"We wish you permanent rest with God," -- in short, "Drop Dead!" -- is not the smoothest way to end a good will banquet of several hundred Sino-American merchants at a fashionable Washington hotel. But it happened. Li May, a native Chinese, was aghast.

She knew that the American translator had meant to say in Chinese, "We wish you good night and a pleasant rest." But the language of the world's most populous nation is rich, beautiful, subtle and a mine field for gaffes.

Li May Phipps, quick of mind and attractive in person, tried to cover the embarrassement among her countrymen in attendance. Under the circumstances, the best she could do was pretend it didn't happen and to plan that it did not happen again.

Chinese people are instinctively polite, and the counterpart to this trait is that they dislike even unintentional ridicule. Linguistic savoir-faire is a vital item in the new China trade. Big deals are in balance between U.S. companies and the Peking regime. Li May knew that verbal bloopers could be costly.

"Translation is an art," she said in reciting the anecdote. Hers was an expert opinion. Whether personally or through her trimly disciplined office in downtown Washington she translates thousands of dialogues, business letters, contracts, agreements, legal arbitrations and informal exchanges. It is part of her nature and acument to make an art of it.

John Phipps, 43, her husband and partner in the family firm (they live in Alexandria with two preteen daughters) beleives that their translation work is also an accumulated knowledge in Chinese attitudes. He and Li May founded Chinatrans Inc,. starting from nowherein 1973 and in 1979 grossed $400,000. They did so by becoming market-wise in the trade of commercial communications -- oral and written -- between SinoAmerican buyers and sellers. Their fulltime project is writing in Chinese for American to produce the desired result from the Oriental engineers, technocrats, decision-makers and end-user

Rule No. 1, I learned from John is to avoid the slightest inference to Taiwan as a nation. The offense includes showing the National Chinese flag, the display of any product or statistic of Formosa. If you want to make money from Peking, as few U.S. corporations do not, bear in mind -- there is only one China.

Rule No.2 is like unto it -- make no criticism of communism as a form of government. Conversely, it is not bad form to take swipes at Soviet Russia, since the Chinese regard the USSR as a heretic of true Marxism. There are some less stringent verbotens. Immodest dress in advertisement, not to mention nudity, is offensive to a majority of the half billion citizens of the PRC.

On a lesser scale, the American accent on youth is unsuitable to a nation that has a reverence for old age. There is no point in playing up to consumerism in China, because the central government is the only supermarket. References to water skiing, golf, soft drinks and such taken-for-granted spin-offs of capitalism get no reaction from the potential purchaser in China. s

None of this is negligible information. John Phipps, tall, reticent, scholarly of air, is scouting for reasons why the United States should be only No. 4 in Chinese trade -- behind West Germany, Hong Kong and Japan. He believes that with intelligent promotion, America could run a close race behind Nippon, which has the obvious advantages of propinquity and long familiarity with the Chinese ways that we are just learning.

Chinatrans is a considerable national asset to American business. It passes the gracious words about sales. It is cheek-by-jowl with both Washington and Peking.

How did Chinatrans get that way? Both the partners have long been Chinaminded and aware that the main barrier to a gigantic exchange of goods and profits was the language barrier. That realization was their starting point. Li May was born in Kunming, mainland China, in 1939. Ten years later she was takenby her family to Taipei, Taiwan in the flight of Chiang's anticommunists before the Red Chinese forces.

But interviewer soon learns that in her heart Li May "never left home". For her the Chinese areas divided by politics and the Formosa Strait remain a single country with no room for argument.

Li May took her B.A. at the National University of Taiwan, became a teacher and went as a graduate student and librarian to Indiana University. aBut she has flown nine times to mainland China since normalization of relations in 1973, and John at this writing is in Peking to open a branch office for Chinatrans.

As classmates in Indianapolis, they married and moved to Washington. John had spent much of the Vietnam war at the language school at Clark Air Force Base, the Philippines. He later studied Chinese at the University of Hong Kong. The upshot was a job in Washington at the China desk of the Commerce Department, and later at the Library of Congress for the Defense Intelligence Service.

President Nixon came to office in 1969, and almost immediately the grapevine carried speculation on a raprochment with what we then called Red China.

As a friendly reporter I once rode from midtown Washington to the airport in Nixon's limousine, and he talked freely about inevitable Sino-Russian border war in which the United States would have to take sides. Even so, it was a public surprise when Henry Kissinger opened the way by secret visits for the Peking summit.

By that time the Phipps' had something of a lock on their enterprise. Li May began as a free lance translator. She took a job with the National Council of U.S. China trade, and became director of the translation service. She formed Chinatrans, made herself company president and signed a long-term contract with the council.

The Chinese liaison office, later the PRC embassy, as well as the China U.N. delegation, found much work for her. So did the Commerce, Treasury and State departments. She was in demand as an interpreter whenever a trade or diplomatic delegation showed up.

"My proudest moment," she said, "was service in January 1979, at Kennedy Center for Vice Premier Denag Xiaoping."

John left government service and became her business manager. Chinatrans was not the only thing of its kind. According to the Commerce Department, there are translation services in Washington, New York, Pittsburgh, Chicago and San Francisco, but none top class. Often these companies undertake a contract, and sublease it to the Phippses, who lick it into shape.

As a Chinese native (by now naturalized American), Li May fully understands the demand for daintiness and precision that carried over from the Chinese household to the work place.

What appears to the American letter writer as an excusable smudge or minor sloppiness is proof to the Chinese recipient that the sender doesn't care very much. Li May knows the penchant for perfection. A letter that leaves her office is as crisp and virginal as a valentine.

Since the Chinese invented printing, they are appreciative of all form of typeset. But their alphabet has over 50,000 characters. Even the Japanese-Chinese typewriters have a keyboard of 245 keys, and beside each machine is a tray with hundreds of complex characters that the deft stenographer inserts when only the right one will do. Thus far no American manufacturer has designed a suitable typing machine, and Chinatrans has imported nine from Shanghai. The Phipps have one of the few PRC photocomposition machines in this country -- a "Morisawa," or MC6 with plates to cover 8,300 characters.

Skills to work in the Chinatrans office on K street N.W. are incredibly demanding Li May has a staff of 14 bilingual helpers. She has a technical reference library of 3,000 volumes to give exact descriptions of complex machines from underwater oil-drilling to digital computers.

Frequently it becomes necessary to translate a training or instruction film with sound track. What it amounts to is taking he entire English version apart and reconstructing it in a foreign language.

"We end up writing a Chinese movie," John says.

His particular pride is his authorship in Chinese of a 58-page magazine, "Mordern Engineering Technique." Some 200 Chinatrans clients -- the list runs alphabetically from Abex to Alcoa to Xerox to Zentih -- display their wares in text and colored photos. The Chinese government distributed 10,000 copies among prospective buyers.

It would be wildly speculative to guess what the China trade can eventually do for the American economy. While billions of dollars in industrial hardware go eastward, the westbound traffic is still millions and shows up as silk, bamboo and lacquer artifacts in department store knicknack shelves.

Still the rate of increase is steep. For the whole of 1969, we sent goods worth $1.72 billion to China, and we received goods worth under half a billion.

The Commerce Department estimates 1980 American exports will be $3.5 billion Chinese imports to the United States will be more than three-fourths of a billion. That makes the export-import about .3 to 1 our favor -- which Commerce rates as "good."