Liu Li has never met anyone who wears the clothes she makes. For nearly two years the 20-year-old rice farmer's daughter has worked at the Chaida Garment Factory in the steamy southern Chinese city of Kaiping, stitching seams on winter jackets for such companies as Timberland. Amid the clatter of sewing machines, surrounded by mountains of down vests headed for the U.S., Liu tries to imagine the people whose wardrobes have given her a job. "They must be very tall and very rich," she muses. "But beyond that, I really can't picture what their lives are like."

Almost certainly, that feeling is mutual. Last year Americans bought clothes "Made in China" to the value of $11 billion and additional goods worth $185 billion. Yet for all the ubiquity of Chinese products in U.S. stores, to most Americans China remains a mystery. For both nations, that is unfortunate; though it does not have to, a mystery can all too easily metamorphose into a threat. Most Americans don't realize the extent to which China's future and that of the U.S. are linked. It isn't just down vests--or toys or shoes--that bind the U.S. and China together. China holds billions of dollars of U.S. debt; its companies increasingly compete with U.S. ones for vital resources like oil; its geopolitical behavior will affect the outcome of issues of key importance to U.S. policymakers, like North Korea's nuclear arms capacity. Although their political cultures are radically different, in many ways and many areas both countries essentially want the same things.

Will the U.S. come to think of China as a friend or a foe? This year, after a period of placid relations while Washington was absorbed with the war on terrorism, there have been indications aplenty that some high U.S. officials--and many ordinary Americans--find China's rise to be a source of anxiety. China, critics say, manipulates its currency to keep its goods cheap, hence destroying American jobs. China steals intellectual property from U.S. firms. China is engaged in a crash program of modernization of its armed forces.

Within the Bush Administration, there are signs of dissonance on how to deal with China. "We have the best relations [with China] that we've had in some time--perhaps ever," said Secretary of State Condoleezza Rice on her recent tour of Asia. Yet on June 4 in Singapore, Defense Secretary Donald Rumsfeld made headlines with a hawkish speech, asserting that "China's defense expenditures are much higher than Chinese officials have published." Rumsfeld continued, "Since no nation threatens China ... why these continuing large and expanding arms purchases? Why these continuing robust deployments?" The next day, Rice tried to square the circle. "I think that both happen to be true," she said. "Relations are at their best ever, and the Chinese are engaged in a major military buildup, and that buildup is concerning."

Of course, to say that China is both an economic partner and a rival is no revelation. There has been so much talk, for so many years, about the potential of China's "opening up" to the West. Still, the extent of its rise somehow managed to sneak up on the U.S. "You have an emergent power and a dominant power," says Richard Haass, president of the Council on Foreign Relations and former director of policy planning at the State Department. "The question is, Will we inevitably be enemies? No, it's not inevitable." The goal for Washington is to manage China's rise in ways that peacefully incorporate a new force into the global system. The goal for China is to protect itself from yet another false start on its quest of modernization. Neither nation will satisfy its objectives unless there is a clear-eyed sense of where China has been and where it is going. That is not simply a matter of understanding China's formal centers of power. What matters in China today is happening on the ground--in the lives of people like Liu Li.

What does it mean when Wal-Mart has become a major force for change in China, as a buyer and seller of goods but also as an employer? What does it mean when several Chinese city governments hire pollsters to gauge their effectiveness and a district leader conducts town-hall meetings and answers thousands of e-mails from the public? How should the West understand a society in which environmental protests are common and underground churches thriving--and yet in which information is tightly controlled and long prison sentences are handed out for those who transgress dimly defined laws on state secrets? Chinese officials bristle at American finger wagging and warn that how the U.S. treats China will affect Beijing's posture. For each side, finding--and maintaining--common ground will require understanding what's truly happening on the other side of the globe.

If China's rise looks scary to some Americans, from Beijing's perspective it seems very different. At last, think China's rulers, the world is being put into proper balance. After 500 years during which China fell asleep, it is once more taking its rightful place among the great powers. But most casual observers outside China don't understand that even as the nation gains respect, its people are haunted by a deep sense of past slights. China's long journey toward modernity began not because the dragon gently flexed its scaly muscles but because others prodded it with a sharp stick. When China began to open up to the world 150 years ago, it did so because gunships of the British Royal Navy, working in the service of opium smugglers, forced the imperial government to accept foreign trade. As China sees its history, the country was subjected to foreign humiliation for the next century, its territory invaded and dismembered, its people raped and massacred. Along with the foreign interventions came homegrown catastrophes: rebellions, revolutions, civil wars, famine and unspeakable cruelty. Luan, the Chinese word for chaos, is perhaps the single most important concept that the outside world needs to grasp about the new China, for the memory of the long years of chaos continues to have a profound impact on Chinese thinking today.

The opposite of chaos is stability, and for the 16 years since the massacre near Tiananmen Square in 1989, China has enjoyed more stable leadership and prosperity than at any time in the past 150 years. Incomes have grown, and millions of lives--like that of Liu Li--have improved beyond imagination. To be sure, China is not one big, bucolic Iowa; all sorts of tensions over land use and workers' rights and free speech and endemic corruption and environmental despoliation loom, and they come into view in a startling number of riots and protests--big ones too. But compared with what China has been through in living memory, these are good times.

Hu Jintao, the President and (a more important position) General Secretary of the Chinese Communist Party, wants to keep it that way. He came to power in November 2002 in the first political succession in modern China that took place without purges, late-night arrests or blood in the streets. That alone is a measure of China's new stability. The government's main focus: balancing growth between the go-go coastal areas and a sometimes shockingly poor interior, easing the movement of millions from farms to cities and ensuring that local officials do not succumb to corruption.

So far, so good. But three years after Hu took power, the way in which he intends to secure stability has become apparent--and it is not what many foreign observers expected. Many hoped he would be a reformer, allowing alternative sources of power, like the media, regional governments, independent judges and prosecutors, to balance central control. As head of the party's school for top cadres from 1993 to 2002, he had encouraged the study of other societies going through profound dislocations. In power, however, Hu has come across as more of a communist traditionalist. Within the past six months, the party has started something of a crackdown on both traditional and new media.

