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COLUMN ONE : China Taps Into World Coffers : The story of Beijing's successful run on the World Bank is a tale of persistence (by China), of avarice (in Western Europe and Japan) and of intrigue (by the Bush Administration).


WASHINGTON — Three years ago, in the aftermath of the deadly crackdown on demonstrators in Tian An Men Square, the United States and the other leading industrialized nations organized a freeze on international lending to China, cutting off Beijing's access to billions of dollars in credit.

Yet since then, with the quiet acquiescence of the Bush Administration and the active encouragement of Japan and Western European countries, China has managed not only to get the money flowing again, but to increase it above the levels that existed before 1989.

Last year, the Washington-based World Bank lent Beijing a stunning $2.5 billion, more than it provided to any other nation. China got more World Bank money than all the countries of Eastern Europe combined. And more than a third of these loans were interest-free for periods of three to four decades.

The loans--many of them from a special World Bank fund set aside for the poorest nations on Earth--help to buttress the booming Chinese economy. While China has enough lingering poverty to qualify for the loans, its foreign-exchange reserves now rank among the largest in the world, and its economic growth rate is several times greater than that of the United States.

China got a $60-million, interest-free World Bank loan last year to help the urban transport system in Shanghai. It obtained a $162-million loan, also interest-free, to aid Guangdong province, China's richest area and the fastest-growing region in all of East Asia.

The United States contributes more than any other nation, about $1 billion each year, to the World Bank fund that makes these interest-free loans.

Former U.S. Ambassador to China Winston Lord said these World Bank loans are "an indication of business as usual between China and the rest of the world, a testimony to China's success in having the world overlook what it's doing to its people."

How did it happen?

The story of Beijing's successful run on the World Bank is a tale of persistence and diplomatic skill (by China), of avarice and mercantilism (in Western Europe and Japan) and of intrigue (by the Bush Administration).

An investigation by The Times shows that Japanese, French, German and Italian companies pressed their governments to make it possible for China to get World Bank loans again. Beijing could then use the funds to buy those countries' power plants, dams, helicopters and other equipment.

"Procurement won out over idealism," former World Bank President Barber Conable Jr. said in an interview.

The Bush Administration, facing congressional pressure to hold the line against World Bank lending to China, publicly opposed most loans. But privately, the Administration went along with the Japanese and European eagerness to restore China's access to cheap credit. And there are signs that the Administration may have agreed to do this in secret diplomacy with Beijing.

Supporters of the huge World Bank lending program say that it helps to alleviate poverty in China. However, critics, both outside and inside the Bush Administration, believe that the huge lending should be curtailed.

"The repressive central government of China is the beneficiary and gets the credit" for the World Bank loans, said Richard Schifter, who served as the Bush Administration's assistant secretary of state for human rights until he resigned early this year.

Over the last decade, China has garnered more than $13 billion in loans from the World Bank, nearly $6 billion of them interest-free.

The World Bank was set up in 1945 to raise the living standards of developing countries by helping them get capital. Some of the bank's loans are made at normal market rates but with longer periods of repayment than ordinary commercial loans.

But other World Bank loans--those made by the International Development Assn.--are interest-free for periods of 35 to 40 years. The borrowers must merely pay a small service fee of 0.25% to 0.75% per year.

These IDA loans are designed for countries where per capita income is less than $610 a year. China, with a per capita income of only $370, is one of about 40 nations that qualify for IDA funding. But its robust economy and financial stability also qualify it to obtain other World Bank financing that most IDA loan recipients are ineligible to receive.

"It's not as though China were a classic lesser-developed country with no trained personnel and no ability to do things on its own," one Administration official said. "They could borrow on private markets at reasonable rates. What they're getting is cheaper financing."

The world's wealthiest nations give the World Bank the money for the interest-free loan program. The U.S. share is about 22% of the total.

Under its charter, the World Bank is not supposed to make loans--or to stop them--for political reasons. The bank's goal is to raise living standards throughout the world, and its decisions are supposed to be based exclusively on economic factors.

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