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Special Event

Millennium 2000: Hot Spots

Aired January 2, 2000 - 2:00 a.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BRIAN NELSON, CNN ANCHOR: The parties are over. Now begins the task of taking care of business in the new millennium. A Y2K update coming up.

JUANITA PHILLIPS, CNN ANCHOR: Also, old conflicts in the new year. From the Koreas to the Straits of Taiwan, we'll have an in- depth look at some of the world's hot spots.

And...

(BEGIN VIDEO CLIP)

DICK JORDAN, HIGH SCHOOL TEACHER: Of all the things that I will ever remember, it will be this day.

(END VIDEO CLIP)

NELSON: A teacher receives a tremendous new year's gift from dozens of his students.

Welcome to our special continuous coverage of this new millennium. I'm Brian Nelson.

PHILLIPS: And I'm Juanita Phillips.

We'll devote most of the next hour to the world's hot spots, including a live, extended segment from Taipei and Beijing.

NELSON: But, first, here's a check of our top stories right now.

When it comes to Y2K glitches in the world's computers, as the saying goes, no news is good news. Things are going so well, in fact, that the international command center for Y2K problems has shut down, and the U.S. has scaled back its monitoring operations.

As CNN's Jeanne Moos -- I'm sorry -- CNN's Jeanne Meserve reports, except for a few bumps, the road to Y2K has been a smooth ride.

(BEGIN VIDEOTAPE)

JEANNE MESERVE, CNN CORRESPONDENT (voice-over): A Y2K briefing was abruptly interrupted Saturday by a delivery. JOHN KOSKINEN, PRESIDENT'S COUNCIL ON Y2K: But this is an actual FedEx package mailed to me last night by the postal service from Los Angeles, and the question was would it work and would it process through the system.

MESERVE: It did. Arriving an hour before its noon delivery deadline.

KOSKINEN: Now the question is would we have told you if it didn't arrive, and we'll leave that to others to determine.

MESERVE: The headline out of every Y2K briefing: no headlines.

UNIDENTIFIED SPOKESMAN: We don't have anything to report, and we're very excited about that.

MESERVE: There were a few minor scrapes and scratches as the new year rolled over, but some simple technological first aid seemed to set things right. Seven nuclear power plants reported Y2K problems with access and monitoring systems, but nothing that jeopardized safety or operations. Six airports had short-lived difficulties with their low-level wind-sheer alert systems, and the Federal Aviation Administration had trouble with the system that distributes weather information to pilots.

(on camera): At one office of the Bureau of Alcohol, Tobacco, and Firearms, a security system was replaced to prevent Y2K problems. It didn't work. Guards were posted while it was replaced.

HARRIS MILLER, INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA: The rollover has gone much better than even the most optimistic person expected. Of course, we're not out of the woods yet because it has been during a holiday weekend, and there's going to be a lot more stress on the system when businesses begin operating again.

MESERVE (voice-over): But at the national Y2K center, they are already talking about scaling back operations. What could be more appropriate reading for bored staffers than going out of business ads?

Jeanne Meserve, CNN, Washington.

(END VIDEOTAPE)

PHILLIPS: The most significant Y2K-related hitch occurred at the Pentagon. A satellite-based guidance system failed to properly adjust to the Year 2000 date change. The Defense Department satellite went down shortly after the rollover and stayed down for several hours. Officials say that, for a time, information from some spy satellites couldn't be processed. The Pentagon says a backup system is now being used.

NELSON: Computer glitches caused some problems at four Japanese nuclear power plants, though. Most of the problems had to do with computer data transmission. At least one of the malfunctions is said to be related to the Y2K computer bug. One glitch occurred at a plant which three months ago was the site of Japan's worst nuclear accident. Officials say this weekend's problems did not compromise plant safety.

With no Y2K problems to fix, Russia is busy cleaning up after millennium parties. Computer-wise, Russia reports a trouble-free move into the Year 2000. There had been some concern that the country's aging technology would be knocked out by a Y2K bug. So far, there have been no reports of breakdowns in any of Russia's nuclear missile systems, its atomic reactors, or its electricity networks.

PHILLIPS: The new year, though, has brought Russians more change than some of them may have anticipated. The country entered a new millennium with a new leader.

CNN Moscow Correspondent Eileen O'Connor interviewed the acting president, Vladimir Putin, this past week. She shared some of her impressions of the past few days with pages from her reporter's notebook.

