[Tumi Makgabo, Insight:] In Washington and Beijing, words of diplomacy, but no apology.
[George W. Bush, U.s. President:] I regret that a Chinese pilot is missing, and I regret one of their airplanes is lost. And our prayers go out to the pilot, his family. Our prayers are also with our own servicemen and women, and they need to come home.
[Unidentified Male:] The U.S. side should admit its mistakes, apologize and explain to the Chinese people. This is the first step.
[Andrea Koppel, Cnn Correspondent:] Tumi, State Department officials say don't expect to see any more high-level meetings here at the State Department with China's ambassador to Washington, who has been a frequent visitor here over the last five days. His most recent visit this morning. And during that meeting, State Department officials say that they received a positive sign from Ambassador Yang that the Chinese government had positively received the letter that Secretary Powell sent off to China's vice premier last night. In this letter, Secretary Powell outlined possible ways to bridge the gaps, to find a way to resolve China's insistence for an apology on the one hand, and the U.S. expression of regret.
[Makgabo:] Now, Andrea, one thing that perhaps comes to mind in this is that it seems that there is a new sense of urgency of trying to bring this matter to a conclusion. Is there a sense of how soon "soon" might be?
[Koppel:] No, there isn't, Tumi. And the reason that there is this added sense of urgency is the fact that this has gone on five days. In just two days, it will have lasted a week. And there is something magical about when an incident of this nature runs for about a week, the news cycle sort of takes on a whole other life of itself, and so there is added urgency here within the State Department. They feel that that urgency is being matched on the part of the Chinese. They're involved in very seriously discussions, very intense discussions. And according to State Department officials, this is a very sensitive moment.
[Makgabo:] Now one thing that came to light earlier today was the fact that the Americans had previously expressed concern to Chinese officials about how aggressive the Chinese jet fighter planes were in the area when approaching U.S. aircraft. Is that perhaps a new tone in these negotiations or talks, a new tone that maybe implies that they are getting a bit more serious?
[Koppel:] I don't know about that. I think that's sort of I think that further explanation on the part of the Bush administration as to why this incident may have happened in the air and how it might have been an accident and how it was something that they had seen coming for a number of months. And the fact that they had already raised this with the Chinese government. And so I'm not sure it's really a new tact in their negotiations right now, Tumi.
[Makgabo:] Andrea Koppel at the State Department, thank you. Well, in China, newspapers moved their focus to the missing pilot and to his wife and 6-year-old son. Mike Chinoy reports now on how this may signal the beginning of the end of the standoff.
[Mike Chinoy, Cnn Correspondent:] Over the South China Sea, Chinese helicopters search for Wang Wei, the 32-year-old fighter pilot who's been missing since his F-8 jet collided with the U.S. spy plane on Sunday. President Jiang Zemin has made the search for Wang a top priority, and Chinese ships and planes have been combing the waters southeast of Hainan Island, where the incident took place. Meanwhile, the Chinese state-run media has begun to portray Wang as a national hero. His photo has been splashed on television and in newspapers. Media accounts have hailed him as an outstanding pilot, although some Western press reports quote U.S. military officials as saying that Wang had previously flown dangerously close to other U.S. surveillance planes. U.S. acknowledgment of China's grief over Wang's fate and how Beijing handles the reaction of its own people to his disappearance has emerged as a crucial element in resolving the crisis, and the fact that Beijing chose Thursday to launch its propaganda campaign about him could be a significant move. April 5 is Qing Ming, the day that Chinese traditionally commemorate their dead. If China wanted to bring this issue to closure, Qing Ming would be an appropriate time to start. Indeed, many analysts believe that ending the search and declaring Wang dead is an essential step before China will feel able to let the U.S. air crew leave. The fact that Beijing has now begun to eulogize its lost flier appears to be an important sign that moment could be approaching. Mike Chinoy, CNN, Hong Kong.
[Makgabo:] And in just a moment, we'll take a closer look at the weapons of choice in a diplomatic exchange words. Stay with us. Welcome back. An intense exchange of words is under way over the China affair, and Washington has been careful in its choice of weapons. For instance, the Bush administration insists that this is an accident, not a crisis. It involved a surveillance plane, not a spy plane. And most important, the American servicemen and women are not hostages. Let's take a look now at a report from Bill Schneider.
[William Schneider, Cnn Correspondent:] President Jimmy Carter's preoccupation with the Iranian hostage crisis turned it into a personal and national obsession "America Held Hostage."
