TURMOIL IN CHINA: The Struggle for Power : Japanese Freeze Their Aid to China : Move Called a Response to Crackdown but Not Sanctions

The Japanese government Tuesday declared what amounted to a temporary freeze on its massive economic assistance program to China, although Prime Minister Sosuke Uno stressed that the move should not be viewed as the imposition of sanctions.

The action resulted from widespread revulsion here to the brutal military repression of unarmed students and civilians in Beijing and underscored the possibility that the substantial help China gets from Japan in economic aid, technology, management skills, financing and trade could be endangered.

“We will decide our position on a case-by-case basis on the implemention of economic cooperation projects that are already going on,” Foreign Ministry spokesman Taizo Watanabe told reporters.

Although Watanabe described the decision as a practical reaction to chaos in China--not as a retaliatory measure--the effect will be to halt aid projects at least for the time being.

Uno, who took office last Friday, declared: “It is too early to study whether to take sanctions.” He added: “China is our neighbor, and the relations of our two nations have a long history.”

The United States, which gives China no economic aid, on Monday announced a series of sanctions against China, including a suspension of all military sales.

A decision on future implementation of Japanese aid projects, Watanabe said, will have to be made later.

“Whether we should implement (future aid projects) later than scheduled, or go ahead as scheduled, or whether we will change our aid policy . . . all depends on our analysis of the situation, which we have not completed yet,” he said.

Missions Canceled

All missions by officials that Japan had planned to send to China to discuss both economic aid and cultural exchanges have been canceled, he announced.

He also noted that a plan to establish a semiofficial organization today to promote Japanese private investment in China has been postponed indefinitely. Agreement to set up the organization had been a highlight of an April visit to Japan by Chinese Premier Li Peng.

Watanabe, who refused to go beyond earlier government statements that expressed concern about the bloodshed in Beijing, noted that Japan’s economic assistance amounts to 56% of all aid that China receives.

A Japanese diplomat, speaking privately, said Tokyo wanted to avoid giving the Chinese an opportunity to use Japan and its history of aggression against China as a “scapegoat, as they always do when they have domestic trouble.”

Uno did not even mention the bloody events in Beijing in his first major policy speech to Parliament on Monday. Uno told reporters in informal remarks only that he was “praying for a restoration of peace.”

On Tuesday, Takashi Ishihara, chairman of the influential Keizai Doyukai (Assn. of Business Executives), criticized Uno for refusing to take a stronger stand.

Other reaction on the popular level has been devastating. Even TV announcers have hardly been able to hold back tears in their commentary.

The repression “throws China’s reform policy itself completely up in the air,” declared Takehiko Tadokoro, deputy chief editorial writer for the Asahi newspaper.

It also threatened to undermine the massive cooperation Japan has given the reforms that China begin in 1978, when it ended its insistence upon self-reliance and adopted an open-door policy, began to accept loans and aid and decided to learn from the rest of the world.

Now China’s principal source of foreign aid and commercial loans and its No. 2 market for exports, next to Hong Kong, Japan also plays a major role as a mentor in technology and management skills. Until revelations that a subsidiary of Toshiba Corp. had sold sensitive military equipment to the Soviet Union forced Japan to tighten controls on sales to Communist countries, Japan also had been China’s No. 1 supplier of machinery.

Earlier this spring, economic officials in Beijing and four other Chinese cities described ties with Japan as vital to their nation’s modernization, although China had taken care to limit its reliance upon Japan.

Nonetheless, Japanese-Chinese technological cooperation remained intense.

“When we deal with Japanese, they are always very eager, whether a final deal is struck or not,” said Liang Yaohao, deputy director of the planning department at China’s Anshan Iron & Steel Co. “They come and talk with us many times even without any agreement, and even before a contract is signed, they welcome our technicians in Japan. Americans won’t come until they are sure there will be a contract.”

Excluding Indonesia and Malaysia, whose export markets in Japan consist mainly of natural resources, China had become the only Asian country that now sells more to Japan than to the United States.

Exports to Japan, after rising 31% in 1987, rose an additional 33% last year--to $9.9 billion. By comparison, China exported about $8.3 billion worth of goods to the United States in 1988.

Tripling in the last 10 years, two-way trade between China and Japan reached $19 billion in 1988, while overall U.S.-China trade amounted to $14 billion.

Now, however, Sino-Japanese trade also is expected to plummet, Japanese businessmen and officials predict.

So vital had exports become to China’s development strategy that the country was willing to sell even if no profit was made, according to Hu Jie, manager of the Liaoning Province Anshan General Bicycle Factory.

China also had issued $1.4 billion in bonds in Japan, or more than half the funds it borrowed in foreign commercial markets since it started issuing foreign bonds in 1984.

Now, Japanese bankers say, issuance of any new Chinese bonds here is “out of the question.” On Tuesday they announced suspension of talks on major loans to Chinese oil and steel projects. Moreover, joint financing of loans by American and Japanese banks is likely to grind to a halt, they added.