(BEGIN VIDEOTAPE)

EILEEN O'CONNOR, CNN CORRESPONDENT (voice-over): Coming back to Moscow is like putting on an old shoe. Comfortable. Everything slides into place.

And it was just an hour before I boarded the plane that I heard the news. CNN was granted an interview with Vladimir Putin, the Russian prime minister. But the questions that I wanted to ask displeased his handlers. The millennium. His vision, they insisted. No policy.

But I insisted, too. This was a man who could be president within the next six months. We had to know more than just vague visions. Little did I know that, in less than 24 hours, he would be the president.

Do you also need to fight against corruption? Do you see that as a priority for you, to bring this kind of government for the people?

Questions about corruption, civilian casualties in Chechnya -- they all displeased Mr. Putin's handler. It was clear that he had one message he wanted to send to the West, to the United States, that his tough talk aside, this was a man with whom they could do business.

VLADIMIR PUTIN, ACTING RUSSIAN PRESIDENT: Quite often, we hear that Russia has imperial ambitions, but this is not true. Russia has only one ambition: to enjoy respect from other nations.

O'CONNOR: The White House, the U.S. Embassy -- they all called. They wanted a transcript. It was clear that everyone wanted to watch. They wanted to take this man's measure, and he, with his own coy invitation, "Come see for yourself."

PUTIN: I'd like to extend through you an invitation. Of course, we'll send an official formal invitation, but I'd like the American people to know that the Russian people are expecting the American president. O'CONNOR: After two late nights and jet lag, I was literally half asleep and pulling on clothes when I heard the news and had to go on the air.

Boris Yeltsin has said that he will step down.

Putin was president. It was impossible not to sense the symbolism. Just eight years ago, I remembered it was Boris Yeltsin who had insisted that the Russian flag replace the Soviet flag atop the Kremlin on New Year's Eve, and here it was another New Year's Eve, and he was again insisting that Vladimir Putin would be his replacement.

BORIS YELTSIN, PRESIDENT OF RUSSIA: In my stead will be a new generation, those that can do more and do better than I. In accordance with the constitution, I have signed a decree passing the duties of the president of Russia to the prime minister, Vladimir Dadamarovic (ph) Putin.

O'CONNOR: We immediately started calling, "Did they know? Were we used during that interview?" I wanted to know. I had even commented to the then prime minister that, in this next six months, he would be very busy, and he said, as all Russians usually do, that six months is a very long time in Russian politics.

I wonder now was this a signal. My sources say that Boris Yeltsin made this decision several days ago, that Vladimir Putin knew but that many of his closest aides did not and, thus, this tussle over the questions.

Some of Boris Yeltsin's closest advisers say it was with health and history in mind that Boris Yeltsin decided that this was a fitting moment, the eve of the millennium. He thought this was the time to put the next generation into power.

Mr. Putin himself didn't miss a beat. He immediately went down to Chechnya to visit the troops, immediately started campaigning, sending out the signal that he was a strong leader but still a democratic one, the kind of leader that Russia is yearning for.

PUTIN: The country needs what you're doing badly. Really badly. We're not talking about restoration of dignity of the country. No, it's about much more serious things. It's about putting an end to Russia falling apart.

O'CONNOR: Russia is not yet a democracy. Having lived here for 10 years, it really pains me to say that, but perhaps because of that, because of the crime, the corruption, the lack of a free press, law and order, that the past that people used to fear, Putin's past in the KGB, is something that they now dismiss and, in fact, they're banking on that kind of strength so prominently displayed in his Judo demonstrations on television. They're banking on that strength to lead, and now, though, it's up to him not to disappoint.

I'm Eileen O'Connor in Moscow.

(END VIDEOTAPE)

NELSON: Russia's banks as well as others around the world appear to have survived the rollover to 2000 with no major problems. Most U.S. banks even assured customers ahead of time that their money would be safe.

CNN's Susan Reed now reporting on one bank group that took that pledge a step further.

(BEGIN VIDEOTAPE)

SUSAN REED, CNN CORRESPONDENT (voice-over): Customers were few and far between at one of the few banks open on New Year's Day. California Federal opened close to 100 of its branches in California and Nevada for convenience and to reassure anyone with concerns about Y2K problems. So far, no major problems reported by any federal banking agency.

