Some Pakistani visitors went to China and visited all sorts of communes and they came back with some very interesting statistics about the income differences of a man or family living in China. There is no question that the Chinese have very poor areas indeed. But if you go on the basis of what refugees say, of what visitors say about China, and of what the Chinese publishes, it seems to me that the obvious fact is that the Chinese are better off in the quality of living. Chairman PROXMIRE. Let me try to put these two together.

Is there an effective or can an effective consumer demand develop which could take some of these resources otherwise which might go to investment, and might go to the military, and simply demand as it seems to have been to some extent in Russia, to divert these into consumer consumption?

Mrs. KALLGREN. Well, I would be inclined to say that the degree was substantially less than in the Soviet Union.

Chairman PROXMIRE. It is so far, of course, that is, acknowledged— I am talking about what you foresee as this society develops.

Mrs. KALLGREN. As I forsee this society developing, and barring all sorts of really very possible substantial changes, it seems to me that the emphasis the Chinese have placed on local financing precludes this. I was impressed with the continuity between your reports in 1966, and this current study where both agree that the Chinese have stuck to this stress on local control and local financing. So I would say, barring centralization politically and economically-which is something that most of your Government reports do not speak of the Chinese have within the local areas this ability to draw on the local areas for the more normal quality of life items. I mentioned aspirin as an example; but that is a good example, as a matter of fact.

Chairman PROXMIRE. Lots of headaches?

Mrs. KALLGREN. Yes.

Chairman PROXMIRE. Senator Fulbright.

Senator FULBRIGHT. Mr. Wu, do you feel that the GNP, as we use it in this country, is a useful criterion in judging their relative economic strength and ours?

Mr. Wu. I think it is useful in the sense of looking at how they do from one year to the next and so on, comparing over time; but for comparison between how they are doing and what they are doing with how we are doing and what we are doing, I would think that the data as now constituted are not particularly helpful.

Senator FULBRIGHT. Do you think our GNP is useful to us in estimating the quality of life in this country?

Mr. Wu. Well, if one digs into the way the GNP is arrived at, there could be certain questions; yes.

Senator FULBRIGHT. What are the questions? I mean, is it a useful or is it a misleading criterion?

Mr. Wu. It is useful.

Senator FULBRIGHT. What is it useful for?

Mr. Wu. It is still misleading in some ways.

Senator FULBRIGHT. What is it useful for?

Mr. Wu. If you want to know how output is growing or not growing. Senator FULBRIGHT. But output of what-of military? We have enormous military expenditures and this increases the GNP, doesn't it?

Mr. Wu. Output of goods.

Senator FULBRIGHT. Military goods-doesn't it just as much as something useful?

Mr. Wu. It goes down to the way of how you value your particular products, if you value them at market price or what.

Senator FULBRIGHT. But it is the kind of products. When we have more crime in Washington and have to put on an extra thousand policemen, this increases the GNP, doesn't it?

Mr. Wu. Right.

Senator FULBRIGHT. So the more crime we have the more prosperous we are [laughter], the more garbage we have to collect, the more prosperous we are, aren't we? If you use the GNP as a criterion of well-being, is that not true or isn't it?

Mr. Wu. That is correct; it is correct.

Senator FULBRIGHT. So if you have no garbage disposal program then you are poorer? [Laughter.]

If you don't have any crime, you are poorer, aren't you?

Mr. Wu. The problem has to do with the way certain sectors are measured.

Senator FULBRIGHT. That's right.

Mr. Wu. And it is a problem.

Senator FULBRIGHT. And it seems to me it is a very misleading tool to use. It irritates me very much for people to cite an enormous GNP when so much of it is accounted for by an increase in crime, garbage, pollution, gambling, leisure travel-none of which seem to me to contribute very much to the inherent strength of a society. Would you agree with that or not?

Mr. Wu. Well, in that sense, yes.

Senator FULBRIGHT. Well, in what sense do you think it does help? Mr. Wu. Well, if you disregard certain types of activity and certain products which you think are not useful intrinsically, you do need a measure of the total level of activity, and you need some measure, and that is your problem.

Senator FULBRIGHT. They have rung the bell; I have to go vote now. We will have to recess. I have 5 minutes to go to make the vote. (Recess.)