In speeches to the party faithful, Hu has said Western democracy is a "blind alley" for China, and he has excoriated the path to reform, with all its attendant chaos, taken in the Soviet Union by Mikhail Gorbachev. Hu's key policy initiative so far has been to strengthen, not weaken, the role of the Communist Party in Chinese life. "They believe the party is the only way that China can maintain political stability," says a China watcher in the U.S. government. "Political institutions outside the party are not to be trusted." In essence, the thinking goes, party discipline guarantees stability, which in turn breeds national strength.

The great question now is whether internal pressures or external forces will somehow throw China's rise off course. Outside its borders, the new China has plenty of friends. How could it not? Its growing markets and voracious appetite for the world's goods are making companies and their workers wealthy, from Latin American cattle ranchers to French vineyards. In the U.S., the ever increasing flood of low-priced Chinese products has enabled rising standards of living for years (even as it has made job security in some areas more tenuous).

China's well-being is predicated on continuing that flood of exports, so the U.S. has some leverage over China's policies. But beyond that carrot, the U.S.'s tools have become limited. When Jiang Zemin, Hu's predecessor, visited the U.S. in 1997, Washington could still block China's accession to the World Trade Organization (WTO), of which it is now a member, campaign against China's hosting of the Summer Olympic Games (which will be held in Beijing in 2008) and tie access to the U.S. market to improvements in human rights (unlawful under WTO rules). Now, says Chu Shulong of Tsinghua University in Beijing, "the U.S. is no longer so important for China's national interest." (For those skeptical of that claim: between them, members of China's Politburo Standing Committee have made 36 trips to 77 countries since Hu took over; only one of those trips--by Premier Wen Jiabao in 2003--was to the U.S.)

China's position could certainly change. In the past six months, a series of rows with Japan have reminded Asians that the two giants, with a bitter shared history, have never been at ease with each other. Even more potentially worrisome is China's determination to bring Taiwan back into the fold. The island to which defeated Nationalist forces retreated at the end of the civil war in 1949 is now a thriving, culturally rich democracy--the freest society that Chinese people have known in their long history. But to Beijing, Taiwan's status is a constant memory of the years of foreign humiliation. The National People's Congress, China's docile parliament, recently passed a resolution authorizing military intervention if Taiwan declares formal independence, but the U.S. has pledged to defend Taiwan from unprovoked attack. In the past few months, relations between Beijing and Taipei have improved after a dangerously frosty winter, but the tensions across the Taiwan Strait will require constant--and subtle--engagement by the U.S. if they are not to flare up again.

Perhaps the greatest risk to China's continued rise--and to the way it behaves internationally--comes from within. The extraordinary changes in the past 20 years have brought prosperity to many, but to scores of millions, the wealth so evident in cities like Shanghai and Beijing is a prize continually being yanked out of reach. Economic reforms have reduced the entitlements to a steady job and basic health care that were enjoyed by earlier generations. "Life in China is much more uncertain now," says Li Yinhe, a sociologist at the Chinese Academy of Social Sciences in Beijing. "Economic instability can cause social instability."

That is why the most important figure for China's future and in many ways for the Sino-U.S. relationship is not Hu--nor Rice, Rumsfeld or any other U.S. leader. It is someone like Liu. If her life continues to get better, the extraordinary challenges facing China's leadership will be ameliorated. The best news possible for high policymakers in Washington is that a 20-year-old girl in Kaiping is happy. Between bonuses and overtime, Liu makes as much as $120 a month, nearly twice what she says she would have made if she had stayed closer to home, and she saves more than half of it. It's a tough life, but Liu and her friends in the factory talk about their "coming out" from the villages as their chance to see the world. She shares a room with five other women, and at night in the dorm she and her friends test the freedoms of life away from their parents: wet towels snap, clusters of card players shriek and giggle. Liu doesn't expect to sew seams forever. In two years she hopes to save enough to study for a better job and move on. "Who knows," she says, gazing at a Timberland vest, "someday maybe I'll meet someone who wears one of these." If that ever happens, perhaps they will be friends. --Reported by Hannah Beech/Shanghai, Chaim Estulin/Hong Kong, Matthew Forney/Beijing, Susan Jakes/ Kaiping and Elaine Shannon/Washington

China’s New Heights

CHINA BY THE NUMBERS

•Mobile-phone text messages sent last year: 218 billion

• Percentage of the world’s ice cream consumed: 20%

• Percentage of Chinese with a positive view of U.S.-China relations: 63%

• Communist Party officials disciplined for corruption last year: 170,850

• Percentage of counterfeit goods seized at U.S. borders that come from China: 66%

• World ranking in automobile deaths: 1

• Percentage of urban Chinese with a college education: 5.6%; Rural: 0.2%

• Estimated rural Chinese who have never brushed their teeth: 500 million

• Estimated ballistic missiles pointed at Taiwan: 700

• Smokers: 350 million

LIVING LARGE

China has more than four times the population of the U.S., nearly all of it concentrated in the eastern half of the country

China - 1.3 billion

U.S. - 295 million

Sources: Access Asia, TIME research; map data from LandScan/UT-Battelle

$859 > Annual disposable income of a resident of Lanzhou. A Shanghai resident has more than twice that: $2,010

63,900 > Number of retail outlets opened in Chongqing, 1998-2004

1.3 million > Number of private cars in Beijing, up 140% since 1997

300+ > Number of skyscrapers in Shanghai. In 1985 there was just one

620% > Shenzhen’s population growth since 1990, from 1.67 million to 12 million

He was a surprisingly unassuming man for such a titan among statesmen. His round, cherubic face belied a will of steel that had launched his vast land on the most remarkable transformation of the modern age. When death came to Deng Xiaoping last week, at 92, he was nearly blind, deaf, virtually invisible and the honorary chairman of only the China Bridge Association. Yet even in his long political twilight, he still cast a shadow over the nation, at once reassuring and restricting the Chinese as they march uncertainly toward the 21st century.

