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China: Analysis From Washington - The Limits Of Loans

Washington, 12 July 2000 (RFE/RL) -- Beijing's rejection of new conditions on a World Bank loan that was intended to help China resettle 60,000 Han Chinese into Tibet highlights the difficulties involved in using international financial institutions to promote the foreign policy preferences of specific countries.

The Chinese foreign ministry Tuesday lashed out at the United States and Japan for supposedly "politicizing World Bank activities" when those major donor countries insisted that China agree to modify its program in order to receive a $40 million loan. Because of those restrictions, Beijing withdrew its application and announced that it would go ahead with the resettlement program using its own resources.

China's decision comes at the end of what has been a much disputed loan process. Last year, over the objections of the United States and Germany, World Bank officials approved the loan and even secured Beijing's agreement to limit the number of resettlers to 60,000 rather than the 100,000 China had sought to move.

But an independent study commissioned by the bank's senior leadership found that bank officials had violated seven of the ten rules for making such loans. When that study was leaked to the press at the end of June, Tibetans and their supporters around the world demanded that the World Bank either not make the loan or insist on new conditions.

On 1 July, some 4,000 Tibetans and their American supporters demonstrated in front of the Chinese embassy in Washington to demand that the Bank back down. Such protests led the U.S. and Japan to redouble their efforts in opposition to the loan, opposition that led to the imposition of new conditions that the Chinese were unwilling to accept.

Pro-Tibetan activists welcomed this series of actions as a new indication of international support for Tibet against Beijing. But several analysts already have warned that this victory may prove to be short-lived and ultimately a defeat for the Tibetan cause.

The London-based Tibet Information Network noted that China's decision to go it alone "accords closely with Beijing's aims of demographic restructuring and development of Tibetan areas" but almost certainly will lead Beijing to introduce the 100,000 Han Chinese it had wanted to dispatch there rather than the 60,000 the Chinese government had originally agreed to in order to get the loan.

Some Tibetan watchers even suggested that China might step up its efforts to increase the percentage of Han Chinese in the Tibetan population still further in order to make nationalist points with its own population and to demonstrate its independence of the international community as represented by the World Bank.

But the experience of the World Bank with the Chinese on this loan request points to three larger lessons. First, even as major countries have come to rely ever more heavily on international financial institutions to provide assistance in the post-Cold War world, the governments in that community have lost much of the control they were able to exert in earlier nationally appropriated aid programs.

Second, because money can easily be shifted from one account to another and because most governments seeking funds have more than one loan application at any one time, a decision by the World Bank or the International Monetary Fund to impose new conditions may not in fact deny the applicant government the money it needs to do what it wants.

And third, some applicant governments, especially those of large countries like China and Russia, may actually benefit domestically and with some international partners by rejecting the demands of these international institutions.

For all these reasons, Western donor countries may have to decide to use other means besides the World Bank and the IMF to promote their policies, approaches that may entail more domestic costs and require the assumption of greater political responsibility.