China's current campaign to rid the 40 million-member Communist Party of incompetent bureaucrats and radical leftists now has a new focus -- party officials exploiting recent economic reforms to make money for themselves on the side.

Leading government officials in Peking have resolved to attack what a recent New China News Agency report called "new conditions and new problems under the new situation."

Under Deng Xiaoping's policies, endorsed by the party last October, rural and economic reforms involving private enterprise, material incentives and profit-and-loss accounting are meant to spur modernization and enrich China's peasants and factory workers. The success of these changes so far, particularly in the countryside, where families may now earn as much as $3,571 a year, is causing envy among once-powerful party officials on fixed state salaries, according to offical newspaper reports.

Peking officials in charge of Communist Party discipline held a meeting recently, according to the official Chinese news agency, where they decided to "curb the three worst evil practices of party cadres leaders -- doing business and running enterprises by taking advantage of their position and power, recklessly raising commodity prices, and handing out cash and goods indiscriminately."

Cadres are also fraudulently purchasing state materials in short supply and speculating for profit on the increasingly competitive markets opening up under the decentralization policies, the news agency reported.

Peking issued a circular on Jan. 23 aimed at party and government officials in Liaoning Province who were setting up private businesses for personal profit. Local Liaoning cadres reportedly have stalled on direct orders from the Chinese capital to close down these companies, or chose to ignore the orders.

There are also problems involving party and state officials withholding the national government's share of provincial profits. An editorial in the New China News Agency recently noted "a conspicuous contradiction" in cadres' behavior when it came time to divide an enterprise's profits between local officials and higher authorities.

"They keep demanding financial and material support from the state, instead of tapping their potential or seeing what else they can do to surmount their difficulties, but they are reluctant to turn in their profits or pay their taxes according to regulations," said the editorial. Under the new policies, factories and other state-owned enterprises now must compete against each other as well as with the mushrooming number of private companies. They must also keep track of their own earnings, rather than rely on central planners in Peking to balance their earnings and absorb any losses.

The first phase of China's party rectification campaign, launched by Deng in October 1983, is coming to its conclusion next month. Included in the first phase were leading party organs in Peking, the Army leadership, and the top levels of the party in China's provinces and municipal governments.

The Communist Chinese publication "Outlook" warned last month that the second phase, which is to extend to about 15 million party members, "may be more complicated." The government's master plan gives each unit of the party about six months to complete its review of members, ending with a reregistration of acceptable cadres.

Estimates of how many party cadres may be expelled have ranged from half a million to as many as 3 million.