The seismic changes Deng set in motion were daring, thrusting one-fifth of mankind in a Great Leap Outward from the crushing, dogmatic isolation of Maoism into a quasi-capitalist economic miracle. The China that comes after Deng will grow inexorably from the complex of roots he planted firmly in the nation's soil. Yet his work is unfinished, and the next China will have to come to terms with the fundamental contradiction in his hybrid creation. Even as the country embarked on a headlong pursuit of free-market economics, Deng insisted it be done under the iron fist of a rigid communist political system. The people would be free to get rich but not to challenge or change their leaders. Economic liberties would have to coexist with political bondage. China would continue to be ruled by men, not laws.

When this frail old man finally succumbed to the Parkinson's disease and lung ailments that had sparked rumors of his demise for years, most Chinese registered barely a sigh. Black-clad television announcers proclaimed his death just a few hours after it occurred, while traffic continued to thread through Tiananmen Square. The casual manner in which Beijing residents went about their daily routines offered eloquent proof that the Chinese have accepted their leader's mortality and long since discounted his loss. "We are at ease with the thought that things will be all right without Deng," said Beijing writer Yin Zhixian. "It's unlikely that there will be major changes, because everyone is a beneficiary of Deng's policies." Thirtyish Zhu Xun, manager of the Shanghai office of a German air-conditioning firm, raised his glass of white wine at the chic Golden Age club in a fitting toast: "Thank you, Comrade Deng."

Though he continued to wield an almost mystic influence from his private Beijing compound, Deng's gradual withdrawal from overt power allowed his successors to prepare for an orderly transition. He was, like the ghosts Chinese revere, a force the current leaders dared not speak of disrespectfully. The steady rise in personal prosperity has persuaded China's citizens that their new leaders will continue to follow in Deng's footsteps without a major change of direction.

Yet for all their outward calm, the Chinese are as anxious as the rest of the world about their future. Jiang Zemin, State President, head of the party, chief of the military committee, the "core" of the new collective leadership, was ordained by Deng eight years ago and has been running the government pretty much ever since. But history has never been kind to China in its moments of transition from one ruler to the next. And though there is confidence that these new leaders are firmly set upon the path of reform, there is equal doubt that they have the courage, stamina and leadership to complete the journey.

Jiang finds himself thrust into the limelight in what already promises to be a watershed year in Chinese affairs. U.S. Secretary of State Madeleine Albright will pay her maiden call at his office this week. Despite the official six-day period of mourning, Beijing quickly cabled Albright that they wished the meeting to go ahead. "They want to take her measure, and they want to show that it's business as usual," says a senior State Department official. Vice President Al Gore is expected in March. The national parliament opens its annual session that month, and the 15th Party Congress, the important meeting held every five years to fix policy and confirm leadership positions, is scheduled for the fall. Trickiest of all, Hong Kong reverts to Chinese control on July 1 and will be the world's litmus test of China's behavior. How Jiang handles this rush of events will be weighed by every domestic political rival, Chinese citizen and foreign power as a measure of his suitability.

"TO GET RICH IS GLORIOUS"

China, Deng told President Jimmy Carter in 1979, would need a long period of peace to realize its full modernization. To accomplish that, he added, China would also need Western money and know-how. Flinging open the doors, he led China on a capitalist drive from which there is no turning back.

As recently as 1994, Gao Feng, now 47, earned $100 a month as a machine repairman in a state-run textile factory in Shanghai. Then the nearly bankrupt firm laid off 300 workers, promising Gao 300 yuan a month to stay home. "These changes offered new opportunities," says Gao, and so he cobbled together $1,100 and enrolled in a course for taxi drivers. Gao now drives a shiny Santana cab for another state enterprise, and his take-home pay is pegged to his own moxie. On average, he says, he earns $240 a month plying his route from 5:30 a.m. to 9 p.m.

All Shanghai is caught up in entrepreneurial energy. In the mid-'80s, while southern provinces like Guangdong and Hainan turned Deng's experiment in "special zones" into a capitalist boom, Shanghai's decrepit state industries stagnated, its infrastructure disintegrated, and its people sulked. The economic revolution wasn't reaching far beyond a few chosen cities. Recalls Li Bo, a Shanghai economist who runs a consulting firm for German companies: "The most popular expression in 1991 was 'Gao bu hao le'--everything's hopeless."

Everything changed in 1992. Deng emerged from retirement to exhort his successors and lagging Chinese cities to "dive into the sea" of capitalist commerce. Shanghai dived in, reviving all its old spunk and luster. The metropolis is furiously rebuilding, attracting foreign investment, remaking itself into an Asian hub of finance, trade and culture. Officials say they will quadruple the city's industrial and agricultural output by the year 2000.

Today Shanghai is one vast construction site. More than 20,000 projects, including 5,000 major ones, are under way as 27,000 companies build bridges, tunnels, flyovers, ring roads, hotels, villas, golf courses and public housing. The "crane," quips Vice Mayor Zhao Qizheng, should be designated the city's official bird.

Chinese capitalism was born in the rural farmlands when Deng permitted the provinces to dismantle their communes and collective farms. Peasants raced to divide up plots of land for private tilling, harvesting record crops and selling them in private markets. In no time, residents of tiny villages like Fenghuang in central Sichuan province had wrought a green revolution. By 1984 the village was producing more than $1 million worth of rice and a range of side products, including a famous brand of rice wine. The once impoverished residents were now earning close to $200 a year, enough to begin replacing their mud-and-straw huts with solid brick houses.

Economic liberalization spread through the land, sparking national growth that has averaged 10% a year for the past 18 years. Millions of Chinese go home each month with bulging wallets, accumulating private wealth in stocks, bonds and bank deposits that has jumped sixtyfold since 1980. The average per capita income last year stood at about $250, but people live far better than the number implies, since the prices of goods and services remain relatively low. The Chinese can buy cars, appliances, TVs, pagers, cell phones, computers--all the expensive gadgetry of advanced industrialism. Private enterprises have expanded to make up 13.5% of the economy, and joint ventures account for 38%; state-run production has dwindled to 48%.

China has not merely joined the world community but has become the globe's third largest economy. As the trend continues, local capitalists and foreign investors will corner more than a quarter of the country's production by 2000. China raked in nearly $40 billion in capital from abroad last year and lures more foreign investment than any other developing nation. The country is already a formidable force in international trade, an export powerhouse that ranks 11th in the world.

