This is a partial transcript of "The Big Story With John Gibson," June 28, 2005, that has been edited for clarity.

JOHN GIBSON, HOST: China's nearly $19 billion offer for Unocal (search) oil company is causing all kinds of concern in Washington. The country's economy is booming and it's strengthening its military.

For more on the challenges we're facing from the Far East, I'm joined by James Lilley, the former U.S. ambassador to China and to South Korea.

So, Ambassador Lilley, ought we be real concerned about the booming Chinese economy, their voracious appetite for oil, their military buildup and their espionage against us, stealing military technology?

JAMES LILLEY, FORMER U.S. AMBASSADOR TO SOUTH KOREA: That's quite a loaded question, yes.

GIBSON: I know. The answer is yes, isn't it?

LILLEY: Well, I would say there are aspects of what the Chinese are doing that could be very helpful to us, particularly in the economic field.

If they decide to buy $18 billion into our economy, that's not all negative. There's a positive element to that. There's also a positive element to having companies in the United States that are deemed legitimately in the global supply chain with technology, with Silicon Valley, Taipei, Chinju and back to Peking. This is all probably positive.

Watching their military, yes, of course you do. You watch it very carefully. What we find out in their military is they are building up their Navy. Their missile force is strong. However, they're a long, long way from the United States.

GIBSON: Well, are they a long, long way from Taiwan? Haven't we promised to defend Taiwan and haven't they said they want it back?

LILLEY: The dynamics of that have changed considerably since they started talking about using force.

They are so much in bed with Taiwan economically and financially that war becomes less and less desirable — $160 billion of Taiwan money into China, 50,000 60,000 enterprises, one million Taiwanese. They're actually contributing to the growth of China. China doesn't want to cut that off. So, you've got to factor that into this situation. It's moving in the right direction.

Taiwan's opposition leaders have been over there and met the top leadership. The thing is beginning to move in a somewhat different direction. I think that's positive.

GIBSON: Ambassador Lilley, nonetheless, I mean, this is what's going to turn out to be the strongest capitalist country in the world, led by a communist military regime. Should we be, you know, sanguine, cheerful about this?

LILLEY: I think, number one, there's very clear doubts that they're going to be the most powerful economic nation in the world. They've got very serious domestic problems that they've got to address very quickly and stop this real estate bubble they're involved in, get rid of this massive corruption, bad loans, poor subsidies.

All sorts of things are wrong, disparities of wealth. They have to focus internally on China and put a lot of their resources into that. That's why they've got this desperate search for oil, grabbing it where they can, paying much too much money for it. But they're going to find themselves saddled with a lot of very high-priced oil if prices start to go down.

These decisions are questionable. I think to make the assumption they're going to be the strongest economic power in the world, like they did in The New York Times Tuesday, think it through.

GIBSON: All right.

James Lilley, former U.S. ambassador to China. Mr. Lilley, it's good to see you. Thanks a lot.

LILLEY: Good to see you.

Content and Programming Copyright 2005 Fox News Network, L.L.C. ALL RIGHTS RESERVED. Transcription Copyright 2005 eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.), which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Fox News Network, L.L.C.'s and eMediaMillWorks, Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.