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?

RODMAN: I don't think then can match our navy. But as I say that isn't really the standard they have to meet. In a Taiwan contingency when our mission presumably would be to help Taiwan...

VARNEY: But is it their goal?

RODMAN: ... they have missile capabilities right now that pose significant risk to our navy as we try to interject ourselves.

VARNEY: But do they have a goal of ultimately being able to seriously challenge the American navy?

RODMAN: Well that I don't know. As I say I think they have -- they are interested in missions beyond Taiwan and developing a power projection capability that would perhaps serve there to protect their lanes of communication.

As I say, we are not asleep. Our military are the best. Our navy has been the dominant power. It is important to maintain the advantage we have.

VARNEY: Has China publicly stated a no first-use of nuclear weapon policy?

RODMAN: That is their doctrine. It has been for some time. There seems to be a debate going on inside China about whether to change that. And the Chinese have, as they develop their nuclear and missile capability, they may have options beyond that and -- but I have to say the Chinese government assures us that they have not changed their no first-use doctrine.

VARNEY: On a slightly different subject, Russia may have been responsible for that cyber computer attack on Estonia recently. Is China capable of mounting that kind of attack?

RODMAN: I think the Chinese are definitely interested in what they call or what we all call information warfare. They are studying the vulnerability of a superpower like us that relies so much on advanced communications and command and control. So there is reason to think the Chinese are interested that that capability.

VARNEY: We should be cautious but not alarmist, bottom line?

RODMAN: I think it is important that we not overreact. We need to be serious. They are serious about their military development. And we have to be wide awake and do what we have to.

And I think our overall relationship with China is a function of a lot of other things, like political relations, economic relations. So we can manage this relationship if we -- if we are alert and smart.

VARNEY: Okay, Peter Rodman, thank you for being with us.

RODMAN: Thank you.

VARNEY: When we come back, chaos in Caracas after Venezuela's President Chavez cracks down on what's left of that country's independent media. He faced civil unrest before. But this time may be different. We're going to tell you why after this break.

(COMMERCIAL BREAK)

VARNEY: Welcome back. Tens of thousands of demonstrators hurled bottles and stones, took to the streets of Venezuela to protest President Hugo Chavez's closure of that country oldest television station.

With shutting of the 53-year-old RCTV, Chavez is in control of most major sources of information in Venezuela, leaving many there with fears he is following in the footsteps of his mentor, Cuba's dictator Fidel Castro.

Joining the panel this week, "Wall Street Journal" columnists and editorial page deputy editor Dan Henninger, editorial board member and columnist Mary Anastasia O'Grady, and opinionjournal.com editor James Taranto.

Mary, is this different this time around?

MARY ANASTASIA O'GRADY, WSJ EDITORIAL BOARD MEMBER: What's different is students are involved. A lot of Venezuelans think the student involvement could make a difference this time.

The last time students were very much involved in politics they brought down a dictator in 1958. These students are also organizing demonstrations across the country not just Caracas. That's also different.

The main thing that's different is Chavez seems to have lost the moral high ground. He, for a long time, said the people who oppose him were coup plotters and antidemocratic, but now he is being faced with being accused of being antidemocratic as well.

VARNEY: This is different?

O'GRADY: I think it is different. But what is the same is Hugo Chavez himself is responding in the same way he responded for the last eight years, which is with violence, a lot of hateful rhetoric, and threatening to call people down from the hills to attack his opposition.

VARNEY: That's a direct quote. I don't speak Spanish but he said I going to call people down from the hills. Is that the mob that will descend Caracas to put down the students?

O'GRADY: When you travel into Caracas, you see poor towns around the city and that's where a lot of his supporters live, he believes, and that's where they will come from with weapons to attack his opposition.

VARNEY: Dan, where is the support for democracy from other Latin American countries.

DAN HENNINGER, WSJ COLUMNIST & EDITORIAL PAGE DEPUTY EDITOR: That's an excellent question, because Chavez is not quite just a tin-horn dictator. They are an oil producer. They have a lot of oil revenue and Hugo Chavez has the ability and intention to export his brand of Marxism to the rest of the continent.

We have to remember there was a time when virtually the whole of Latin America was run by people sort of like Chavez, dictators. It underwent the most remarkable democratic transformation in the '80s and '90s.

And now those democratic governments are under pressure partly because they have been unable to develop economically, but also because you have the socialist movements fed by people like Chavez threatening their governments.

I think it would behoove the Bush administration to pay more attention to what is going on there and express vocal support for the real Democrats in the region.

