DIRECTOR OF PRESS OPERATIONS CAPT JANE CAMPBELL:  Good morning.  I want to welcome you this morning for this briefing and to thank you for making it here early this morning.  I know it’s early for many of you.

I have the distinct pleasure of introducing Dave Helvey.  He’s the acting [deputy] assistant secretary of defense for East Asia.  Mr. Helvey will provide opening remarks about the report.  After his comments, we’ll get your questions.  We’ve got about 30 minutes that we’ve set aside for the briefing.  Please limit your questions to one question and not four follow-ons to add on to that, as we’ll try to get to as many of your questions as we possibly can.  We appreciate your cooperation, and please introduce yourselves and your media organization that you represent.

Mr. Helvey, the floor is yours.

ACTING DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR EAST ASIA DAVID HELVEY:  Thank you very much.

Thank you.  Thank you very much.  I appreciate the opportunity to come in this morning to brief you today on the 2012 edition of our report to Congress on “Military and Security Developments Involving the People’s Republic of China.”

The National Defense Authorization Act for fiscal year 2000, as amended in fiscal year 2010, mandates that we publish this report in both the unclassified and the classified form.  The report is a Department of Defense product.  It’s produced in partnership between the Office of the Secretary of Defense for Policy and the Defense Intelligence Agency, but it’s transmitted to Congress by the secretary of defense; has a fairly extensive coordination process, which includes the Department of State, Homeland Security, Energy, Commerce, Treasury, the intelligence community, the national security staff.  So it reflects views that are broadly held across the U.S. government.

We intend the report to be factual.  We try to maintain a very analytic and objective tone, and let the facts speak for themselves.

The report’s available online as of this morning, and you may have noticed that it’s got a new look and a new format.

We’ve streamlined and consolidated the report, in keeping with DOD- wide guidance for how we’re handling reports to Congress.  However, we continue to address the same range of questions and issues that’s requested by the Congress in the legislation.

President Barack Obama and China’s President Hu Jintao in January 2011 committed to work together to build a cooperative partnership based on mutual respect and mutual benefit in order to promote the common interests of both countries and to address 21st-century challenges and opportunities.   This report highlights where we see the military in China heading today, both its strengths and its weaknesses and the opportunities and potential challenges that we see going forward.

With that, I’d like to summarize the trends and developments that we’ve seen and that we reported on this year.  First, China is pursuing a long-term comprehensive military modernization designed to improve the capacity of the People’s Liberation Army to fight and win what they call local wars under conditions of informatization, or high-intensity, information-centric regional military operations of a short duration.  China’s leaders see this modernization as a central component of their strategy to advance China’s national development goals during the first two decades of the 21st century.

With this development, China’s presence in regions all over the world is expanding and creating new and expanding economic and diplomatic interests.  As these interests have grown and as China has assumed new roles and responsibilities in the international community, China’s military modernization is also, to an increasing extent, focusing on investments that would enable China’s armed forces to conduct a wide range of missions, including those that are far from China.

Even as the PLA today is contending with this growing array of missions, preparing for contingencies in the Taiwan Strait appears to be the principal focus and driver for much of China’s military investment.

Over the past year, though, as cross-strait relations have improved — and they continue to improve, aided by the re-election of Taiwan President Ma Ying-jeou in January 2012 — China’s military shows no sign of slowing its efforts to prepare for Taiwan Strait contingencies.

In addition to Taiwan, China places a high priority on its maritime territorial claims.  And in recent years China has begun to demonstrate a more routine and capable presence in both the South China Sea and East China Sea.  Notable as well are PLA operations as part of what China’s President Hu Jintao refers to as the new historic missions.  And in 2011 the PLA demonstrated the capability to conduct limited peacetime deployments and military operations at great distance from China, including in the areas of noncombatant evacuation, counter-piracy and peacekeeping.

So there’s an opportunity here.  There’s an opportunity for China to partner with us and with other countries to address the types of challenges that we all face in the 21st century.

At the same time, China’s leaders in 2011 sustained investment in its nuclear forces, short- and medium-range conventional ballistic missiles, advanced aircraft and integrated air defenses, cruise missiles, submarines and surface combatants and counter-space and cyber warfare capabilities, which appear designed to enable what we call anti-access and area-denial missions, or what PLA strategists refer to as counter intervention operations.

The January 2011 flight test of China’s next-generation fighter aircraft, the J-20, highlighted China’s ambition to produce advanced fighter aircraft.  We expect the J-20 to achieve an effective operational capability no sooner than 2018.

