First of two articles

On Thursday, March 7, 1996, in an elegant dining room overlooking the Potomac River, Defense Secretary William J. Perry delivered a threat -- about as blunt as they come in contemporary diplomacy -- to go to war.

Hours before, U.S. Air Force RC-135 reconnaissance craft and the cruiser USS Bunker Hill had monitored three Chinese M-9 ballistic missiles as they were rapid-fired from China's Huanan mountains toward Taiwan. They splashed down in the shipping lanes adjacent to Taiwan's two principal seaports: first Kaohsiung in the south, then Chilung in the north, then south again to Kaohsiung.

Liu Huaqiu, a senior Chinese national security official, found a grim-faced Perry waiting for him when he arrived at a scheduled dinner that evening in the State Department's eighth-floor Madison Room. In what one participant called "a well-rehearsed minuet," Perry notified Liu that there would be "grave consequences" should Chinese weapons strike Taiwan -- words not spoken to China since the countries established diplomatic ties, and universally understood as code for a military response. For emphasis, Secretary of State Warren Christopher and National Security Adviser Anthony Lake repeated the formula in turn.

Beijing and Washington had two weeks of extraordinary tension and uncertainty still ahead of them, with undercurrents of nuclear menace. Present and former officials now say they were far more worried than was known at the time, as Christopher writes in a forthcoming collection of essays, that "a simple miscalculation or misstep could lead to unintended war."

But the crisis also marked a beginning. The morning after Perry threw down his gauntlet, Lake escorted Liu to a borrowed Virginia farm for a highly unusual day of informal talks. The two men, approximate counterparts, opened what would become a significant new channel of dialogue, supplanting the damaged relations between Christopher and his counterpart, Foreign Minister Qian Qichen.

As President Clinton prepares to embark on the first American state visit to China this decade, Asia specialists in and out of the administration point to the events of March 1996 as a turning point -- from escalating conflict to the "strategic partnership" that both governments now say they wish to construct.

That month marked the nadir of a relationship that had been poor even by the standards set since the 1989 bloodletting around Tiananmen Square. The lessons learned in the crisis resolved the president's ambivalence about the kind of ties he sought with China and set him firmly in pursuit of an "engagement" that brings him this month to Beijing. The same lessons rippled forward to shape the agenda, the decisions and the choice of decision-makers in the Clinton foreign policy team -- producing last fall's Washington summit with President Jiang Zemin and conditioning even the terms for satellite launches in China that currently roil the administration in partisan debate.

David Rothkopf, who feuded over China with Christopher and his aides as deputy undersecretary of commerce, said the Taiwan crisis grew out of "an erratic, often frayed policy" marked by "a lot of confusion on China in the first term, particularly in the State Department." By arranging for Lake's new channel to Liu, he said, "the two sides sat down and said, Wait a minute. This is no way to run one of the pivotal relationships on the planet Earth.' " Nuclear Threat Against U.S.?

Among the most disturbing elements of the Taiwan Strait crisis were two Chinese allusions to nuclear weapons, one implicit and one more direct.

The exercise designated by the Chinese military as "Strait 961" was by many measures the most provocative ever staged in the Taiwan Strait, but some U.S. analysts saw special significance in China's use of the nuclear-capable M-9 missile. The M-9 batteries belonged to China's nuclear rocket force -- the Second Artillery -- and Chinese press accounts called attention to that fact.

What no one disclosed at the time was that one of the missiles passed almost directly over Taiwan's capital, Taipei, before landing 19 miles off the coast.

Not long before the missile firings, in January, a former Clinton administration defense official had reported to Lake on a disquieting set of conversations he had held in Beijing. Chas. W. Freeman Jr. was a China specialist who served as President Richard Nixon's interpreter in Beijing in 1972 and most recently as assistant secretary of defense. In arguments over Taiwan with top Chinese military officials -- he declined, then and since, to name them -- he said he had heard an implied nuclear threat against the United States.

"I said you'll get a military reaction from the United States" if China attacks Taiwan, Freeman recalled, "and they said, No, you won't. We've watched you in Somalia, Haiti and Bosnia, and you don't have the will.' " Then, according to Freeman, a senior officer added: "In the 1950s, you three times threatened nuclear strikes on China, and you could do that because we couldn't hit back. Now we can. So you are not going to threaten us again because, in the end, you care a lot more about Los Angeles than Taipei."

