Inside Report (6)

President Reagan's first meeting with a top Chinese leader in Cancun, Mexico, Oct. 23 could have a crucial impact on SinoAmerican relations. Prime Minister Zhao Ziyang, scheduled to attend the meeting, may have a chance to sound out the US President. Does Reagan intend to upgrade relations with the Nationalists, thereby keeping a campaign promise? Does he intend to sell them sophisticated new arms, including fighter planes? China has signaled that if the answer to either of these is "yes," it is prepared to cool r elations with Washington.

Until now, Reagan has simply deferred a decision, but the Chinese want the Taiwan question cleared up before they consider their next step in their evolving strategic relationship with the US.

Any assurances Reagan may give will be carefully followed up by Vice-Premier and Foreign Minister Huang Hua when he visits Washington Oct. 26.m