• This is a rush transcript from "The Journal Editorial Report," June 2, 2007.

    STUART VARNEY, FOX GUEST HOST: This week on the "Journal Editorial Report," move over Iran and North Korea. Is China a growing military threat? A Pentagon report raises red flags.

    Demonstrators take to the streets of Venezuela as President Hugo Chavez's crackdown on the media widened.

    Steroid summer. Barry Bonds slugs his way to a new homerun record, as cyclist Floyd Landis awaits the fate on doping charges. What happened to honor in sports? Our panel debates after these headlines.

    (NEWSBREAK)

    VARNEY: Welcome to the "Journal Editorial Report." I'm Stuart Varney, in for Paul Gigot.

    A new Pentagon report raises red flags over China's new military power saying they are modernizing their military in ways that give it options for launching surprise attacks potentially far from its borders.

    Peter Rodman was until recently the assistant secretary of defense for international security affairs and Pentagon's top Asia policy official. He is a senior fellow at the Brookings Institute in Washington.

    Peter, China surprised many people by taking out that orbiting satellite with a ground-based missile. What other military surprises may China now be capable of?

    PETER RODMAN, FORMER PENTAGON TOP POLICY OFFICIAL: Well, this report comes out every year and you are absolutely right. The anti-satellite test was one of the highlights of the past year.

    But the report talks about continuing modernization of their missile forces, particularly their intercontinental forces, their submarine forces. What we see is a systematic, patient, long-term build up of China's capabilities and that's been going on for some time.

    VARNEY: We have often thought of the Chinese military as basically internal looking, a security organization, domestically. Are you now saying that there is a new position here? It is aggressive? It looks outward?

    RODMAN: Well, we are not using adjectives but we are pointing out that, of course, China's military strategy for some time has been focused on a Taiwan contingency.

    And what we have noticed the past few years is an increasing interest in missions, military missions beyond Taiwan. In other words, power projection into the ocean, interest in trying to protect China's sea lanes of communication. So Taiwan is no longer the only focus of China's military development.

    VARNEY: Let's spell out what it could do. Could China, for example, deploy troops, way overseas in support of its natural resources supply? Could it deploy and supply troops in that situation?

    RODMAN: No, it doesn't have that capability right now. I think it is important -- the report also talks about China's weaknesses and vulnerabilities.

    But it is interesting that they are exploring, for example, what an aircraft carrier does. They have some old junked soviet era aircraft carriers. They seem to be thinking about this. They are nowhere near having that capability but they think long-term. They have to think strategically. I think their ambitions or long-term interest is, I think, subject only to their economic limitation.

    VARNEY: How far away are they from mounting a receiver challenge to the American fleet in the Pacific, for example?

    RODMAN: Well, that's -- they may never achieve that capability. But I would say that in a Taiwan crisis, the standard they need to meet isn't to be able to sink the 7th Fleet, it is just to be able to deny access to our fleet whether we try to interpose ourselves. That's something that's much more accession bell to them as an objective.

    VARNEY: You said they will never have that capability?