VARNEY: What about the left in America, James? Traditionally, the last few years, on the side of Chavez big time.

JAMES TARANTO, OPINIONJOURNAL.COM EDITOR: There is this crazy left who, for years, admired Castro and found a new hero in Chavez. It seems the enemy is my country is my friend.

Chavez comes to the U.N. gives a fiery speech against President Bush, which is similar to what you read on these left wing blogs, and they cheer that on.

What's interesting about the left, too, is if you read these left wing blogs, as my job unfortunately requires a good deal more time doing than I would like, you find they that they talk about incipient dictatorship in the United States. President Bush thinks he is a king. He's a threat to civil liberties and so forth.

You look at Venezuela. This is what a dictatorship looks like.

VARNEY: This is a tiny fraction of the American left that still support Chavez isn't it? An insignificant sliver?

TARANTO: I think it is perhaps not that insignificant but, yes, it is not the mainstream he have the Democratic Party.

O'GRADY: This is also -- what's interesting here is that, for a long time, people who were Democrats in Washington, even members of the Bush administration, had said well he is democratically elected.

Now there is a big shift to sort of recognize that he has destroyed institutions, destroyed the balance of power and he has moved from being a democratically elected president that ought to be respected to someone who ought to be ought to be condemned for his intention to turn the country into a dictatorship.

VARNEY: Mary, I will put it to you. This time it is no different. The demonstrators have no leadership, no organization. Chavez can and will crush it. I put it to you.

O'GRADY: I think you are probably right. But things will happen we can't plea deficient including a problem with the economy. Right now they are experiencing shortages in food because he put price controls on, and is also printing money so they have an inflation problem. He is ramping up demand, crushing supply. They are going to have shortages.

When they have shortages in Venezuela, people come out on the street and it gets very help.

VARNEY: It would help if the price of oil dropped to $40 a barrel.

O'GRADY: I am in favor.

VARNEY: Any second thoughts on that one, Dan?

HENNINGER: I think the Democrats in Congress have a big role here. We have tried to enact free trade agreements with countries like Columbia. And the unions have been resisting that.

If we don't allow those countries to prosper economically through free trade, problems we're seeing in Venezuela will occur all over the continent and it will be a problem for us.

VARNEY: We will be back after this.

Still to come, from Barry Bond to Floyd Landis, doping allegations are commonplace. Is honor gone from professional sports? And do the fans care about it? Our panel weighs in when we come back.

(COMMERCIAL BREAK)

VARNEY: It might be a rough summer for some sports fans as Barry Bonds heads toward what many believe is a steroid-fueled home run record. The cycling world awaits a decision in doping case of 2006 Tour de France winner Floyd Landis. All of this may leave you wondering whatever happened to honor in sports.

All right, Dan, honor is dead. Long live the pursuit of big money. Win by any meanings. Tilt the playing field. It is all okay. Is that where Dan Henninger is coming from?

HENNINGER: No, it is not, as a matter of fact. Surprisingly enough, a lot of fans are coming from that point of view. There has been reporting out of San Francisco suggesting a lot of fans out there say hey Barry is a great guy, puts people in the seats, the ballpark? Our team wins because of him. Why get upset about it? Hey it is just a sport.

Well, you know, sports is where most people in the United States, at a very young age, begin to learn the difference between right and wrong and learn what cheating is. When you play a sport as a kid you learn not to cheat, right?

So as you get older and grow toward adulthood, people start going into business and the question comes up, do you cut corners to get ahead. The same thing is happening in sports.

And it seems to me, the athletes themselves and the people running the sports have to decide, do they want to have a level playing field? Do they still want honor in sports? Or do they want to throw it open to commercial pressures?

If the answer is yes, then we should say anything goes and stops regarding them as genuine sports, and think of them as something like pro wrestling or even video games -- pure entertainment.

VARNEY: James?

TARANTO: I don't think we should go down that road because it seems to me that you are on to something when you say that this is where people learn their sense of fair play.

We believe in the free market in America. Long live the free market. But we also believe in meritocracy. If you work hard, play by the rules, you can go as far as your talents will take you.

Sports is, in some ways, an idealized version of that or should be. I think it would be a real shame if we lose that as part of our culture.

O'GRADY: There is has complication here which is that science is progressing so much it is becoming easier to hide the use you have drugs.

And at some point, the technology will be such that people can take drugs and not get caught. And with all of the money in sports, that will make it very hard to rely simply on honor.