Bankers from coast to coast have spent their new year's in command centers monitoring offices worldwide, making sure all systems are go. Here at Union Bank of California, they've spent $50 million on Y2K. The entire industry spent as much as $10 billion, and it apparently paid off.

The biggest concern, of course, was hoarding. The Federal Reserve printed piles of extra currency, about $225 for each man, woman, and child in the U.S., so banks would have enough cash.

DONNA TANOUE, FDIC CHAIRMAN: It's business as usual for banks and their customers. Thank you.

REED: The chairwoman of the FDIC invited reporters to join her as she showed her ATM was working just fine. And that extra currency the government shipped to bank will go right back where it came from.

(on camera): The Federal Reserve will continue to keep its eye on banks over the next few days. They're asking the institutions to check in regularly, let them know if there are any computer problems or any unusual customer behavior.

Susan Reed, CNN, Los Angeles.

(END VIDEOTAPE)

PHILLIPS: There is more to a dollar, it seems, than its face value. Just ask Denver history teacher Dick Jordan. Since 1962, he's been telling his students to meet him at Denver's public library on the first day of the new millennium and to bring a dollar with them.

Jan Tracy (ph) of affiliate KWGN picks up the story.

(BEGIN VIDEOTAPE)

JAN TRACY, KWGN REPORTER (voice-over): Meet me in the new millennium.

JORDAN: Mary Ann (ph), how are you?

TRACY: Since 1964, that's what Dick Jordan told his American history students.

UNIDENTIFIED STUDENT: At the beginning of every single class, he said...

GAYLE LEE HAUGEN-LONG, CLASS OF 1973: ... we would meet him in the year 2000.

UNIDENTIFIED STUDENT: I've had that mental reservation that I'd be here. I also thought, "How old will I be then?"

TRACY: Names and faces from decades ago came back like it was yesterday.

JORDAN: Chris King (ph). Chris, how are you?

TRACY: Former students who now have children of their own.

JORDAN: This is Danielle (ph)? Hi, Danielle. How are you?

TRACY: Jordan also told his students to bring a buck because he would likely be a poor teacher, but they would surely be successful. His former students, no longer youthful, but remembered the request. Now Jordan says the money will go to charity.

He was just a young teacher in Denver...

JORDAN: That's not me. That's a fake.

TRACY: ... and his students even younger.

UNIDENTIFIED STUDENT: And my sister was four years behind me, and she and her husband and their children are here, too.

TRACY: Some who couldn't come were there in spirit...

UNIDENTIFIED PARENT: My daughter was in, what, one of your classes in '65, and she lives in Seattle and asked me to come.

TRACY: ... despite the passage of time...

JORDAN: There is a gentleman here who's former wife went to GW. Her name was Timer (ph). I believe that's correct. They were married for 27 years, and one of the last things that she asked him, as she was dying with cancer, was to come down here in the Year 2000.

TRACY: Mr. Jordan, a time-honored teacher.

JORDAN: Thank you for honoring me, and it's been a wonderful life, and of all the things that I will ever remember, it will be this day.

TRACY: In Denver, Jan Tracy for CNN.

(END VIDEOTAPE)

NELSON: A Washington State couple is celebrating more than just the birth of a new century. Maria Cruz Mora Rivas (ph) and Emilio Villa Fortes (ph) became proud parents on Friday and again on Saturday. The couple's twin boys were born just two hours apart, but their birthdays span both centuries. The oldest boy was born at 10:06 p.m. on the last day of 1999. The younger of two became Washington's first baby of the millennium at 12:16 a.m. January 1st. Mother and son said to be doing just fine.

And coming up next, our special millennium 2000 coverage continues.

PHILLIPS: We visit our hot spots around the world. First up North Korea and South Korea. Communism and democracy. Is there progress in this fragile relationship? We'll have more on the balance of power next.

(COMMERCIAL BREAK)

PHILLIPS: We said never again. Then we did it again. Next time, it could start here or there. The hot spots where World War III or even IV could start. Places to watch. Likely war zones in our futures.

NELSON: Yes, indeed. Our focus this hour of our special millennium coverage is hot spots in the world.

PHILLIPS: And we focus on two areas, Korea and China and Taiwan. We'll have a rare dialogue from both sides of the Taiwan Strait with a Taiwan presidential candidate and an international studies expert from China.

NELSON: First, the focus is on Korea. When experts try to predict potential world trouble spots during the 21st century, they always take a very hard look at the Korean Peninsula.

