The Chinese government demonstrated the capacity to destroy satellites in low earth orbit.
A rocket fired from the surface did a hard "kinetic kill" of an old Chnines satellite flying at 850 kilometers (530 miles) altitude. As satellites are relative tiny objects, in this case maybe some three yards wide, this was an impressive technolgical achievement.
Aviation Week has some details. The Arms Control Wonk discusses implications here and here. Noah Shachtman at Defense Tech writes about possible countermeasures. There is not much the U.S. can do about it.
The biggest problem is the debris a destroyed satellite leaves in space. Other satellites may collide with such debris and get destroyed too. The Chinese knowingly created a mess and one may ask why they decided to do so. The New York Times gives an answer:
In late August, President Bush authorized a new national space policy that ignored calls for a global prohibition on such tests. The policy said the United States would “preserve its rights, capabilities, and freedom of action in space” and “dissuade or deter others from either impeding those rights or developing capabilities intended to do so.” It declared the United States would “deny, if necessary, adversaries the use of space capabilities hostile to U.S. national interests.”
"Bring it on!" said Bush and the Chinese did do so. A Russian general concurs (via Arms Control Wonk):
“We remember Bush’s announcements about monopolization of space and his threat to destroy all unidentified satellites. Therefore it is possible to say that, it is indeed the Americans who are provoking a new arms race in space ” [Ivashov] said, noting that China is compelled to react to such US policy.
If the Chinese are compelled, the Russians of course are too and General Icashov points out that China probably did use some modified Russian technology.
Instead of negotiating a treaty against all weapon use in space, as China and Russia proposed, the U.S. declared it will deny space operations to anyone or anything who might endanger its national interests.
There is still time to get back to the negotiation table and to stop a cold-war weapon race in space. With its good relationships on both sides, would Walmart not be an appropriate arbitrator?
But any real treaty is not in the interest of Lockheed & Co, conservative nuts and general military Keynesianism. A new round of wasting taxpayer dollars is therefore assured.