NEWS ANALYSIS : U.S. Sours on Beijing, Takes Tougher Stance : Diplomacy: Ex-Ambassador Lilley says what he thinks of Chinese leaders. His future still seems assured.

Former Ambassador to China James R. Lilley had only a few months outside the Bush Administration to say what he really thought, and he grabbed the opportunity.

Lilley stepped down as President Bush’s envoy to Beijing in May and became, at least briefly, a private citizen. Two months later, in a speech at Penn State University, he issued a blistering denunciation of the Chinese leadership with whom he had been doing business for the previous two years.

The Chinese regime is a “decaying dynasty,” said Lilley, who served as CIA station chief in Beijing when Bush headed the U.S. mission there in 1974-75 and has since accompanied Bush on both private and official visits to China.

For good measure, Lilley also asserted that China’s claims to sovereignty over Taiwan are “anachronistic,” in effect calling into question the official U.S. position that Taiwan is part of China.

And he has since paid two visits to Taipei, one of them as a guest of the government--which the United States does not recognize.

Lilley’s actions--which were quickly denounced by the official press in Beijing--would probably have ruled him out for any further high-level jobs in the U.S. government. No one would have wanted to incur China’s wrath.

Yet later this fall, Lilley is expected to assume one of the top policy-making jobs in the Pentagon--assistant secretary of defense for international security affairs.

Lilley’s example demonstrates the subtle but important changes that have been taking place over the last few months in the Bush Administration’s policy toward China.

The bloody upheavals in Beijing in 1989 destroyed a decade of support for China by Congress and the American public. But until recently, the Administration tried to remain generally positive about developments in China and to minimize the extent of change in U.S.-China relations.

Now, particularly in the wake of the failed coup in Moscow, the Administration is going sour on China too.

The tone has changed. Privately, Administration officials who once sought to conciliate the Chinese leadership now talk of it in sarcastic and negative terms.

“I can’t see why anybody would want to do business with the Chinese right now,” said one Administration official who deals regularly with the country. “The Chinese are pursuing their own vision of a ‘new world order,’ ” grumbled a State Department official.

More important, on a range of policy issues, the Administration is demonstrating that it is willing to go further than at any time in the past two decades to challenge and confront the Chinese leadership:

* On trade, sanctions are about to be imposed for the first time against China’s exports to this country in retaliation for China’s efforts to limit the access of U.S. firms to its market and for alleged Chinese pirating of American computer software and patents.

The trade sanctions, which would impose punitive tariffs on selected Chinese goods, could be imposed within the next month or two. “It’s going to be a shock to them,” a senior U.S. trade official said.

* On the old sore point of the continuing unofficial U.S. relations with Taiwan, the Administration promised Congress last summer that it would begin to help Taiwan gain admission to the Geneva-based General Agreement on Tariffs and Trade.

Last month, when the U.S.A.-Republic of China (Taiwan) Economic Council met in Salt Lake City, the Administration permitted two Cabinet members, Secretary of Transportation Samuel K. Skinner and Secretary of Veterans’ Affairs Edward J. Derwinski, to appear before the group. This gave a higher level of official representation to a Taiwan organization than at any time since the United States broke diplomatic relations in 1979.

* On human rights, the Administration has begun to speak out more forthrightly on behalf of Chinese dissidents. The State Department recently issued a written statement calling for amnesty for two political prisoners, Chen Ziming and Wang Juntao, and deploring the conditions of the Beijing prison where they are being held.

So far at least, it does not appear that the Administration has targeted the Chinese government as an enemy. Rather, in their growing disillusionment, U.S. officials have stopped giving China the preferential treatment it had enjoyed since the 1970s, when it was seen as a strategic partner against the Soviet Union.

“We’re treating China like India or Indonesia or anyone else,” said a U.S. official working on China issues. “In the old days, China was treated by different rules. Those days are gone.”

To be sure, despite the change in attitude toward China, Bush and his top aides have not gone as far as their congressional critics.

The Bush Administration favors continuing most-favored-nation trade status for China, insisting that the trade benefits help the United States maintain some leverage in dealing with Chinese leaders and that they help reform-minded elements inside China.

