World Bank to Discuss New China Loans

World Bank directors meet today to discuss whether to grant two new loans to China, and Japan’s government and bankers are awaiting their decision.

Tokyo sees the World Bank as the bellwether for progress on ending economic sanctions against Beijing, imposed after the Chinese government sent in troops against student-led protesters last year on June 3-4.

The West and Japan, shocked by the crackdown, which left hundreds, perhaps thousands, dead, suspended official loan credits. The World Bank, the Asian Development Bank and many commercial banks followed suit.

Prior to June 4, China was a borrower favored by foreign banks and governments, with a low per capita foreign debt, a faultless repayment record and a nationwide system able to absorb large amounts of aid money.

But the crackdown and the West’s strong reaction made commercial banks nervous about the regime’s stability, its commitment to economic reform and the possibility of large-scale unrest.

Strong criticism in Congress of Beijing’s human-rights record has prevented President George Bush from resuming normal economic ties, including loans from the World Bank, which has made only two new loans to China, for humanitarian purposes.

For its part, Beijing says it has made gestures to improve relations with the West, lifting martial law in Beijing and Lhasa, Tibet, freeing nearly 800 people detained after the crackdown and resuming scholarly exchanges with the United States

But it has not been enough.

A Japanese Foreign Ministry spokesman said earlier this month that it was too early to say if a decision to resume loans could be made at the Houston summit meeting of leaders of the seven major industrial democracies in July.

“What is important is the progress of mutual efforts (by China and the West), not necessarily the summit,” he said.

Debate over resuming the loans has been fiercest in Japan, whose banks have loaned more to China than those of any other country and whose official aid is by far the highest.

Cheap loans promised to Beijing, totaling $5.6 billion (810 billion yen) for the 1990-94 period, remain frozen.

The banking and business community is urging the government to resume the loans, because without them Chinese purchases of Japanese goods have been badly hit.

Visiting leaders of the ruling Liberal Democratic Party have heard Chinese leaders argue over the past two months that Japan’s interests are different from those of the West and it should resume the loans unilaterally,

One of them, Michio Watanabe, went to Washington last week to try to persuade President Bush to lift the sanctions, arguing that democratization was more likely if China’s economy were developing than if it was stagnant.

Japan’s commercial banks sit impatiently on the sidelines, waiting for the government to resume lending before they do.

“China needs new loans to buy our goods and service its foreign debt,” one banker said. “But we can’t move ahead of the West. Relations with the United States are more important to Japan than those with China. We can’t afford to offend the U.S. That is the bottom line,” he said.