Produced and Directed by Chris Oxley

Written by Richard Lindley and Chris Oxley

Pres. GEORGE W. BUSH: Every nation in every region now has a decision to make. Either you're with us, or you are with the terrorists.

ANNOUNCER: With America's armed forces in action, President Bush has flown to a key economic meeting in Asia. It's about world trade, but first the president will want to know which Asian countries, especially China, support his war on terrorism.

In Shanghai, he'll meet China's communist leaders. Six months ago, after a mid-air collision between a Chinese fighter and a U.S. surveillance plane, the two countries, both nuclear powers, were in a stand-off. Now President Bush, face to face with the Chinese, must decide. Will China, with its 1.3 billion population, be America's partner or adversary?

Sen. FRED THOMPSON (R), Tennessee: I think that our relationship with China over the next few decades is probably the single most important issue facing our country.

Dr. HENRY KISSINGER, National Security Adviser '69-'75: Peace in Asia depends on a cooperative relationship between China and the United States.

NARRATOR: Many of China's generals have spent all their military careers preparing to reconquer an island one third the size of Kentucky. Just 100 miles of China's south coast, this island is Taiwan. Officially recognized by the United States and most other countries as a part of China, Taiwan is armed and supported by the U.S. as if it were an independent state. In June this year, President Bush enraged the Chinese by agreeing to sell Taiwan a new range of sophisticated weapons.

ZHU BANGZAO, Chinese Foreign Ministry Spokesman: [through translator] What the United States has done is interfere in China's internal affairs, undermine China's sovereignty and, most importantly, added further to serious tensions across the Taiwan Straits.

NARRATOR: But the U.S. only acted after a massive Chinese military build-up opposite Taiwan.

Dr. CHEN PI-CHAO, Vice Minister for Defense, Taiwan: There are 409 N11 missile targeting Taiwan. The situation today is analogous to this. "I, China, point a gun at you, Taiwan. And I say to you I have the right to use the gun against you."

The Taiwan Straits may look peaceful now, but this is one of the points in the whole world where a major war may break out, which may involve, or most likely, in my opinion, will involve the United States, whether the United States wants it or not.

NARRATOR: On April 1st of this year, an American EP-3 surveillance plane flew into this potentially explosive situation, its mission to monitor China's military threat. In the rear of the plane, surrounded by their top-secret equipment, were the surveillance team.

Lt. SHANE OSBORNE, U.S. Navy EP3 Pilot: And we collect signals intelligence, and that's about it. That's about all, you know, we'll really talk about. You know, we collect reconnaissance for the fleet, to provide the war fighters with a- with a picture, an electronic picture of what that part of the world's like.

INTERVIEWER: What do you call the people in the back?

Lt. SHANE OSBORNE: Well, it's an affectionate term called "spooks," but it's not- it's not a derogatory term towards them. We call them "spooks" in the back.

NARRATOR: From Okinawa in Japan, Lieutenant Osborne and his crew of 23 flew along China's southern coast but stayed within international air space. The surveillance plane avoided the Taiwan Straits, usually too sensitive an area for America forces, and instead skirted around the island.

As usual, the EP-3 was shadowed for some of the way by Chinese fighters.

Lt. SHANE OSBORNE: They'd become more aggressive over the recent months, and they'd been closer and closer.

NARRATOR: A year ago, the United States complained to China about the dangerous tactics of their fighters and had begun filming these confrontations in the sky.

These aerial skirmishes are the legacy of Taiwan's history. In 1949, with the communist victory, the defeated nationalists, who had been supported by America, fled. With their corrupt leader, Chiang Kaishek, the nationalists found sanctuary on the Chinese island of Taiwan, then called Formosa. For 23 years, both Chiang Kaishek in Taiwan and the communists on the mainland claimed to be the legitimate rulers of China.

Taiwan flourished as a capitalist economy, but China suffered from its disastrous experiment in communism. Then, in 1972, President Richard Nixon and his national security adviser, Henry Kissinger, changed the political geography of the world.

Pres. RICHARD M. NIXON: [February 21, 1972]] Our two peoples tonight hold the future of the world in our hands, and if we think of that future, we are dedicated to the principle that we can build a new world.

NARRATOR: The U.S. accepted the principle of just one China and later recognized the communists as its legitimate government. Taiwan became a non-state, without international recognition.

