WHEN SECRETARY OF State George Shultz arrives in China this week, he will find a country whose mood has changed remarkably in just the last few years. Shultz is traveling to a China that now projects an image of greater self-confidence and independence -- a China that has less need of the United States and less anxiety about the Soviet Union.

The Chinese rhetoric of the 1970s that put the Soviet threat at the top of the national agenda has disappeared. No longer do the Chinese plead for more cooperation among Western Europe, Japan, China and the United States to meet the Soviet challenge. Now the Chinese speak of their determination to pursue an independent foreign policy. They emphasize China's identity as a developing country.

During my recent visit to China -- my third in the last three years -- every official with whom I spoke expected Chinese relations with the Soviet Union to improve. They foresee Sino-Soviet cultural exchanges, scientific exchanges and increased trade in the months ahead. Chinese no longer hide their Russian language ability; some reveal an eagerness to show off their proficiency.

Yet no one I met even hinted at a possible return to the Sino-Soviet alliance of the '50s. Chinese see the Soviets as overextended and in need of a respite. Peking seems to believe that Moscow may well reduce its deployments along the border, alter its support for Vietnam, or begin to withdraw from Afghanistan in order to improve Sino-Soviet relations. But the Chinese still consider the Soviets a fundamentally expansionist power with whom truly friendly and relaxed relations are not possible. So if the Chinese expect a more stable, less volatile relationship with Moscow, they also expect continued confrontation.

The United States is less central to Peking's strategic design than it was two or more years ago. Why the change has occurred is a complicated matter. The persistent signs of the Reagan administration's affection for Taiwan has irritated the Chinese and helped to make China's America policy politically more contentious in Peking. Close identification with the United States has become more risky politically, and those such as Deng Xiaoping who had been at the forefront in advocating the American opening seem more cautious and vulnerable on this issue. Further, the Soviet Union is now less immediately threatening to China, given the drain on Moscow's energies in Afghanistan, Cuba, Vietnam, Poland, and Africa. China perceives less need for an American counterbalance to the diminished Soviet threat and sees more opportunity for reducing tension with Moscow. Moreover, the world recession and growing protectionism offer a less attractive environment for China's rapid emergence into the international commercial and financial system.

United States hesitancy in technology transfer and handling of Chinese travelers to America who have sought to remain here are other sources of discontent, although one wonders whether these are being used by the Chinese as excuses for hindering Sino-American relations for other reasons. The Chinese bear some responsibility for the problems in Sino-American relations. When a visitor pinpoints areas of Chinese culpability -- for example, delaying or canceling commercial contracts, or refusing to admit some kinds of American scholars -- he elicits a brief, embarrassed acknowledgement and silence.

Still, China is not adopting a position of equidistance between the Soviet Union and the United States, nor is it returning to isolationism. The reason has to do with the policy of kai fang or the opening to the outside world.

For complex reasons, the American media tend to report on China inadequately; China looks better on the ground than in the pages the The Washington Post or The New York Times in terms of both its economic performance and its openness to the outside world. What struck me this time in China was the increasing impact of the West, and especially of overseas Chinese and Japanese, upon Chinese culture, society and the economy. A few vignettes capture the mood:

Eastman Kodak has a full page advertisement on the back of China Youth, the journal of the Party's Youth League and the principal ideological organ aimed at teen-agers and youths in their 20s.

The new Jianguo Hotel in Peking replicates the Holiday Inn in Palo Alto. A private rock-and-roll party in the hotel basement on a Saturday night recently attracted nearly 300 Western businessmen journalists and diplomats in disco garb, dancing frenziedly as the hotel servants gawked at the spectacle. The authorities permitted the event on the condition attendance would be by invitation only and no native Chinese would be admitted.

In front of the clerk and dozens on on- lookers at the New China Bookstore, a youth unabashedly offers to exchange his ren min bi (Chinese currency) for wai hui, a special script froeigners are given for their hard currency. He explains that his ordinary money can be used to purchase the books the foreigner intends to buy, and that he can put the wai hui which the foreigner intends to hand to the clerk to better use.

Swarms of Cantonese descend upon the Friendship Store in Guangzhou (formerly Canton), able to buy all available goods (including Johnny Walker and Sony tape recorders) with the hard-currency wai hui they have acquired. A cab driver excuses himself as he hops out of his automobile, dashing into the store to buy a pack of Marlboros.

