PROMINENTLY displayed in the centre of the Beijing Country Horse Racing Track is a billboard proclaiming: ''Uphold the central government's order on the strict prohibition of gambling''. This is rather odd, because less than 100 metres away that is precisely what hundreds of race-goers who converge on the track every Sunday afternoon are doing. They do not call it gambling of course - it is an ''equestrian intelligence test''. There is even an electronic bulletin board displaying the odds of the horses as the betting changes. The price of an ''intelligence test'' ticket is five yuan. That the track's owners can get away with such a thinly disguised infraction of the law is testimony to the flexibility of China's laws and government directives. Entrepreneurs, particularly those with good connections to government and Communist Party leaders, have found there is nearly always a way around rules and regulations which might otherwise restrict their business activities. Restrictions on real estate developments, for example, have been bypassed with alarming regularity because of loopholes in the regulations, or by claiming that the development agreement was signed before the regulations went into effect. Likewise, central government restrictions on the issuance of credit can often be circumvented by businessmen with good connections to the local bank. On a more basic level, bar and nightclub owners in large Chinese cities have found that for a small consideration, the local police can be persuaded to turn a blind eye to the illicit goings-on in their establishments. But perhaps the most serious violations of the law are perpetrated by government officials themselves. Just about every local government and administrative agency in China has ventured into one form of business or another and, because they determine local rules and regulations, are obviously at an advantage. The Public Security Bureau in a small central town, for example, decided to go into the firecracker manufacturing business and, after setting up its own factory, promptly decided not to renew the business licences of its two rivals. Such minor twisting of the law to benefit local government businesses is common practice in China, but some authorities have gone one step further and set up businesses in direct contravention of central government directives and national laws. The most obvious examples of this are the local governments in southern China who have set up joint venture compact disc (CD) factories, turning out millions of CDs a year in clear violation of China's copyright laws and government directives on CD piracy. The United States has demanded the factories be closed down, but Chinese trade officials in Beijing have rather lamely protested they do not have the legal right to close the operations. Instead, they said the US companies who claimed their products were being pirated should take legal action in Chinese courts against the factories. The real reason for Beijing's reluctance to take direct action against the pirate factories is that it would meet with powerful opposition from local vested interests - vested interests who are very much used to getting their own way when it comes to laws and regulations.