Japan offered today to extend $1.3 billion in credits to finance industrial development projects in China, and China accepted the offer in principle. The tentative agreement should ease tensions that developed between the two countries when Peking canceled several large plant contracts earlier this year.
The aid proposal was presented today to Chinese Vice Premier Gu Mu by Sumumu Nikaido, a leading officer of Japan's Liberal Democratic Party, on the first day of a four-day visit to China. Japanese government officials confirmed that Gu expressed China's readiness to go along with the Japanese plan during talks with Nikaido at Peking's Great Hall of the People. In his response, Gu apparently signaled Peking's willingness to drop an earlier request for $2.6 billion in Japanese aid.
Japan's offer provides for the equivalent of $1 billion in government-sponsored, low-interest yen credits for the purchase of Japanese goods from Tokyo's overseas economic cooperation fund and Japan's export-import bank. An additional $300 million in yen loans will be supplied by an as yet-unnamed consortium of Japanese commercial banks. The funds are designed for use in the completion of a petrochemical plant at Daqing and a large steel mill at Baoshan.
The offer of aid is important because it should help China revive plans for the large-scale production of steel and petrochemicals that are central to its vast modernization program. Such projects are also key links in the long-term economic relations between the two countries.
Those relations began to break down in January when the Chinese government announced that it would cancel plans for all four of its major petrochemical plants and the second phase of the huge Baoshan steel works. No mention was made of compensating Japanese firms for the voided contracts, and the apparent sharp shift in Peking's industrial policies prompted businessmen here to consider shelving other planned contracts with the Chinese.
Fears within the Japanese business community gradually abated after Chinese officials decided in early April to go ahead with the four major petrochemical plants and promised to pay Japanese suppliers for equipment already delivered. The final breakthrough came late last month, government officials here said, when Peking promised to pay $40 million to a group of companies headed by Mitsubishi Heavy Industries in compensation for the canceled second phase of construction at the Baoshan steel mill.
"Now what's happened is that everything has been revived except for the second phase of Baoshan," said a well-placed Japanese source. It is still not clear how China plans to raise the funds for compensation, he said, "but that's no business of the Japanese as long as the Chinese pay the money."
Despite Peking's avowed intent to revitalize plans for all four of the petrochemical projects, government officials and industry observers here said that the Chinese are giving priority to the plants at Taching and Nanching.
In its most recent request for economic assistance, China has asked Japan for $2.6 billion to complete both projects, plus the first phase of construction at the Baoshan steel mill.
China wants half of that amount for finishing work on the Nanching plant. According to Japanese officials, Tokyo has turned aside the request because West German contractors are the lead managers, and the project is thus outside Japan's sphere of responsibility.
Another reason the Japanese have scaled down their offer to $1.3 billion, government sources here said, has been the insistence of the Ministry of Finance, which has launched a drive to cut all forms of government spending.
The Japanese also are concerned that granting China's request in full would prompt Southeast Asian nations to seek equal treatment, and would add weight to South Korea's current demand that Japan deliver $6 billion in economic aid.
The current Japanese aid proposal was conveyed to Chinese officials on Sunday by Japanese Ambassador Kenzo Yoshida in advance of Nikaido's trip. It is widely believed here that in sending Nikaido, who is a powerful political figure here with a network of close ties with key Chinese officials, Tokyo is eager to reach an early final settlement on the aid issue that will put economic relations between the two countries on a firmer footing. It is expected that talks on the fine points of the aid package will now be taken up by officials of both governments at the working level.
One knowledgeable Japanese source involved in government trade policy on China said the Japanese are now more confident that despite the zigzagging of Chinese industrial policy in recent months, China's basic position on modernization has not changed.
"We know that their economy is in trouble," he said, ". . . but steel and petrochemicals are what they really need.