The range of foreign books in translation continues to expand rapidly. Latest additions are Volume II of Henry Kissinger's memoirs, Piaget's work on psychology, Alex Haley's "Roots," and Sherlock Holmes. Inexpensive art books of not only the French Renaissance but of the Flemish and Dutch schools and the Impressionists are available.

Tapes of Hong Kong pop singers can be bought on Wangfujing, Peking's main shopping street. Toyotas and Datsuns are beginning to be the dominant automobiles on Peking and Guangzhou streets. Stores open to ordinary Chinese selling Japanese goods by Seiko, Citizen, Sony, or Hitachi for Chinese soft currency are now located in major coastal cities.

The new signboard of the "Association of Western-Trained, Returned Students from Abroad" hangs outside a compound near the Peking Hotel. Over 9,000 Chinese scholars currently are in the United States for a prolonged period of study. Foreign student dorms have recently been constructed at a number of Chinese universities, and foreign students are a common sight on most campuses. (The level of interchange between Chinese and foreign students is monitored and remains low -- lower than in 1975-77, the first year of educational exchanges with the West.)

One searches for the imprint of Mao Tse- tung on the society. His slogans are gone, and a foreigner's incantations of them bring embarrassed smiles. Clearly, the populace has not forgotten the sayings and the thoughts behind them. But for the moment, the popular image of the future comes from the outside.

To the vexation of ideologues, public security personnel and the military, many Chinese hope Japan's, Taiwan's, or Hong Kong's today is China's tomorrow. To be sure, in some areas, a tightening has occurred in the last two years. Chinese do say the ideological and cultural atmosphere is not as permissive as two to three years ago. Crucifixes remain on sale in Shanghai free-market bazaars, but they are more discreetly, and less frequently, displayed. Fewer Western movies seem to be shown.

Yet the evening international news on TV continues to be satellite transmissions of BBC, ABC, and NHK (Japanese television) with a faithfully rendered Chinese voice overlay. The Voice of America remains a major source of information, not only about world affairs but about China. It is difficult to believe under these circumstances that the Soviet Union, with its impoverishment of ideas, is going to be able to compete effectively for influence in China, even if Peking opens its doors to the Soviet Union.

The most profound effects of kai fang are not cultural or social, however. In my opinion, they are in the economic realm, and have significant political implications. The quest for foreign currency has become a major aspect of Chinese bureaucratic politics. The difficulty of integrating foreign trade and foreign investment projects into the national plan is beginning to be a problem.

To encourage foreign investment and trade, the central government allows Guangdong and Fujian provinces to retain a substantial portion of the foreign currency they earn, and the way the central government collects revenue from these two provinces and Shanghai differs from the financial system the central government has with other provinces. The special trade and financial autonomy given to these two coastal provinces has transformed their relations with the central government. The investments in the infrastructure for the special economic zones in Guangdong and Fujian provinces -- providing them with adequate transportation facilities and energy supplies -- have significantly affected their economic development plans and generated inter-provincial and intra- provincial tensions. In light of the province's considerable autonomy, Western corporations who will be involved in Guangdong cannot expect agreements reached in Beijing to be easily implemented in the province.

The metropolitan areas of Shenyang, Peking/Tianjin, Nanjing/Shanghai, and Guangzhou (the former Canton, which is merging economically with Hong Kong) and their hinterlands have begun to join the other vibrant economic and cultural metropolitan centers of East and Southeast Asia. What we will be witnessing in the coming decade, I believe, is best conceived not as the simultaneous entry of all China into the East Asian community, but at the outset the inclusion of three or four mainland Chinese urban areas and their supporting countryside into the commercial network of East Asia that has developed in the past generation.

That's not a billion people, but perhaps 150 million people in Manchuria, Hobei province, the lower Yangtze, and the Pearl River delta. Parts of China are developing an intimate relationship with the West, while other areas are less affected. The leaders have begun to address the political challenges this situation creates for the authorities who seek to maintain central control and promote regional equity.

When I visited China in 1980 and 1981, the leaders were wrestling with some major, unanticipated problems largely brought on by several policies implemented in 1978-79. The difficulties included inflation, a government deficit, unchecked capital construction, and an unanticipated reduction in energy production. Particularly following the optimistic plans launched in 1977-78 for China's modernization, the growing recognition through 1979-81 of the protracted, difficult road ahead and the need to "readjust" the economy had a sobering effect. In conversations with high-level officials there was a sense of being somewhat overwhelmed by events, of not knowing exactly where to turn next.

This has changed. On my latest visit I was struck by a new Chinese self-confidence. Diverse developments all point to this theme.

