In an abrupt move that suggests unexpected economic troubles, China has called for a suspension of about $2.5 billion in contracts with Japanese manufacturers of plant equipment.
The contracts involve some of the largest and most important projects in China's modernization campaign and their suspension would mean at least a pause in the industrial rejuvenation proclaimed by Vice Premier Teng Hsiao-ping.
There was speculation that China's war in Vietnam had caused new economic strains in Peking and had led to the request for suspending contracts for steel and petrochemical plants.
Japanese businessmen close to the Chinese trade negotiations, however, were inclined to discount the effect of the war and explained that China apparently had merely ordered more goods than it can afford.
Whatever the cause, the Chinese move has sent a shudder through Japan's business establishment, which is counting heavily on China's orders to revive some of its own large industries.
Worried and baffled, about 20 executives of Japanese corporations gathered today to discuss the sudden change. Some of them had received letters Monday from Chinese authorities stating that the government wished to suspend all contracts signed since last December.A government official said the cut-off date apparently is Dec. 16.
By far the largest project involved is a $2 billion contract with Nippon Steel Corp. for constructing and equipping a huge steel plant near Shanghai. Chinese authorities notified Nippon Steel that the contract is not in effect.
A company spokesman said today the contract, which had been signed on Dec. 22, called for both Nippon Steel and a Chinese government corporation to obtain appropriate licenses within 60 days. The Japanese firm got its export license but the deadline passed without the Chinese government providing an import license.
When Nippon Steel asked about the delay, Chinese authorities replied that the project is being held up because of lack of an agreement over Japanese loans to finance it, the spokesman said.
That further baffled the Japanese company, he added, because the contract called for payments in cash and did not mention loans. China was to pay the Japanese company half in dollars and half in yen.
Kanae Harada, vice president of the large steel company, said he is not worried about the plant's construction and said it was just a matter of "due process" in obtaining Chinese government permission.
Negotiations have been under way for several months over a package of loans for China's purchases of Japanese industrial products and technology. They have bogged down over the amount of interest charges and the type of currency used for repayment but Japanese officials had expected the differences to be settled.
One source closely involved in the China trade said "I think that China has been a little too fast in construction and development. Each of the Chinese (government) corporations wanted to develop its own product and hurried things to make a big contract. But when things were added up at a higher level they found out that it was beyond their present capacity. It does not mean that China has changed its mind and does not wish to buy."
A Japanese official also speculated that a shortage of foreign exchange funds in Peking is behind the Chinese move. Kensuke Yanagiya, director general of the Foreign Ministry's Asian Affairs Bureau, told the parliament today that heated debates apparently are under way in China on methods of raising foreign exchange for purchases already contracted.
During 1973, the government reported, China and Japan signed 49 contracts for sales of plant equipment. Of these 32 were signed after the cut-off date of Dec. 16.
The contracts were negotiated after the two countries signed a long-term agreement last February that called for a total of $20 billion to be spent over eight years. Under its terms, Japan was to sell heavy industry and complete plants to China, which in turn would sell oil and coal to Japan.
There was a rush to transfer that agreement last February that called Recognizing that China had a very small amount of foreign exchange funds to draw upon, Japanese interests were willing to accept some deferred payments and Japan's export-import bank was encouraged to extend loans. China has balked at the interest rates and has indicated it wants to repay the loans in dollars, not in yen. Japan so far has insisted on receiving yen.
In addition to holding up development of the large steel plant near Shanghai, suspension of the contracts would affect a number of petrochemical facilities for which Japanese firms were supplying equipment and technology. Their value was estimated at about $500 million.
The requests for suspension followed one sign from Peking that the Chinese government is reconsidering its policy of investing large sums in heavy industry.
An editorial last week in the People's Daily, Peking's most authoritative newspaper, declared that the percentage of total investment going to steel should be "minimized." It said more emphasis should be placed on agriculture and light industry.
Further reports indicated that a joint development by the two countries of China's offshore oil fields might be held up. A Chinese team was in Tokyo last week to negotiate details, but it suddenly returned home without settling the issue of financing. The fields are located in the Bay of Pohai.
There was no public explanation of the team's sudden departure, but is now thought to have been related to the proposed suspension of industrial contracts.