Government analysts soon concluded that Freeman's interlocutor had been Lt. Gen. Xiong Guangkai, deputy chief of China's general staff, and classified cables detailing his remarks received uneasy attention at the U.S. Pacific Command, the Strategic Command, the Pentagon's Joint Staff and across the government's China bureaucracy. To some, it was a threat.

"If this was some sort of serious message, we had to make it clear that we were returning it unopened," Lake recalled in an interview.

Friday, March 8, was a bitterly cold day in Washington, with nearly four inches of fresh snow and a wind chill below zero. That morning, Lake and Liu -- accompanied by National Security Council aide Robert Suettinger and State Department officials Winston Lord and Jeff Bader -- drove secretly to Middleburg, Va., and the country estate of Pamela Harriman, the ambassador to France.

It was an occasion for clearing the air, but that meant confronting differences directly. Lake, by his own account and Lord's, made sure to find an occasion that day to raise the subject of Freeman's report.

"I remember leaning forward and telling him that not only were Americans insulted and the president insulted but I, at a personal level, had been insulted by threatening Los Angeles with nuclear weapons," Lake said. "He denied it. He said, It's not our policy.'" A Rough Beginning

Clinton treated China largely as a domestic issue in his first year in office, according to several senior policy-makers at the time. He had vowed in his campaign to stop "coddling" China and to refuse normal trade relations as "long as they're locking people up." In the spring of 1993, he dispatched Lord, his assistant secretary of state for East Asia, and deputy national security adviser Samuel R. "Sandy" Berger to negotiate a deal on most-favored-nation trade status for China with two leading congressional critics of Chinese repression: Rep. Nancy Pelosi (D-Calif.) and Sen. George J. Mitchell (D-Maine).

The result was an executive order requiring that China show "overall, significant progress" on human rights or face the effective severance of U.S. trade by the spring of 1994.

In February 1994, as the deadline loomed, Assistant Secretary of State for Human Rights John Shattuck met China's most prominent dissident, Wei Jingsheng, in a Beijing hotel. Furious Chinese leaders punished Christopher with a wave of arrests on the eve of his first visit as secretary of state.

Christopher cabled Clinton on March 12 that his Chinese interlocutors were "rough, somber, sometimes bordering on the insolent."

Chinese Premier Li Peng lectured him sarcastically about American human rights problems -- in a personal dig, he cited the 1991 riots in Christopher's hometown, Los Angeles -- and said Christopher and Clinton would be blamed for closing the door to China that Nixon and his national security adviser, Henry Kissinger, had opened.

By many accounts of those who know him, Christopher never quite got over his indignation over that trip. Near the end of his service, as relations warmed in July 1996, Christopher would warn Clinton in a cable that "prickly nationalism" and "Middle Kingdom smugness," among other things, continued to "make Beijing one of the most difficult leading actors on the world stage." Among confidants, when not composing for history, his language was rougher.

Clinton, too, was ambivalent. The effort to use trade sanctions to compel a change in Chinese behavior -- Rothkopf called it "the equivalent of holding a gun to your head and threatening to pull the trigger" -- had clearly failed, and he abandoned it in May 1994. But he expected a corresponding gesture from China.

"I hate our China policy!" Clinton exploded in one White House meeting that summer, according to the recollection of a participant. "I wish I was running against our China policy. I mean we give them MFN and we change our commercial policy and what has it changed?"

Many current and former policy-makers said the president's mixed feelings, and Christopher's animus, led to a prolonged period of drift. Christopher and his closest aides believed they were slogging away constructively at the relationship, meeting Qian, the foreign minister, at international conferences several times a year. The view from outside Christopher's inner circle was otherwise.

"The Christopher doctrine' was essentially, I'm not going to China, but no one else is either,' " said one senior official, reflecting widespread sentiment. Credibility Shattered

Other government departments pressed forward with their own divergent agendas. Commerce Secretary Ronald H. Brown took a high-profile trip to China in August 1994 -- his business delegation included Loral President Bernard Schwartz, now at the center of the satellite controversy -- and Commerce developed an initiative on "big emerging markets" that placed central emphasis on securing Chinese business. At the Pentagon, Perry cemented the resumption of military ties with a trip of his own that October.

