Communist Party Chairman Hua Guofeng, the man Mao Tse-tung handpicked as his successor, is expected to step down by early next year as part of a deal to escape implication in the ongoing trial of China's disgraced radicals, diplomatic sources reported today.

Hua, 59, who leaped from political obscurity during the chaotic Cultural Revolution and has held the top party post since Mao died four years ago, also faces possible censure for his role in the bloody suppression of demonstrations against leftists in Peking in April 1976, sources said.

Hua has grown increasingly isolated since Deng Xiaoping returned to power in 1977 as China's vice premier after his second ouster during the Cultural Revolution. Last summer, Hua gave up his job as premier to Zhao Ziyang, a pragmatist cut in Deng's fashion, and Hua is expected to relinquish his chairmanship to Deng's longtime protege, Hu Yaobang.

Several developments in recent days support persistent reports by knowledgeable sources that Hua has already begun making way for Hu, now the party's general secretary who is in charge of its day-to-day activities.

Hua, normally a fixture in Peking's active diplomatic life, has disappeared from public view for nearly three weeks. He did not participate in the Japanese ministerial conference last week. When a delegation of Greek communists asked to meet with Hua, they were told he was too busy and were greeted by Hu instead.

China's Foreign Ministry, which routinely pounces on spurious stories to keep them from spreading, said it has no information when asked to confirm reports of Hua's imminent resignation. Just last week, the ministry denied as "outrageous lies" rumors that Hua has been arrested.

It has been widely believed for months that Hua, the last holdover from Cultural Revolution days, would quietly resign at the party congress scheduled for next spring. As a consolation, he would be spared mention in the indictment against Cultural Revolution leaders and escape blame for the handling of the demonstration.

But knowledgeable sources now believe Hua will be forced aside much earlier -- possibly at a full meeting of the party Central Committee to be held after the current trial of the Gang of Four radicals. Like Hua, they rose to power during the Cultural Revolution from 1966 to 1976.

Several days ago, the party newspaper People's Daily criticized bureaucrats for sidetracking one of the most far-reaching reforms -- free market experimentation in the nation's factories -- and suggest that such resistance further delayed China's period of economic readjustment.

On the political front, provincial party leaders have fallen far behind in planning for the next party congress. China's foremost leader, Deng Xiaoping, has hoped the congress would complete the now three-year process of reforming the party and setting the nation's course for years to come.

Impatient with the delays, Deng is believed to have decided to step up the pace by moving against Hua as the symbol of resistance. Although Hua has generally supported Deng's leadership, he has publicly opposed the emphasis on material incentives to increase productivity, which is a hallmark of Deng's economic program.

Since Hua's public vanishing disappearance from the public eye, Hu, 67, has stepped up his public activities, welcoming foreign guests, making important policy statements and giving frank and wide-ranging interviews to foreign correspondents.

Further fueling speculation about the party chairmanship, Deng reportedly told a delegation of Spanish Communists in recent weeks that Hu would receive a "big promotion" at the next party congress. Since he now has the second highest post, Hu could only be elevated to chairman.

According to news reports, Hua's decision to give up the chairmanship was set at a stormy Politburo meeting in late October or early November when Deng and Hu organized against him.

With his agreement to step aside, sources said, several politically explosive charges were deleted from the Gang of Four indictment, sparing Hua embarrassment. The charges reportedly involved Hua's role as minister of public security during the April 1976 riots at Peking's Tienannmen Square.

More than a million Chinese had gathered in the square to lay wreaths in memory of the late premier Chou En-lai. When demonstrators began protesting against the leftist policies promoted at the time by the ruling Gang of Four radicals, public security officers brutally attacked the crowd and arrested dozens of others.

The riots were blamed on Deng and let to his second purging in less than 10 years. Hua, however, was rewarded for his ready response to the demonstrators.