"Some people think democracy means the right to do whatever they like," said the ambassador of China last night in a provocative speech at the American Newspaper Women's Club. "That is not correct, that is not democracy but anarchy."

In China, when offenders threaten the national interest, Chai Zemin said, "we will naturally take necessary measures to educate or punish them. This is a normal practice with any country and the United States is no exception. It has nothing to do with democracy."

Speaking to more than 100 old and new China hands in his first formal appearance before a newspaper club, the ambassador spoke on a wide range of foreign policy topic's.

But his definition of democracy came when he responded to published reports on brutality and torture in Chinese prisons during the era of the Gang of Four and the Cultural Revolution.

"Things of that kind did occur," he said "but there was nevertheless some exaggeration in the [wall] posters."

Describing China as a socialist country which insures the democratic rights of free speech, assembly and press, he said putting up wall posters was another right "formulated" by the late Chairman Mao Tse-tung.

"There is a place in Peking which foreign correspondents call "Democracy Wall," and people can freely express their views or critisize the leaders."

Later, sipping a Coke, the ambassador said the recent scarcity of critical wall posters throughout China merely means that "most people have said what they wanted to say."

Chai appearance was something of a coup for the 47-year-old club, which once numbered most of the leading newspaperwomen in town among its ranks.

"We just wrote him a letter inviting him to speak," said ANWC president Lillian Levy.

The ambassador looked more like a prosperous Hong Kong banker in his western-style business suit and red rep tie than envoy of the world's most populous socialist country. He said he gets a half-dozen invitation a week to speak here and around the country. Because of a full schedule, he has accepted only this one so far. When he speaks in the future his No. 1 topic probably will be the Soviet Union.

"Most people in the United States don't perceive it as a danger," he said.

Accompanying him last night was his wife, Li Youfeng. CAPTION: Picture, Chai Zemin