Freeman, whose November 1993 visit had been the administration's first at the level of assistant secretary, said everyone spoke of "engagement," but the effect reminded him of a saying in Chinese. "People were sleeping in the same bed, but dreaming different dreams," he said.

Taiwan, an island of 21 million, had dreams of its own that began to intrude on Washington's -- and Beijing's. Twenty-one years after the death of strongman Chiang Kai Shek, Taiwan was edging toward democracy and independence with a bid for "international space."

There was no more sensitive issue for Beijing. American officials had noticed that Chinese officials affected drama when bargaining, but Taiwan seemed to bring out real emotion. "It's more personal," Lake said. "You can hear it in the quality of the voice."

Since the 1972 Shanghai Communique, U.S. policy had held that there is only one China and that Taiwan is part of China. President Jimmy Carter, who established formal ties with Beijing in 1979, downgraded the ties with Taiwan to "unofficial" relations.

Then Taiwan President Lee Teng-hui sought new diplomatic horizons by traveling abroad in the guise of golfing vacations. In early 1995, he asked to become the first Taiwanese head of government to visit the United States by applying for a visa to attend a reunion at his alma mater, Cornell University.

What followed, from the points of view of the three capitals, was a sequence of diplomatic double-crosses.

The Clinton administration told Lee he could not come, and Christopher assured Qian at a United Nations meeting on April 17 that it was the administration's "fundamental policy" to refuse the visa. But he also told Qian that the administration had been "unable to persuade Congress of the wisdom of our position."

On May 3, after a $5 million lobbying campaign by Taiwan, the House of Representatives voted 396 to 0 to demand a visa for Lee. Six days later, the Senate followed suit 97 to 1. Lake and Christopher feared that Congress would amend the Taiwan Relations Act of 1979 to force the government's hand if it did not comply. The administration reversed itself on May 22.

"Christopher's credibility with the Chinese, at that moment, was over," Rothkopf said.

Benjamin Lu, Taiwan's Washington representative, meanwhile assured Lord at the State Department that his president's visit would be strictly private and low-key. But when Lee got to Cornell, he made an aggressive political speech, using the loaded term "Republic of China on Taiwan" -- anathema to Beijing -- 17 times.

Lord believed he had been betrayed, and never agreed to see Lu again. But the damage was done. China withdrew its ambassador, arrested American photojournalist Harry Wu and canceled every ongoing discussion between the governments.

At the State Department, policy planning chief James Steinberg warned Christopher to brace for the worst. Chinese authorities were convinced, he argued, that they had not reacted strongly enough to President George Bush's 1992 decision to sell 150 F-16 strike fighters to Taiwan.

"Jim was apoplectic," a colleague recalled. "I remember him sitting in Christopher's office saying {the visa episode} was a huge mistake." Relations Drift

China commenced its military reaction on July 21, firing two missiles a day for three days into an impact zone nearly 100 miles north of Taiwan.

The Clinton administration made no protest. Some officials thought, according to one, that the government should "let Lee take his licks for buying Congress" on the visa vote.

Christopher headed for Brunei on Aug. 1, where he knew he would see Qian. He brought a letter from Clinton proposing a visit by President Jiang Zemin to the United States. Qian seemed pleased.

"I sense that after the train wreck, we are both struggling to put the cars back on track," Christopher cabled Clinton the next day. "The relationship may have bottomed out."

That proved optimistic. Washington and Beijing had very different ideas in mind for their first summit since Tiananmen. The Chinese wanted an exchange of state visits -- a formal welcome on the White House South Lawn, a 21-gun salute, a state banquet. Clinton's advisers, worried about domestic reaction, balked.

Undersecretary of State Peter Tarnoff met three times with Vice Foreign Minister Li Zhaoxing, urging him to "concentrate on the substance" and settle for a low-key working visit. "We felt that had the advantage of avoiding a firestorm in Congress," Lord said. "The Chinese didn't buy this."

As negotiations broke off, Lake and Berger, his deputy, became increasingly unhappy about the management of China policy. "Things were drifting in our relations," Lake said. "It was not going terribly well."

