The drab halls and gray Mao suits at People's Bank of China are worlds away from the marble corridors and pinstripes of the U.S. Federal Reserve Board.

But the bank's top official, Chen Muhua, suddenly has become as important to China's economy as Paul A. Volcker is to America's. The newly appointed Chen, a tough, tiny woman, has been given a task like that given the towering Volcker in 1979: pulling in the reins on an out-of-control economy.

In the next year, the success of Chen and the central bank will largely determine China's economic future. If they succeed, China will push ahead with capitalist-style economic reforms begun five years ago by China's paramount leader, Deng Xiaoping. If they fail, Deng's foes may be able to throw the country back into the state-managed Soviet mold.

The No. 1 problem is inflation, just as it was in the United States in 1979. Although Beijing insists retail prices rose no more than 3 to 4 percent last year, foreign estimates put inflation at around 16 percent. After the government lifted price controls on food supplies in April, the cost of beef in Shanghai rocketed 80 percent. Pork jumped 39 percent, and vegetables more than doubled. The increases stirred such complaints that Shanghai reimposed price controls on most vegetables.

The nation is also grappling with widening trade and budget deficits, plunging foreign exchange reserves, and a currency that has slumped 50 percent over the past year in international markets. Moreover, unlike the United States, China has to cope with smuggling, which is rampant, and a thriving black market.

As Beijing officials scramble to regain control of their overheated economy, the central bank and its stern new boss, 64-year-old Chen, are on the front line. Since taking over in March, Chen has clamped down on foreign exchange transactions, restricted bank lending, and pushed interest rates up. But the economy remains so feverish that even the ever-optimistic Deng has toned down his reformist promises. Earlier this month, he warned visiting diplomats that, "although China has been carrying out reform for five years, we can only call it an experiment."

In the past, Chinese officials regarded inflation and depreciating currencies as evils that plagued only capitalist societies. The prime example was the corrupt regime of Chiang Kaishek in the 1940s, when one egg cost 2.5 million Chinese dollars. And since the Communist victory of 1949, the socialist, Soviet-style state has ensured stability by setting prices and controlling wages.

In late 1984, however, Deng, hoping to push China's economy into the 20th century, made a major decision to open the planned economy to market forces and competition. The results were a seemingly endless buying spree and sharp jumps in prices. "The plan flew out of control," says Fong Chi, First National Bank of Chicago's top China expert in Hong Kong. In the first quarter of this year, the economy expanded at a 23 percent annual rate, instead of the targeted 7 percent.

Beijing now wants to use western monetary techniques to combat these "western" excesses and has even looked to the Reagan administration for advice. At last month's meeting of the U.S.-China Joint Economic Commission, the Chinese were "interested in talking about money supply, tax policy, and budget controls," says one U.S. official. And Beijing is sending people to train at U.S. accounting firms.

The goal is not a laissez-faire economy that would win the approval of economist Milton Friedman. The Chinese still believe in central guidance and a large state-owned sector but want to have more flexibility than was allowed before Deng's reforms. The challenge of implementing monetary policy within a socialist context, says the U.S. government official, "is the most exciting thing going on in the world in economic policy."

American economists are especially interested because the blending of western-style monetary techniques with socialism is being carried out by officials who are learning central banking on the job. "Market economy concepts are filtering down from the top and being implemented at the grass roots, but without a deep understanding of economics," says John Krafft, Beijing representative for First Interstate Bank of California.

For the first time, for instance, People's Bank officials have become money supply watchers. In doing so, they are grappling with the same kind of monetary complications that regularly upset the best forecasts of Wall Street and Washington economists. While the Chinese won't disclose their money supply targets, they admit that they overshot the mark by billions of dollars last year. "In the West, you have M1, M2, and M3. In China we have M1 -- cash -- but we are not controlling it well," concedes Wu Shenqi, a senior economist at People's Bank. "We have problems because our economy is developing so fast."

Until recently, People's Bank was considered China's "other bank." To foreigners, the important financial institution was the Bank of China, a state-owned commercial bank that was at the center of the country's international financial activities. The Bank of China is headquartered in a Victorian-style building, complete with cupola, directly across from Mao Zedong's tomb in Beijing's central Tiananmen Square.

The Bank of China was renowned in global banking circles for its ability to keep up with its capitalist competitors through its branches in London, New York and Hong Kong, where it bid for deposits and conducted an active western-style banking business. But, with an unexpected economic crisis, central banking powers have been given to Chen and People's Bank, a green brick high-rise with a pagoda roof off an alley in an obscure corner of Beijing.

The rise of People's Bank was no accident. With an economy spinning out of control, Beijing needed a central bank to regulate and supervise it. And because of mounting criticism from opponents of the new, liberalized economic policy, Deng needed an ally who was well regarded by the anti-reformers. Chen was his choice, and putting her at the top of the new watchdog bank was an astute political move. A stalwart party member since the age of 17, Chen has developed a formidable power base over the years.