HENRY KISSINGER: It did not make excessive sense to say that 20 million people are the recognized government of a billion people. If we had made Taiwan a separate state, it would have led to a fundamental conflict with China and probably to war.

NARRATOR: So since 1972, the United States has performed a high-wire balancing act, selling Taiwan defensive weapons, insisting on a peaceful solution, but forging such close economic ties with China that last year trade with the U.S. was worth $124 billion. But the Chinese are increasingly frustrated by what they see as the U.S.'s support for a breakaway province of China.

Prof. YAN XUETONG, Quinghua Univ., Beijing: The land, the territory is ours. Return our land. That clear? The land is ours. The yard is ours. The roof- the property is ours. You can set up your own country anywhere, but not on my land. Just like you tell the people, OK, you can set up your home anywhere but not under my roof.

NARRATOR: The Chinese say they have the right to use force to reclaim Taiwan because it belongs to them, and they regularly practice for an invasion. This threat of force is why on April 1st, the U.S. Navy's EP-3 surveillance plane was in the area to monitor China's military preparations. And that's why two Chinese fighters flew alongside.

Suddenly, one fighter pilot became more aggressive.

Lt. SHANE OSBORNE, U.S. Navy EP3 Pilot: I could see him right out of our cockpit. He was, like, 10 feet away. I'm looking onto the left, looking right in his face. And I was, like, "This isn't good." You know, we were nervous. We had autopilot. I'm just guarding the autopilot, making sure we don't make any movements into him because it was that close- you know, a couple feet from hitting us.

And the second time he peeled off, he- he'd dropped away once, came back. The second time, I was, like, "OK, he's going home for sure." And then when I heard him come the third time, I had an eerie feeling. I was, like- I knew- you know, you just knew he was going to hit us because he wasn't stable. He was all over. His plane's mushy, flying that slow. You heard screams coming from the back as he came and he pitched up into us. He was flying right off our wing and got too slow and nosed up and went right into my number-one prop.

The plane just shook violently, and we kind of pitched up, and I heard a pop, that was his nose hitting ours. Then he shot off to the side, and we were, you know, upside down, looking up at the ocean. But it was violently shaking, and I could hear the wind screaming through the plane. The plane just wouldn't respond, and we were in an inverted dive, and we lost about 8,000 feet.

I knew I wasn't going to get out. I thought some of them might be able to, so they kept their parachutes on. And if the plane started coming apart, I was hoping at least the back-end guys could jump out.

It was not a good feeling. I was pretty certain we were dead, at that point. Finally, we got lucky. I put full power on the other three remaining engines, but we were still screaming out of the air. It wouldn't hold altitude up that high with all the- all the drag, so- it took to about 8,000 feet before we could hold altitude, so- we started out at 22,500, and it was 8,000 feet before we were flying again. It was a rough day.

NARRATOR: With the plane at last under partial control, the crew began smashing up their secret computer systems. After sending out Mayday signals and warning the U.S. naval headquarters in Okinawa, Shane Osborne brought the damaged plane down safely. But he'd landed on Hainan Island in China, and they were greeted by the Chinese military.

Early on Sunday morning in Beijing, the American ambassador returned from church to find the embassy's secure signal systems churning out messages.

JOSEPH PRUEHER, U.S. Ambassador to China, '99-'01: It occurred on April Fool's Day, and I thought, "Oh, my Lord." And I called Colin Powell within a few minutes there to talk about it. If we had counted on our Chinese hosts to tell us, we wouldn't have found out for many hours. And in fact, that- it occurred at about 9:00- a little after 9:00 o'clock in the morning, and the first real acknowledgment we got was about 8:00 o'clock at night from the Chinese that this event had occurred at all.

NARRATOR: If ever there was an incident that showed how tense and difficult it could be to negotiate with the Chinese, this was it. From the start, the Chinese leaders appeared united, but the Americans suspected the military were exploiting the incident to increase their power and their budgets.

JOSEPH PRUEHER: Until they had their story connected and are ready to talk, they just- they won't answer. And they have caller ID on their phones, and it when it comes from the U.S. embassy, they- they'll choose not to answer.

NARRATOR: When he eventually met a Chinese official, Ambassador Prueher was taken aback by his hostility.