In August 2011, China commenced sea trials of its first aircraft carrier, which it purchased from Ukraine in 1998.  This aircraft [carrier] could become operationally available to China’s navy by the end of this year, but we expect it’ll take several additional years for an air group to achieve a minimal operational capability aboard the aircraft carrier.

This comprehensive military modernization is supported by robust increases in defense resources.  On March 4th of this year, Beijing had announced an 11.2 percent increase in its military budget, raising its publicized budget to $ 106 billion, continuing more than two decades of sustained military budget growth.  However, estimating China’s actual defense expenditure remains difficult due to a lack of accounting transparency, China’s incomplete transition from a command economy to market economy.  China’s public defense expenditure also doesn’t include large categories of expenditure areas.  So, for example, last year’s public defense budget was $ 91.5 billion.  But when all was said and done, actual military expenditure for last year could have been as high as $ 180 billion.  And I don’t have the calculations for the current year.

While we welcome actions China has taken to try to improve openness in the amount of information it has made available about its military, many uncertainties remain, which only underscores the importance of building a sustained and substantive military dialogue. And in this report we describe our efforts to work towards a healthy, stable, reliable and continuous military-to-military relationship with China which would be — which we view as an essential component of a positive, cooperative and comprehensive U.S.-China relationship.

Some of the highlights of the key engagements of last year include the participation by China’s deputy chief of the general staff in the third annual Strategic & Economic Dialogue in May of 2011, which also included his participation in the inaugural round of the Strategic Security Dialogue, which was held for the first time on the sidelines of last year’s Strategic & Economic Dialogue.  We also held the annual Defense Policy Coordination Talks, a disaster management exchange, and a meeting under the auspices of the Military Maritime Consultative Agreement.

Now, the PRC postponed several events that were scheduled for the end of the year, citing the September 2011 Taiwan arms sales announcement.

However, working-level contacts and high-level dialogue continued, and in December of 2011 the undersecretary of defense for policy, then Michele Flournoy, traveled to Beijing to participate in the annual U.S.-China Defense Consultative Talks.

More recently, following the successful visit to the United States by China’s Vice President Xi Jinping, the United States and China constructed a military-to-military engagement plan for the remainder of this year.  And this robust plan includes a mix of high- level visits, operational engagements and academic exchanges.  Just a few weeks ago the United States and China held the fourth Strategic and Economic Dialogue and the second round of the Strategic Security Dialogue in Beijing.  And as many of you know, China’s Defense Minister General Liang Guanglie traveled to the United States in the second week of May.  And during this trip, he affirmed the need for a continuous strategic communication and the need to enhance strategic mutual trust through dialogue and consultation.

In the future, we’re looking towards the U.S. Pacific Command commander, Admiral Locklear, to travel to China this summer.  As well, Secretary Panetta has been invited to visit China during the second half of 2012.  We’ll continue to use military engagement with China as one of several means to demonstrate U.S. commitment to the security of the Asia-Pacific region, and we’ll continue to encourage China to play a constructive role in the region.

In conclusion, the report has a lot of interesting information in it.  We hope that it’ll contribute in a responsible way to the many debates that are ongoing today with respect to China’s military modernization.

So with that brief summary, I’d like to take a — take a number of your questions.

STAFF:  Bob.

Q:  David, Bob Burns from AP.  On the topic of cyber espionage, which you mentioned very prominently in the report, do you see signs of them accelerating this capability, in particular as it could be applied against U.S. targets?

MR. HELVEY:  Well, we continue to highlight in this report some of the concerns that we have about China’s investment in cyber capabilities.  We note that China’s investing in not only capabilities to better defend their networks but also they’re looking at ways to use cyber for offensive operations.  We also highlight a number of areas where we see China engaging in cyber activity focused on computer network exploitation.  That continues to be a concern of ours, and we’ve raised it and we’ve talked to the Chinese about it, most recently during the Strategic Security Dialogue in Beijing.  As well, Secretary Panetta raised that with General Liang in their visit. So this is something that we continue to pay very careful attention to, and we’ve raised these concerns with the Chinese.

Q:  It’s been accelerating is my question, because — do they seem to be accelerating their development of those capabilities — these capabilities?

MR. HELVEY:  I don’t have specific data on accelerating.  It’s something that seems to be sustained, and I think their continued efforts in this area reflect the importance that they’re placing on developing capabilities for cyber warfare.  But I can’t say whether or not it’s accelerating.

Q:  (Off mic.)