Chairman PROXMIRE. The committee will come to order. I apologize for this delay to the witnesses. These rollcalls are something that we have to abide by. I haven't missed a rollcall since 1966. Professor Wu, what are the purposes served by the military capability of the People's Republic of China? Whom do they consider a threat?

Mr. Wu. I think at present the primary threat is from the north, the Soviet threat.

Chairman PROXMIRE. And what other-do they consider the United States a threat?

Mr. Wu. Only an amorphous kind of threat, distant, potential. Chairman PROXMIRE. Have they deployed any forces to meet the threat of this country?

Mr. Wu. Are they what?

Chairman PROXMIRE. Deploying any forces, say, on the Korean border or Vietnamese border to counter a threat developing with our participation?

Mr. Wu. I don't know of any deployment but they must have border forces.

Chairman PROXMIRE. In your view, is their emphasis on the nuclear deterrent primarily in response to the Soviet or in response to us?

Mr. Wu. I would say that at the moment, or at least for the last 2 or 3 years, the nuclear program has been accelerated and perhaps adjusted in response to what they perceive is the nature of the Soviet threat.

Chairman PROXMIRE. I understand the President of the Soviet Union is now on his way to Hanoi, stopping off at Calcutta. He has been quoted as saying that the war in Vietnam must be stopped fast, the bombing halted. Do you see any hint here that there has been some kind of agreement reached in the Moscow talks between the United States and Russia with respect to the Vietnamese war?

Mr. Wu. I have no basis to speculate, no.

Chairman PROXMIRE. I just received that and I thought you might have an observation on it.

Is the military solution of the Taiwan question an imminent possibility?

Mr. Wu. The military solution by the P.R.C.?

Chairman PROXMIRE. That's right.

Mr. Wu. No; I don't think so.

Chairman PROXMIRE. They don't have the naval capacity?

Mr. Wu. I think they would have to have naval and air superiority locally in order to be able to have ground superiority, and they perhaps could do that, could achieve that, if they mustered all their forces together; but given present conditions in the north and with the political situation in the world, they wouldn't do it.

Chairman PROXMIRE. Mrs. Kallgren, along the same line I was asking before this is a little different-many studies imply extreme austerity has been an economic policy of Chinese leaders; that is, really squeezing the consumer, consumption sector of the economy. Do you find this to be the case or do you see a qualitative change in the life of the average Chinese?

Mrs. KALLGREN. That is not a contradiction, really.

Chairman PROXMIRE. Well, they could be easing the squeeze? Mrs. KALLGREN. Oh, sure. A couple of things seem to be relevant. First of all, it is very useful to keep in mind and I certainly try to do it myself the enormous diversity of China. It is very difficult to resist the temptation to speak of "China". If there is anything that has come out of both what the Chinese say, or the reports of visitors to China-whether they are Americans or British or Japanese or, anyone who has been to China-it is that the more remote you are from Peking, the more remote the village, town, the more these differences may be apparent. Some of the areas of China are really very, very poor; and there is no question, for example, that up to now you are better off in a city

Chairman PROX MIRE. There is economic diversity isn't there?
Mrs. KALLGREN. Sure.

Chairman PROXMIRE. They have much less diversity than we have in the United States in a sense, at least they have a racial homogeneity that we don't have?

Mrs. KALLGREN. That is true.

Chairman PROXMIRE. We have a population that is black, white, yellow, and red?

Mrs. KALLGREN. That is true.

Chairman PROXMIRE. We have, of course-we are a melting potpeople from various other nations who have settled here and have been here a very short time. They do have the homogeneity there. Would you say they have a difference of standard of living which is very substantial?

Mrs. KALLGREN. Well, you know, sir

Chairman PROXMIRE. From low to very low, apparently?

Mrs. KALLGREN. Yes, I think so. I think, for example, if you compared the standard of living in Appalachia and the standard of livingI don't know-of Southern California, I think you would find some very important differences.

Chairman PROXMIRE. Maybe this is one of our problems with respect to the visits by the President and by the majority and minority leaders; obviously, they wouldn't I know they tried hard; they are very honest, very able people, all of them, but there would be a tendency to go to the areas where the people are relatively better off

Mrs. KALLGREN. That's right.

Chairman PROXMIRE. Not to the areas where they are desperately poor, so that the notion that we get of a relative improvement in the Chinese living standard may be distorted; is that correct?

