China today announced major price increases in key food items and removed price controls altogether from 10,000 other consumer items in a move that confirms an unprecedented shift in its domestic economic policy.

The increases are the most significant in the 30 years of communist rule in China. Peking has consistently boasted about its immunity to Western-capitalist inflation.

Prices will climb as much as 33 percent for pork, beef, mutton, poultry, eggs, vegetables, fish and milk, according to a joint circular of the government and the Communist Party reported on the front pages of all newspapers here today.

A later announcement said government price controls would be removed from more than 10,000 products, including paper, kitchen utensils and fruits, accounting for about one-fifth of the total value of all commodities sold in China. Shortages of such goods are expected to push their prices up, but the government said it hoped the move would "lower prices in the long run."

About 100 million city workers will get a $3.30 monthly subsidy, about 10 percent of the average wage, and 40 percent of them will get additional merit raises to help soften the blow, the announcement said.

The announcement reflects a landmark Communist Party decision to try to narrow the gap in living standards between the cities and the underprivileged countryside, where government payments to peasants for farm goods have recently been increased by at least 20 percent.

But initial reaction from Chinese in Peking indicated the price rise would not make the government any more popular with workers, whom it depends on for the success of its modernization program. "It's just too high," said one office worker. "They could have just raised the amounts paid to peasants by 5 percent, instead of this. Peasants in the city suburbs already live better than city people do."

The decision goes to the heart of the Chinese government's dilemma in attempting to increase farm production with incentives for peasants while not cutting living standards in the cities. Chinese economists argue that higher prices might not only ease the socially explosive gap between farm and city life, but also solve a major economic complaint of all Chinese -- not enough goods to buy with the money they are making.

Some foreign economists say the price increase may help, but only if Peking solves the problem of its still growing population -- already near one billion people -- and reaps a series of good harvests.

The announcement emphasized there would be no increase in the price of grain, which provides the bulk of the average Chinese diet in the form of rice, noodles, gruel or bread. The government began earlier this year to pay peasants 20 percent more for their state quota of grain, and 50 percent more for grain sold to the state above the quota. This and several other statements in the official press today indicated the government would be risking at least a temporary deficit to keep urban prices from rising even higher.

Liu Zhuofu, chief of the state commodity prices bureau said, "The state expects to earn an additional $3.3 billion from the increase in nonstaple food prices, but has to pay out an additional $3.9 billion in allowances to workers to cover the price rises."

"Since the founding of new China,' said the New China News Agency, referring to the Communist victory here in 1949, "prices on the Chinese market have basically been stable." But it said that since March, purchase prices for 18 major farm products have increased.

Even after the increases, prices here will continue to reflect China's low living standards and be far below what Americans are used to. Pork, the most popular meat in China, will increase from about 65 to 85 cents a pound. The announcement said the state would spend about $4.4 billion to maintain stable prices for grain and edible oil, both rationed here.

The official Chinese news agency said the price rises, beginning today, would be 33 percent for pork and aquatic products, 32 percent for eggs, and roughly comparable increases for other nonstaple foods. But it said that prices of vegetables, the principal side dish in any Chinese meal, would be raised "as little as possible." Workers in northern grassland areas with less grain but more meat in their diets would get a $5.20 monthly subsidy.

The merit pay increase announced for 40 percent of China's 100 million urban workers would be the second major increase in the last two decades, after years in which the government of the late Chairman Mao Tse-tung kept prices stable though a rigorous austerity program. In late 1977, a year after Mao's death, 46 percent of urban workers received increases, usually of about 5 to 10 percent. Another 2 percent received increases in 1978.

The announcement said raises would go to those who worked the hardest, had the best attitude and the best skills, so to "overcome egalitarianism." Since Mao's death the government has struggled to stimulate industrial production by encouraging more rewards to the better workers, but the idea has clashed with China's longtime practice of keeping all workers at the same level. Competition for bonuses violates what many Chinese workers think is Marxist doctrine and also disturbs the fabric of social relationships in typical Chinese worker communities, making the policy difficult to enforce.