JOSEPH PRUEHER: His opening gambit is, "Your airplane ran into our airplane. You invaded our airspace. You landed without permission. You owe us an apology, and you owe us money." That was the starting point.

My reply was, is "We have information, but we need to talk to our air crew." Foremost, we were concerned about the well-being of the crew.

Lt. SHANE OSBORNE: So they waited till the middle of the night before they started questioning me, and they questioned me, I think, from midnight till 6:00 in the morning that day. Pretty- pretty rough night. And it was obviously pretty scary, you know, having them- they were- they were getting pretty upset, upset with me and my level of cooperation. Let's put it that way.

There was a lot of verbal threats and standing up and yelling, different threats of being tried and accusing me of being a master spy. And they used sleep deprivation techniques. There they'd have two guys sit in a chair, smoking cigarettes as I'm trying to sleep, blowing smoke in my face to keep me awake. And they'd wake me up if I'd fall asleep. I was getting pretty tired.

What I was willing to talk to them about was the details of the accident, and nothing more. After I didn't cooperate, they took me away from the crew and put me in- isolated me for the next eight days.

NARRATOR: In those first few days, China and the United States together turned an incident into a confrontation.

ZHU BANGZAO, Chinese Foreign Ministry Spokesman: [through translator] Without Chinese permission, the U.S. surveillance plane entered Chinese airspace and landed on a Chinese air field. This is an illegal action. It is an invasion of Chinese sovereignty and Chinese airspace.

NARRATOR: After just 10 weeks in the White House, President Bush was up against a country he had previously said could be alarming at home and appalling abroad.

Pres. GEORGE W. BUSH: Late Saturday night in Washington, Sunday morning in China, a United States naval maritime patrol aircraft on a routine surveillance mission in international airspace over the South China Sea collided with one of two Chinese fighters that were shadowing our plane.

DAVID SANGER, "The New York Times": What was fascinating was the administration, for the first time, had to operate in a vacuum of information. The secretary of state began to make calls - Colin Powell - to his counterparts in China, and no one would call back. For three or four days, they had a complete absence of any real response, and this left them mystified.

The result was that the president came out initially with some very hot comments in the Rose Garden.

Pres. GEORGE W. BUSH: It is time for the Chinese government to return our plane. This accident has the potential of undermining our hopes for a fruitful and productive relationship between our two countries.

NARRATOR: This demand did not go down well in China.

ZHU BANGZAO: [through translator] It is imperative that the United States does not make unreasonable requests but reflects upon the incident and apologizes to the Chinese.

JOSEPH PRUEHER: My stomach and the stomach of the United States was not to take a bunch of accusations from the Chinese. And you know, we were in international airspace. We were obeying the law. So our statements were pretty strong, and I think they were- I think they were correct, too.

We are working very hard on a solution.

NARRATOR: But when three days passed without anyone at a senior level in Washington expressing concern for the missing fighter pilot, the Chinese leaders decided to publicize the case worldwide.

Mrs. WANG-WEI, Pilot's Wife: [subtitles] My husband's plane was hit. He jumped out with a parachute and has been missing for 78 hours! I can't eat or sleep. I'm really worried about him. [weeps]

NARRATOR: Inside the Bush cabinet, there was a divide about what to do. The arguments reflected a longstanding split in the Republican Party about how to deal with China.

DAVID SANGER: One was a very business-oriented camp. In some ways, you could call it the "Boeing camp," the camp of business executives who wanted to increase American trade with China, saw it as the greatest market in Asia and perhaps the greatest anywhere in the world, and wanted an American policy that was designed to be tough-minded militarily but fundamentally opening to the embrace of China into a capitalist system.

Now, there's a second element to the Republican Party here, and that is a containment crowd, a group that believes that the portion of the administration and the Republican Party that wants closer economic ties is naive about the growing military threat from China. And this group saw in the EP-3 incident the confirmation of all that they had been saying for many years.

NARRATOR: The pro-trade camp seemed to win out. The secretary of state made a statement about the missing pilot.

COLIN POWELL, Secretary of State: We regret that the Chinese plane did not get down safe, and we regret the loss of the life of that Chinese pilot. But now we need to move on. We need to bring this to a resolution, and we're using every avenue available to us.