CNN's Mike Chinoy reports on a conflict which began in the mid- 20th century, and it remains unresolved to this day.

(BEGIN VIDEOTAPE)

MIKE CHINOY, CNN HONG KONG BUREAU CHIEF (voice-over): Almost half a century after the end of the Korean War, there is still no permanent peace. Along the demilitarized zone, 37,000 American troops and their South Korean allies face off against the soldiers of communist North Korea, the last front line of the Cold War.

In recent months, though, the tension has eased. In September, North Korea agreed to suspend testing of the long-range ballistic missile that, when first launched in 1998, sent shockwaves throughout the region. The move came as the Clinton administration adopted a new more conciliatory approach to the North and agreed to lift trade sanctions. Cultural exchanges between North and South Korea have picked up steam, and after Japan agreed to resume food aid, the two countries announced plans for talks on normalizing relations. Yet the regional thaw remains fragile, as North Korea, impoverished, diplomatically isolated, run by a ruling party determined to maintain its power at all costs, weighs the risks of further engagement with the West.

ROBERT MANNING, COUNCIL ON FOREIGN RELATIONS: The North Koreans are threatened by open -- by opening up. They have refused to open up. They have refused to do the kind of economic reforms that would give them a viable economy.

CHINOY: North Korea's influential armed forces are widely believed to be skeptical about further opening and especially about calls for an end to Pyongyang's missile program.

LEE CHONG MIN, YONSEI UNIVERSITY, SEOUL: The biggest concern from our perspective is whether the North Koreans will really stop work on their ballistic missile program and other weapons of mass destructions. Without those tools, North Korea's threat to the outside world diminishes fairly significantly. So, in that sense, I think that's -- those two tools are essential for the survival of the regime.

CHINOY: One sign of North Korean reluctance: the failure of Kim Jong Il's regime to name an envoy or set a date for anticipated high- level talks in Washington. Moreover, North Korea remains deeply suspicious of South Korean President Kim Dae-Jung's own calls for engagement, the so-called sunshine diplomacy, using trade and tourism links to encourage a political thaw.

MANNING: They refuse any kind of political reconciliation process with South Korea, and they're -- they're unlikely to ever find a more magnanimous and flexible president than Kim Dae-Jung. So that's somewhat troubling because if -- if they're unwilling to do that, then it's pretty hard to see how you get a peaceful resolution of the Korea question.

CHINOY: Yet North Korea's economic situation remains critical. The food crisis that produced such harrowing images in the past four years has not disappeared.

DAVID MORTON, WORLD FOOD PROGRAM, PYONGYANG: There's still a very acute shortage of food in the country. They've just had their harvest in, but the harvest is only three-quarters of what they need for the year, even though it was a better one, a bit better than the last year. So there is a lot of hunger still in the country.

CHINOY: Facing acute problems at home, North Korea has repeatedly used threats and brinksmanship in the past few years to extract economic and diplomatic concessions from the United States. It has been a tense, often dangerous process, and the possibility of a new crisis remains very real.

(on camera): But so too does the possibility of progress as these long-time adversaries seek to forge a new, less hostile relationship.

Mike Chinoy, CNN, Seoul.

(END VIDEOTAPE)

PHILLIPS: Well, despite that, hope for peace in the new millennium is strained by new problems on the Korean Peninsula. For more, we'll sit down with South Korea's President Kim in Seoul. That's next.

(COMMERCIAL BREAK)

PHILLIPS: And welcome back. We're continuing to look at the world's hot spots this hour, those problem areas that may move into conflict in the new millennium.

And a recent growth in cultural exchanges has given new hope for better relations between North and South Korea. Much of that hope is fostered by South Korean President Kim Dae-Jung's policy of acting engagement, known as the sunshine policy.

CNN's Seoul Bureau Chief Sohn Jie-Ae recently sat down with President Kim to talk about his hopes for the new millennium.

(BEGIN VIDEOTAPE)

SOHN JIE-AE, CNN SEOUL BUREAU CHIEF: Thank you for talking to us today.

Mr. President, first of all, could you characterize the relationship between South and North Korea and how do you see this relationship developing in the new millennium?

KIM DAE-JUNG, PRESIDENT, SOUTH KOREA: Of course, the current status of the South/North relationship is not a very much a satisfactory one. However, the danger war has been remarkably decreased, and the South/North exchanges have been sharply increased.

