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Japan caution over calls

for China aid free 2

TOKYO: Japan's government is unwilling to go as far as imposing a total freeze on aid to China to protest against its latest nuclear test, despite strong political pressure to do so, government sources said on Friday.

Japan swiftly reacted on Thursday to China's second nuclear test in three months, saying it would further reduce grant-in-aid earmarked for China in protest.

Political parties, both in ruling and opposition camps, issued statements condemning the tests and demanding strong measures such as a freeze on overall aid to Beijing. But government sources said the government was reluctant to go that far, for fear of hurting relations with China.

Japan's grant-in-aid to China was worth $79.5 million last year, and the figure for this year has yet to be determined.

But the bulk of Japan's aid to China is in the form of low-interest yen loans for Beijing's economic reforms, worth $5.9 billion for three years starting 1996. China has already included the loans from Japan in its state budget.

In May, when China exploded its first nuclear warhead since the non-nuclear states signed the extension of the nuclear Non-Proliferation Treaty (NPT), Japan said it would reduce grant-in-aid this year. This was the first time Tokyo had used a reduction of aid to underscore its anti-nuclear message.

But Tokyo is reluctant to reduce or freeze yen loans. Such a move would seem certain to upset delicate Sino-Japanese ties, often affected by insensitive remarks on World War Two by Japanese ministers and the Taiwan question.

"We are well aware that we must do something tangible," one government source said. "But we cannot touch yen loans. That would certainly put an end to good relations with China."

Foreign ministry officials have privately said that Japan's yen-loan package was its "last diplomatic card" with China.

"If we use that, there's nothing left. We would have no leverage with China at all," one ministry official said.

And although neither side would admit it publicly, Tokyo's yen-loan aid to China since normalisation of ties in 1978 has been discreetly regarded by both sides as a form of World War Two reparation to China, retired diplomats and experts said.

Government sources said on Friday that bureaucrats had begun internal discussions on how much grant-in-aid Japan should cut as a means of protesting against China's continued nuclear testing.

But a decision was not expected before next week, when top government officials return from their summer holidays.-Reuter