Economic progress has propelled once unthinkable social changes. The strict, monochromatic way of living has yielded to a stunning variety of colorful life-styles. Big Brother is no longer a pervasive presence. People are free to wear what they want, work where they want, live where they want, travel where they want. They enjoy vastly greater access to information of all sorts. They can choose whom to marry and when to divorce--though a couple may still have only one child. They may air their views, gripe and disagree with one another or the authorities--as long as they don't organize protests or insult top leaders.

There is even the beginning of grass-roots democracy. With little fanfare or publicity, peasants in villages across China are choosing local leaders by secret ballot from a slate of candidates that may include not only Communist Party members but also individuals with no affiliation. The farmers can unseat the bums who mismanaged the local electrification project or the crooks who pocketed irrigation fees and elect the "capable people" of their choice. By 2000, all of China's more than 1 million villages will operate under the system. Some say these local elections are diluting the Communist Party's power. And the party leaders now have a vested interest in the economy's steady advance. As their Marxist ideology loses all legitimacy under the wave of money that has finally turned the country, after 150 years of sullen resentment, into a strong competitor with the West, their very survival seems to ride on their ability to keep the economy going.

"REFORM MUST BE INSISTED ON FOR 100 YEARS"

China before Deng may have been poor, but everyone was equally in need. Now, around the corner from Shanghai's glittering Golden Age club, those forgotten by the economic boom gather under the eaves of the central railway station. There, a "floating population" of the destitute from far-flung corners of the nation arrives by the carload, hoping that Shanghai will be the land of plenty. Ran Yigang, a scruffy 23-year-old with the thick hands of a farm laborer, got off the train last week from Anhui, one of the poorest provinces. All day he searched in vain for construction work, then collapsed on a bag of clothing in front of the station. He considered whether to take a room for $2.50, a price he considers usurious, or hop a train in search of work elsewhere. "I wonder how people here get so rich," he says.

Deng's commercial revolution is dangerously incomplete. "China is like a movie set," says Mineo Nakajima, one of Japan's leading Sinologists. "It looks wonderful, but it's all an illusion." Many of the most difficult issues were put on hold while Deng lived, but the new regime cannot hope to ignore these malignancies indefinitely.

Even though 800 million peasants were the first to thrive on economic reform, the urban boom has left many of them far behind. Per capita income in the countryside is only $190 a year, about 40% of the urban average. Some 65 million struggle to survive on incomes below the official poverty line of $64 a year. The hinterland clamors for a bigger share of the pie, and historically, rural poverty has been the underlying cause of political unrest. The floating population of desperate job seekers pouring into China's cities has reached 100 million. While they provide the cities with cheap labor, they have stripped the countryside of its ablest workers and are blamed for the wave of crime that plagues urban neighborhoods.

As the gap between rich and poor individuals yawns, so does the divide between wealthy and impoverished provinces, creating competing regional principalities that threaten the control of the central government in Beijing. The wealthy Meccas on the coast routinely ignore orders from the national authorities, their aggressive technocrats think and act according to their own rules, and power flows where the money goes.

A true market economy cannot emerge fully until the government does something about its ailing state enterprises. These decrepit firms, employing some 100 million workers, are swamped by debt, surplus labor and bloated inventories. Their out-of-date equipment and Marxist management, corrupt and incompetent, make them hopelessly uncompetitive. Half the 100,000 enterprises operate at a loss, and one-third barely turn a profit. At one time or another, half of all state employees have been furloughed or have had their pay or hours cut. Workers earn most of their income moonlighting for private firms.

Yet no one in Beijing has dared face the high-risk social and political consequences of cutting off the subsidies that keep these plants working. Instead Beijing has been pumping billions of dollars into them to stave off their bankruptcy. Shutting down the biggest, most inefficient, monopolistic enterprises would throw millions out of work. Already, wildcat strikes and noisy demonstrations have disrupted several regions.

Corruption is biting into everyone's purse as petty officials, communist bureaucrats, soldiers and policemen, middlemen and hucksters greedily siphon off anything they can stuff into their own pockets. The protests that rocked the communist government in 1989 were in part fueled by popular resentment of endemic financial chicanery. Today the failure to establish political or judicial systems that can check corruption is stirring widespread public anger once again.

Meanwhile, the military is demanding a bigger share of the nation's resources. Tens of thousands of officers and hundreds of thousands of soldiers are busily engaged in the pursuit of commercial interests from chicken farms to karaoke bars as part of an almost comical program of self-financing, but the top brass is not joking about its determination to modernize.

Deng always put revamping the armed forces last among his Four Modernizations, and he demobilized more than a million soldiers from the People's Liberation Army. But the 2.9 million left still operate more like a force trained to envelop an enemy with sheer numbers than one capable of responding rapidly with 21st century firepower. After watching a whole new way of warfare in the Persian Gulf, senior officers went on a buying spree. They came home last year with 50 Russian attack jets, two Russian destroyers, four diesel submarines and 70 fighter planes.

The idea is to convert the defensive People's Army into a modern, mobile attack force capable of projecting power beyond China's borders. Top priority is a blue-water navy to carry troops into areas remote from the mainland. But the Pentagon estimates that it will be at least 20 years before China can rival the U.S. Navy, and it is an open question whether any regime can bear the expense of seeking military superpower status.

"SOCIALISM WITH CHINESE CHARACTERISTICS"

Deng used that maxim to mean many things, but at its most fundamental it defines the base line of his blueprint for reform: a stubborn, inflexible resistance to political change. A hard-liner all his life, he was determined that economic liberalization would not sweep away the Communist Party's monopoly on power. He committed his successors to the relentless repression of democracy. Deng and some of the men now in power ordered the tanks into Tiananmen Square in June 1989 to crush the nascent democracy movement beneath a heap of bloody bodies. Since then, virtually all of China's political dissidents have been jailed or hounded into exile.

The prime ambition of the new leaders is simple: stability. They are not alone in that desire. However cynical the Chinese people have become about Marxism, they, like the leadership, profoundly fear disorder. The terrible decades under Mao taught the entire nation the very real dangers of anarchy, and while the Chinese now want to concentrate on private concerns, they want to do so amid political stability and public order. That allows the regime to maintain a degree of authoritarianism quite abhorrent to Westerners. Jiang and his cohort can probably maintain Deng's dual system of economic progress and political rigidity as long as people's material expectations are being met.