The two men held a series of brainstorming sessions in the Situation Room in late 1995 and early 1996 with nearly two dozen outside experts, including Kissinger and Alexander Haig. Many of them urged Lake to open a second high-level channel to Beijing, reminding him that Kissinger in 1971 and Zbigniew Brzezinski in 1978 had made the U.S. government's two crucial breakthroughs with China from the White House post.

"Tony had to be the person to do it," said Michael Oksenberg, the Carter administration's White House point man on China, who argued the point in a handwritten memo to Lake. "That's the history of the relationship."

But Lake, a close aide recalled, "was fastidious about not doing a Kissinger' on Christopher." He was determined to open a channel to Liu, but would not do it without Christopher's blessing. For months, Christopher withheld it. Tensions Rise in 1996

1996 began with trouble on every front. U.S. intelligence discovered the sale of $70,000 in Chinese ring magnets to Pakistan for use in enriching uranium to weapons grade. A deadline neared for $3 billion in retaliatory sanctions for brazen Chinese pirating of U.S. compact discs and laser discs. The annual U.N. Human Rights Commission debate in Geneva promised fireworks.

Most of all, the Chinese were obviously not finished with Taiwan. The island, which Beijing regarded as a renegade province, had scheduled its first direct election for president on March 23.

The Office of Naval Intelligence reported that China began shifting missiles, heavy equipment and several brigades -- about 10,000 troops -- to Fujian Province on the coast on Feb. 4. Alarmed this time, the government dispatched Tarnoff to warn his counterpart, Li Zhaoxing, against aggression. Tarnoff read aloud from the Taiwan Relations Act, which directs the White House to "maintain the capacity of the United States to resist any resort to force" against the island.

Li, who has since become ambassador to Washington, said China's reply was simple: "Taiwan is part of China, and the Taiwan issue is China's internal affair, and no foreign force and no foreign country should interfere."

When word came of the missile firings on March 7, U.S. intelligence immediately recognized them as a major escalation. The exercises were scheduled to go on until March 25, and with a start as provocative as this one it was not clear where they would stop.

Preparing for dinner at the State Department that night with Liu, Lake asked Suettinger to research the strongest statements ever made to China about Taiwan. Suettinger reviewed the history of "strategic ambiguity" in which successive administrations implied but never said they would defend the island. Lake, Perry and Christopher decided -- and informed the president -- that they should go further.

In the Madison Room, with its commanding view of the floodlit Lincoln Memorial, Perry did not need to feign a sense of outrage. When he examined intelligence reports of the firing pattern -- south, then north, then south of Taiwan -- he thought immediately of his enlisted army service in the artillery corps.

Borrowing an artillery term, he told Liu that China was obviously "bracketing" Taiwan, a zeroing technique that can precede a direct attack. He called it reckless and unacceptable, and, enunciating carefully, used the words "grave consequences" for the first time. New Channel Opened

Only days earlier, under the pressure of the clear downturn in relations, Lake had finally wrested Christopher's consent to open a new channel to Liu -- a shift that returned the initiative on China to the White House, where it has largely remained under Berger, Lake's successor.

A protege both of Li Peng and Jiang Zemin, Liu could be charming -- he once gave moon cookies to Lord as a gift for his wife -- but he was known as a hard-headed realist with a good working knowledge of English. Liu had planned a visit to his Washington embassy, and Lake took the occasion to invite him for a daylong retreat.

The disastrous start, with missiles splashing down as Liu landed, appeared to catch Liu by surprise. By Friday morning, as they wended through the snow-blanketed Virginia countryside toward Harriman's farm, Lake was determined not to waste the opportunity for a daylong dialogue.

"I was doing my Arethra Franklin imitation, R-E-S-P-E-C-T,' explaining that China's future role was very important to us," Lake said.

For the first time in the Clinton administration, the United States and China spoke at length about their broader interests, some of them mutual. They also spoke, often sharply, about their disputes.

"We're going to talk about human rights because that's who we are, but frankly I don't have to convince you of democracy because history will take care of that," Lake told Liu.

With a fire laid in Harriman's living room and a view of broad sloping lawns, the atmosphere was occasionally light. Over chicken and Caesar salad, Liu cited Chinese proverbs to make his points. Lake took to making up "old New England proverbs" in reply.

"This was not a friendly meeting," said one participant. "It was not smiles. It was tough talk in a nice room."