The (INAUDIBLE) project has allowed as many as 150,000 South Korean people to visit North Korea. The exchange in the sports and the cultural things is now very active. The other day, there was a friendship match between the South and North Korean (INAUDIBLE) players in (INAUDIBLE) in Seoul inviting thousands of spectators.

And when we look at nuclear and the missile issues, North Korea has observed the Geneva agreement so far. They also suspended test firing missiles, and they are now negotiating for a normalization of relations with United States and Japan, and in this regard, Korea, the United States, and Japan have sent a very clear message to North Korea through the (INAUDIBLE) report.

If they give up a war crime, their nuclear program and missile activities will provide a corresponding benefit that is -- will guarantee their safety, will help them to revitalize their economy, and will help to be a member of the international community.

So our policy is a give-and-take approach seeking a win-win outcome. JIE-AE: You've talked about the nuclear pro -- North's nuclear program, the missile program, and you seem sat -- relatively satisfied with the conclusion of these problems, but do you see in the next millennium these problems redeveloping again, or do you see any new potential problems that could affect the relationship between the two Koreas?

KIM: The first, with regard to the missile issue, the negotiation can be a tough one, sometimes very frustrating and draining. However, we'll do our best to discourage North Korea from test firing missiles and exporting missiles and related technology to third countries.

Switching to the nuclear issue, we have a little better situation. They have kept their promise under the Geneva agreement. They have allowed us to inspect suspicious underground site in Kunshung (ph), and on our part, we are fulfilling our promise as well. We are now working on providing light (ph) water nuclear reactor to North Korea.

JIE-AE: Some people say that another destabling factor in North/South's relations is North Korea's famine and the Kim Jong Il regime. What is your assessment of North Korea's situation right now?

KIM: Basically, their economy is in bad shape. As (INAUDIBLE), the people's discontent is very high at the moment. There has been a slight improvement in their food production and operation of factories this year, but, once again, in overall terms, they are still having a very difficult situation.

North Korea is a socialist economy in which the government is supposed to provide everything to its people -- clothes, the food, and housing. the socialistic dictatorship is possible only when the regime fulfills this obligation, but they are not successful in this responsibility at the moment.

So the weakness they face, they have at the moment is something of a fundamental nature. However, there is no alternative, and Kim Jong Il is now in full control of the party, of government, and the army. So, for the short term, you can say the Kim Jong Il regime is a fairly stable one.

JIE-AE: You've talked about actually meeting Kim Jong Il and talking to him and conducting summit between South and North Korea, your willingness to conduct such a summit. If you were to meet Kim Jong Il face to face, what would you -- what would you talk about?

KIM: First, I propose to him that there should never be a war again on this peninsula, and they can be assured that in South Korea we will not do anything to jeopardize war (INAUDIBLE) North Korea are asking to work together for peace.

And, secondly, I tell him we are very much willing to help them, especially with their economy. We are one nation, and our help will make a big contribution to North Korean efforts to revitalize their economy, and I'd explain to him, when they have a cooperative relationship with South Korea, then they can expect the United States and Japan and many European countries to come to North Korea for investment.

And I will emphasize the point that South Korea is not seeking an immediate unification. We would first like to remove the danger of war and then promote exchanges and cooperation.

JIE-AE: President Kim, thank you very much.

(END VIDEOTAPE)

NELSON: Coming up, change in Taiwan. A change in the presidential office could mean change in relations with China. Plus, we'll have a rare interview from both sides of the Taiwan Straits live from Taipei and Beijing. More of our coverage of the world's hot spots continues when we come back.

(COMMERCIAL BREAK)

NELSON: Chinese President Jiang Zemin may have relit the political fuse of tensions with Taiwan. During a New Year's Day address, Mr. Jiang stressed that Beijing won't tolerate any efforts by Taipei to block reunification with China.

CNN's Rebecca MacKinnon takes a look at the escalating tensions and the future of relations between China and Taiwan.

(BEGIN VIDEOTAPE)

REBECCA MACKINNON, CNN BEIJING BUREAU CHIEF (voice-over): Nearly two weeks before the millennium, the sky over Beijing's Tiananmen Square was ripe with fireworks, celebrating the return of Macao to China after over 400 years as a Portuguese colony, just two and a half years after the British handed back Hong Kong.

