Werner Gerich, the first foreigner to manage a Chinese factory since the Communists took power, stomps through the factory with an eye for detail. He spies a leaky faucet and above the din of the workshop, shouts a protest over the water being lost.

"You must repair this," said Gerich to a Chinese assistant. "It's our money that's being lost."

Gerich is a retired, 66-year-old West German engineer, a perfectionist who has been trying for more than a year to take a Chinese factory with decades-old machines, many of them in a state of disrepair, and make them produce a better diesel engine. The engines are small, lightweight motors used mostly in agriculture for generators, water pumps, and small tractors.

Gerich began working at the Wuhan diesel engine factory in September 1984 and did so well that the Chinese earlier this year named him an honorary citizen and asked him to stay on the job indefinitely. The Chinese have indicated that as a result of Gerich's pioneering experience, they would like to invite other foreign experts to become factory managers. Chinese Vice Premier Yao Yilin has met with Gerich on more than one occasion to hear his recommendations on how to improve the performance of the Chinese industries.

But Gerich's experience in Wuhan helps show why China's urban and industrial economic reforms are proving more difficult to implement than were its rural reforms.

Gerich obviously has had a major impact on the diesel engine factory. The engines are cleaner, better built, and longer running. But he says the factory is far from reaching any European or American standard, and it is not clear that any basic change has occurred in the motivation and productivity of the workers. Low worker morale is a problem not just in the Wuhan factory, but in many factories throughout China.

Gerich has been full of energy. Marching through the factory with an interpreter at his side, he uses a few words of Chinese, some English, and German to make his points. He has prepared a steady stream of reports on progress and problems at the factory for the Wuhan authorities and for the German government. He works for nominal wages under the West German senior expert service, a volunteer service that sends retired citizens to help with overseas projects.

But the bespectacled West German engineer has been exhausted by fighting the Chinese bureaucracy, long hours on the job and separation from his wife back in Bretten, West Germany. He flew back to Germany on leave last week and says that if he returns to Wuhan, it is likely to be as a part-time adviser to the Chinese factory and not as its full-time manager. "I am tired," said Gerich in an interview. "After a year of fighting, I am tired."

Gerich calculates that since he came to the factory more than a year and three months ago, 120 improvements have been made in factory operations and in the diesel engines that are built here, and profits have risen.

But Gerich said the factory is still heavily overstaffed, with 2,100 workers on the job when perhaps 1,400 would do; it takes three days to get some things done here that would take only three hours in Germany.

"The main problem is whether the workers work hard or not, they get the same salaries," said Gerich. "This is a big country, and you can't change minds in a short period of time."

The factory is also hampered by lack of raw materials and new equipment, he said.

Huang Zhongyun, the factory's Chinese deputy manager, gives Gerich credit for improving the quality of the engines being produced. But he, too, says he is "not satisfied."

"Some of the young workers lack conscientiousness," he said, adding that the workers need better education and more technical training.

Gerich added that the workers' salaries would have to be increased and living conditions improved in order to make them more productive. As he describes it, the average worker's family consists of three persons living in a small, unheated, one-room flat. As many as five families might have to share one kitchen and toilet.

But when Gerich arrived here in 1984, working conditions in the factory were considerably worse. He put in lights and windows where there had been none. More important, he fired two top employes who were not doing their job, the factory's chief engineer and the man in charge of quality control. That was something almost unheard of in a country where workers have always been assured of an "iron rice bowl," or guaranteed wages.

Gerich describes the quality control bureau at that time as a "home for the old and sick, a harbor for the lazy and a sanitarium for those who have good connections."

Gerich found that when he subtracted for breaks and mealtimes, workers were working only four to five hours a day when, in his view, they ought to be working at least six. That is still the case with some of them.

After two months leave in Germany this past summer, Gerich returned to Wuhan to find that some workers had gone back to their old ways. Some were sleeping when they were supposed to be on the job, some were reading newspapers, and some were simply sitting and doing nothing.

It is the kind of thing that makes Gerich wonder how long the changes he has introduced will last once he is replaced.

The German engineer considers it a good sign that the government recently decided to build apartments for more than 200 workers and their families. But in his view, as long as ineffective workers cannot be dismissed, there is little chance of improving the morale of those who perform well.