Q:  Hi.  Betty Lin of the World Journal.

MR. HELVEY:  Hey, Betty.

Q:  Could you elaborate on the Chinese A2AD’s capabilities and when you discussed this with them, and what was their reaction, and how U.S. and Chinese neighbors address this issue?  And Chinese just complained to Australia about the U.S. Marines — (inaudible).

MR. HELVEY:  We — you know, as we’ve — as we talk about in the report, we see that China’s investing in a whole range of capabilities as part of its comprehensive military modernization program.  Some of the areas that were — that we pay careful attention to are capabilities that we wouldn’t — that we would consider supportive of anti-access and area denial types of operations, and here it’s not one particular weapons system.  We see China investing in a range of layered capabilities that start with, you know, undersea warfare, so investments in submarines and advanced surface combatants, advances in their capabilities for integrated air defense or to conduct, you know, precision conventional strikes at great distances from China.

We have concerns because these types of capabilities could, if they’re employed, in ways affect the ability of our forces or other forces in the region to be able to operate in the Western Pacific.  So we highlight that as something that we’re paying very, very careful attention to.  And it was something that was raised in the context of a broader, you know, global concern that we have about anti- access/area denial capabilities in the January defense strategic guidance.

Q:  Paul Eckert of Reuters news agency.  You didn’t mention it in the opening remarks but the — but the report contains considerable language devoted to the — to China’s interest in dual-use technology and China’s active leveraging of its commercial economy to — for — you know, for military — to find military technologies.  Do you — are there trade policy implications coming out of that, or is it — or are there things that the Pentagon wants to see as the U.S. deals with China on the trade front, where there is pressure to relax export controls on certain things, both commercial pressure and constant requests from China?

MR. HELVEY:  This report doesn’t address the question of export controls, but we do — we do pay attention to China’s investments and interest in improving its own defense industry and its capability to produce, you know, indigenous or their own domestic variants of a — of a variety of different military equipment.

Obviously, we pay attention to the dual-use aspects of it.  In particular, we note in some areas where China’s commercial industries have bleed-over or spin-off effects that can — that can benefit and enhance their defense industries.

Shipbuilding is one example.  So we pay attention to that in this report, but we don’t — we don’t really address the question of export control on the U.S. side.

STAFF:  Jon

Q:  Hi, Jon Harper, Asahi Shimbun.

MR. HELVEY:  Hi, Jon.

Q:  What kind of advancements do you see China making in unmanned aerial vehicles?  And are they working on any sort of armed drones? And how would you compare their capabilities with U.S. capabilities in this area at this point?

MR. HELVEY:  We know that China is interested in developing unmanned air systems, and they have in the past acquired a number of different types of UAVs, or unmanned aerial vehicles, both from foreign sources — they have Israeli-made Harpy UAVs, and they also have some domestic variants of UAVs.  This report doesn’t make a net assessment between China’s capabilities for unmanned air systems and U.S. capabilities, but that is an area that China is interested in developing those.

Q:  Yes, I’m Kitty Wang from NTD TV.  My question is USCESC released a report earlier this year.  It mentioned that China was able to develop — was able to develop an indigenous technology in the military weapons faster than U.S. expected.  So I’m wondering, what’s your response to that, and how do you do?  Do you (inaudible)?

MR. HELVEY:  I’d like to let the U.S.-China Economic and Security Commission report speak for itself.  But we have seen in the past instances where China has developed weapons systems and capabilities that appeared either earlier than we expected or that we were surprised when we saw it.  Several years ago we were surprised by the appearance of a new class of submarine that we hadn’t — we hadn’t seen before.

And I think that is something that we have to anticipate and expect.  I mean, we’re paying very careful attention to China’s military modernization.  But we’ve been surprised in the past, and we may very well be surprised in terms of seeing new weapons and equipment in the future.  But part of this report and part of what the many, many professionals in the intelligence community do is to try to minimize the extent to which we are surprised by that.

Q:  Mike Evans from the Times.  You mentioned in your report last year that the PLA set up its own special cyber unit to develop cyber warfare technologies.  Have you seen much development of that? And do you see this as perhaps one of the most — potentially the most threatening technologies threatening the national security interests of the United States?

MR. HELVEY:  We continue to see China expressing interest in making investments to improve their capacity for operations in cyberspace and that is something that we pay very, very careful attention to.  There is the potential for these types of operations to be very disruptive, disruptive not only in a conflict, could be very disruptive to the United States, but other countries as well.  I mean, that’s one of the things about military operations in cyberspace, that there can be cascading effects that are hard to predict.