NARRATOR: Despite this, in China America's attitude was seen as superpower arrogance. Close to the U.S. embassy, Chinese protesters tried to demonstrate.

PROTESTER: [through translator] I'm here to protest about the American government's attitude towards China. All they ever talk about is human rights, but they are hypocrites. They carry out military spying on Chinese territory. It's just like a thief coming into your home and hurting a member of your family, then making all kinds of demands that you have to do this or that.

NARRATOR: Chinese leaders exploited nationalist sentiment to boost their position, but they broke up anti-American street demonstrations, fearing the pictures would jeopardize their most important trading relationship.

Dr. KURT CAMPBELL, Dpty. Asst. Secy of Defense, '95-'00: I think China's one of those countries that has very complex feelings towards the United States. This whole concept of "soft power"- they like our music, they like our movies, they like much about what the United States stands for. At the same time, they're deeply dissatisfied with certain aspects of American foreign policy. Many Chinese believe fundamentally that the United States is set on destabilizing China or at least trying to stop China from reaching its full potential.

JOSEPH PRUEHER: We're- we're working this through in a very delicate way, and so I'd rather not comment on it right now. Thank you.

NARRATOR: After 11 days, the new American administration found a way of resolving its first diplomatic confrontation with China, and the crew went home. Until now, Ambassador Prueher has never spoken of the tortuous negotiations to find a mutually acceptable formula.

JOSEPH PRUEHER The Chinese sought an apology from the United States, and our view is we had nothing to be sorry for nor to apologize for.

We're lucky to have men and women like you protecting the interests of our nation.

We told them we were sorry they'd lost a pilot, which we were. That's an honest statement. We did not say we were sorry that the event occurred.

Lt. SHANE OSBORNE: I'd like to thank you once again, and God bless America.

NARRATOR: In using the word "sorry," Prueher was expressing American regret but not guilt for the loss of a life. The Chinese tried to interpret this as an apology for the collision.

JOSEPH PRUEHER: The folks in the embassy call it "the letter of the two sorrys." It isn't anywhere near as bad as the Chinese wanted, and it's something- what it came down to is it's something I figured I could live with. It's not the best letter I've ever written, but it got the crew out.

NARRATOR: Home in America, the crew were heroes. In China, the lost pilot was proclaimed a martyr. President Jiang Zemin awarded a special medal of honor to the pilot's widow and her son. What seemed a major political battle between the two nations six months ago seems but a diplomatic skirmish today.

On September 11th, in one devastating moment, America's priorities changed. Before then, some in the White House saw the EP-3 incident as a warning of a coming conflict with China, but now President Bush needs allies in his war on terrorism.

Pres. GEORGE W. BUSH: But our responsibility to history is already clear.

NARRATOR: Tonight the president arrived in China for the Asian Pacific Economic Conference in Shanghai. There he will come face to face with the men who now rule China. It's been 25 years since George W. Bush last visited China, when his father was America's representative there. Since then, the changes have been astounding.

HENRY KISSINGER: When I first saw China, there were no automobiles. There were no superhighways. There were no high-rise buildings. There were no consumer goods. And it was a Stalinist society, and a very poor Stalinist society. So the economic system has totally changed.

NARRATOR: That change has brought the equivalent of a gold rush to China. For 10 years, it's been the fastest-growing economy in the world. Opportunities to make money abound, even in the shadow of China's greatest historical attraction. Fifteen years ago, no one was allowed to buy a home of his own. Today these houses near the Great Wall will be sold for $1 million each.

The workers earn as little as $100 a month for a seven-day week, while the developers enjoy a startlingly different lifestyle. Yet multi-millionaire Panshiyi says he grew up in such rural poverty that his parents had to give away two of his sisters to a better-off family. Panshiyi's life has mirrored the transformation of China. In two decades, 230 million people have been lifted out of poverty, an achievement never surpassed in history.

PANSHIYI: [through translator] The biggest change is privatized, marketized. And these created enormous wealth for the society.

INTERVIEWER: So is this a form of capitalism?

PANSHIYI: [through translator] We don't say it in China this way, but perhaps it is.

NARRATOR: Panshiyi has sold 2,000 apartments in this Beijing development. One of them costing $170,000 was bought by Helen Li and her husband, a businessman. They're part of the emerging middle class, living lives that are utterly different from those lived by previous generations. Money has brought them unimagined freedoms.