From the point of view of China's president, that's two down, one to go. Beijing's sites are now set on Taiwan run by the Nationalist Party whose predecessors fled mainland China after the communist revolution in 1949. Beijing considers the island a renegade province.

JIANG ZEMIN, PRESIDENT, CHINA: The implementation of the concept of one country, two systems in Hong Kong and Macao has played and will continue to play an important exemplary role for our eventual settlement of the Taiwan question.

MACKINNON: Taiwan's reaction? Forget it. Taiwan President Lee Teng- hui says reunification won't be possible until China changes and becomes a democracy. Last July, he announced that, in the meantime, his island will only deal with Beijing if it treats Taiwan like an equal sovereign state.

Lee Teng-hui's two-state theory, as it has come to be known, provoked a series of military exercises in China's coastal areas in the summer and fall. On the 50th anniversary of the communist revolution in October, China showed off new, more powerful ballistic missiles. According to U.S. and Taiwan intelligence reports, nearly 100 of them are being deployed within striking range of Taiwan, and China is known to be purchasing more military hardware from Russia.

LARRY WORTZEL, HERITAGE FOUNDATION: Things that are being bought -- the (INAUDIBLE) cruisers from Russia, the -- the longer-range air- to-air missiles -- give the PRA navy and air force, frankly, the ability to engage at greater ranges and greater distances any force that attempts to influence the situation, and -- and Taiwan. So that -- that does make it more volatile.

MACKINNON: In the spring of 1996, China held missile exercises off Taiwan's coast in the runup to the island's first-ever democratic presidential elections. The situation got so tense, the U.S. sent aircraft carriers into the area as a warning against further escalation. President Lee Teng-hui, who had angered Beijing by trying to raise Taiwan's international profile as a country in its own right, was elected to a second term by a landslide.

(on camera): Almost four years have passed since then, and in March, Taiwan will hold another presidential election and, once again, tensions are rising in the Taiwan Straits. But this time around, China's leaders are waiting to see who will be elected before they make their next move.

ROBERT ROSS, BOSTON UNIVERSITY: Their posture is it's up to Taiwan, war or peace, and they're willing to wait to see how Taiwan behaves during the election and what the new Taiwan leadership will say after the election.

MACKINNON (voice-over): Lee Teng-hui is not eligible to run for a third presidential term, and a split in his ruling Nationalist Party has left his preferred successor, Lee Jong (ph), running third in the polls in a three-way race.

Until last month, independent candidate James Soong was running far ahead in the polls. Officials in Beijing privately say they hope Soong wins because he disagrees with the way President Lee has handled Taiwan's relations with Beijing.

But Soong is now plagued by a corruption scandal, and his public support has plummeted. That has suddenly increased the chances Taiwan's next president could be the popular former mayor of Taipei, Chen Shui-bian. Chen's Democratic Progressive Party advocates formal independence from mainland China, although Chen says he would never do anything so drastic without first holding a referendum.

WILLEM VAN KEMENADE, HANDELSBLATT: (INAUDIBLE) Chen Shui-bian, then steps will be taken to amend the constitution and try (INAUDIBLE) the two-state theory in it, perhaps hold a referendum, and then, of course, the mainland will have to do something. So Jiang Zemin may come under very inescapable pressure from the military after the Taiwan election to do something right away.

MACKINNON (on camera): Then there's another variable in the equation, the United States where there's also a presidential election this year, making it even harder to predict how Washington will react if Beijing does decide to take military action. ROSS: In the past, of course, American candidates, presidential candidates have used China policy to advance their campaigns, whether it was Ronald Reagan, Jimmy Carter, Bill Clinton. One might expect George Bush to do the same.

MACKINNON (voice-over): Republican presidential front-runner George W. Bush has said his administration would assist Taiwan in the event of a Chinese attack, and with high U.S. public sympathy for Taiwan as a beleaguered democracy, many in Congress are calling for increased arms sales to Taiwan and Taiwan's inclusion in a regional Theater Missile Defense system for Asia called TMD for short. Beijing warns such moves will only aggravate the situation.

SHA ZUKANG, CHIEF CHINESE ARMS NEGOTIATOR: With the reported -- or the transfer of the Theater Missile Defense to Taiwan, it may encourage those who advocates for independent of Taiwan, and this is bad, and we don't like it.

MACKINNON: Which is why military analysts in Beijing and Washington both agree China's new military buildup is also meant as a warning to the United States to stay away from China's doorstep.