We do have concerns about this, and this is why we’ve created joint military and civilian platforms, like the Strategic Security Dialogue, to be able to talk about issues that we view as being potential — having potential for friction in the U.S.-China relationship.  Cyber is one of those areas.  We’d also be like to be able to talk to China about space and nuclear and missile defense areas as well as part of the Strategic Security Dialogue.

Q:  Courtney Kube from NBC News — when you — you mentioned that last year the defense spending was almost double what the public acknowledgment was.  What are — what sort of things — can you give us some specific examples of things that they’re spending on this year — I know you didn’t want to speculate on the number that it would end up being, but what they’re spending on it this year that’s not publicly acknowledged?

MR. HELVEY:  For example, we think that some of their nuclear forces modernization occurs off budget.  Some of the research and development monies that goes to their defense industry, we also think, is — comes from a different — a different budget, a different account of their — of their overall national budget.  Some of the foreign acquisitions comes from a different — a different account as well, and there is a number of local contributions that go to local military forces in China as well.  So when you add all of that together, that helps us to develop, I think, a more accurate estimate of what the totality of the military expenditure is.

Q:  What are  some of the foreign acquisitions?  Can you give us an idea of what those are?  Are they UAVs or –

MR. HELVEY:  I actually don’t have data on what they’re currently negotiating, but in the past they’ve acquired a number of — a number of complete platforms from Russia:  for example, the Sovremenny-class destroyers; in the past they’ve purchased a number of Kilo Class submarines; [SU]-27 and [SU]-30 fighters.  So they’ve acquired a number of weapons systems.  That could also include foreign acquisition of defense and defense-related technologies as well.  So –

STAFF:  Jim.

Q:  Thank you.  Jim Garamone, AFPS.  You used the term — and it was in the report too — informatization.  What exactly is that?  I’ve — doing this 30 years, never heard anything remotely like that.

MR. HELVEY:  Well, it’s — the best way that I could explain it would be this is how China is interpreting the revolution in military affairs.

This is China’s interpretation, understanding of the role of information and information systems not only as an enabler of modern combat, but a fundamental attribute of modern warfare.  I mean, they watched very carefully U.S. and coalition military forces, beginning from the first Persian Gulf War in 1991, up until our current operations today.

And one of the things that the PLA has consistently highlighted is the role of advanced information technology not only for intelligence, surveillance and reconnaissance, but also enabling precision fires.  And when they talk about fighting and winning local wars under conditions of informatization, that’s the type of war- fighting environment that they’re — that they’re talking about.

Q:  Thank you.

Q:  Marcus Weisgerber with Defense News.  Thank you.  You spoke about the J-20 earlier.  And can you talk about how you define what I interpret as an IOC [initial operational capability] in 2018?  And is that considered in — do you expect it?

MR. HELVEY:  No, I — well, I think I said we don’t expect it to be — have an operational capability before 2018.  So that’s when we expect it to have an operational capability, and I think that’s — that reflects our judgment and interpretation of how far they are along in doing the research and development and flight testing of the prototypes.

You know, in terms of having an operational capability, we’re talking about having a sufficient — sufficient numbers of the platform and the integrated weapon systems and pilot training to be able to conduct the types of missions that the stealth fighter would be — would be designed for.  I’d have to defer on further specifics. I mean, that’s something you’d have to talk to the Air Force about.

Q:  Hi, Kristina Wong with Washington Times.  I think you mentioned that China’s projecting its power — beginning to project its power outside of its territorial region, such as in the Gulf of Aden and Libya.  Is that a concern for the U.S.?

MR. HELVEY:  We continue to watch as China’s military is developing.  And as I had indicated at the top, you know, we see the PLA, you know, contending with this new set of missions that the president and the chairman of the Central Military Commission, Hu Jintao, has given to them.

We see that there’s opportunities to be able to partner with China in a variety of different ways, highlighting, you know, counter-piracy for example.  This is a common — a common threat and a common challenge that all nations face, but truly no one nation can tackle on their own.  And so what we’d like to be able to do — is have a conversation with China and China’s military on how we can build the type of cooperative capacity to where we can work together in support of common objectives.

Obviously we have concerns about China’s activities that would run counter to the trends towards greater cooperation, but — and that’s something which we’ll just, you know, we’ll continue to monitor and talk to them about.

Q:  Have there been any such trends to suggest that, that their operations would run counter to our interests?