HELEN LI: I can go anywhere I want. I can get a passport and get a visa, buy a ticket, hold my luggage and fly. If I want to buy anything, I can buy. If I want to travel anywhere, I can travel.

NARRATOR: Helen works as a secretary for Motorola's legal director in Beijing. Motorola, the American information technology firm, moved into China in 1987. Employing 12,000 people, it has invested $3.4 billion here.

JIM GRADOVILLE, V.P., Motorola Corp.: We believe that we are also an agent of change. We bring Western values to doing business. We bring the whole idea of training, the whole idea of the individual advancing themselves to China, through our employees, and again through our suppliers and our customers.

NARRATOR: Every month, Motorola sells five million cell phones here. Jim Gradoville believes communication increases personal as well as economic freedom.

JIM GRADOVILLE: I heard it said quite often here in China that the people of China have more personal freedom now than they ever have in their history.

HELEN YI: I think we have enough freedom.

INTERVIEWER: So freedom is not something which worries people of your generation, particularly?

HELEN YI: No. No.

NARRATOR: Freedom, to a degree, has come because China has opened the door to capitalism.

YANG JEICHI, Chinese Ambassador to U.S.: I do believe that a strong, stable and healthy relationship between China and the United States is in the fundamental interest of our two peoples. It contributes to peace, stability and prosperity in the Asian Pacific region. We work together, helping to pull East Asia out of the economic crisis, and we are consulting each other about stability. And we welcome an even more constructive and positive and important role by the United States in the Asia Pacific region.

Sen. FRED THOMPSON (R), Tennessee: China and the United States are engaged in a major gamble with each other. The United States is gambling that with increased engagement, and especially with increased trade, it'll become a more liberal society and more open.

China, on the other hand, is betting that they can open up to the extent necessary to promote their economic prosperity - they're smart enough to know that a certain amount of capitalism is a good thing, and they've got to go in that direction to feed 1.3 billion people - but that they can open up to that extent but not to the extent they lose control. And they will do what is necessary to keep the communist regime there in control.

It's going to be some years, probably, before we see who's right.

NARRATOR: Now China is about to take a monumental risk, one that will help competitive private companies like this computer firm but devastate badly-run state industries. After years of negotiations, they're joining the World Trade Organization, a free-market group once seen as the essence of capitalism. This will send shock waves through the economy by opening markets to foreign competition. Tens of millions of state employees will lose their jobs.

HENRY KISSINGER: I do not know what will happen in China politically. I do know that it is impossible to maintain the communist system, or probably even a strict one-party system, when the economy becomes so pluralistic.

[www.pbs.org: Read the full interview]

NARRATOR: The Communist Party of 60 million members, and their leader, President Jiang Zemin, know their survival is at stake. So while encouraging economic freedom, they've crushed any movement that offers a different political vision, like the non-violent Falun Gong, or any newspaper which even hints at the need for political change.

Dr. HE QINGLIAN, Author, "The Pitfalls of China": [through translator] China has strengthened control of the press, especially in the last three years. Newspapers that have disobeyed the government have been shut down and their reporters and editors fired. In the West, the media scrutinizes power. In China, power scrutinizes the media.

If freedom of speech were allowed, everyone would know what is happening. Everyone would know how corrupt Chinese government is and the man evil things it has done.

NARRATOR: He Qinglian used the government's own statistics in her book, The Pitfalls of China. It sold three million copies.

HE QINGLIAN: [through translator] Thirty-four percent of enterprises privatized by the state are run by former government officials or by children of government officials. Only they can use their parents' connections and their previous positions to capture a lot of advantages.

These people sent their children to elite schools in the United States. The lower class cannot even afford regular schooling in China.

NARRATOR: But these criticisms made He Qinglian an enemy of the Communist Party.

HE QINGLIAN: [through translator] I did not decide to leave China but was forced to leave China. I was under surveillance all the time. I was being watched all day long.

NARRATOR: She had hit a raw nerve. China is now a society of extremes, a small though growing number who are wealthy and a poor majority barely able to survive. One designer handbag here might cost $700. That's what half the people in the country have to live on for a year.

This disparity is visibly greater now than it was even before the communist revolution. There are showcase cities and desperately poor agricultural provinces.