WORTZEL: Frankly, part of it's to deter the United States from being able to influence any crisis as it did -- as the United States did in '90 -- 1996 with those two aircraft battle groups.

MACKINNON: The man who sent those aircraft carriers into the Taiwan Straits, Joseph Freeher (ph), just recently arrived in Beijing as the new U.S. ambassador to China. Navigating the rough seas ahead between China, Taiwan, and the United States will not be easy as the winds of politics on all sides shift and change in unpredictable ways.

Rebecca MacKinnon, CNN, Beijing.

(END VIDEOTAPE)

PHILLIPS: And coming up next, we'll be joined live from Taipei by Taiwan presidential candidate James Soong, and we'll also get reaction live from Beijing China. A rare dialogue from across the Taiwan Straits when we come back.

(COMMERCIAL BREAK)

PHILLIPS: Taiwan and China relations. That is one of the biggest issues in the outcome in Taiwan elections.

Well, joining us now from Taipei is Taiwan presidential candidate James Soong, and from Beijing, Yan Xuetong from the Chinese Institute of Contemporary International Relations.

Gentlemen, thank you both for joining us for this discussion. Let's begin with Mr. Soong.

First, we saw Hong Kong handed back to China. More recently, it was Macao. Chinese President Jiang Zemin has been quoted as saying Taiwan is next. What do you think of that? Hello, Mr. Soong. Can you hear me?

JAMES SOONG, TAIWANESE PRESIDENTIAL CANDIDATE: Yes, I can.

PHILLIPS: You're on the -- you're on the air, Mr. Soong. What do you think of Jiang Zemin's statement as saying Taiwan is next after Hong Kong and Macao?

SOONG: I would like to say that probably he mislead the international community by stating something which the people here in Taiwan cannot accept. The people do not want to live under communism, I think, as I have checked and talked to many people in all walks of life.

We have two consensual points. One, nobody want to live under communism. Second, nobody want to have a war with the PRC. We want to have peace and, most importantly, we would like to have our own choice of way of life. That is freedom, democracy, and free enterprise.

PHILLIPS: So what is the middle ground here? I mean, how -- is there a compromise? Where do we go from here?

SOONG: I think we can work out something in a much more peaceful way. As we come into the millennium, we hope that the new year will bring new hopes and new opportunities. One important thing is that we hope that the PRC would understand the nature to de-escalate the tensions in the region will not only serve the interests of the people here in Taiwan but also bring peace and opportunity for all the countries in the neighboring region.

PHILLIPS: All right. Now I -- I just want to ask you to stand by there and bring in our guest from the other side of the Taiwan Strait.

Mr. Yan, just how volatile is the China-Taiwan situation at the moment?

YAN XUETONG, CHINESE INSTITUTE FOR INTERNATIONAL RELATIONS: Oh, OK. I -- actually, I believe the Jiang Zemin promise with the people in Taiwan to live in a capital society is doesn't ever mean the mainland China try to change the political system in Taiwan and, actually, I think the -- from my understanding, the people in the mainland China are really looking for the reunification with our Chinese in Taiwan, and we hope to reunify this nation, and -- but we can live in a different political system and with a different lives, and there is a -- so we believe if the people in Hong Kong and Macao can give politic -- kept political system run well, and then we suppose Taiwan can still run a very good capitalistic system after the reunification. So I think that political system or the political difference won't cause any problem.

SOONG: I think probably Mr. Yan has missed a point here. You see that Taiwan is not like Hong Kong or Macao. Since 1912, the Republic of China has been independent and sovereign state, and since 1948, the People's Republic of China has never exercised effective sovereign control over the territory of Taiwan. Taiwan's people deserve the right to do -- and to enjoy the freedom, democracy, especially we are a democratic country and we must have the right to choose our own form of government.

NELSON: I want to ask both of you about a -- a -- the...

YAN: Well, I think...

NELSON: OK. Go ahead. Finish up, Mr. Yan.

YAN: I -- OK. Actually, I think Mr. -- Mr. Soong is right. He reminded us of the history. Actually, the Republic of China was established very in early of the century. It used to be the central government of the whole China. So now it is we have a (INAUDIBLE) for dispute of the struggle between the communist and the (INAUDIBLE) for a very, very long time, and now it seem to me that political struggle is not to end it.

