THE alleged billion-yuan fraud case involving one of China's highest-flying corporations, Great Wall Machinery and Electronics Company, is more than a national scandal. For the Chinese Government, it has become the financial iniquity of the year, and the country's propaganda machinery seems intent on milking the case for all its worth to warn others that there are limits to the rough-and-tumble, everything-goes capitalism now raging across the country. ''The Great Wall incident has an unusual meaning,'' said the report on the scandal carried by the national media this week. ''The many-faceted problems it reflects alert us.'' ''In the initial period of the socialist market economy, many people are not quite familiar with the new mechanisms and laws, and this provides opportunities for swindlers. ''It warns us that we should set up and perfect laws and regulations to create a good environment . . . to prevent such incidents from happening again,'' the report said. Great Wall president Shen Taifu is now in jail on charges of embezzlement and the assets of his company have been frozen. His sin, according to the government, is that he fraudulently raised money by issuing bonds on the pretext of developing energy-efficient motors. He is said to have raised, within a few months, one billion yuan by issuing bonds at 24 per cent annual interest to 100,000 people in 17 cities even though he had never obtained government approval. But, instead of producing the 100 million yuan worth of motors he promised to churn out within a year, Shen spent most of the money on opening new subsidiaries, fancy cars, houses and carpets, renting hotel suites, expensive meals and bodyguards. Shen raised 200 million yuan in Beijing alone, but, when the company's bank account was frozen, only 30 million yuan remained, the government said. However, that was not Shen's biggest crime. Corruption is rife in China, but many people are getting away with it because they manage to be discreet, building on their networks of personal relationships to get funds, contracts and protection from government scrutiny. Shen was anything but discreet. On March 6 this year, the central bank ordered Great Wall to return money to investors, saying the company had issued bonds in a disguised form with the issue far exceeding the value of assets. ''The use of the funds is not clear, and the risks for the investment so high that the interest cannot be guaranteed,'' the central bank warned in a circular. Great Wall hit back with a news conference a few weeks later, which was astounding by Chinese standards. In a theatrical performance, with Shen at one point on the verge of tears, the embattled corporate president declared war on the central bank. After vowing to take the central bank to court for what he called unreasonable interference in company operations, Shen said he would go as far as necessary. ''I don't fear death. I can take even more extreme action,'' Shen said. ''The situation is at a crisis point. Maybe it will cause social turmoil.'' One Chinese newspaper said Shen was playing a dangerous game. But it cautioned that he might have a trump card or two to play because so many people had invested in his company. It was also pointed out that Great Wall had already obtained approval for its actions from many government departments. But Shen had obviously miscalculated. The conflict might have been quietly resolved so as to avoid a scandal, but Shen's personal attack on central bank governor Li Guixian could not be tolerated. President Jiang Zemin and a special finance group in April reportedly ordered all government departments, the police and the courts to expose Shen. What the official account on the Great Wall scandal did not allude to was reports that more than 100 senior Chinese officials, including a vice minister, have been implicated in the case. Other bribery and corruption scandals have hit the Chinese press lately. Although not officially announced, as such, observers believe the government is carrying out a campaign to show it is cracking down on corruption - one of the major complaints of the 1989 pro-democracy demonstrators and, indeed, one of the major problems threatening the Communist Party's political legitimacy today. Western and Chinese observers believe corruption is now as rife as it was just before Tiananmen. ''Can the officials stop corruption? No, they can't because there is no independent legal system or free press,'' said a Western diplomat. Thus ''there is little likelihood of detection by someone you can't buy off''. One aspect of the Great Wall case, which has not been breached by the official press, is that Shen may have sincerely believed he was doing nothing wrong in the context of Deng Xiaoping's call to push brazenly ahead with reform. Shen said at his press conference that, because Great Wall belonged to him and his wife, they had the right to raise money as they pleased. He claimed that, by intervening, the central bank was holding back the creative forces of entrepreneurs such as himself. And he may even have believed his own words when he said that his goal was to invigorate the Chinese nationality.''