CHINA and the United States hope to ease the new chill in their often-troubled ties. But the threat of possible weapons sanctions by the US and economic retaliation by Beijing promise tougher times ahead.
In a dizzying sequence of events that has plunged Beijing and Washington into their tensest diplomatic confrontation in six years, the two infuriated rivals are locked in a face-off over human rights and Taiwan, two long-standing irritants.
Other issues such as Chinese missile sales overseas, freezing US companies out of new business deals in the booming Chinese market, and penalizing China's trade with the US could make it worse, Western analysts say.
The new tensions, matched only by the diplomatic breakdown that followed the Chinese military crackdown on 1989 pro-democracy protests, were triggered when the US welcomed Taiwanese President Lee Teng-hui for an ''unofficial'' visit in June.
Beijing sees the visit as an affront to its position as a world leader and also as a direct challenge to its claim to the island. Beijing considers Taiwan a renegade province. Taiwan has been a flash point between the US and China since Chinese Nationalists fled to the island after being routed by the Communists in 1949.
Earlier this month, the frostiness deepened when US human-rights campaigner Harry Wu was arrested by Chinese border police after entering China from Kazhakhstan. Traveling on a valid visa issued under his American name Peter Wu, Mr. Wu, a naturalized American, was attempting to make his fourth visit to China to investigate the country's extensive network of prison labor camps. He has been charged with entering the country under false names, illegally obtaining state secrets, and conducting criminal activities. He could face a lengthy prison term or death sentence.
Also adding to the tensions is the rearrest of Chen Ziming, a dissident leader during the 1989 democracy movement. Mr. Chen was released on medical parole in 1994 at the request of President Clinton after serving a five-year prison sentence. He is believed to have angered Chinese authorities by observing a 24-hour fast and signing a petition for more democracy on the sixth anniversary of the Tiananmen crackdown in June.
Although Chinese officials have insisted publicly there will be no economic spillover from the latest controversy, Washington could pay ''a high cost'' for granting Taiwan's Mr. Lee a previously denied visa to visit the United States, says Zhou Shijiang, an analyst at the International Trade Research Institute in Beijing.
Some Western analysts say Chinese retribution was evident last week when the government sidestepped US car giants Chrysler Corporation and Ford Motor Company and selected German carmaker Mercedes-Benz to build a $1-billion joint venture to produce minivans and engines in southern China.
But other Western diplomats and businessmen say the German deal was not necessarily the consequence of frayed diplomatic relations between Washington and Beijing, as the German company had long been the front-runner for the project.
''So far, my clients don't seem to be too worried,'' says a Western banker who argues that China's strong need for overseas funds will likely limit the political fallout for American business.
''But they could become concerned if there is a dramatic deterioration,'' he says.
The threat of that happening looms as a possibility. The Clinton administration, which just over a year ago delinked China's low-tariff trade privileges from concerns over rights abuses, faces a new push in the US Congress to revoke the special Chinese trade status or trim preferential tariffs accorded Beijing.
Under pressure from Republican congressmen who say the US hasn't been tough enough on China, Mr. Clinton is also being urged to impose sanctions on Beijing amid strong intelligence reports that China has sold medium-range ballistic missiles to Iran and Pakistan despite US objections.
Almost a year after successfully leading a delegation of American businessmen to China, US Commerce Secretary Ron Brown is expected to put off his return, planned for late August or early September. And first lady Hillary Rodham Clinton is unlikely to lead the US delegation to the United Nations women's summit to be held in Beijing in September as officials here had hoped, Western diplomats speculate.
In a move to placate China in recent days, the US offered Beijing reassurances that Washington considers Taiwan a part of China but stopped short of barring the Taiwanese president from future visits as demanded by leaders in Beijing.
Chinese officials have suggested that Wu, the detained Chinese-American dissident, could be released following a formal investigation into his activities, although one Western diplomat offered that ''the situation could get worse before it gets better.''