[Jimmy Carter, Fmr. U.s. President:] This is an issue that's been constantly on my mind and on the minds of the American people.
[Schneider:] Despite his denials, Ronald Reagan made his worst decision as president, secretly trading arms to Iran, because of his frustration over a hostage situation.
[Ronald Reagan, Fmr. U.s. President:] The United States has not swapped boatloads or planeloads of American weapons for the return of American hostages, and we will not.
[Schneider:] President Bush's father got caught up in a hostage crisis in 1989, when terrorists killed American Lieutenant Colonel William Higgins in Lebanon. The president veered between treating the matter as a grave national crisis and trying to downplay the issue.
[George H.w. Bush, Fmr. U.s. President:] I don't want to be responsible for the loss of innocent life.
[Schneider:] If a president takes a situation like this too seriously, the United States government ends up being held hostage by the crisis, as President Carter's was. The other side controls your agenda, which is why President Bush has so far been cautious.
[George W. Bush, U.s. President:] Our approach has been to keep this accident from becoming an international incident.
[Schneider:] But there are ominous signs. Yellow ribbons. The "H" word.
[Dana Rohrabacher, U.s. House Member:] Until our 24 military personnel are returned, they should be considered as hostages being held by a hostile power.
[Schneider:] Yes, the American service personnel are being held against their will, but they are being held by a government, not a group of terrorists threatening to kill them. Terrorists have only one interest their cause. But a government like that of China has a wide variety of interests, like U.S. arms sales to Taiwan, like hosting the Olympic games, like trade.
[Charles Grassley, U.s. Senate Member:] They want to get into the World Trade Organization. Respect for law is the basis of the World Trade Organization membership.
[Schneider:] A hostage crisis immobilizes the United States. The U.S. government's actions are limited by American values. Protecting American lives takes precedence over all other objectives, which is why the American people are surprisingly patient. It wasn't until five months into the Iranian hostage crisis that President Carter lost public support. President Bush's response has been to ratchet up the pressure on China. On Monday, he expressed frustration.
[Bush:] Failure of the Chinese government to react promptly to our request is inconsistent with standard diplomatic practice and with the expressed desire of both our countries for better relations.
[Schneider:] On Tuesday, it sounded like a veiled threat.
[Bush:] This accident has the potential of undermining our hopes for a fruitful and productive relationship between our two countries. To keep that from happening, our servicemen and women need to come home.
[Schneider:] Today, the pressure went up. In the end, there is only one standard of success.
[Makgabo:] That was Bill Schneider reporting. Well, joining us now to talk about the United States, China and diplomacy is John Holden, the president of the National Committee on U.S.- China relations. He's worked in Beijing for many years in the private sector. Mr. Holden, thank you very much for joining us, and welcome.
[John Holden, Natl. Committee On U.s.-china Relations:] Tumi, it's good to be with you. Thank you.
[Makgabo:] First of all, we heard a lot about how people are trying to be careful, cautious, trying to choose their words very carefully in this instance. And keeping that in mind, how has it happened that this incident has reached the proportions that it has at this point in time?
[Holden:] Well, I think it's gotten an awful lot of media attention, and that makes it look like an enormous incident here in the United States. The Chinese have played this from a different perspective. I think that this is going to be resolved relatively soon. I do think that the diplomatic overtures that both sides are making to one another and the skilled people on both sides are going to result in a resolution. So I'm quite optimistic.
[Makgabo:] Now one aspect that people have quoted on several occasions with regard to the type of the way the standoff has evolved is the fact that within China itself, within its administration, there are, indeed, problems. How big a role does that play in the situation?
[Holden:] I really don't think that this is an issue. There has been a lot of speculation about that. But this is a diplomatic U.S.-China bilateral puzzle that has landed in the laps of the leadership in China. There are legal questions involved. Briefs have to be written. Things have to be studied. And it's a bureaucracy that doesn't, in the best of circumstances, respond really promptly as we do here. We're a little bit more used to the media ties, the environment in which we live and the necessity of operating in kind of a media fishbowl all the time. So I think to some extent, we've got to be a little bit patient here.
[Makgabo:] Now as that magic day, if you will, of a week approaches and the tension is increased on both sides, let's consider the time factor. How much of a concern is it, considering the fact that nobody seems to have budged since this accident actually occurred?