Mrs. KALLGREN. Well, I think if

Chairman PROXMIRE. We are talking about getting to see 850 million people. No matter how hard you try, you can't see more than an insignificant fraction of that many?

Mrs. KALLGREN. I think you are correct. I would want to give you an example. When I was in Hong Kong in 1970, I had an amah who watched out for my children, and she visited her family in Canton or in the Canton region. She had visited them over a number of years and had been asked each time she came back what were the differences. The most recent time she commented; well, the difference was there was electric light in the village, and the local cadre had invited her to tea and that this had never happened before.

Now, my point is simply as your report, as a matter of fact, saidthat it is a question of whether the glass is half full or half empty. It seems to me I am taking the argument that it is half full, and that that is a very substantial achievement.

Chairman PROXMIRE. Was the increase of local power in China during the cultural revolution, the increase of local power a conscious policy or a result of the disruptions of central control? I am just wondering whether central control returned to the precultural revolution level? Is this a Chinese form of a new federalism?

Mrs. KALLGREN. I don't believe that-I think some central control has been reasserted in the last year or thereabouts as the party is being restructured and is coming back as a viable force, but I think there is a very substantial degree of local control in China. It has worked. I suggested that one area is welfare; I think another is in agricultural production. I think there are there still remain-substantial degrees of local adaptation, the ability to take a central directive which is pretty vague and then work it out in the local areas as to how you go about, in fact, learning from the local masses.

Chairman PROXMIRE. I would like to ask both of you this question: I want to know about the interaction of Chinese domestic and foreign

policy, and I am wondering whether economic growth would tend to facilitate an improvement in United States-Chinese relations, or would it be more likely to confront us with a powerful, more powerful adversary?

Mr. Wu.

Mr. Wu. Offhand, I would say that it has no necessary immediate relationship; economic growth could give them more military capability and make them more hostile, but not necessarily. That depends upon other things, I believe.

Chairman PROXMIRE. Does it depend in any way at all on what we do, in your view, in our trade and our interchange of people and so forth? Can that have any influence, or is it likely not to be big enough to be significant?

Mr. Wu. I would think that the really most important factor at the moment is the Sino-Soviet relationship.

Chairman PROXMIRE. How about the Vietnam war as far as our position is concerned? Isn't that as long as that is going on, aren't we sure to have an adversary relationship? Isn't it likely that any economic development under these circumstances would be adverse, and absent the Vietnam war that it might be constructive?

Mr. Wu. I don't think it is being allowed to influence Chinese policy too much, primarily because of their other concerns. Obviously, if there were no war in Vietnam, it couldn't but be somewhat better. Chairman PROXMIRE. I just wonder about that. Vietnam is right on their border-North Vietnam. We have concentrated a fantastic amount of military power, dropped more bombs in those two little countries than in all of the countries in the world combined, twice over in World War II. We seem determined to establish a government in South Vietnam that is sympathetic to our views. Doesn't this constitute a basis for hostility on the part of the Chinese?

Mr. Wu. This may be in the past; I would think that Peking probably believes that given the U.S. force reductions "The Americans are going to leave so why don't we let them leave, and then one could try to take over if one wanted to." So as Peking sees it, this is the tail end of the story and there is no need to get excited over it. Chairman PROXMIRE. Mrs. Kallgren.

Mrs. KALLGREN. I would be inclined to say that the ending of the Vietnam war is a necessary but not a sufficient condition for improvement, or any practical improvement, with the People's Republic of China. I think that I would agree with Professor Wu, that the President's trip to Peking, which I might say, I thought was an historic event, could not have occurred in the absence of Chinese belief that the Americans were withdrawing.

Chairman PROXMIRE. Would you disagree with Mr. Lattimore who says this was kind of a posturing, as I understand it, just a way of getting the minds off the Vietnam war?

Mrs. KALLGREN. Yes, I do disagree; I think I understand Professor Lattimore's view, and I have a great deal of respect for him. I think that argument in another version has been made by George Ball-that the visit could have been done by Mr. Kissinger or Secretary Rogers or someone. I think the public educational value of that trip was just enormous, and I don't believe it could have been done by anyone else, even though there were some startling lapses in information that I am

82-971 0-72- -7