World Bank to Consider New Loans to China

CHINA will soon apply for new World Bank loans in what will be a major test of its campaign to revive its standing abroad since the Beijing massacre, say international lending officials. The reaction of the bank's board to the loan proposals will gauge how much industrialized nations are willing to loosen sanctions imposed on China after the suppression of pro-democracy demonstrations in June 1989, the officials say.

Regaining the good grace of the bank - the largest multilateral lending agency - is critical to China's effort to renew its global image and access to foreign capital, they say. Many commercial banks and state institutions refer to World Bank policy when considering loans to China.

The bank took the lead in easing sanctions against Beijing in January by resuming aid for projects meeting basic human needs. Since then, it has granted $654 million for six projects ranging from disaster relief to afforestation.

The Group of Seven industrialized nations further loosened the restrictions at the Houston summit in July. The group said in a July 10 declaration that it ``will explore whether there are other World Bank loans that would contribute to reform of the Chinese economy, especially loans that would address environmental concerns.''

The ruling of the bank's executive board of directors on the prospective loans will indicate for the first time how strictly the bank will interpret the summit guidelines. The 22-member board will consider the proposals within the next four to six weeks, a Beijing-based Western aid official said on condition of anonymity.

``Based on the new lending policy, it should be business as usual for the World Bank,'' says the official. Virtually every loan drawn up by the bank's Beijing mission could be considered a goad to China's floundering market-oriented economic reforms, he says.

World Bank President Barber Conable implied at a recent annual meeting of the bank in Washington that the agency will broadly interpret the new rules. Mr. Conable said he expects the bank to approve 11 new loans to China within the next 12 months, according to Luo Qing, an official at China's Ministry of Finance.

IN another hint of leniency, Japan is resuming loans under a $6.2 billion plan it suspended after the bloody Tiananmen crackdown. Tokyo is a leading voice within the bank.

Some aid officials and Western diplomats say, however, that the bank will only slacken its purse strings a bit in its dealings with China.

Many leading members of the bank say that funds should first go to nations like those in Eastern Europe that respect human rights and are attempting to establish free-market economies, they say.

``With German unification and changes in Eastern Europe and the Soviet Union there are lots of competing demands on institutions that would give loans to China,'' says a Western diplomat on condition of anonymity.

``The urgency and payoffs of loans to other countries are greater,'' the diplomat says.

Moreover, there is widespread disappointment among Western governments with Beijing's reluctance to advance its economic reforms and curtail rampant human rights abuses, two main criteria for the resumption of World Bank loans to China, officials and diplomats say.

Yet when it comes to promoting free-market reforms, a limit on World Bank lending cuts both ways: The programs of the bank in China are often a major fillip for reform, they say.

Many of the bank's 83 programs since 1981 have funded progressive programs that were conceived by innovative and energetic Chinese officials who are frequently overlooked by China's massive bureaucracy, say the diplomats and aid officials.

``Because of the size of the government and other constraints, China's own aid projects often perpetuate inertia; World Bank loans bring change,'' says the Western aid official.

Also, some of the programs, which involved a total of $9.1 billion in World Bank loans, have served as prototypes that are later widely enacted by Beijing. And the projects have demanded a standard of sound administration that Beijing cannot enforce in many parts of China, they say.

In its initial test of the bank's revised guidelines, China is likely to apply for funding for a program that would appear to satisfy even a strict interpretation of World Bank guidelines, the Western aid official says.

Most of the funding for the Spark Project, as the aid plan is called, would bankroll technical training and new equipment in rural enterprises in Jilin and Jiangsu provinces and the suburbs of Shanghai. It would aim to improve the quality of export goods and secure overseas markets for the companies, says Chen Huan at the Ministry of Finance.

Rural enterprises are one of the most dynamic sectors to have emerged under reform. The 18 million factories and workshops account for one-fifth of the country's export earnings and employ 90 million workers, many of whom would otherwise be idle.

The Spark Project would require a $110 million World Bank loan and an equal amount of state funding, says Mr. Chen at the ministry's World Bank department. China first requested funding for the program in May 1989, but the bank shelved it after the June massacre.