“They have done a few things, but they still haven’t made any bold moves as far as China is concerned,” said California Rep. Nancy Pelosi (D-San Francisco), one of the most persistent congressional critics of the Administration’s policy toward China.

What has brought about the change in the Bush Administration? Analysts point to four separate factors:

First, China’s strategic significance to U.S. foreign policy, at least for the next few years, seems ever smaller.

The failed coup in Moscow removed the possibility, however remote, that hard-line elements seeking to preserve Leninist orthodoxy in China and the Soviet Union might join together in some sort of militarily powerful but economically weak alliance.

“Whatever residual arguments one could make about the value of a (U.S.) relationship with China as a counterweight to the Soviet Union have now collapsed with the collapse of Soviet communism,” said Jonathan Pollack, a China specialist at the RAND Corp. “A lot of people (in the U.S. government) were attached to that belief in a vestigial way. All that disappears now.”

Second, the collapse of the Soviet Communist Party has forced the Administration and the U.S. intelligence community to contemplate the possibility that the Chinese Communist Party--once considered invulnerable--could conceivably topple some day too.

At the recent hearings on his nomination to be CIA director, Robert M. Gates hinted at this change in attitude when he said that U.S. officials have learned “some important lessons from the events of the last three or four years in terms of thinking the unthinkable.”

“Clearly we need to be thinking about alternative futures for China as well,” Gates told the Senate Intelligence Committee.

Third, with a presidential election year coming up in this country, the Administration is seeking to head off a possible attack by the Democrats on Bush’s efforts to reconcile with China. “They’re looking for ways to deflect criticism,” Pelosi said of the Administration.

And fourth, Administration officials have often been disappointed with the lack of change for the better in China and the continuing hard-line nature of many of China’s domestic and foreign policies.

China has begun to seek out new friendships with Cuba and Vietnam, two of the last remaining Communist regimes. Articles in the Chinese press denounce American foreign policy. “To safeguard its strategic interests, the United States, if necessary, will not hesitate to resort to force,” said one article in China’s government-controlled press. Another called for an end to the U.S. “colonial oppression” of Puerto Rico.

While Administration officials insist they have made progress with China on arms control, they admit that the leadership in Beijing has not gone as far as they had hoped in joining international agreements to stop the spread of missiles and nuclear weapons.

And on human rights, the Administration has begun to back off from its frequent claims of the past two years that the situation in China is gradually improving.

“On human rights, frankly speaking, some things in China are worse than they were in 1989, some things are a little better,” said one Administration policy-maker. “On the whole, it’s a question of the regime trying to be tougher on the people, but they haven’t fully succeeded.”

For their part, Chinese officials seem equally disappointed with the United States.

When Rep. Stephen Solarz (D-N.Y.), chairman of the House Foreign Affairs subcommittee on Asia, visited Beijing a few weeks ago, Chinese officials told him there would be little point in going along with U.S. requests to improve the human rights climate, because since 1989 nothing China does can help change its low political standing in Washington.

Amid such a tense climate, some experts believe that it is even conceivable that the United States and China could become direct adversaries once again, as they were in the 1950s and early 1960s.

“The possibilities of a ‘multiplier’ effect of U.S. actions triggering responses in China are quite real,” said Pollack, who recently met with Chinese officials in Beijing. “There is an element in their (Chinese) leadership which is now very discomfited with the singularity of our power position in global terms and with the power of our ideas in China. They’re uncomfortable with a world in which there is only one superpower. It makes it much more difficult for them to parlay their international situation to strategic advantage.”

At the same time, a few top U.S. foreign-policy specialists are calling for a re-examination of some of the most fundamental elements in the China policy forged by President Richard M. Nixon and Secretary of State Henry A. Kissinger two decades ago.

One of them is Lilley, the President’s old associate, who is now on a fellowship at Harvard University and is preparing for his next job in the Pentagon. Lilley said the United States has been “locked for too long into the three communiques”--a reference to the formal agreements between the United States and China, dating back to Nixon’s 1972 trip, which restrict American dealings with Taiwan.

He says the United States needs to come up with new ideas and approaches for dealing with China and Taiwan, rather than merely resting on these old policies. “You can’t just stand still,” he said. “You’ve got to move forward.”