President Reagan's national security adviser Richard V. Allen, said yesterday that the western alliance is threatened by a "grave economic crisis" in Western Europe and the revival of pacifist sentiments -- "better red than dead."

In his first public address since taking the White House post, which he vowed would be a low-profile position, Allen described economic and political conditions in Europe as dangers to allied unity in the anti-Soviet cause.

Speaking to the Conservative Political Action Conference, which Reagan had addressed Friday night, the national security adviser said the United States will not accept arms control negotiations with the Russians on weapons in Europe as a substitute for a major buildup of medium-range missles.

"We will negotiate, but we will negotiate while we modernize," declared Allen, referring to the 1979 teo-part NATO decision to increase nuclear weapons depolyments on the continent even while engaging in arms control negotiations with the Russians.

Aside from a blast at the British Labor Party for adopting the renunciation of nuclear arms as part of its official platform, Allen did not name those in Europe whom he was condemning. But he said "outright pacifist sentiments" are surfacing and "the comtemptible better-red-than-dead solgan of a generation ago" is again being heard in Europe.

On the economic front, Allen declared that "Europe is confronted with an economic crisis every bit as dangerous as that which followed World War II." He ascribed the difficulty to "uncontrollable social problems" under deficit spending.

He added that Reagan had urged senior European leaders in recent meetings to gain control of their economies, as the United States is seeking to do, or face a bleak future for the western alliance. Reagan met no serious disagreement from his European visitors, the security advisor said.

On other topics, mostly in response to questions, Allen said:

The U.S. relationship with the People's Republic of China "is one that will grow and can indeed become a strategic relationship." He said there are "signs of important change" within China which are being closely watched in Washington.

Reagan has made it clear, Allen said, that he will "faithfully observe" the Taiwan Relations Act, to which China has objected, establishing the basis for "unofficial" relations with Taiwan. The president is reported to have made this point last Thursday in a White House meeting with Ambassador Chai Zemin and Ji Chaozhu, director of American affairs in the Chinese Foreign Ministry. It was Reagan's first meeting with Chinese officials.

Relations with South Africa will be "based on realism and a keen perception of our own needs." Saying he was not making an administration pronouncement, Allen says, "I personally don't consider an improvement of realtions with South Africa as any stamp of approval of the system of apartheid," which he disapproves.

There is "not a particularly urgency" to a summit meeting between Reagan and Soviet President Leonid Brezhnev. He noted in this connection that the United States is pushing for the complete withdrawl of Soviet troops from Afghanistan, and added, "We have no hesitation in referring to the people who are attempting to bring that about as freedom fighters."

Allen drew a big ovation from the conservative activists, and received a second round of applause and laughter when the master of ceremonies declared that "after four years of Zbigniew Brzezinski," Allen is "a hell of an improvement."