published in December 2006, I think that defense white paper reflects a modest increase in transparency in the quality of the paper.

Q On transparency, could you tell us the kind of things that they're not telling you that you want them to? There's an awful lot of information here, so what aren't they saying -- besides the budget? You've already talked about that.

DEFENSE DEPT. OFFICIAL: Well, that's kind of an awkward question. I mean it's one of these "unknown unknowns," I guess. You know, I mean, what are they not telling us?

Q Then how do you know that they're not being transparent?

DEFENSE DEPT. OFFICIAL: Well, we would like to have greater insight into their intentions, into what it is that they're developing and why it is they're developing this force. I mean, I think, you know, the question has been asked in the past, you know, over why China is making all these investments and why it's deploying all these capabilities.

So I think, in terms of transparency, in a lot of ways it's more than just what you see. It's kind of what you're able to talk about. And I think we'd like to have a better understanding of what their intentions are.

Q The U.S. intelligence budget is classified, although there was, I think, a number they leaked out last year. Do the Chinese ever say to you, you have large classified budgets; you do things that you don't -- you have stated weapons programs in development that you don't publicly discuss or discuss with them? Is that a concern that they bring up?

DEFENSE DEPT. OFFICIAL: They have, yeah, I mean, they cite that there's other budgets in the U.S Defense budget. And I think that, you know, everybody's got to have secrets. You know, I mean, but in terms of how much they actually tell us about their budget, and I would refer to the defense white paper, it's still very highly aggregated. And so there's a lot of questions.

Sir.

Q To return to the aircraft carrier issue, what is your ultimate judgment about Chinese intentions? Are they in fact trying to acquire an aircraft carrier? The report sort of goes back and forth on that but doesn't really come to a conclusion. What would be your conclusion?

DEFENSE DEPT. OFFICIAL: I think my conclusion is probably what the report says, which is, I think they're interested in developing an aircraft carrier. And if they were to pursue one, you know, it would be some time before they'd be able to get all the pieces together.

Q How much of a priority is it to them?

DEFENSE DEPT. OFFICIAL: It's difficult to tell what type of priority China would attach to it, in part because, you know, the information we would have on their defense budget, based on their public disclosures. It makes it difficult to determine priority, because it doesn't get into how the budget is distributed.

Q Yeah, could you elaborate on the two types of land-attack cruise missiles and what our concerns are, and the JL-2 capabilities? What's the implication for our ASW capability?

DEFENSE DEPT. OFFICIAL: To address the land-attack cruise missiles, I mean, I think the report points out that there's at least two different kinds of land-attack cruise missiles. And it gives them range that they can't get with their existing short-range ballistic missile forces. And with the JL-2 program, I don't -- because it's a submarine-launched ballistic missile, I don't really think that the ballistic missile itself has anything to do with anti-submarine warfare.

STAFF: One or two more.

Q Following on the earlier question about energy security, what do the reports say about China's strategy in Africa?

DEFENSE DEPT. OFFICIAL: Well, I think I'd have to -- I'm not entirely sure if we address specifically what China's doing in Africa related to that, but I mean, we do note that, you know, Africa is one of the areas where China is -- has a lot of increased interest for energy and other natural resources. In some cases, we've seen China do business with states that cause problems within the region, or in the case of Sudan, I mean we've got the problem with Darfur. And I think that China's efforts to lock up energy supplies and their preference for trying to lock up energy supplies can lead them to engage in dealings with governments that defy international norms.

STAFF: One more.

Q On Taiwan. I have a question about -- we've seen the increase of the number of a missile every year. But besides the numbers, did you see any implication, you know, to what extent this increase complicated the Taiwan contingency, and will that change the balance of the Taiwan Straits?

DEFENSE DEPT. OFFICIAL: Well, I mean, the ballistic missile forces are increasing every year. I mean, you can track our numbers in past reports. You know, we note that newer versions have improved range and accuracy, and I would -- in response to the last part of your question, I would just say that ballistic missiles are one part of China's military forces that are shifting the military balance in the Taiwan Strait.

Q A quick question about the hotline. You've been discussing a hotline with China now for several years. When Rumsfeld went to China, it came up. Has there been any progress at all? And also, during Hu Jintao's visit, there was a discussion about exchanging the -- exchange between the heads of the commanders of the strategic forces. The Chinese commander has gone down to Latin America. He still hasn't come to the U.S. So what's holding that up?

DEFENSE DEPT. OFFICIAL: We've -- the offer is on the table, and the Chinese have not, you know, responded to that, so I mean, you'd have to ask the Chinese what's holding it up.

Q The hotline or the exchange?

DEFENSE DEPT. OFFICIAL: The exchange and the same with the hotline. I mean, you know, we might get some forward progress, but it's not established. It's not established yet.

STAFF: Thank you very much folks. Appreciate it. Remember this is a background briefing.

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