China has launched its first large-scale experiment in employment by merit in an apparent effort to prod an often sleepy and sloppy work force.

Instead of being assigned for life to a factory or shop with guaranteed wages, job candidates will now have to submit to entrance exams, serve a probationary period and sign a contract agreeing to certain requirements set by the boss. The contract permits an employer to sack unruly or incompetent workers.

Now limited to new job entrants in Peking, the reform is considered far-reaching for a labor force molded by what is known as the "iron rice bowl" philosophy--the assurance of a paying job regardless of skill or initiative.

The late Communist Party chairman Mao Tse-tung believed it the duty of a communist state to provide everyone a job, and it still is nearly impossible to fire a bad worker.

But Mao's pragmatic successors who publicly are committed to a quadrupling of China's economic output by the year 2000 argue that lazy and careless workers are strangling the nation's growth.

One of every four state-run enterprises loses money annually due to labor inefficiency, overemployment and mismanagement, according to official estimates. The scientific socialists now running the economy have tried to fire up the labor force by experimenting with bonuses, piecework arrangements and employe profit-sharing schemes--all with limited success.

A new consensus now seems to have emerged for overhaul of the employment system--not mere tinkering.

The Peking Daily, which unveiled the merit system approach last week, said the old method of guaranteed employment "has seriously limited labor and economic efficiency."

"Moreover, it encourages the iron rice bowl mentality in some people," said the authoritative commentary.

The new labor contract system is modeled after special export-processing zones in south China where foreign investors demanded the power to test, regulate and fire local Chinese in joint-venture concerns.

Like other economic reforms, this one will be tested in a larger laboratory--in Peking, where 20,000 workers are expected to be affected by January--before it is considered for nationwide application.

The government labor department will continue to assign the jobless to prospective work places, but similarities with the old system apparently will end there.

Employers should no longer be forced to keep unqualified or unproductive workers just because they were assigned by the state.

An experimental forerunner in Peking--Capital Iron and Steel Co.--may serve as an example. Over 8,000 malingering workers have been shifted to lowly jobs planting trees or baking bread since 1979.

The factory boasts annual profit increases of 20 percent every year since the experiment began.

The latest citywide reform should allow employers to go further by actually dismissing the shiftless and unskilled, according to Peking Daily.

Foreign economists believe the merit system of employment will go far in helping to cure China's labor inefficiency.

But they expect the program planned for Peking will be highly controversial and far from a certain success.