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Staff writer

Tokyo and Beijing will begin formal talks this summer to determine a new two-year yen-loan package for China’s infrastructure and other development projects, according to Foreign Ministry sources.

The talks, to start in late July or August, will be agreed upon when Foreign Minister Keizo Obuchi meets with Chinese leaders during his trip to Beijing in mid-July, the sources said. The loan package will cover fiscal 1999 and 2000.

Although it was agreed about a year ago that the talks would begin as soon as possible, they have been delayed because of Beijing’s failure to present Tokyo with a list of projects to be financed by the low-interest loans.

The list, which serves as a basis for fixing the size of the package, as well as specific projects to be covered, was submitted to Tokyo last month, although its contents have not been announced, the sources said.

“China places particular importance on yen loans in discussing bilateral economic cooperation,” one ministry source said. “Therefore, we want to proceed with the talks before President Jiang Zemin’s official visit to Japan, set for early September.”

The new package will constitute the second phase of the current five-year loan program, which began in fiscal 1996. That program is the fourth of its kind since Japan began providing yen loans to China in the late 1970s, when it introduced free market reforms and started opening up to the rest of the world at the behest of then leader Deng Xiaoping.

At the end of 1994, Japan agreed to extend 580 billion yen in loans — or an annual average of 193 billion yen — to China for 40 infrastructure and other projects between fiscal 1996 and 1998. But at that time the size of the loans for the last two years was not set under the three-plus-two formula.

Of the 40 projects to be financed between fiscal 1996 and 1998, 15 are environmental and five are agricultural. Of the total, 27 will be undertaken in the poorer inland areas.

Final agreement is targeted by year’s end if the two countries are to implement the new package smoothly, the ministry sources said. However, the sources acknowledged that the talks will be quite difficult because Japan faces an austere budget and will not be able to provide as much as China wants.

China is in even more need of the loans than before because of a dwindling inflow of foreign capital amid the financial and economic crisis that has strapped the rest of East Asia since last summer, the sources said.

Prime Minister Ryutaro Hashimoto’s government slashed official development assistance — which includes yen loans, grant-in-aid and technical cooperation — by 10 percent in the fiscal 1998 budget from that of fiscal 1997, as part of a broader fiscal deficit-cutting program.

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