China knocks at Loan Dept. door

October 3, 1980

China, the world's most populous nation, is for the first time seeking loans from both the International Monetary Fund (IMF) and the World Bank. This move:

* Indicates once more that China is moving into the "establishment" that manages world economic and political affairs.

* Shows China's new willingness to adapt Western economic practices to further its industrial and agricultural progress. Instead of relying only on its own resources, it demonstrates a nondoctrinaire willingness to accept more noncommunist financial and technical help.

China's deficit this year, estimated rather imprecisely by Shang Ming, temporary alternate governor of the IMF and director of the planning department of the People's Bank of China, will be between $1 billion and $2 billion. Its exports will amount to between $15 billion and $16 billion.

The executive directors of the two United Nations-affiliated institutions gave the People's Republic of China the "China seat" in these bodies only last May 15, thereby ousting the Republic of China (Taiwan).

Now the Chinese delegates are making their first appearance as new members here this week at the annual meeting of the sister institutions.

Commented Mr. Shang, "We will fulfill our obligations and enjoy our rights."

Those "rights" include loans. "Because of a balance-of- payments deficit, China will be needing some kind of loan from the IMF next year," Shang noted in an interview.

Shang, designated press spokesman by the delegation, would not specify how large an IMF loan would be sought or from what specific IMF facility. Both factors are under discussion, but not yet decided.

The fund, he said, will be sending a mission to China later this fall to explore the question.

China's quota in the fund is 1.2 billion special drawing rights (SDRs). SDRs are a kind of credit or money created by the IMF and used only by national central banks. One SDR is worth about $1.31.

In theory, China could borrow as much as 200 percent of that quota each year for three years. However, China is unlikely to be willing to accept the economic adjustments required by the IMF when granting such massive loans.

Shang referred only to the "first tranche" -- or 25 percent of quota -- which can be acquired virtually for the asking. Further, China also has been considering getting loans from other IMF facilities, such as its Trust Fund or Supplementary Financing Facility. "That is very hard to say at the moment," he said.

The Chinese Central Bank official also noted that China hopes to negotiate more bilateral loans from its trading partners. It already has such loans from Japan and Belgium. But it would like loans from other countries if they are of "a concessionary nature" -- that is, with low interest rates or other easy terms.

Shang said China's executive director at the IMF -- the permanent representative in Washington -- will be the deputy director of the research institute of the People's Bank, Dr. Chang Chichun. Dr. Chang, who has a doctorate in economics from Cambridge University, is expected to arrive later this month.

His "alternate" will be Tai Qianding, deputy general manager of the research department of the Bank of China, the government bank that deals with foreign commerce. Mr. Tai has an economics degree from the University of Michigan and arrived with the Chinese delegation.

Translating for Shang was Chen Hui, who will be alternate executive director for China in the World Bank. He is a history graduate of Swarthmore College in Pennsylvania who has worked as a translator and information official in the Foreign Ministry in Peking. Mr. Chen returned to China after graduation in 1949 just prior to the final success of the communist revolution. His first trip back to the United States was with Vice-Premier Deng Xiaoping in the winter of 1979.

Noted Mr. Chen: "It is very challenging for a person to take up a new job at my age. I suppose I will have to work very hard."

His boss (executive director) will be Wang Liansheng, a deputy director in the external finance department of the Ministry of Finance.

The backgrounds of the new appointees and their ability to speak English indicate the new economic pragmatism of China.

Chen said five or six missions from the World Bank will be leaving shortly for China. A World Bank official said these missions will be looking at the economy as a whole and at various sectors in particular, such as agriculture, education, transportation, energy, and industry. Chen thought it likely the first two World Bank loans would be for projects in agriculture and education.

The World Bank already has created a China division headed by Ciao Koch-Weser , a Brazilian who was an assistant to Robert S. McNamara, outgoing president of the institution. The division has been busy studying China's economic situation with information available in Washington.

One important function of the bank's economic mission to China is to determine the per-capita output of that nation of nearly 1 billion people. This is important because it determines whether China will be eligible for loans from the International Development Association, the soft-term affiliate of the World Bank. If it was more than $625 per head, China would not be eligible. China says per-capita gross national product was $230 in 1978. Some experts suspect it is higher. But the World Bank people doubt it will exceed $625.

This economic team is expected to report on this GNP number and such other factors as economic management, external capital requirements, credit worthiness , and development strategy by the end of this year.

The World Bank is expecting some Chinese officials to attend its Economic Development Institute before next July.

Chen indicated that China expected to learn much from the World Bank's experience in economic development. A bank official returned the compliment, noting that the institution expected to be especially interested in rural development in China.