HE QINGLIAN: [through translator] I always consider the countryside the bleeding wound of China. When you look at it, the wound is still bleeding. The entire agricultural economy is in a dilapidated state which the Chinese government would not like to disclose to anyone.

NARRATOR: So what happens is that 100 million men leave rural areas and move from city to city looking for work. Chen scrapes the meanest living from recycling garbage people in Beijing discard and only returns home to his wife and children twice a year.

CHEN: [through translator] The biggest problem for me is looking for more work to earn money. If you have enough money, then you have no problems. That's right, isn't it?

NARRATOR: But like most other rural migrant workers, Chen is working illegally. Country people have to get permits to enter cities.

ERIK ECKHOLM, Beijing Bureau Chief, "The New York Times": If you're registered as a rural person, there are very severe restrictions on where you can live and work. And to my mind, this is actually the biggest human rights problem in China today. You have a majority of this population of 1.3 billion that are, by law, second-class citizens.

NARRATOR: One third of Beijing's population are migrant workers. Eighty thousand alone make a living from waste.

ERIK ECKHOLM: Some collect plastic bags. Some collect plastic bottles. Some collect glass. Virtually all of them are here illegally. They are subject at any moment to being arrested, detained, sent back home, having their trikes, which is their only real possession in life, confiscated. They are treated pretty badly. They are performing a great service for the city.

CHEN: [through translator] Beijingers bully outsiders. They hate migrant workers. Because our work is collecting scrap, Beijingers say that we are too dirty. They don't treat us migrant workers as human beings.

ERIK ECKHOLM: If rural people were free to move into the cities, then the average wages would go down quite a bit. And I think the government is much more afraid politically of unrest among urban workers than they are of the scattered rural population, which they can control.

NARRATOR: But controlling angry workers in the countryside is difficult enough.

HE QINGLIAN: [through translator] I know many provinces that besides having a police force also have anti-terrorist forces, equipped with guns to deal with peasant and worker uprisings. The media is not allowed to report such matters.

Dr. DAVID M. LAMPTON, Dir. China Studies, Johns Hopkins Univ.: If you look at all of the factors of instability in China, you can get very alarmed very soon. And indeed, China's leaders are very alarmed. And in fact, they justify some of their repressive political measures precisely because of what they call the "factors of instability."

NARRATOR: In some parts of China, this instability has been fed by acts of terrorism. In the western provinces, China has suffered from terror attacks carried out by a handful of separatists supported by Muslim fundamentalists. This terrorism has been a festering sore. There are 17 million Muslims in China. Muslim extremists use the narrow corridors from Pakistan and Afghanistan to infiltrate China. Much of the terror has been the work of a small group of fundamentalists who, with other, non-violent Muslims, want to carve out a separate country in the Chinese autonomous region called Xinjaing.

Dr. DAVID M. LAMPTON, Dir. China Studies, Johns Hopkins Univ.: China, of course, faces a problem, and that is, it is surrounded by lots of countries with which at various times it's had uncomfortable relations, none more uncomfortable at the current time than its relations with the central Asian Muslim. And in fact, the Taliban in Afghanistan are transferring money and some know-how and maybe some personnel to Muslims in China who have undertaken terrorist activity.

The Chinese have tried to deal with this problem through a combination of crushing those forces in China through rather ruthless means and trying to be minimally cooperative with the Iraqis or the Iranians or the Taliban so that they will not have the incentive to support those forces in China.

[www.pbs.org: Read the full interview]

NARRATOR: Now, as the U.S. attacks the Taliban, China has to take sides. They have to downplay their old alliances with countries like Iran and Iraq, who have supported terrorism.

ZHU BANGZAO, Chinese Foreign Ministry Spokesman: We think that it is good for countries all over the world to cooperate in combating terrorism because terrorism is not doing harm to just one country, it's doing harm to people all over the world.

NARRATOR: Beside his war on terrorism, President Bush has his own political reasons for wanting the economic conference in Shanghai to succeed. He needs China's booming economy to help America.

DAVID LAMPTON: He remembers that his father won the Gulf war, but in fact, lost the election largely because of what was perceived to be a fading U.S. economy during his father's second run for a second term. And so I think his- the son has learned the lessons of the father and knows that, in the end, you can win a war and lose an election if you don't have a good economy.

