SHANGHAI -- Shanghai's curse is the Suzhou Creek, a polluted, greenish-black snake of a river that threatens the center of China's largest city.

No animal or plant life can survive in the murk of the Suzhou Creek, and several times a year it becomes highly toxic, with gas bubbles breaking the surface. A former resident recalled that the foul gases emanating from the river's surface once caused him to vomit.

In Benxi, a medium-sized industrial city in north China, more than 420 factories are jammed into an area of only 17 square miles, creating a forest of smokestacks that contaminate the air so badly that visibility in the city is limited to 40 to 50 yards for about six months each year. It is often said that Benxi fails to appear on satellite photographs because it is cloaked in industrial smog.

So it goes throughout China. Rapid industrialization has brought startling changes to this country over the past few decades, helping to improve the standard of living for many of China's 1.1 billion people.

But it also has created an ecological monster: environmental pollution only rivaled in the Soviet Union and Eastern Europe. And it appears to be worsening. As a consequence, Chinese citizens are paying a price in devastating health hazards.

Shanghai, a coastal city with a population of 12.5 million people, has the highest death rates from cancer of any city in China, according to officials in the city's municipal bureau of environmental protection. Polluted drinking water is a main source of stomach, liver and intestinal cancers.

In Benxi, the official Economic Daily newspaper said, residents face rising death rates from diseases resulting directly from pollution -- hepatitis, cancer and bronchial illnesses. The death rate from lung cancer in Benxi has doubled in recent years, it said, and in several of Benxi's townships, health standards have deteriorated so much that young men cannot pass tests for recruitment into the Chinese army.

The pollution nightmare is clearly evident in China's cities, but it does not end there. It extends into the countryside, where rural industries have rapidly expanded in recent years and little has been done to combat pollution. Rural industries form the most dynamic sector of the Chinese economy and are needed to absorb a growing rural labor force.

In Benxi and many other cities in the country, the Chinese government is belatedly attempting to control air and water pollution. But China's enormous population and the relatively small budget available make the battle a difficult one. Many Chinese wonder whether too little is being done much too late.

The battle against pollution now underway in Chinese cities is important to other countries because China, heavily dependent on coal for its energy needs, will continue to be a major emitter of carbon dioxide and other pollutants that are the source of acid rain. China, the United States and the Soviet Union account for more than 50 percent of the world's carbon dioxide discharges.

Until just a few years ago, the Chinese government gave low priority to environmental protection, demanding that -- above all else -- factories meet centrally planned industrial production targets. At the end of last year, China finally promulgated a comprehensive environmental protection law, but even today, with concern about the ecology heightening, government agencies overseeing the environment appear to have little power.

China is now working more closely with international agencies, including the United Nations Environment Program, and is seeking more international assistance. But early this year, Qu Geping, director of China's Environmental Protection Agency, acknowledged that the funding for environmental protection in China is "largely insufficient."

He said China was spending about $1.9 billion to $2.1 billion a year on environmental protection, or about 0.7 percent of the country's gross national product. China hopes to raise the figure to 1 percent of GNP by 1992, he said, but he added that even this would be inadequate.

In theory, China now has a much more extensive system of anti-pollution regulations than in the past. But in practice, these appear to be frequently violated. And there are no citizens' groups here to create public pressure for better environmental protection.

Liu Hongliang, president of the Chinese Academy of Environmental Science, said earlier this year that while some improvements can be seen, the environment in China is generally worsening.

He said the coal-burning pollution in north China, where Benxi and many other industrialized cities are located, is contributing to global warming. Furthermore, Hongliang said, acid rain exists over a vast area of about 520,000 square miles south of the Yangtze River, making this the third major region of acid rain in the world, after Western Europe and North America.

China still lags behind the United States and Soviet Union in the discharge of harmful carbon dioxide. But more cities in China exceed World Health Organization guidelines for air pollution than in any other country.

Among them is Benxi, which is most notorious for its air pollution. According to a middle-aged truck driver in Benxi, he and many others in the city would like to leave because measures to reduce air pollution there have been largely ineffective. "Those working in big factories get very bad lungs," he said. "We don't have the means to protect the workers from the smoke and dust."