VARNEY: You cannot stop it because you cannot detect it. So why not embrace it? Have a free market? Go for it? What's wrong with that?

HENNINGER: Then you are entering into a brave new world. I mean, I regard some of these professional athletes as essentially robots, quite frankly.

The issue with Barry Bond is should he be admitted to the Baseball Hall of Fame. It seems to me, if we are going to put the Barry Bond and Mark McGwires in the hall of fame, we should shut down the old halls of fame and keep them as museums to fair play, and open up new halls of fame, which are essentially theme parks and video games and robots, and admit these people for what they are.

TARANTO: How about a pharmacy hall of fame?

VARNEY: Dan, you are admitting you can't stop it because you are can't detect it.

HENNINGER: So all you are left with is honor. In you crush honor at that level, we have created a very serious problem. Then why can't you argue the same thing in politics or business? It is a free market. Why don't we just set aside some of these laws that get in the way of making money and anything goes?

O'GRADY: Another option would be to -- if you get caught you get kicked out. Barry bond would not be in the hall of fame because he got caught. End of story.

In other words, if you think you will cheat, go ahead and try but, if you get caught, you are thrown out. Right now we're no using those kinds of rules.

TARANTO: Our own field of journalism has scandals. When it turns out a Stephen Glass or a Jayson Blair has made stuff up or plagiarized, we don't say that means we can all do it too. We say this guy has to be kicked out of the profession.

VARNEY: Collectively, we would like to return honor to the professional sporting system in America.

HENNINGER: That's true. Most athletes would too, quite frankly. They are the ones who start playing when they were young and then would probably prefer to play the game upon a level playing field.

VARNEY: I don't mean to be a cynic but good luck with that.

Don't go anywhere. Cindy Sheehan and Ward Churchill are ahead in our weekly "Hits and Misses."

(COMMERCIAL BREAK)

VARNEY: Winners and losers, picks and pans, "Hits and Misses," it's our way of call attention to the best and the worst of the week.

Item one, a hit to University of Colorado President Hank Brown -- Dan?

HENNINGER: This involves Ward Churchill, Professor Ward Churchill, something of a contradiction of terms, the famous cause celebres for speech who said, after September 11, that some of the victims were little Eichmanns and Nazis. He has been in the news ever since.

The president of the University of Colorado, Hank Brown, has apparently decided this week he will have to fire Ward Churchill, partly for these statements. But partly for findings of plagiarism and research misconduct in his work.

Nonetheless Professor Churchill is being supported by much of the faculty out there and university professors around the country on the basis of free speech.

I think this is really quite preposterous. The University of Colorado -- this showings that these individuals think that they are simply anything that they have no connection to the institution out there.

Hank Brown is defending the integrity and honor of the institution known as the University of Colorado. And I think that weighs much more heavily on having the loopy plagiarizing professor, like Ward Churchill, allowed to say anything he wants to out there.

VARNEY: A plus for him.

Next, a mission to New Jersey Governor Jon Corzine, and not for his seatbelt lack? What's this about?

O'GRADY: No. I am giving a miss to Jon Corzine because he floated a trial balloon this week he might like to raise the state's gasoline tax. Now New Jersey gasoline taxes have not been rationed since 1988, and they are among the lowest in the nation, which is apparently two good reasons why they have to be raised.

But the people of New Jersey already have among the highest property taxes in the nation. They have failing public schools. And they have a notoriously corrupt state government.

One thing they do have as their comparative advantage is low gas prices. Jon Corzine wants to take those away. I consider that a miss.

VARNEY: It is also the only station where you may not pump your own gas.

James, Cindy Sheehan, what's the miss there?

TARANTO: Mrs. Sheehan, you will recall a couple years ago, burst onto the scene and every mom, the face of the anti-war movement. She wasn't really every mom though the media and liberal politicians embraced her as such. She was an adherent to really demented anti-American ideology.

Once the Democrats took control of Congress, she turned against them and started protesting Democratic leadership meetings. And the Democrats have been shunning her ever since.

As a result, on Memorial Day, Mrs. Sheehan announced she would resign as face of the anti-war movement. She's very upset with the Democrats for the way they mistreated her.

Although I have no ideological sympathy. I have sympathy with her on a human level. This is a troubled woman. She was exploited by the Democrats and media. So a big miss to them.

VARNEY: All right, fair enough.

That's it for this week's edition of the "Journal Editorial Report."

Thanks to Dan Henninger, Mary Anastasia O'Grady and James Taranto.

I am Stuart Varney. Paul is back next week.

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