NARRATOR: So the United States and China have a mutual interest in forging stronger economic ties and papering over their differences on terrorism. But there's one issue which could still ruin their relationship, Taiwan. Today, after years of dictatorial rule by the defeated Chinese nationalists, Taiwan has emerged as a lively democracy. It has its own government, parliament and military. But in China's eyes, Taiwan politicians are nothing more than successful separatists, more dangerous than terrorists because with American help, they're holding onto a chunk of China.

Most threatening of all for China are Taiwan's increasingly loud demands to be recognized internationally as an independent sovereign nation.

Prof. YAN XUETONG, Quinghua Univ., Beijing: If we allow Taiwan to get independence, the domino reaction will totally ruin this country.

INTERVIEWER: This country will begin to fall apart?

Prof. YAN XUETONG: Yes.

INTERVIEWER: With other different parts of the country all claiming to be independent?

Prof. YAN XUETONG: Not every part, but many parts. If China collapse, it's not only hurt the Chinese people. It would definitely. But it would also hurt the people surrounding China.

DAVID LAMPTON: I think Chinese leaders believe that if they were to let Taiwan go independent and not respond, they would, in fact, probably be overthrown by their own nationalistic people. And therefore, I think they would be willing to engage in what we might call self-defeating military adventures in order to prevent that result, even if they knew they were going to lose.

ZHU BANGZAO, Chinese Foreign Ministry Spokesman: [through translator] Taiwanese independence is equal to war. That's why the United States should not support independence for Taiwan.

NARRATOR: The picturesque island of Kinmen just six miles from the mainland coast, bears witness that this is no idle threat. Kinmen, then called Quemoy, was occupied by Chiang Kaishek's nationalist forces when they fled to Taiwan in 1949. Before the communists were driven off the island, 15,000 died.

Ten years later, on August 23rd, 1958, the battle of the Taiwan Straits erupted. Artillery fire from the Chinese mainland poured down like hail. In two hours, 57,500 shells landed. In all, during the next six weeks, the communists fired nearly half a million rounds.

Pres. DWIGHT D. EISENHOWER: Now, I assure you that no American boy will ever be asked by me to fight just for Quemoy. But those who make up our armed forces, and I believe the American people as a whole, do stand ready to defend the principle that armed force shall not be used for aggressive purposes.

NARRATOR: President Eisenhower gave the strongest possible signal. He sent the 7th Fleet into the Straits to protect Taiwan but not Quemoy. Eventually, the heavy bombardment ceased. The U.S. intervention had deterred any plans for a Chinese invasion. And that is why today Taiwan remains apart from China.

[www.pbs.org: See chronology of Taiwan stand-off]

But from the 1970s, after Nixon's visit and American recognition of China, the signals have become less clear. Since then, every American president has adopted a policy of "strategic ambiguity." Neither China nor anybody else knows when or if America would go to war to defend Taiwan.

DAVID LAMPTON: What we have is a complicated act called the Taiwan Relations Act that obligates us to sell weapons of a defensive character to Taiwan, and it obligates the United States to be concerned about Taiwan and the situation in East Asia, and it obligates the president to consult with Congress if there is an attack on Taiwan. But we are not obligated to any particular course of action if Taiwan is attacked.

NARRATOR: In 1996, there was a test of this policy, and of nerves, in an incident that could have led to war. During Taiwan's presidential elections, there were growing calls for independence. Angered by this, the Chinese premier threatened invasion of Taiwan and said that the Chinese people were ready to shed their blood in the cause of unification. As the Chinese army began exercises, the United States learned that China planned to launch missiles close to Taiwan's coast.

JOSEPH PRUEHER: We said, "This is beyond peaceful resolution." You know, this- this is threatening. This is not peaceful resolution. As soon as we learned that they had declared a missile area in these spots, we said, "We have to react."

NARRATOR: Chinese missiles began exploding in the sea just 30 miles off Taiwan's coast. American defense officials knew that one false step might escalate all the way to war.

Dr. KURT CAMPBELL, Dpty. Asst. Secy of Defense, '95-'00: You recall the unbelievably late nights, the stress, the nervousness in the- in the rooms as you were reviewing intelligence and making difficult decisions. Yeah, it was very tense, very stressful. For me, it was, you know, my own personal Cuban missile crisis.