Yet the odds against achieving full modernization without losing political control are daunting. The party's one remaining claim to legitimacy rests on its ability to deliver sustained economic growth and rising incomes. Once people are rich and fat enough, they begin to demand a say in their own governance. What no one can predict is how long China can continue to achieve economic advances without modifying--or being forced to modify--its repressive political system.

One critical indicator to watch is any "reversal of verdicts" on the Tiananmen Square massacre. Ever since that debacle, the regime has declared it the justified suppression of a counterrevolutionary riot by a bunch of hooligans. As long as Deng was alive, no official revisions were possible. But many wonder whether the new leadership will make a bow to all those pressing for political liberalization by changes in the official attitude toward that traumatizing event.

"IT DOESN'T MATTER WHETHER A CAT IS BLACK OR WHITE, AS LONG AS IT CATCHES MICE"

Deng's famous proclamation is usually interpreted as a defense of pragmatism. But it can just as easily be applied to his idea of leadership: not a cult of personality but a test of efficiency. The bottom-line challenge for his chosen heir, Jiang Zemin, is to prove he can carry on Deng's pragmatic work.

Up until Deng's passing, Jiang & Co. had been able to wrap themselves in the mantle of the great man's authority. Now Jiang must cement his own claim to it, and many wonder if he has the strength and charisma to sustain a cohesive leadership or the moral and political pre-eminence to dominate his rivals and his country. He has shown growing self-confidence and has managed to consolidate his base more successfully than anticipated; he is unlikely to be challenged right away as party or national boss.

Jiang's biggest problem is that he is only first among equals, and, says Winston Lord, former Assistant Secretary of State for East Asian and Pacific Affairs, "he can't just issue edicts. He has to marshal a consensus." That consigns him to continuity and caution rather than bold decision making in the manner of Deng. One day after the Paramount Leader's death, Jiang issued a statement promising to turn "grief into strength" in "unswerving" pursuit of Deng's policies. The process already in place dictates avoiding radical shifts in economic and political policy at home and minimizing the chances of miscalculation abroad.

China has perhaps become too complex to be run by the old men in Beijing. Unfortunately, Deng left no system of governance to move China from the rule of men to the rule of laws. The country's government is based not on a constitution but on a fluid dynamism where power shifts with personalities and personal alliances. While the Chinese people have learned to fear the depredations of megalomaniacs, they are also afraid that their country will fall apart without a demigod at the helm.

The outside world is just as ambivalent. No matter how prepared China was for Deng's passing, there will be new tensions inside the country, and that promises continued tensions between Beijing and Washington. Even with Deng, says a senior State Department official, "it was a difficult relationship to manage. The prickliness on the Chinese side won't change." U.S. analysts think Jiang is unlikely to advance into greater intimacy with the U.S., yet economic progress depends on keeping the relationship active and friendly.

Jiang has been sending warmer signals to the White House for several months and has been answered in kind, but none of the issues that breed conflict--human-rights abuse, nuclear proliferation, trade barriers, Hong Kong, Taiwan--have been settled. American intelligence agencies view the future darkly and has advised the White House that Jiang's coalition may be only a brief transition before a stronger leader takes power. Says an American intelligence official: "This is a leadership that exhibits a good mixture of hubris and insecurity."

Not surprisingly, the rest of the world reacts in schizophrenic ways to such contradictory impulses. The U.S. has lurched back and forth between accommodating China to gain commercial advantages and condemning its ugly record on human rights and its erratic behavior toward its neighbors. Its repressive treatment of dissent ignites America's cold war instincts. Beijing has not fully resolved what role it wants to play in the world, and that has made it harder for other nations to judge it fairly.

In almost direct proportion, China's confusion about itself leads to confused treatment by other nations. Not only for those inside the country, but for the U.S. and the rest of the outside world, the topography of the next China remains a very troubling question mark.

--Reported by Sandra Burton/Hong Kong, Dean Fischer and Douglas Waller/Washington and Jaime A. FlorCruz/Beijing

On history's calendar, last week had been circled in advance. It was set aside, blocked out ahead of time for a grand show involving two men who wished to immortalize themselves through a feat of statesmanship.

History, however, takes no reservations. The efforts of Deng Xiaoping and Mikhail Gorbachev to capture the world's attention were swept before them by one of those rare and indescribable upwellings of national spirit. Events within the Great Hall of the People, where the leaders set about mending a 30- year rift, received some note. But it was the events in Tiananmen Square, where a hunger strike by 3,000 students swelled to a demonstration by more than a million Chinese expressing the inexpressible -- a longing for freedom and prosperity -- that transfixed the eye. On Saturday, as government troops were trucked into Beijing to end the protests, China was plunged into a turmoil unrivaled since the Cultural Revolution more than two decades ago.

The confrontation between the people of the People's Republic of China and the government created a surreal deadlock -- chaotic yet tranquil, jubilant but darkly ominous. Using lampposts and bicycle racks, bands set up barricades on the avenues leading into the heart of the city. Word spread of a military plot to deploy forces via the Beijing subway system, but the plan went awry when transit workers decided to back the striking students and shut down the power supply. "The people will win!" many exclaimed. Still, the presentiment of danger always lurked, and several dozen people reportedly were injured in clashes with police and troops. On one side of Beijing, flatbed trucks were seen filled with soldiers armed with AK-47 assault rifles. As military helicopters, a rare sight in the city, swooped overhead, people below looked up and shook their fists. Any attempt to disperse the crowds and end the demonstrations would seem to require massive firepower. The protesters waited, one minute hoping that Deng would come to his senses and call off the troops, the next minute dreading that the command might be issued to clear the streets no matter how much blood would be spilled.

Split by factional strife and confronted by a clamorous, hostile public, the Communist Party leadership faced its most serious challenge in the state's 40- year existence. Every hour seemed to bring a fresh rumor, especially after the government ordered the restriction of China Central Television and the end of foreign television transmissions. Deng remained very much in charge, stripping power from Zhao Ziyang, the Communist Party leader who only days earlier had been host of a banquet for Gorbachev. Premier Li Peng assumed control of the party as well as the government, but the bond between the Chinese people and their leaders snapped so violently last week that Li may end up representing a constituency of three hard-liners: himself, Deng and President Yang Shangkun.

