One day not long before the death of Chairman Mao Tse-tung, so the story goes in China, he received Vice Premier Teng Hsiao-ping and Teng's small grandson. The old revolutionary had his differences with Teng, whose economic ideas sounded to Mao like neocapitalism, but the grandson seemed to be a nice boy.

"Call me uncle," Mao said.

"Oh, I couldn't Chairman Mao," the boy said.

Teng suggested that Mao offer the child an apple. Mao did, and watched as the boy took a big bite and said, "Thank you, uncle."

"See," said Teng, "what a little material incentive will do?"

Apocryphal or not, the story sums up the most sensitive and crucial economic issue in China today. Should good deeds and hard work be rewarded with money?"

After a decade of being told monetary rewards lead straight to capitalism, and that love of Mao and socialism should be enough to motivate anybody, Chinese factory workers have become lackadasical and unproductive.

In the last two months, the Chinese press has devoted perhaps more space to this problem that any other single subject. It has twisted itself into Marxist-Leninist knots trying to prove that rejecting the 10-year-old policy against bonuses and material incentives is not a betrayal of either Mao or the Communist ideal.

Whether on strike or at work, whether playing poker or exceeding the production target, every Chinese worker gets paid every month a salary that is rarely more or less than that received by the next fellow in the assembly line.

The Chinese have invented a saying: "The man who does work gets $16 a month; the man doesn't gets $17 a month," because he doesn't have to pay bus fare.

This has created a system where workers take long breaks to build snowmen, or visit their children in factory nurseries, or stage cricket fights.

Lyn Kirkpatrick, a Briton of Chinese descent, worked in a Shanghai factory this year after the new post-Mao leadership had tightened work rules. She said her fellow workers still had no trouble meeting their extremely low production quotas by lunchtime and spent the afternoons playing number games.

The attention the official press has paid to this question lately illustrates how worried Teng and Mao's successor, Chairman Hua Kuo-Feng, are about low productivity and how sensitive they are to accusations that they are rewriting Mao's policies.

In long treaties in publications like Peking's Kwangming Daily, Hua's and Teng's propagandists are playing tortuous word games to explain the difference between the concepts of "to each according to his work" (good) and "material incentives" (bad).

"They look similar in some ways but are essentially different," said one recent article. "Ideologically, to each according to his work is a part of Marxist political economy, while material incentives are a revisionist concept. In essence, to each according to his work is a principle of socialist distribution aimed at eliminating exploitation and manifests the interrelations among the state, the collective and the individual, while material incentives are a revisionist means to carrode the laboring people ideologically and to squeeze sweat and blood out of the workers."

Whatever you call the system, it means more money for more work, and some of the articles do make that point.

One Kwangming Daily writer recounted how workers in Tientsin used to be paid 2 cents for every used cement bag they turned in. The Tientsin cement industry was recovering 70 per cent of its bags until the bonus was abolished and recovery plummeted. One brave unit that restored the bonus in the face of official disapproval saved $7,000 in bagging costs.

Mao's great fear, which many of the articles address, was that the incentive programs would make the more energetic workers significantly wealthier than their fellows and create a new elite, as he argued has happened in the Soviet Union. The new Peking administration says that bonuses will never be that significant - valuable goods will always be rationed in some way.

So "to each according to his work will not give rise to extreme disparity between rich and poor."

Paradoxically, the short supply of soughtafter goods like vegetable oil and television sets not only prevents the formation of a comfortable elite but severely weakens the positive incentives of any bonus system.

The attitude appears to be - why work hard for more money if there is nothing to spend it on? In the wake of a general pay increase for lower paid workers this fall, Shanghai reported that 380,000 new savings accounts had been opened in the city, only an increase in consumer goods that workers can buy is likely to make the incentive program effective.

There have been few reports of any actual bonuses paid so far. Japanese reporters said a Peking furniture plant disclosed that 5 per cent of its workers would get a $12 bonus, 20 per cent a $9 bonus and 25 per cent some free factory goods. At other factories visited earlier this year, officials indicated that they were so fearful of future changes in the party line on this issue that they would give out nothing more than pens and notebooks. A reporter for one of the Communist newspapers in Hong Kong, thought to be particularly attuned to Peking's thinking, showed recently his awareness of the importance of such distinctions.

When told by a recent China traveler of the story being passed around about Chairman Mao, Teng's grandson and the apple, the reporter thought for a minute, then asked with a slight smile: "But was it a large apple or a small apple?"