The next morning, Saturday, Perry asked Lake and Christopher, along with CIA Director John M. Deutch, to join him around the conference table in his office on the Pentagon's outer ring. Gen. John M. Shalikashvili, chairman of the Joint Chiefs of Staff, briefed the group using highly classified slides.

China's military exercise, Shalikashvili said, had just commenced the first of four phases -- strategic missile strike. Submarines, destroyers and Russian-built Su-27 strike fighters were preparing for an air-and-sea superiority campaign near Dongshan and Nanao Islands in the southern strait. Amphibious forces had gathered, finally, for an assault to secure a beachhead on Haitan Island, selected according to naval intelligence "because of the similarity of the topography there with that of Taiwan."

It was plainly a huge effort at intimidation, but was it more? Shalikashvili felt safe in ruling out a full-scale invasion of Taiwan. China simply lacked the sealift resources, especially amphibious ships. Military planners dismissed the scenario as the "million man swim."

But nothing else seemed as certain.

Perry argued for taking firm action to warn China. The USS Independence aircraft carrier battle group was already in place, 200 miles northeast of Taiwan. Perry proposed to divert a second carrier battle group, centering on the USS Nimitz, and the group unanimously agreed. Later that day, Clinton authorized the largest gathering of naval firepower in the region since the Qemoy and Matsu crises of 1958.

"It was very tense," said a senior defense official. "We were up all night for weeks. We prepared the war plans, the options. It was horrible."

At Camp H.M. Smith in Honolulu, Adm. Joseph W. Prueher ordered his U.S. Pacific Command to form a "crisis action team" to coordinate intelligence and air-and-sea operations around the clock. Chinese public rhetoric became as warlike as any heard in decades, including vows to "bury" the Americans if it came to a fight. Much later, the period of estrangement behind them, Prueher would pay a visit to Lt. Gen. Xhang Wannian, senior vice chairman of China's Central Military Commission. What, Xhang inquired, had Prueher been thinking during the crisis of the strait?

"I remember wishing I had your telephone number," Prueher replied. NEXT: Partnership emerges. ABOUT THE ARTICLES:

President Clinton's road to Beijing, where this week he will become the first U.S. president this decade to visit China, began during several dark and anxious weeks in the early spring of 1996, when the two powers drew alarmingly close to a military showdown. From this crisis would emerge the decision to seek a "strategic partnership" between the world's most powerful and most populous countries. WHEN CHINA FLEXED ITS MUSCLES In an effort to deter a Taiwanese movement for formal independence from China, Beijing launched two military exercises in March 1996 in the Taiwan Strait area. The timing was intended to influence Taiwan's first popular elections in which pro-independence candidates finished below expectations. 1. Feb. 4, 1996: China begins forward deployments of forces, announces exclusion areas near Taiwan. 2. March 8, 1996:* Two M-9s fired into shipping lanes off port of Kaohsiung. March 13: One more M-9 lands in area. 3. March 8, 1996:* One M-9 is fired over Taipei landing in shipping lanes off Chilung. 4. March 9, 1996: With USS Independence already on station, Clinton orders second carrier battle group, led by USS Nimitz, into area. 5. March 12, 1996: Near Dongshan and Nanao islands, live-fire exercises and surface attack activities. 6. March 18 to 25, 1996: Pingtan, Haitan Island: Chinese rehearse an invasion of Taiwan with air, sea and land exercises, including amphibious assault drills, troop insertions by helicopters, artillery firings and troop transport flights. SOURCE: U.S. Department of Defense CAPTION: The China News Service released this photo of a Chinese navy ship firing a missile during an exercise in 1996. CAPTION: Clinton's lament: "I hate our China policy!" the president exploded at one point. "I wish I was running against our China policy. I mean . . . we change our commercial policy and what has it changed?" CAPTION: Peng's barbs: Chinese Premier Li Peng lectured Christopher sarcastically about American human rights problems and said Christopher and President Clinton would be blamed for closing the door to China. CAPTION: China's reaction: After a U.S. official met with Chinese dissident Wei Jingsheng in a Beijing hotel, furious Chinese leaders punished Warren Christopher with a wave of arrests on the eve of his first visit as secretary of state. CAPTION: Chinese People's Liberation Army troops board landing craft in a show of strength in November 1995.