So, from my understanding, the (INAUDIBLE) in Taiwan is different -- differently from the colonization in Hong Kong and Macao, and that's the continuation of the civil -- civil war of the -- that -- it's a -- really has nothing to do with the conflict of between China and the foreigners. That's a big political problems among the Chinese themselves.

So I know there's a difference, but, from my understanding, the one China, two system that not necessarily mean the political system in Taiwan shall be exactly the same like in Hong Kong and in Macao, but it means that a people in China in different places can live in different political systems.

NELSON: Gentlemen...

(CROSSTALK)

NELSON: Gentlemen, let me inter -- let me interrupt you here because I need to -- I need to get what -- to what I think is a central issue here.

Mr. Soong, you're a presidential candidate, and you're quoted as saying that the Taiwanese don't want war, and you believe there's a middle ground. Well, Mr. Yan is quoted as saying just the other day that he's been urging Chinese generals and leaders to take some sort of military remonstration to show Taiwan what China's military muscle really is. Now that doesn't sound like there's middle ground there. So let me start with you...

SOONG: No, that...

NELSON: First of all, Mr. Yan, let me start with you and ask you what you meant by that statement. Mr. Yan?

YAN: Actually -- hi. I think the first -- I first say and the people in the mainland China really hope that people in Taiwan to live in a democratic society. We can see what kind of a democratic system can serve the people's interests well and, meanwhile, I consider the military presence or the military deterrence by the mainland China is also necessary because of some of separatists in Taiwan try to separate this piece of land from China, want to cut it off from the map of China. I think the -- the military deterrence in -- by the mainland China is used against the separatists and deterring invasions. It's not against the people in Taiwan. It's not against the political system in Taiwan.

NELSON: But let me ask you. Let me be...

(CROSSTALK)

NELSON: Mr. Yan, be more specific please. Can you be more specific? Are you advocating military action against Taiwan?

SOONG: This is the...

YAN: Oh, the military is not against the Taiwan. The...

NELSON: Go ahead.

YAN: OK. The (INAUDIBLE) is that to deter the separatists not the whole Taiwan.

NELSON: All right. Mr. Soong, let's hear your...

SOONG: You see, this is the point. I'm sorry to interrupt.

YAN: Is that clear?

NELSON: Yeah. Go ahead.

SOONG: Yes. Because this is the -- the point that the people here in Taiwan constantly feel that the PRC using the intimidating of -- by using the force to threaten Taiwan to be incorporated into PRC. The people here refuse to be intimidated by the use of force. We want people in the world to understand that people in Taiwan have the right to live freely and also democratically.

If the people in the United States are entitled to that kind of a so-called inalienable rights of life, liberty, and the pursuit of happiness, why the people in Taiwan cannot be denied with that kind of same right to choose their own form of government? We do not fear to negotiate, but we cannot negotiate out of fear, if my -- if I may quote Jack Kennedy's word.

I think the important thing is that we can settle the issue by peaceful means. OK. We can work together for peace and for cooperation, but we shouldn't be intimidated to be incorporated into PRC just by force.

PHILLIPS: All right, Mr. Soong.

And just one quick question for Mr. Yan. If Mr. Soong doesn't win the presidential election, what if you get a pro-independence president? How's China going to react? Just very quickly because we have to wind it up. SOONG: My -- my feeling is that in Taiwan we have some concrete proposal. If I were elected as the president, I would propose to de- escalate the situation of the tension and, more importantly, we would like to initiative a dialogue of a much wide range of subjects. More importantly, I would suggest that we can sign a mutual non-aggression peace accord reached between the PRC and Taiwan with the participation of international witness...

PHILLIPS: All right, Mr. -- Mr. Yan, the final word.

SOONG: ... such as United States and Japan.

PHILLIPS: The final word to Mr. Yan, please. Your response to that suggestion there from Mr. Soong of a mutual non-aggression pact. What would Beijing's response be to that, do you think?

YAN: OK. If the mis -- if the Mr. -- James -- Mr. Soong can win the campaign, I hope he can positively take the step to peacefully settle -- settle down the (INAUDIBLE) between the Taiwan and the mainland China and, also, I -- I want to say I wish the people in Taiwan have a good year and a happy -- a good life and work together to looking for the peaceful solution to solve the problems to help the reunification implement as early as possible.

PHILLIPS: Gentlemen, we have to leave it there, I'm afraid. Mr. Yan and Mr. Soong, thank you both so much for joining us.

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