Seldom are glory and dread quite so thoroughly mingled for so many. And seldom is history played out on such a grand scale, minute by minute, before such an enormous global audience. Though the drama had been building all week, the countdown began early Saturday morning, after Li announced in a televised speech that "we must end the turmoil swiftly" and ordered troops into the city. While Li's raspy voice echoed from Tiananmen Square's loudspeakers, sirens wailed and blue lights flashed as an ambulance arrived to take away yet another weakened hunger striker. A full moon, shrouded in mist, gleamed above the Great Hall of the People. Some slept, some talked, and all waited for what the new day would bring.

But already the city of 10 million had begun to stir. Supporters of the students banged pots and pans to wake neighbors and send them into the streets with a mission: stop the trucks and armored personnel carriers heading toward Tiananmen, the vast square that has been the center stage of Chinese politics for more than three centuries. Because troops stationed in Beijing might not comply with orders out of sympathy with the hunger strikers, the forces were drawn from nearby provinces. Many of the soldiers were peasant boys who had spent the previous week in camps outside the city. Forbidden to read newspapers or watch television, they were not aware of how much support the hunger strikers had attracted.

They quickly learned. Residents swarmed around the military vehicles, stopping them in their tracks. Sometimes they sat on the hoods; sometimes they simply lined up before the convoys. Often they covered the windows with glue and paper, and slashed tires.

Then they lectured the soldiers. "We are people and you are people! Why do you have no feelings?" a demonstrator screamed. "You should think about what you are doing," another exhorted a truckful of soldiers. At the intersection of Gongzhufen, five miles west of Tiananmen, thousands flooded around a convoy of 50 trucks, bringing food, water and pleas for the soldiers. Urged a young woman: "The students are for the people. Please don't hurt the students."

Some vehicles backed up and departed, the soldiers flashing victory signs. Other trucks, hundreds of them, just sat where they were, blocked by thousands of protesters. On the faces of some of the young troops, tears glistened.

Then at 10 a.m. the government announced that all satellite dishes operated by foreign television networks would be shut off. Viewers around the world watched in amazement as the minutes ticked by, concerned that as soon as the plug was pulled, the crackdown would begin. By noon Saturday in Beijing, all live broadcasts had ceased.

In any country at any time, such a confrontation between power and protest would be extraordinary. In China, a nation whose tradition is suffused with respect for authority, last week's outpouring of discontent was nothing short of revolutionary. No major power in the postwar period has ever been so rudely shaken -- rocked, in fact, to its foundation -- by the dissent of its populace. Still, on the faces of the hunger strikers in Tiananmen Square and of their millions of supporters around the country, the message was clear: China had crossed a threshold into a new era, where the future was entirely and terrifyingly up for grabs.

The ouster of Zhao, who was rumored to be under house arrest, was the most telling proof of a rift in the leadership between conservatives and reformers. According to some sources, Zhao offered to resign when his proposals to + accommodate the students were rejected by the Politburo Standing Committee, the highest policymaking body of the Communist Party. Others in Beijing claim that the party chief's fall, which could well presage a purge of other liberal reformers, came partly because of remarks he made during a remarkable predawn visit with Li to the hunger strikers on Friday.

The Premier left quickly, but Zhao stayed on. A proponent of rapid economic reform, Zhao was well aware that his predecessor, Hu Yaobang, supported political reform and was sacked for not moving quickly enough to crush student demonstrations more than two years ago. (Hu's death on April 15 sparked the first demonstrations of the past tumultuous month.) But in Tiananmen, Zhao did not go out of his way to avoid Hu's mistake. His eyes welling with tears, he acknowledged the patriotism of the students. "I came too late, too late," a student quoted him as saying. "I should be criticized by you."

If Zhao's remarks to the students finally precipitated his fall, they were apparently not the only reason. In his talk with Gorbachev, telecast live to millions of Chinese on Tuesday, Zhao told of a secret party agreement specifying that Deng, though semiretired, was responsible for major party decisions. The document, crafted in 1987, was a compromise that paved the way for the retirement of a clutch of old party conservatives. That disclosure got Zhao in trouble less because it was made to the representative of an old enemy nation than because it signaled to the viewing audience that resentment of the government's treatment of the hunger strikers should be directed at Deng. Zhao's effort to distance himself from the government and Deng was, the Politburo apparently judged, inexcusable.

Zhao's dismissal removed an obstacle to the coming crackdown but did little to help the government restore order. If anything, it probably widened the chasm between state and society. Though Zhao was originally a protege of Deng's, his popularity rose because the public knew he opposed suppressing the demonstration. His eviction from power further alienated those already hostile to the Communist Party. It also narrowed the party's options for restoring order, making force seem virtually the sole choice.

The riotous bloom of people power, Chinese-style, that took hold of Beijing last week began as a movement almost exclusively of students. But in one of those extraordinarily rare and historic occasions -- it was Karl Marx who gave such moments the classic definition "revolutionary praxis" -- a kind of instant solidarity appeared last Wednesday. It bound together the disparate groups -- students, workers, professionals, academics -- whose union China's leaders had long feared.

When it happened, suddenly a million or more marchers were streaming into Tiananmen, perhaps ten times as many as had been there the day before. It was the largest demonstration in modern Chinese history. People poured out of factories and hospitals, the Foreign Ministry and kindergartens. And not just in Beijing. By midweek the ferment had spread to at least a dozen other cities, with another hunger strike taking place in Shanghai. In some provincial cities, plans for a general strike were reported.

At times, Tiananmen looked like the site of a corporate jamboree: supporters of the hunger strikers paraded around the square, their placards and signs bobbing up and down, proclaiming the presence of CAAC (China's civil airline), CITIC (China's largest investment company) and PICC (people's insurance company). Held aloft beside them were the ubiquitous signs inscribed sheng yuan (support the students) or HUNGER STRIKE -- NO TO DEEP-FRIED DEMOCRACY. Other signs had a distinctly American provenance. I HAVE A DREAM, said one, echoing Martin Luther King Jr. Another amended the words of Patrick Henry: GIVE ME DEMOCRACY OR GIVE ME DEATH.

