FIRES OF THE DRAGON Politics, Murder, and the Kuomintang By David E. Kaplan Atheneum. 559 pp. $25

FIRES OF THE DRAGON is the eye-opening story of the assassination in 1984 of Henry Liu, a Chinese immigrant to the United States. Recalling the period when Taiwan and Communist China vied for American friendship, it reveals their violent impact upon American society.

Born in China in 1932, Liu grew up during the Japanese attack on his homeland and the ensuing civil war between Chiang Kai-shek's Nationalist Party (Kuomintang or KMT) and Mao's Communists. He fled from Shanghai to Taiwan at the age of 16 to join the KMT army. In Taipei, the base of the KMT after its defeat on the mainland, Liu eased his way out of the military by attending the Political Warfare College. Subsequently, he worked his way into radio and print journalism, covering film and drama.

During the 1950s, Liu turned against the KMT. "Instead of offering liberation," explains David Kaplan in his exhaustive account of Liu's story, the KMT "had brought to Taiwan disorder, disease, arrogance, and tyranny." Confident of its imminent return to conquer the mainland, the KMT stifled any dissent from this unrealistic policy.

A successful journalist, Liu persuaded an editor to send him on assignment to the U.S. in 1967. Although he was shocked by the civil rights movement, the trenchant opposition to the Vietnam War and the vociferous counter-culture movement, he told American friends they did not know how lucky they were to live in such a free country.

As a graduate student at American University in Washington D.C., Liu began his fateful research into the life of Chiang Ching-kuo, the son of Chiang Kai-shek and, from 1978, his father's successor as president of the Republic of China in Taiwan. The very danger of writing about Chiang may have enticed the ardent and rebellious journalist.

Liu was warned against the project by the KMT's chief of intelligence in the U.S., a key figure in Taiwan's huge diplomatic presence here: "You can write whatever you want," Liu was told, "but not about the Chiang family."

When the diplomatic winds changed and Nixon visited Beijing in 1972, Liu's life became complicated. Essential to his story is the fact that the FBI, and at times the CIA as well, lagged behind the White House's change of China policy. Liu at first benefited, but later suffered from, the gap between the politicians and the cops-and-spies.

Liu and his second wife, Helen, prospered in the U.S., starting gift shops in Washington and San Francisco. They became American citizens in the mid-1970s. But, in the years following Nixon's visit to Beijing, Liu stepped recklessly into the field of tension between Taipei and Beijing.

Kaplan, who is also the author of Yakuza, a book about crime in Japan, shows that the KMT broke American laws in its effort to obtain American weapons and sabotage Washington's developing tie with Beijing.

Chinese nationalism resurged within Liu and, surprisingly for one who had fled the mainland, he drew closer to the People's Republic of China. His hostility to the Chiang family mounted. Meanwhile he cemented a link -- foolish for an immigrant -- with the FBI. He seems to have had little prudence and no spiritual moorings.

Liu's turbulent upbringing led him to pursue survival by devious means. In his relations with spy agencies, he became not only two-faced, but three-faced, allowing himself simultaneously to be fiddled with and paid by Taiwan, the PRC and the FBI. Most shocking, he accepted $8,000 from Taiwan "for toning down" his biography of Chiang. "It was a sad moment for a gutsy reporter," Kaplan writes. Though he was now working for KMT intelligence, Liu nettled Taipei by telling lies to his superiors and maintaining ties with the FBI and Beijing. Taipei decided to eliminate Liu.

"When you get up to three agencies," a spy source remarked to Kaplan, "you really start to blow fuses." Liu blew fuses. He lost people's trust. Just as he had seemed destined for the shadowy world of espionage, Liu's fate, in some degree, stemmed from his own character.

With amazing heavy-handedness, the KMT sent assassins from Taiwan to Daly City in California. Washington did not care enough about Liu to protect him. Although the CIA learned from a phone tap of the assassination plans, the information was not passed on to the FBI.

One Monday morning in October 1984 Liu was shot dead in his own home with a .38 caliber Smith and Wesson revolver bought on a Los Angeles street. In both Taiwan and the U.S., sales of Liu's biography of Chiang skyrocketed.

Liu's murder marked a turning point for KMT activity within the U.S: Washington became tougher, Taipei more circumspect, focusing mainly on the acquisition of high-tech weaponry. Meanwhile, some of those involved in the murder were tried and convicted in Taiwan. Suspicions that Chiang Ching-kuo's son may have masterminded the murder were never verified. LIU'S STORY reads like far-off history for, although Taiwan lost the diplomatic struggle to the PRC, the KMT gave up its violent lawlessness. The reason why KMT operations abroad have been curtailed is that Taiwan since 1987 has become a substantially democratic society. Indeed, Taiwan's smooth transition from a Cold War posture to detente abroad and tolerance at home is a miracle.

A Henry Liu of the 1990s could expect a flourishing career as an independent-minded journalist. But neither Taiwan nor the PRC would allow it at the time, and Liu never felt truly at home in the U.S.

Kaplan correctly calls for reforms to prevent any repetition of the Liu tragedy. U.S. intelligence agencies should be charged with monitoring the activities, not only of adversaries, but of allies, he concludes. And the CIA and FBI should be forbidden to encourage any of their foreign partners to engage in illegal activities within the U.S.

Fires of the Dragon has many merits.It is based on extensive research, and its context is a fascinating period in the history of changing relations among the U.S., the PRC and Taiwan. Unfortunately the book is slow-paced and overstuffed because Kaplan wanders too far from Liu's story. Kaplan's style is sometimes awkward, and his understanding of Chinese material precarious: He gives China 35 provinces (it has 28) and misspells names of well-known figures such as Foreign Minister Qiao Guanhua.

At the heart of the book is the disappointing core of Liu's character. The victim is revealed to be flawed, almost the cause of his own tragedy. Kaplan is candid about Liu's duplicity, overeagerness and intellectual shallowness. But all this finally reduces the impact of Fires of the Dragon.

Still, many Chinese-Americans, and maybe others, will be fascinated by Liu's story. "I went to Taiwan to escape from communism," he once told a friend. "I went to America to escape from Taiwan." But Kaplan sums up aptly, "In the end it became impossible to do either." Ross Terrill is the author of the recent book "China in our Time" and a newly enlarged edition of "Madame Mao," among many other books on China and the Pacific.