China has reversed itself on economic policy again and informed Tokyo it will go ahead with four huge plant contracts it had made and canceled with Japan.
But the Chinese government simultaneously has asked for a whopping $4 billion loan from Japan, which it would like to use to revive work on the four major petrochemical plants it had ordered suspended only a few months ago.
Japanese officials, who say the Chinese so far have not linked the granting of the loan to the resumption of the projects, today described a loan of such size an impossible to grant. "That is an incredible figure," said one official.
The latest development in China has left the government here baffled by the sharp swings in Chinese economic policy. On the one hand, it has been encouraged by Peking's decision not to cancel the industrial projects and its promise to pay Japanese businessmen for what has been delivered so far.
But it is not clear, on the other, how China plans to raise the money it needs. Until it hears otherwise, Japan is assuming that the loan and the projects are not necessarily linked. Complicating matters is the fact that Japan already has offered loans of about $500 million to China for other projects, of which the Chinese have actually borrowed about $1 million.
Preliminary negotiations are scheduled to begin in Tokyo this week, and the major decisions will be made later this month when Chinese Vice Premier Gu Mu arrives.
The talks are crucial for China because the four petrochemical plants and one steel plant involved are the core of China's vast moderization program. They also are vital to the long-term economic relations between Tokyo and Peking.
Beginning in mid-January, the Chinese government made a series of announcements stating that four petrochemical plants and parts of a steel plant already under construction would be canceled. This represented a dramatic switch in policy after officials concluded that China was investing to much in heavy industry and that the investments were contributing to inflation.
At first, there was no talk of compensating Japanese firms for the canceled contracts, and alarmed businessmen here began talking of pulling out of other planned contracts with Peking.
Later, China said it would compensate the Japanese according to "accepted international standards," but it was never clear how much that would mean.
Last weekend, however, Chinese officials notified a group of Japanese businessmen and the Japanese Embassy that they now wish to revive almost all of the projects. They simultaneously let it be known that they hope for a large infusion of Japanese yen credits and long-term, low-interest loans to finance the revival. The figure of $2 billion was mentioned in Peking, but Japanese officials here say the total really amounts to $4 billion for the petrochemical plants. Three-fourths of it apparently would be used for the local construction work and the remaining $1 billion would be for foreign currency to pay for purchases of materials and equipment shipped by Japanese firms to build the projects.
Officials here point out there is no precedent for using Japan's economic cooperation loans to finance local construction work. To grant it in China's case, they said, would prompt Southeast Asian nations to seek equal treatment.
"I do not known what they know about the Japanese system, but it is simply not possibly -- especially the $3 billion for local costs," an official said today. "Perhaps we can do a little for them through the Export-Import Bank." No formal Japanese government reaction has been decided yet, he added.
The official said that so far China is discussing the loan request as an item separate from the plan to revive the contracts. "But I am sure that they are wistfully thinking that they will get help from Japan. So far, they are saying that they would continue [on the once-cancelled contracts] at their own expense," he added.