CONFIDENTIAL
Sir E
17/23/12
9/23/12 Pl. openk
GU MU AND LOANS TO CHINA
1.
1
& JA 1982
Gu Mu is one of 13 Vice Premiers. He is also Minister responsible for the Import-Export Commission and for the Foreign Investment Control Commission. In the Chinese system Commissions are more important than Ministries, and normally there are several Ministries subordinate to each Commission.
2.
Gu Mu was,with Li Xiannian, one of Zhou Enlai's senior economic advisers throughout the Cultural Revolution. As such he has been subject to criticism from certain quarters. Last year, for example, he appeared to suffer a setback when he was replaced as Minister in charge of the Capital Construction Commission, following the Baoshan débacle and general retrenchment of major capital projects initiated around 1978. However, his star never really set and he was quickly appointed to his present responsibilities for the two trade and investment Commissions and appears to have gone from strength to strength. He could be described as China's foreign trade supremo. An article in the People's Daily two months ago specifically vindicated those such as he who kept the economy going during the Cultural Revolution. He has been active in contacts with foreign delegations and was a member of the Chinese delegation which visited Japan in early December for Ministerial-level talks. This visit resulted in the latest large Japanese loan.
3.
Gu Mu has in the past floated over us China's need for soft loans. He referred to the offers from a number of other countries (Japan, Belgium, Denmark and - for nuclear power stations France) when Sir P Cradock called on him on 30 October 1980 with a delegation from the Committee on Invisible Exports Peking telno 708 attached. It is however interesting that when Mr Peter Rees called on him early this month he did not mention soft loans Peking. BD telno INDUS 20. but see Peking TEP 750.
A NR
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Japanese Loans
4.
The Japanese were the first to offer substantial loans on soft terms to China. They offered a first tranche of 50bn yen in 1979. They followed up with a second tranche of 56bn yen (about $280m) in December 1979. The latter was for use in financing capital projects including port construction and railway modernisation and was, in theory at least, untied. Earlier this month they offered 300bn yen ($1.3bn). Of this nearly half is in the form of commodity credits diverted from previously suspended projects; and the rest is divided into supplier credit on OECD consensus terms
• and commercial credit (in practice, given low Japanese interest rates, the latter is likely to be cheaper). Again
CONFIDENTIAL
/the credits
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