A protege of the late Premier Zhou Enlai and President Li Xiannian, Chen has handled a number of sensitive tasks. She headed the controversial birth control program in the late 1970s, when the "one-child-per-family" policy was being introduced. And more recently, as head of the Ministry of Foreign Economic Relations & Trade, she oversaw the massive but controlled decentralization of China's foreign trade system.

Perhaps more important than her administrative skills is Chen's ability to implement reforms without alienating Deng's conservative, so-called leftist, opponents, who are afraid the country is rushing too quickly down the capitalist road. A frowning woman who dresses in drab gray pantsuits -- even when shopping in Paris -- Chen wields her power with an iron fist. Once she even refused to allow stranded Chinese athletes to return from Eastern Europe on her aircraft. Many Chinese say it was because her plane was full of furniture she had bought along the way.

More than anything, Chen believes in following the party line. Her political stature gives her the clout to rein in the chaotic banking system and restore order, as well as to lend credibility to the fledgling central bank. "She is in control," says John T. W. Chu, vice-president and head of Bank of America's China operations. "She can communicate to the top echelon whenever she wants."

Just six months ago, it seemed no one was in charge. People's Bank stood silently by as the Bank of China handed out precious foreign exchange to Chinese companies. Encouraged by Deng's call to import technology, companies clamored to buy computers and production machinery from abroad. Rising incomes also spurred an unprecedented demand for luxury imports. After living through 30 years of flip-flops in economic policy, consumers wanted to buy goods while they could. "If you had money in China, would you save or spend?" asks Bank of America's Chu. Televisions, refrigerators and stereos were particularly hot items. Sales of refrigerators alone rocketed 788 percent last year. The Bank of China made it easy: It approved loans totaling $35 billion in 1984, a post-1949 record.

As a result, the country's foreign exchange reserves plunged 30 percent, to $11.3 billion, in only six months. The Bank of China engaged in its burst of foreign exchange lending because it was under pressure to jump on the reform bandwagon. After Premier Zhao Ziyang called the bank a "corpse," Jin Deqin, an urbane, London-trained banker, was brought in to shake things up. But Jin let things go too far. In March, he was fired for "violating discipline." He now is reported to be in a distant province and to have taken up gardening. Other Bank of China officials have been replaced, too. "You call up, and suddenly they're just not there," says Lloyds Bank International Ltd.'s China manager, Tim Williams.

Jin and his colleagues were scapegoats. China's specialized agricultural and industrial banks lent millions of dollars to finance bonus increases at the nation's factories. The national payroll swelled at a 46 percent annual rate in last year's fourth quarter alone. That led to a sharp rise in domestic deposits, which were up 62 percent, to $46 billion, last year. All in all, some $2.8 billion more than planned flowed into the economy, and the budget deficit jumped 67 percent. "The move to decentralize was too quick," says Chu of Bank of America. "The system was not yet in place. It was decentralization based on good faith."

Chen is wasting no time in cleaning up the mess. To soak up the excess currency fueling inflation, the bank raised rates. It is also supervising a massive, countrywide audit to see who has what currency, how they got it, and what they plan to do with it. In Southern Guangdong province, for instance, many Chinese companies have accumulated Hong Kong dollars, U.S. dollars, and foreign exchange certificates. Some have even set up bank accounts across the border in Hong Kong, where the Chinese government cannot monitor them.

With a black market so rampant that street dealers change money outside Beijing's and Canton's first-class hotels, Chen is also trying to regain control over foreign exchange. She has stripped the Bank of China of most of its decision-making powers. In a symbolic move, Bank of China officials will not attend the prestigious annual meeting of the International Monetary Fund in Seoul, South Korea, in October. People's Bank will go instead. And to discourage unnecessary imports, Chen has imposed strict rules making it difficult to obtain foreign exchange. All foreign currency loans must now be approved by the State Administration of Exchange Control.

Chen's exchange controls have brought lending by foreign banks to a standstill. What's worse, since the central bank began its nationwide audit, Chinese enterprises have failed to make payments on hundreds of millions of dollars of loans to foreign banks such as Hongkong & Shanghai Banking Corp. Foreign banks will be paid back, says Betty W. F. Wu, deputy manager of Hongkong Bank's China operations, "but it will take time to work out."

Nevertheless, foreign bankers are encouraged by Chen's appointment and the imposed slowdown. They believe restrictions will keep Deng's reforms on track and China's doors open to the outside world. A continued foreign exchange hemorrhage had threatened to derail China's economy in the long run. Says one hopeful Hong Kong banker: "At least they are using economic means to solve economic problems. In 1966, they would have just ordered everyone to hand in their extra cash."

The foreign bankers have good reason to be hopeful. But the highest hurdle has yet to be cleared: With Deng's massive wage reform in the works, Chen's task will be more complex than Volcker's ever was. Indeed, as the state deliberately raises wages to catch up with prices, she will have to come up with a monetary equation that would test the skills of the most experienced western central banker.

Farther down the line, perhaps very late in this decade, Deng would like to throw open the entire economy to market forces.

He hopes that at that point the state's role will diminish, just as it is supposed to do according to the Marxist credo. The new twist is that the central bank's monetary levers will really be the driving force that is behind China's growing economy.

At that point, Washington and Beijing may not be worlds apart after all.