Statistics, once highly sensitive, are being published in increasing volume, as are balanced discussions of various problems. Two major statistical handbooks have just been published, one for the first time providing Chinese foreign trade statistics for every year since 1949 in both dollars and Chinese values, broken down by country and commodity. County maps are also beginning to be available. (For the first time, China specialists such as myself will have facts at hand to test our theories.)

Officials no longer hide differences over policy. For instance, spokesmen for the government freely admit some specialists question the realism of Hu Yaobang's target of quadrupling gross national product by the year 2000. Other officials describe bureaucratic disputes over the location of investment projects.

Memoirs and reminiscences of leaders continue to be published with brief but revealing glimpses of the personalities of communist leaders past and present. The private lives of the leaders are being exposed to the public. Pictures of the Zhongnanhai, a huge compound where many top officials reside, are for sale all over China. The former home of Kang Sheng, a leading Cultural Revolution ideologue and head of Mao's secret police, has been turned into an inn and restaurant. This supposed champion of egalitarianism and critic of the Soviet "new class" chose to reside in the elegant compound of a Manchu official. Set among gardens and walkways, the home was filled with treasure from the Palace Museum.

A foreign visitor's request for time on the schedule simply to wander on one's own is immediately granted and even facilitated. Foreigners can easily rent bicycles in Peking, and one's hosts do not get apoplexy at the prospect. In addition to the formal visits to factories, farms, and schools, the tourist has a chance to come in contact with the living society.

Hotels are under construction everywhere, and increasing numbers of tourist sites are being refurbished.

These indicators as well as Peking's recent decision to open 27 cities to foreign travel without prior security authorization point to a leadership which is more self-confident, less secretive, and in some respects less fearful of the outside world.

Self-confidence is revealed in conversation. No longer do the Chinese feel impelled either to give a patently false, rosy picture of their situation or an excessively modest, self-deprecating description of their plight coupled with statements about their need to learn from the outside world. Perorations about the excellent present situation and dark past have nearly been eliminated from the Chinese manner, and it is increasingly possible to proceed in a normal, matter-of-fact fashion in meetings with Chinese. Chinese officials have learned a great deal about the outside world in the past few year -- more than we recognize, though perhaps less than they assume.

The confidence of the top leaders arises from their perceived accomplishments of the past 18 months, principally the reduction in inflation, the reduction in the government deficit, the progress they believe they have made in arranging for Deng's succssion, the handling of the Maoist legacy, the economic growth (4-5 percent in 1982) when other countries are doing less well, and the rapid growth in exports (up 20 percent) when many other countries are suffering from shrinking foreign markets.

The Cultural Revolution and its aftermath are beginning to fade into the past. Perhaps as a result of directives from above, people no longer readily discuss the personal sufferings of the 1966-76 era. No doubt that era still lurks beneath the surface. Memories of the '60s and much of the '70s must still have an influence not easily discerned by the foreigner. Still, China has moved beyond the post- Mao era and the early Deng "reform era." The earlier fear of a renewal of the Cultural Revolution seems to have eased. Calls for the swift implementation of the "four modernizations" have also faded.

The leaders offer no quick solutions to China's many fundamental ills: how agricultural production can keep pace with population increase, how the economy can be made more efficient, how energy and transportation bottlenecks can be eased, how rising expectations for a better life can be met even as those aspirations soar through increased contact with the West.

In the last two years, the leaders have undertaken major initiatives not readily discernible by foreign visitors. They have abandoned the highly collectivized system for organizing agricultural production in favor of the state assigning production presponsibilities to families. They seek to reduce the influence of the militquadrary and to remove longering, pro-Cultural Revolutionaries from the party and bureaucracy. They have announced their intent to reassert Chinese soviereignty over Hong Kong by 1997. The unanticipated political and economic consequences of these policies could one day haunt future Chinese leaders. Any optimistic forecast for China's future must be hedged.

It is just four years since Deng Xiao Ping came to the United States on a visit that helped inaugurate a euphoric era in Sino- American relations. The two societies rushed toward each other after a 30-year interegnum in their relations.

By 1981, the bloom was off the rose. The considerable differences in the beliefs and practices of the two societies sobered both Chinese and Americans. The vision of a Sino- American relationship fated to grow inexorably closer has now faded.

Secretary Shultz may have an opportunity to inaugurate a third phase of our renewed relationship with China. It can be a successful one if guided by a realistic sense of both the possibilities and the inherent limitations in the relations between these two great countries.