Because pollutants emitted by China contribute to the global greenhouse effect, a warming of the planet and its lower atmosphere caused by certain pollutants, other nations tend to focus concern on China's air pollution. But foreign experts on ecology say water pollution currently poses the greatest danger to the health of the Chinese populace.

Chinese scientists say drinking water for about 700 million people, or more than 60 percent of China's population, fails to meet health standards.

Making matters worse, China's natural water resources are constantly diminishing as a result of blind digging of wells and excessive use of water by both rural and urban industries. Large state-run factories can obtain water at low, subsidized prices and, therefore, have little incentive to conserve water.

Most of China's cities lack adequate sewage treatment plants, and industrial wastes contaminate water supplies. Here in Shanghai, 5 million tons of water are dumped daily into the main waterway -- more than 70 percent of it untreated.

The Taizi River in Benxi is so badly polluted that no one would dare to drink from -- or bathe in -- its oily currents.

"When I was a child," said the truck driver in Benxi, "the water in this river ran clear. Pollution wasn't a serious problem." Today, dozens of factories pour untreated wastes directly into the river.

He Bochuan, a specialist on the environment at Zhongshan University in the southern Chinese city of Guangzhou, asserted in a recently published book that the measures China is using to deal with pollution are largely "backward, out-of-date and unreliable."

"So many people pay attention to short-term material benefits that there is a lack of a long-term view," He said. "The priority is given to production. . . . There is no sense of guilt for polluting the environment."

Professor He said the main reason anti-pollution regulations have been ineffective is that the biggest polluters are state-run factories that cannot be shut down or severely punished. Some of these factories, he said, simply absorb the cost of fines for polluting the air and water within their production costs.

His book on the degradation of the environment, titled "China in the Valley," is the only comprehensive work of its kind published in China. Its circulation has been limited, and it appears to have been banned in some parts of China.

Water pollution is one of He's major concerns. He reported that in a survey of underground water in 47 cities, the water in 43 of them was found to be polluted.

Shanghai's water pollution earned the city worldwide notoriety in early 1988 when a hepatitis epidemic affecting an estimated 300,000 people was caused by the ingestion of locally caught clams poisoned by polluted water.

But Shanghai is not alone. The sea water around China's largest fishery, at Hangzhou Bay, south of Shanghai, is now polluted. Toxic chromium from mining operations that spread to drinking water forced the closure of some 1,000 wells in northeast China's Liaoning province last year.

Because of Shanghai's importance as China's largest industrial center, the top leadership has been giving special attention to the city.

The city government launched an ambitious project in late 1988 to clean the 70-mile stretch of the Suzhou Creek that winds through Shanghai. This $450 million project will divert sewage flowing into the creek to culverts and tunnels leading to the bottom of the nearby Yangtze River.

The World Bank is expected to contribute $145 million in loans to the project, with Japanese and German construction companies participating. An Australian consulting company is providing advice.

Ken Rippin, one of the Australian pollution experts in Shanghai, describes the Suzhou Creek as "essentially an open sewer." But he predicted that Shanghai will see a "significant improvement" in water quality within a few years.

Lu Fukuan, director of Shanghai's municipal bureau of environmental protection, said Shanghai is spending about $106 million a year on measures to fight pollution.

"Of course, this is not enough to deal with pollution in Shanghai," Lu said in an interview. "But taking Shanghai's limited sources of revenue into account, it's still quite a large sum."

Lu said his bureau has been fining numerous factories in Shanghai for violating anti-pollution laws enacted in the 1980s. But, he said, some reduce production or flows of waste when they know that inspectors are coming, so his inspectors have resorted to making unannounced checkups.

Lu said some progress has been made in the fight against air pollution, reducing the carbon dioxide content nearly in half in recent years. But diplomats living in Shanghai say the city can only hope to meet "minimal pollution standards" in the coming years.

Meanwhile, pollution in the rapidly industrializing rural counties west of Shanghai may prove to be a more daunting challenge for the government than the city itself.

"Pollution in the countryside is getting worse because of the expansion of township and village enterprises, and ineffective measures being taken to deal with it," Lu said.

"Most factory managers in the rural areas pour a lot of waste water into the rivers," said the manager of a small enterprise located in the countryside west of Shanghai.

Said the manager, who asked not to be identified, "In the countryside, if you have good connections with local officials, you can get things done without worrying about the anti-pollution laws."