NARRATOR: President Clinton ordered two aircraft carriers with their supporting fleet of warships and submarines to head for the Taiwan coast. But as they sailed, the government had to prepare for all eventualities.

KURT CAMPBELL: It wasn't just whether they would back down or not back down, but what steps they might take. Taiwan is not one island. Literally, there are hundreds of islands, many of which are just a few miles from the Chinese mainland. The question- you know, what about the status of those islands?

NARRATOR: The Chinese military stopped the barrage. A tense peace resumed. Only a handful of people know what the United States had planned to do if Chinese missiles had hit U.S. ships or Taiwan's coast.

JOSEPH PRUEHER: I'm not in a position yet to discuss that.

KURT CAMPBELL: Some of this is, frankly, operational and it's still operationally sensitive. All I can tell you is the United States had made a decision that we thought it was extraordinarily important to send a signal to China that this was in our interests.

JOSEPH PRUEHER: We tried to make it clear that we were going to defend Taiwan in the future.

NARRATOR: For 30 years, the United States has never clarified whether it really would defend Taiwan if their leaders provoked China by declaring a sovereign independent state. Yet this "strategic ambiguity" about how the United States would act could be in doubt. Just a few days after the EP-3 crew came home, President Bush seemed to announce a change in policy.

[ABC "Good Morning America," April 25, 2001]

CHARLES GIBSON, ABC News: If Taiwan were attacked by China, do we have an obligation to defend the Taiwanese?

Pres. GEORGE W. BUSH: Yes, we do.

CHARLES GIBSON: We do?

Pres. GEORGE W. BUSH: And the Chinese must understand that. Yes, I would.

CHARLES GIBSON: With the full force of American military.

Pres. GEORGE W. BUSH: Whatever it took to help Taiwan defend herself.

DAVID SANGER, "The New York Times": There are a couple of theories about this. The first theory is that it was quite deliberate and that he stepped in to go say "We will defend Taiwan robustly."

The second theory, which I'm- have come over time to believe, is that, in fact, he had been given two messages to deliver in these interviews that he offered. The first message was "We stand behind Taiwan. They are a great democracy." And the second message was, "But the Taiwanese need to know that they can't provoke China, that they cannot create a crisis and then expect us to come to their aid." And he forgot the second part.

NARRATOR: Journalists were quickly told that despite what the president had said, the U.S. policy in the Taiwan Straits had not changed. But within weeks, President Bush did allow Taiwan to buy sophisticated weapons to defend itself.

CHANG CHUN-HSIUNG, Premier of Taiwan: [through translator] Currently, the tension in the Taiwan Straits comes mainly from China's massive deployment of missiles on the mainland and China's huge increase in their defense budgets and their constant renewing of weapons and equipment. And most importantly, on the issue of resolving the differences between the two sides, they want to use force to resolve things. They do not wish to resolve this issue peacefully.

NARRATOR: Chinese leaders insist they also want a peaceful solution, but first, they say, Taiwan must accept the policy of one China.

ZHU BANGZAO, Chinese Foreign Ministry Spokesman: [through translator] We have a very clear policy of one country, two systems. This means that after Taiwan and China have achieved unification, Taiwan can still keep its present political and social systems, as well as its economic system. So the United States has no reason whatever to worry about Taiwan's future.

NARRATOR: But after 50 years of separation, Taiwan is not ready to give up hard-won freedoms to join hands with China without first having had a chance to discuss what "one China" would really mean. Taiwan does not want to be just an autonomous part of China when it feels itself to be, in all but name, a separate democratic country.

CHANG CHUN-HSIUNG: [through translator] Without a formal declaration, it still doesn't alter the fact that our state is independent.

INTERVIEWER: So you are independent?

CHANG CHUN-HSIUNG: [through translator] Yes. Taiwan is an independent sovereign state. That is a fact.

NARRATOR: To Chinese leaders that is as much a threat to China's integrity as any act of terrorism. That's why there's still tension here. That's why the EP-3s have returned to the skies to keep an eye on the Chinese military. And that's why - whatever support President Bush receives from China in his war on terrorism - he will know the two countries can never be partners in Asia until some answer is found to the dangers of the Taiwan Straits.

Dangerous Straits