Japan gives go-ahead to delayed loans for China

TOKYO, June 6 (Reuters) Japan said today it had decided to grant 74 billion yen (659 million dollars) in low-interest loans to China, more than two months after a decision on the aid was delayed due to strained bilateral ties.

Chief Cabinet Secretary Shinzo Abe said the decision on the aid for the year ended last March was made at a top government panel on foreign aid strategy, taking into account the overall situation including the importance of Sino-Japanese ties.

Relations between the two countries have chilled since Prime Minister Junichiro Koizumi took office in 2001 and began annual visits to Tokyo's Yasukuni shrine, where some convicted war criminals are honoured along with Japan's war dead.

The two countries have also feuded over territorial rights and energy resources and have expressed mutual suspicions about each other's military strategies in the region.

Japan has scaled back its low-interest loans to a booming China in recent years, and has already decided to halt fresh yen loans to China by the time of the Beijing Olympics in 2008.

Japan decided in March 2005 to extend about 85.9 billion yen worth of loans, bringing its total loan aid to China to more than 3 trillion since 1979.

The Japanese government decides its total aid budget before the start of each fiscal year in April but usually does not decide on the final breakdown until the end of the year.

Foreign Ministry officials had stressed that the delayed decision on aid to China was not a freeze and that the flow of money had not been halted since project loans are often disbursed over several years.

Media reports said Japan decided to go ahead with the loan decision after Foreign Minister Taro Aso's meeting with Chinese Foreign Minister Li Zhaoxing in Qatar late last month, the first foreign ministerial talks between the two countries in a year.

Relations with China have emerged as a key point of debate in the race to succeed Koizumi when he steps down in September.

Abe, the frontrunner in the leadership race, has criticised Beijing for refusing to hold leaders' summits because of the dispute over Koizumi's visits to Yasukuni shrine. But on Sunday Abe declined to say whether he would continue the practice if elected prime minister.

His main rival, veteran ruling party lawmaker Yasuo Fukuda, supports a proposal to build a new, secular war memorial where Japan's war dead can be honoured without offending China and South Korea, where bitter memories of Japan's aggression persist.

Chinese Commerce Minister Bo Xilai last week blamed slowing growth in trade between China and Japan on the political tension triggered in part by Koizumi's Yasukuni pilgrimages.

Sino-Japan trade rose just 9.9 percent last year, slower than China-EU and China-U.S. trade, Xinhua news agency said.

Japanese business leaders have also expressed concern about the fallout of the diplomatic feuding on economic ties.

REUTERS CH KP0931