Even if some of the demonstration's rhetoric was borrowed from America, it was the Soviet Union and, more specifically, Mikhail Gorbachev, whose presence counted more than any other. Countless banners lauded PIONEER OF GLASNOST, while posters with his portrait declared him AN EMISSARY OF DEMOCRACY.

For Gorbachev, who came to Beijing in his guise of Triumphant Conciliator, the demonstrations, which hailed his other persona of Democratic Liberator, were something of an embarrassment. The contrast with the treatment accorded Deng, once recognized as a great economic reformer and the author of China's recent prosperity, could not have been starker: huge effigies were paraded around with placards saying DOWN WITH DENG XIAOPING.

Despite the palpable anger at the party leadership, the spirit of much of the week-long demonstration was exuberant, as though a long-silent nation had again found its voice. Acrobats tumbled, children sang and banged drums, and musicians from both the Central Philharmonic and a rock band performed to offer the students "spiritual uplifting." A pack of close to 200 Beijing ) motorcyclists, many of them getihu (private entrepreneurs), roared along Changan Avenue, which leads into the square, their girlfriends sitting behind them, clinging tightly.

With spirits running so high and the crowds so thick, the total absence of violence up until Saturday bordered on the miraculous -- a testament to the skill of the demonstration's young organizers. "This was not an explosion from nowhere. This had been building for a long time," explains David Zweig, an assistant professor of government at Tufts University's Fletcher School of Law and Diplomacy. Even so, he adds, "it is remarkable how unviolent it has been."

Behind the street theater, though, a profound seriousness pervaded Tiananmen, born of the knowledge that people were prepared to die for democracy. Construction workers and medical volunteers erected a makeshift clinic, using scaffolding and canvas, as doctors and nurses ministered to the hunger strikers, some of whom had sworn off water as well as food and were wilting rapidly in the warm weather. The strikers were given glucose solutions, intravenously or orally. When the weather turned foul on Wednesday night, they were moved inside buses that had been brought to Tiananmen Square by the Chinese Red Cross.

All along, the wail of sirens was the week's background music, as ambulances ferried the sick to hospitals. Such efficiency was another sign of the students' organizational abilities: while central Beijing ground to a standstill because of the crowds that thronged to the square, the demonstrators, using packing string and their own bodies, cordoned off lanes so the ambulances could always get through. Many hunger strikers made the trip out; almost as many came back to resume their fast once they felt well enough to do so.

More than anything else, this drama of so many endangering their lives for a common good triggered the vast outpouring of solidarity from a people used to tending to their own.

The forbidding gap between private lives and that distant sense of a common ground was first bridged on April 26, when 150,000 people flooded the square to show disapproval of an inflammatory People's Daily editorial that denounced the students. "That was a major breakthrough in Chinese modern history," says Roderick MacFarquahar, director of Harvard's Fairbank Center for East Asian Research. It marked the "first time since 1949 that a demonstration by society against the state was made successfully in the face of a powerful government."

The achievement almost proved short-lived. As the number of demonstrators in the square dwindled to nearly none, the students decided to employ one of civil disobedience's most sacred weapons, the hunger strike. With a large contingent of foreign press on hand for the Gorbachev visit, the decision seemed a brilliant public relations ploy. But the choice of tactics also harked back to the sensibility of a much earlier age.

"The students have struck an ancient chord in Chinese history," explains Thomas Bernstein, a China scholar and chairman of Columbia University's political science department. "It is the idea of the scholar-official who remonstrates with the emperor about some evil in the kingdom that the ruler should put right. The emperor won't listen, and the scholar-official takes his own life as a witness, or sacrifice, to the higher good." By casting themselves in the role of the scholar-official, the students have become the bearers of that tradition.

All but eclipsed by the rebellion was the Sino-Soviet summit, an event whose significance dropped to that of a sizable footnote. What was intended as an elaborate celebration of China's assured and independent standing and the Soviet Union's new civility in the international arena became incidental entertainment beside the pro-democracy demonstrations. Early on, Mikhail Gorbachev quipped about his comeuppance. At a meeting with President Yang, the Soviet President remarked, "Well, I came to Beijing and you have a revolution!"

He did not know how truly he had spoken. Although the four-day visit became a botch of hurriedly changed venues, the minuet of diplomacy went on within the whirlwind. Commented a frustrated Soviet embassy official at the welcoming banquet for Gorbachev on Monday: "Everything has gone smoothly today. The only thing lacking was information about the time and location of our meetings and whether they would take place on time or ever."

During a meeting on Tuesday with Zhao, Gorbachev remarked offhandedly, "We also have hotheads who would like to renovate socialism overnight." Well before leaving, though, he must have been informed of the gravity of the situation by his staff, since he was later more deferential to the students, carefully pointing out that a "reasonable balance" had to be struck between the enthusiasm of the young and the wisdom of the old.

The talks went well, if not spectacularly. For Gorbachev, the crucial tete- a-tete was with Deng, who had forced him to wait three years for the meeting, a ploy in a cunning strategy to further Chinese aims such as a reduction in Soviet armaments and a withdrawal from Afghanistan. Their lunch Tuesday was cordial and uneventful. The high point came when Deng upstaged his visitor, the great upstager, by beating him to the historic punch. Just as the press corps was about to file out of the room where the two had met, Deng proclaimed, "Because the journalists have not left us yet, we can publicly announce the normalization of relations between our two countries." Thus ended, at least officially, 30 years of antipathy, a period in which relations were icy at best and at times threatened war between the two Communist giants.

The declaration was a fait accompli long before Gorbachev's arrival in Beijing. Surprisingly, there were no further major achievements. While Gorbachev vainly tried to keep up his Asian charm offensive by spinning visions of joint industrial projects and border links, the Chinese were preoccupied with the ferment in Tiananmen. What had been billed as the 84- year-old Deng's swan song became, instead of a moment of glory, an ordeal of damage control. Hence, there was no breakthrough on Cambodia, where there is an urgent need for a power-sharing arrangement between the Soviet-backed Phnom Penh regime and the Chinese-supported opposition coalition led by Prince Norodom Sihanouk.

