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The first sweeping review of Japan’s generous official development assistance for China is under way within the government and the ruling Liberal Democratic Party, amid growing domestic criticism of such aid.

Even as the review enters its final phase toward the yearend deadline, it is still uncertain whether the LDP-led government will go so far as to take the plunge and chop China-bound ODA for the first time since Japan began such aid to its giant, Communist-ruled neighbor nearly two decades ago.

China, an ascendant military and economic power, is widely seen as posing the biggest potential threat to security in East Asia in the medium and long term. It is already ranked seventh in the world in terms of gross domestic product, a total output of goods and services. GDP is often cited as a major barometer of a nation’s economic strength.

The government and the LDP have separately placed China-bound ODA — about 200 billion yen annually — under an intensive review early this past summer for a possible downsizing.

The government review is being made by a private panel of advisers to Yutaka Iimura, the director general of the Foreign Ministry Economic Cooperation Bureau, while the LDP is conducting its own review through an ODA-evaluation subcommittee of the party’s special committee on overseas economic cooperation.

The government panel is headed by Isamu Miyazaki, a former Economic Planning Agency chief who is widely known as a pro-China economic expert, while the LDP subcommittee is chaired by Keizo Takemi, a former parliamentary vice foreign minister who takes a hawkish stance on China.

Therefore, it is very likely that the government and LDP panels’ reports — both of which are to be compiled by the end of this year — will be at odds, at least in tone, toward Japanese ODA for China. It remains uncertain, however, how the differences in the two reports will be reconciled when a new aid policy for China is formulated.

Japan began full-scale ODA, mainly yen loans, for China in 1979, when then Prime Minister Masayoshi Ohira visited Beijing and declared Japan’s firm resolve to assist the country’s economic development. Ohira’s commitment came a year after China embarked on free-market reforms under the behest of the late paramount leader Deng Xiaoping.

The Ohira principles

At the time, Ohira also announced “three principles” of Japan’s China aid policy: holding close consultations with the United States, Japan’s most important ally; refusing to let China use Japanese aid money for military buildup; and not extending aid to China at the expense of other Asian aid recipients.

Japan has since pledged to extend official yen loans to China on a multiyear basis instead of the single-year arrangement with other developing countries, although such favorable treatment will cease beginning in fiscal 2001, which starts in April.

Most recently, Japan committed a total of 390 billion yen (about $3.6 billion) for 28 projects during fiscal 1999 and 2000, as the second — and last — phase of a fourth multiyear loan package. As the first phase of the package, Japan extended a total of 580 billion yen for 40 projects between fiscal 1996 and fiscal 1998.

A senior Foreign Ministry official said, “The government panel’s report will probably stress the importance of giving top priority to such areas as environmental protection and the development of the poorer inland areas when extending ODA to China.”

But the report is unlikely to go so far as specifying any target size of ODA reduction, although it may emphasize the need to cut back on China-bound ODA in the medium and long term,” the official said on condition of anonymity.

This comment apparently reflects a prevailing view within the government that it should be allowed to keep a relatively free hand in implementing its China-aid policy to avoid hurting often prickly Sino-Japanese relations.

Should the government panel report stop short of proposing a specific reduction target for the ODA, the panel could face a chorus of criticism, especially from China critics, that its report signals no new direction in policy.

In recent years, the government has repeatedly declared that environmental protection and the development of the poorer inland areas are top-priority target areas for the ODA for China. In fact, of the 68 projects covered by the fourth multiyear loan program, 31 were for environmental protection and 45 were for the development of the inland areas, although some projects overlap.

Overall cutback planned

Meanwhile, emboldened by a recent agreement among the three ruling coalition parties to consider cutting the overall ODA by 30 percent, the LDP’s evaluation subcommittee may propose a drastic reduction of China-bound ODA in its report.

The 30 percent cut was agreed upon at a meeting last week of top policy chiefs from the LDP, New Komeito party and the New Conservative Party as part of efforts to nurse the country’s debt-laden finance back to health, although some government leaders, including Foreign Minister Yohei Kono, voiced strong objections to the proposed cutback.

Japan has retained its status as the world’s largest single ODA donor for the past nine consecutive years, providing more than $10 billion annually. Japanese ODA consists of low-interest yen loans, grants-in-aid and technical cooperation.

Sino-Japanese relations have soured in recent months, partly by the activities of Chinese naval and research ships in waters around Japan and partly by the continued double-digit increase in the country’s military spending.

Alarmed by those Chinese moves, the LDP delayed giving a nod to a government plan to provide a 17.2 billion yen special yen-loan package to China until after Foreign Minister Kono’s visit to Beijing in late August.

The government had initially wanted to have the loan package signed during the visit, after getting LDP approval. The signing was eventually held shortly before Chinese Premier Zhu Rongji’s first official visit to Tokyo in mid-October.

Japanese public sentiment toward China has continued deteriorating since the June 1989 military suppression of prodemocracy demonstrators at Beijing’s Tiananmen Square. Like many politicians, Japanese citizens are generally no longer as generously inclined as they once were to extend ODA to China.

Beijing has long tended to take huge amounts of bilateral Japanese ODA for granted. It believes Japanese aid is a price Tokyo must pay for its agreement to establish diplomatic ties in 1972 while dropping its demand for war compensation.

Therefore, Beijing reacts angrily each time Tokyo links its ODA to bilateral political problems, most recently when Tokyo froze several billion yen in annual grants-in-aid in the summer of 1995 to protest China’s repeated nuclear tests. Such type of aid was resumed in the spring of 1997.

But Premier Zhu, apparently alarmed by growing criticism in Japan against continuing to extend huge sums of aid money to China, struck a conciliatory tone before and during his recent Tokyo visit. He said the Beijing leadership highly appreciated Japanese ODA and would try harder to make ordinary Chinese citizens share that view.

Historical debt

Indeed, voices calling for an end to Japan’s generous ODA for China are growing within the LDP. The trend can be attributed not only to concerns about China’s military intentions but also to a gradual generational change within the party — from the political elders, who tend to feel that Japan has a debt to pay to China over its past aggression, to younger politicians, who do not necessarily share such a feeling.

But pro-China forces remain strong within the LDP, even when their strength has diminished. In fact, they overwhelmed and thwarted an attempt by Takemi, chairman of the LDP’s ODA evaluation subcommittee, and some other subcommittee members to compile and publish a report critical of China-bound ODA immediately before Zhu’s mid-October Tokyo visit, according to party sources.

The pro-China LDP politicians thought that the timing, if not the contents, of the report would be too negative and that the report would provoke Beijing and damage the overall atmosphere surrounding the visit, the sources said.

A senior government official denied that the government has given secret assurances to China that any Draconian reduction in China-bound ODA will not be made, at least in the foreseeable future, as a result of the review.

But the official, requesting anonymity, said, “China may not be worried about the outcome of the government review work on Japanese ODA, because Mr. Miyazaki, a pro-China economic expert, serves as the chief of the government panel in charge of the review.”

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