SATELLITE DESTRUCTION. China has destroyed a satellite, joining Russia and the United States as the only countries capable of both putting objects in space and blowing them up. Some angles:
Deterrence: First and foremost, this looks like a deterrent move aimed at the United States. The U.S. military isn't completely dependent on spy satellites (in case of war, the Taiwan Straits would be overflown by enough spy and communications aircraft to make the satellites redundant), but destroying them is a way of chipping away at U.S. capabilitiy, and thus indicating that China can inflict real costs in case of a U.S. intervention in a militarized China-Taiwan dispute. The public way in which the Chinese have carried out this test, as well as earlier "blinding" tests, and the recent submarine-stalks-carrier debacle indicates to me that they're as serious as possible about showing the U.S. their capabilities, which is key to a deterrent strategy. Also, Chinese anti-satellite capabilities don't have to be targeted against U.S. military satellites; the Chinese may threaten commercial satellites as well, which would help to metastasize the costs of any US intervention.
Arms Control: The NYT article suggests that this may be an effort to prod the Bush administration towards a treaty banning anti-satellite weapons. These weapons are bad because they create enormous debris fields that make space dangerous for both satellites and manned vehicles for a long time. Good luck pushing the Bush administration towards arms control, but then again that administration will only be in power for two more years...
Warfighting: As I suggested above, part of any Chinese strategy in an actual conflict will be to reduce the digital and communications advantage of U.S. military forces. Because of the existence of redundancy systems, destroying satellites will only go so far towards accomplishing that goal, but anything that disrupts the complex system that is network centric warfare will be good for the Chinese. We forget that even great powers can choose asymetrical strategies; the German U-boat campaign was clearly an effort to deny the sea to the Allies, even though the Germans couldn't control it themselves. Anti-satellite weapons are a way of denying space to the U.S.
The risk the Chinese run in conducting tests like this is empowering hawks inside Congress and the Pentagon. The Chinese may have decided that the U.S. is too distracted with Iraq to respond, or that the U.S. taste for intervention will wane in Iraq's aftermath. Much more from Defense Tech.