If the summit achieved less for Gorbachev than he had hoped, it did produce one fascinating intellectual exchange. In his Tuesday-afternoon meeting with Zhao, Gorbachev reflected at length on socialism and reform. The two seemed warmly disposed to each other and sympathetic on matters of theory. They agreed that democracy is compatible with a one-party system, provided it exists in a state ruled by law. And they concurred that thoroughgoing reform was the only answer to the disgruntlement of dissenters. Zhao, so long chary of the subject of political reform, ventured some fateful remarks on the topic. "Political structural reform and economic structural reform should basically be synchronized," said the Chinese leader. "It won't do if one outstrips the other or if one lags behind the other." The words, could they have heard them, might have made student demonstrators cheer.

At the heart of the Tiananmen spectacle were some troubling questions: What exactly did the hunger strikers and their supporters want? Did they even know?

Several of their objectives are clear. One is a clean sweep of China's rampant corruption. The demand seems straightforward enough, but implied in it is an attack on what the protesters see as the abuse of power by top party officials. Virtually all of them have been accused of nepotism. Li Peng is viewed as a beneficiary of nepotism since he was an orphan raised by Zhou Enlai.

Another demand is for a free press, which is largely related to the drive against corruption. Investigative journalism is regarded in China as the foremost tool for rooting out corruption. Thus far, the government has confined journalists to relatively small cases, protecting upper-level party members. The value placed on a free press was underscored by one of the most astonishing aspects of the demonstrations. The ordinarily staid party organ, People's Daily, broke with long-standing practice and reported fully on the protests before Li announced a crackdown. Central China Television did so as well, with one of its news anchors -- incredibly -- broadcasting news of the student leaders' demand that Deng step down.

Beyond these immediate wishes of the crowds, the picture becomes fuzzy. Democracy, the rallying cry of the demonstrators, is an ambiguous word. For some of the protesters, who have no experience and little knowledge of democratic practices in other countries, democracy meant the opposite of everything associated with Communist Party rule. "They can't enumerate concretely what they want," says a diplomat in Beijing, describing the antigovernment movement as fundamentally a "scream of the damned." As Grace, 19, a pig-tailed student who spent Friday night in Tiananmen Square, put it, "We think everything must change."

The demands may be amorphous, but there can be no doubt about the passion, as evidenced by the willingness of ordinary people to obstruct tanks and of hunger strikers to court death. If anything, the absence of an ideology with specific long-range aims indicates just how powerful is the public revulsion at the party and the entire status quo. The immediate reasons for the discontent -- the government's condescending treatment of the student demonstrators and its general repressiveness -- are clear. But the anger also stems from the less political aspects of everyday life. Economically and socially, China is experiencing many of the dislocations that typify an era of revolutionary change. The overall effect is one of widespread frustration and ^ rising expectations. "It is not always when things are going from bad to worse that revolutions break out," Alexis de Tocqueville noted in his study of the French Revolution. More often, he added, people take up arms when an oppressive regime that has been tolerated without protest for a long period "suddenly relaxes its pressure."

The assessment neatly fits the China of the past decade. Since the much harsher repression of the Cultural Revolution ended in 1976 and since Deng began his program of economic reform in 1979, the country has become for many of its inhabitants a more hospitable and prosperous place. Possibly the most remarkable indicator of this is the 132.8% rise in per capita income between 1978 and 1987. Meanwhile the economy boomed at an average annual rate of almost 10%.

Much of the trauma comes from the fact that the benefits are rarely spread equitably. "There's a widespread feeling that Chinese society has become unjust," says Stanley Rosen, professor of sociology at the University of Southern California. "The decisions as to who will do well seem arbitrary results of government policy." Entrepreneurs and party officials profit from the economic reforms, but office workers and intellectuals do not. So while an individual's expectations are conditioned by the prosperity he sees around him, that newfound affluence is cruelly out of reach for many. TV, with its ubiquitous images of the wealth that many enjoy beyond China's borders, has deepened the dissatisfaction. The contrast is all the more painful because, amid it all, corruption flourishes. Says Rosen: "There's an ideological confusion. People feel leaders don't know how to solve problems."

What most hurts the average Chinese is an inflation rate of around 30%. Expectations developed over years of growing personal income have suddenly been sharply set back. Prosperity, instead of being around the corner, looks out of reach. Such economic dips happen frequently in history and rarely cause revolutions. But almost all revolutions follow economic downturns. France in 1778 entered a lengthy depression; the tremendous damage done to the Russian economy by World War I helped precipitate that country's revolution.

Thus China's turmoil is not surprising in light of its inhabitants' mounting frustrations. Nonetheless, true revolutions, as opposed to coups or intermittent mass protests, are extremely rare and all but unheard of in situations in which the state wields so much force. Without a core of . ideologically inspired revolutionaries, without its own Jacobins, Bolsheviks or even latter-day Long Marchers, China is unlikely to have a full-scale revolution.

Much, however, depends on the Beijing regime. Revolutions are usually triggered by the intractability and violence of governments, and the declaration of martial law showed that Deng Xiaoping and Li Peng were prepared to crush the protests with military force. Violence can, and often does, achieve its aim of suppression. It can also galvanize an opposition and make compromise unthinkable.

Power, Mao Zedong famously sneered, grows out of the barrel of a gun. But the preacher of Chinese Communism neglected to add that the will to fire is a prerequisite when the target is not intimidated by threats and when a society is prepared to resist those with the guns by peaceful means. A week ago, certainly two, the protests might have been extinguished with the number of casualties usual for large demonstrations -- 20, 50, perhaps several hundred deaths. Now, the government might have to kill thousands before the protests would cease.

The choice that faced China was between a serious erosion or even collapse of government authority and a massacre in Tiananmen Square. Deng and Li Peng would not risk anarchy, so they called in the military, but at least initially were hesitant to give it a free hand. That left it to the soldiers, their trucks blocked by mobs of pleading countrymen, to ponder another saying of Mao's: "Whoever suppresses the students will come to no good end."