Deng: Most regrettably, during the latter period of the Carter Administration, the U.S.

Congress adopted the Taiwan Relations Act , which has become an immense obstacle in

Chinese-U.S. relations. As I said just now, I hope that during his term of office President

Reagan will bring about further progress in relations between our two countries,

including making some effort in respect of China's reunification. I believe that the United

States, President Reagan in particular, can accomplish something in this connection.

Wallace: What can they do?

Deng: They can encourage and persuade Taiwan first to have "three exchanges" with us,

namely, the exchange of mail, trade and air and shipping services. Contacts of this kind

can help enhance mutual understanding between the two sides of the Taiwan Straits, thus

creating conditions for them to proceed to discuss the question of reunification and ways

to achieve it.

Wallace: What's in it for Taiwan to be reunified with the mainland?

Deng: First of all, it is a national question, a question of national sentiments. All members

of the Chinese nation want to see China reunified. The present state of division is

contrary to our national will. Second, so long as Taiwan is not reunified with the

mainland, its status as part of Chinese territory will not be secure. No one knows when

Taiwan might be taken away again. Third, in reunifying the country we shall adopt the

formula of "one country, two systems", that is to say, the mainland will retain the

socialist system while Taiwan will retain the capitalist system. This will bring no change

to the social system in Taiwan or the way of life of the people there and will cause them

no loss.

As for the contrast between the levels of development of Taiwan and the mainland, this

question should be examined objectively. The difference is only temporary. As far as the

mainland is concerned, there have been some mistakes and delays in our national

construction during the 37 years since the founding of the People's Republic of China.

But with the implementation of our present policy on the mainland, the growth rate will

be rapid and the gap will be narrowed. I believe that over the next few years the growth

rate on the mainland will, at the least, be no lower than that in Taiwan. The reason is very

simple. Taiwan is short of resources, while the mainland abounds in them. Taiwan has

already tapped its potential, while the potential on the mainland has not yet been tapped

and certainly will be soon. Besides, in terms of overall strength, the mainland is much

stronger than Taiwan. So it is one-sided to compare only Taiwan's somewhat higher

average income with the mainland's.

Wallace: To modernize the Chinese economy and develop your country, Chairman Deng,

you said China needs Western investment. But Western investors complain that China is

making it difficult to do business here: exorbitant rents for offices, too much bickering

about contracts, too many special taxes, labour that is too expensive, plus corruption,

kickbacks, and the Chinese bureaucrats. Are you aware of these complaints?

Deng: Yes, I am aware of these things. They do exist. As we are new to doing business

with the West, it is inevitable that we shall make some mistakes. I do understand the

complaints of foreign investors. No one would come here and invest unless he got a

return on his investment. We are taking effective measures to change the present state of

affairs. I believe that these problems can be solved gradually. But when they are solved,

new problems will arise and they, too, should be solved. As leaders, we have to get a

clear picture of the problems and work out measures to solve them. There is also the

question of educating the cadres.