[Holden:] Well, I think it is time is a factor, but we're fortunately, both sides are keeping quiet about the diplomatic progress that is under way. And I actually would my analysis reading the tea leaves is that quite a bit of progress has been made, and so, yes, if there is a perception that no progress is being made, the American public in particular is not going to understand that. And they're going to be getting increasingly restive. I do think, though again, let me repeat that I think we're in the right direction on this.
[Makgabo:] Now I'd just like to quote you something that U.S. president George Bush said. He said, "This incident has the potential of undermining our hopes for a fruitful and productive relationship between our two countries." Now that sounds almost like he recognizes that it has the potential to cause great damage. Does it, in fact?
[Holden:] Well, anything any incident that becomes a crisis and is very badly handled could and does have that potential. I think I would be very, very surprised if the wisdom can't be found on both sides to get this sorted out. He's also underscoring something that was revealed and underlined in the visit of the Chinese vice premier to Washington several weeks ago in which they had the first chance to sit down and talk about a strategic dialogue between the two countries and the real potential for cooperation and how to deal with issues. So he's underscoring his desire that the two countries work well together, and I think that's a positive thing, and I applaud him for it.
[Makgabo:] Now since this incident began, an issue that has been mentioned is that of arms sales to Taiwan, perhaps even that in light of the developments the United States might consider doing just that selling the arms to Taiwan. Surely that, though, has the potential in itself to cause some serious problems?
[Holden:] Taiwan arms sale issue needs to be compartmentalized, and I think if this particular accident is resolved, as it should be, it isn't going to have any major bearing on that decision. That is a question that we have to consider in the light of the Taiwan Relations Act and the needs that Taiwan has, the legitimate needs, for its own defense.
[Makgabo:] Well, then, considering the fact that it is being played down, as it has been, as you yourself have mentioned, what should we then be considering and be concerned about as far as the diplomacy is concerned?
[Holden:] Well, I think the bottom line here is that both sides need to work the details out of a solution quietly. In the meantime, in the public arena, need to be showing respect for one another and concern. And I'm I think the Bush administration has been doing this, and I think the Chinese want to feel that their loss of one of their pilots is being is receiving sympathy from us and that we're taking them seriously, and I think we are.
[Makgabo:] John Holden, thank you very much.
[Holden:] Thank you, Tumi.
[Makgabo:] And we pause now for another short break. But just ahead, the financial fallout what Beijing and the United States stand to lose if the crisis continues. An eye on Olympic gold a series of events are being staged in Beijing as the city counts down the days to July 13, when the International Olympic Committee will vote on who gets to host the 2008 Summer Games. China believes it's ready for the honor. [on camera]: The Olympics would bring China enormous prestige and clout. Beijing also has other ambitions riding on its emerging industrial power. Fred Katayama reports on why the business world is watching the standoff in the South China Sea so closely.
[Fred Katayama, Cnn Correspondent:] China watchers say the spy plane standoff could hurt trade relations between the U.S. and China if the situation drags out. But even if that were to happen, they doubt relations would deteriorate as drastically as they did when the U.S. mistakenly bombed the Chinese embassy in Belgrade two years ago.
[James Sasser, Fmr. U.s. Ambassador To China:] If there should be a severe downturn in U.S.-China relations, if we should develop almost a hostile attitude toward each other, then certainly that's going to have a very, very chilling effect on the economic trade between the two countries. Frankly, I don't see that happening.
[Katayama:] The former ambassador says China needs good relations with the U.S. so it can boost commerce. The United States is China's second- largest trade partner and its top export market. Trade between the two nations rose nearly 23 percent to almost $124 billion last year. The air collision comes at a time when the U.S. relationship with China has become strained over human rights and U.S. consideration of weapons sales to China's arch-rival Taiwan. And some analysts say China has become anxious over the Bush administration's stance toward Beijing, seeing it as a competitor rather than as a partner.
[Robert Kapp, Pres., U.s.-china Business Council:] There is I think already some evidence of a greater cautiousness about engaging in a positive way with the
[Prc. Katayama:] With the U.S. economy slowing, the huge trade deficit with China, the U.S.'s largest, could become an issue. [on camera]: And any fallout from this spy plane incident could heat up the rhetoric in the congressional debate over China's trade privileges in the spring, and multinationals like Boeing could suffer. Five years ago, China snubbed Boeing by buying 33 Airbus planes, angry over U.S. support for Taiwan and U.S. criticism over nuclear exports to Pakistan. Fred Katayama, CNN Financial News, Washington.
