Sinotrans, the 40,000-employee China National Foreign Trade Transportation Corp. organization that handles cargo movement and storage within China, is shaking up its air freight department.

Before the new economic policies, Sinotrans paid little attention to air freight. It carried some air freight as a service to its import-export corporations, but volume was very small.With the opening to the West, imports and exports grew rapidly. In 1981, the Sinotrans Beijing branch's small Delivery and Pick-up Group that handled air cargo became the Beijing Air Cargo Center. It had difficulty coping with the increased traffic. New employees were untrained and equipment was in short supply.

Three years ago Sinotrans didn't even have an airport warehouse, just outdoor storage. Heavy rains and flooding caused much damage, service was bad and complaints were rife. Sinotrans just wasn't well prepared for the big changes brought about by the opening to the West that came with Deng Xiaoping's new economic policies.

In the meantime, new actors appeared on the scene. In November 1984, several former Sinotrans employees, backed by the Beijing Municipality and the Beijing Foreign Trade Corp., formed a new freight service, the Beijing Air Cargo Transportation Service Center (BACT), to compete with Sinotrans with better service and lower costs.

In December 1984, EAS Express Aircargo Systems (H.K.) Ltd., affiliated with Luen Wah Trading, a Hong Kong holding company, entered into a 40-60 joint venture with a Chinese government company, Jian An Equipment Corp., to form EAS Express Aircargo System (China) Ltd.

In February 1985 came Sino Santa Fe International Services Corp., a 50-50 joint venture of U.S.-owned Santa Fe Transport International, headquartered in Hong Kong, and the State Planning Commission's China International Engineering Consulting Corp.

The three firms prospered. In an interview last year, Liu Jingxin, deputy general manager of Sinotrans' air freight department, said: The competition was good for Sinotrans and good for the country. BACT, EAS and Sino Santa Fe increased their business and took away some of our business. But our business also increased. The market for air transportation is so big and so growing that we don't have any complaints about competition.

In addition, Sinotrans is learning from the competition.

Sinotrans has noticed how the Hong Kong joint ventures motivate and train their staffs. It studied the procedures and systems used by its smaller competitors.

In the case of BACT, however, independent success was short lived. As of Jan. 1, it was absorbed by Sinotrans.

Mr. Liu said that one of the reasons Sinotrans has left BACT a measure of independence is the air courier business. Federal Express was very reluctant to use Sinotrans because Sinotrans represented DHL. They didn't feel comfortable to use the same company their competitors used, so we called on BACT to represent them - different people, different organization. BACT can work exclusively, heart-to-heart for their business.

DHL, of course, also wanted a separate organization to represent it in China, not an organization representing others. As 1986 ended, DHL International Ltd., the Hong Kong-based international arm of DHL Worldwide Express, signed an agreement with Sinotrans to establish the first air express joint venture in China. Mr. Liu said that although this new company has been set up to exclusively handle DHL in China, it is very difficult to set it up for business throughout China. They still need to use some of our branches to distribute and collect shipments, he said.

Because of our many branches, we have the flexibility of allowing some of them to represent outside freight forwarders and air courier companies wanting to do business in China. We have to do something to meet the international market, Mr. Liu said.

Sinotrans has noted the advantages that accrue to smaller, semi- independent units. In Shanghai, it intentionally split its business into four or five small branches, and each small organization's business increased. The overall Shanghai business also increased. It's a very good market, said Mr. Liu.

Last year, Sinotrans handled 35,000 tons of air cargo, said Guo Sujuan, manager of the air freight department. That was nearly 60 percent more than the year before. This year the totals are still increasing, but not as fast as in 1986, she said.

But exports this year are very good, particularly for textiles, said Mr. Liu. Most of the textile shipments go out from Shanghai and Beijing. Roughly speaking, about one-third go to America, one-third to Japan and Hong Kong and the rest to Europe.