MR. HELVEY:  Well, I mean, I think, you know, we highlight in this report, as in previous reports, some of the areas where we do have concerns.  I mean, we have concerns in China’s investment and capabilities precisely to support anti-access or area denial missions. We have concerns about China’s investments in technologies and capabilities to deny others access and use of space.

Q:  I mean outside of China’s territorial region?

MR. HELVEY:  Outside of China’s — well, these are capabilities that have effects outside of China’s territorial region.  There hasn’t been a specific instance that I can — I can speak to right now.

But we do watch carefully as China’s operations, you know, from China — you know, not only ways where we can work with them but — yeah.

Q:  Can I follow up on that?

STAFF:  (Off mic.)

Q:  (Off mic.)  I take you back to Kristina’s original question. She was asking about the new — I think they’re called new historic missions.  And you — I’m not clear on whether you meant that there’s — this is a positive development, or is there some downside to this?

MR. HELVEY:  Well, I think — you know, the best way to characterize it, actually, would be in their terms.  In 2004 President Hu Jintao issued to the PLA what he called the new historic missions. And these are to provide — one, to provide an important guarantee of strength for the party and to consolidate its ruling position; two, to provide a strong security guarantee for safeguarding a period of strategic opportunity for national development; three, to provide a powerful strategic support for safeguarding national interests; and four, to play an important role in safeguarding world peace and promoting common development.  So we see the PLA adapting to these missions and looking at ways to operate farther and farther from China.

We see an opportunity to be able to work with China as they’re adapting to these new missions.  We see that as China has greater capacity and capability to operate at distances from China, that it has a responsibility also to uphold international norms and rules and to support the international community’s interest in peace and stability.  So we see opportunities to work with them there, and we’d like to continue doing those things that we have done, like counterpiracy, for example, and expand those areas where we can cooperate.

Q:  So it’s a positive thing, you’re saying.

MR. HELVEY:  Very positive potential.  There’s also potential challenges.

Q:  Yoso Furumoto, Japan’s Mainichi newspaper.  Going back to cyber attacks, this year’s report states many of which originated within China.

This expression is much more assertive than the last year.  Last year’s report only says, some which appear to have originated within the PRC.

So what specifically caused this change of expression after less than a year?

MR. HELVEY:  I wouldn’t read too much into that.  I mean, I think we have concerns about a number of computer network operations and activities that appear to originate from China that affect DOD networks, and that’s what we’re trying to highlight in the report, that we see that there’s a number of these operations that appear to originate from China.  And as we learn more about them, we have a better understanding of the — of the nature of those operations, and that helps us to say with greater confidence that some of these are in fact coming from China.

Q:  Are you saying the government — (inaudible)?  Or when you say China, are they coming from Chinese government?

MR. HELVEY:  I think I just said from China.

Q:  But — yeah, so I’m asking:  When you say “from China,” you mean from the Chinese government, presumably, right, as opposed to private citizens in China?  (Off mic.)

MR. HELVEY:  To be clear, I just said it comes from China.  I didn’t specify the specific attribution.  But we do have some concern about a number of these potential — these particular operations that appear to originate in China.

Q:  Otto Kreisher with SEAPOWER Magazine.  I haven’t had a chance to read the report, but the — on anti-access/area denial weapons, there’s been some question as to the exact status of the so-called carrier killer long-range ballistic missile.  Does the report deal with whether that is operational?

MR. HELVEY:  We highlight continued development of the anti-ship ballistic missile or the DF-21D.    It’s got a limited operational capability, and I think that’s reflected in the report.  They continue to work on that and develop that and deploy that.  And I think that’s –

STAFF:  Yep — (off mic).

MR. HELVEY:  One more?

Q:  Luis Martinez of ABC News.  When you spoke about the IOC for the J-20, you talked about it being ready for the missions that it was designed for.  I believe it’s a stealth aircraft; it’s an attack aircraft.  I mean, are you talking anything about it being a game-changing offensive weapon in the region?

MR. HELVEY:  I think, you know, we’ve got to — we’ve got to continue to watch this as it — as it develops.  I mean, it’s still in a prototype phase.  So we’d like to be able to continue to monitor it — to continue monitor developments on that to understand exactly what China may intend to use it for, and I wouldn’t want to speculate at this point for what those specific missions would be.

STAFF:  OK.  Sir, really appreciate it.  Thank you for coming out again early on a — on a Friday morning and anything else you would like to say to wrap it up?

MR. HELVEY:  No, thank you very much, and appreciate it.  And I hope you get a chance to review the report this weekend.