[Makgabo:] And joining us to talk about trading with China is Theodore Moran, director of international economics and business at the School of Foreign Service at Georgetown University. Mr. Moran, thank you very much for joining us, and welcome.
[Theodore Moran, Georgetown University:] Thank you, Tumi.
[Makgabo:] First of all, we heard from Fred Katayama's report how far- reaching an impact this latest situation could have. In your view, what do other countries outside of the relationship between the U.S. and China believe or see in the implications of the situation?
[Moran:] Well, this is a pivotal time in trying to determine the course of relations between the United States and China, not just over this specific incident. But really setting the tone for the next four years or maybe eight years of a Bush administration because, as we have seen, there are conflicting pressures within the Bush administration and within the Congress. And business and economic ties are only part of that relationship.
[Makgabo:] Those ties, perhaps one would immediately think of that membership to the World Trade Organization, which China has been very keen to become a member of. Surely in their dealing with the latest situation between the United States and China, that has played a key factor in determining their strategy.
[Moran:] That's right. And we have to remember that China is not yet a member of the WTO. The multilateral negotiations, not just our negotiations with China, are still going on. It's possible that some members of Congress are thinking that they can review and the whole debate about PNTR. In my view, that would be a bad use of this incident. The best thing that we can hope for is that there is some diplomatic solution of this incident and that the common, more mature forces within the Bush administration in Washington gain the upper hand.
[Makgabo:] And ultimately, there are many factors that determine trade relations between the U.S. and China. China with many other countries and the same even for the United States. So when one was to or if one was to look into the situation from a business perspective, how much of what has been said is rhetoric or much would one actually take seriously and consider re-examining one's own objectives?
[Moran:] Well, very good question, Tumi. The point is that businesses that want to trade with China, that want to invest in China have to think in terms of a decade. It takes a long time to expand sales in China or to set up investments in China. This incident by itself will not have any impact on that. On the other hand, if this incident serves to take those in the Bush administration who want to see China as a rival, a competitor, I avoid the term "enemy," but in some sense want to see an antagonistic relationship develop in Asia, if they use this particular incident to set the tone for the next four years, then business and financial leaders will have to rethink their plans going forward.
[Makgabo:] Now I put this question to our previous guest, and I'd like to put it to you as well. And just in a general sense, if you could give us an indication then how far-reaching this incident has been? Our previous guest mentioned that perhaps in light of things, it wasn't that important. What is your response?
[Moran:] Well, it need not be that important. Again, if we think of what Boeing or IBM or Qualcomm, some of the high-tech companies that are looking forward to selling products and selling services in China, their business plans will go ahead and this will just be a minor blip. On the other hand, if the Chinese turn nasty and, in fact, don't let the armed forces personnel come home very quickly, then things could deteriorate and it wouldn't be a minor blip. So this is really a kind of a pivotal moment.
[Makgabo:] So perhaps an indication of how difficult and delicate a situation this is is looking at how important both these countries are with regard to trade with each other.
[Moran:] That's right.
[Makgabo:] Do you think that in any way, at the end of the day, they will be really and truly concerned? Or is this more of a question of appearance to the rest of the world?
[Moran:] Well, you have conflicting pressures. If you looked today on your CNN programs, you saw senators from the Midwest and from the mountain states Republican senators who feel very strongly that they don't want an apology to China, that the Bush administration has to stand up to China. On the other hand, they are from states that will sell significant agricultural products and manufactured goods into China over the next decade. So you can see in terms of their interests in American service people, in human rights. But at the same time, workers and exporters from their own states, they're going to be torn about this.
[Makgabo:] Theodore Moran, thank you very much for joining us.
[Moran:] Thank you, Tumi.
[Makgabo:] And one final word before we go about U.S.-China business and berets. The Pentagon abruptly canceled a news conference this week about whether black berets worn by U.S. soldiers could be made by companies in China and elsewhere. Despite some congressional opposition, the Pentagon was reportedly going to announce that the berets could, indeed, be manufactured outside the United States. It's unclear now whether the contracts, which are worth $27 million, will go overseas. So while the arguments rage over who caused the spy plane collision, at least the beret debate could indisputably be made in China. And that's INSIGHT for this day. I'm Tumi Makgabo. Thanks for watching. The news on CNN continues. END TO ORDER VIDEOTAPES AND TRANSCRIPTS OF CNN INTERNATIONAL PROGRAMMING, PLEASE CALL 800-CNN-NEWS OR USE THE SECURE ONLINE ORDER FROM LOCATED AT www.fdch.com