A. Regional disparities

Differing paces of economic growth have widened the disparities between the coastal and inland regions. For example, in 1999, per-capita GDP exceeded the 30,000 yuan in Shanghai, and was over 10,000 yuan in eastern coastal areas like Beijing, Tianjin, Guangdong Province, Zhejiang Province, Jiangsu Province, and Liaoning Province. By contrast, most of the provinces and autonomous regions in the middle and western inland region still have per-capita GDPs under 5000 yuan (from "China Statistical Yearbook 2000"). The expansion of these regional disparities is causing population to flood into the large cities, worsening the crime rate thereof and exacerbating poverty in rural areas.

B. Jobs

The number of registered urban unemployed was 5.75 million people in 1999 (3.1% of the urban population; "China Statistical Yearbook 2000"), but when the number of temporarily laid-off workers and the surplus labor force in rural areas are factored in, the actual unemployment rate is much higher. There are reports of labor disputes and riots among farmers. As further reforms to state enterprises progress, it will become increasingly urgent that China solve its jobs problems, including providing reemployment programs and safety nets for the temporarily laid-off and unemployed.

C. Population

China's "one child per person" program and its advocacy of "late marriages and late births" have reduced the natural population growth rate from 2.6% in 1970 to 0.9% in 1999. However, the government forecast (*7) predicted that, not only China would have a total population of 1.26 billion at the end of 1999 (not including Hong Kong, Taiwan and Macau), making it the most populous country in the world (21% of total world population), but population policies would not prevent the population from growing in absolute terms. By 2005, China is predicted to have 1.33 billion people; by 2010, 1.40 billion; and by the mid-century it will reach a peak of 1.60 billion. Only after hitting this peak will the Chinese population gradually begin to decline, so population will continue to be a major social issue over the near term.

A. Formation of market economy systems and maintenance of growth

In view of the progress on reform and openness of China to date, the maintenance of growth, as well as the formation of market economy systems and the ensurance of smooth management of these systems have been urgent issues for future China. Particular emphasis in this regard has been on a continuing reform of state enterprises in order to create enterprises that are suited to market competition. Other issues to be addressed in maintaining economic order within the market and enhancing markets systems include further development of economic legislation and its faithful implementation, and improved enforcement against illegal activities. China also requires institutional reforms in areas such as fiscal policy, monetary policy, investment and taxation in order to provide appropriate means for macroeconomic management. Furthermore, China must reform its foreign trade and investment systems in line with the globalization of the economy and its accession to the WTO.

B. Sustainable development

The environment of urban cities in China has improved mainly through stricter enforcement against pollution sources, but economic growth has made long-term environment conservation policies a vital issue for the country. Acid rain now falls on 30% of Chinese territory, and major issues from the perspective of pollution include prevention of water pollution in major rivers and lakes, prevention of air pollution, prevention of pollution from waste and industrial production, and improvement of environmental awareness.

China's forest cover rate is 13.9%, which is about half the world average (26%) and desertification has encroached on 18% of the country's land (both figures from "1999 China Environment Status Report"). Large-scale movement of yellow sand and other degradation of ecosystems are now critical issues. Large-scale flooding in the Yangtze Delta in 1998 resulted in widespread recognition of the importance to conserve and replant forests. Among the issues to be addressed by China in this area are forestation to conserve the natural forests in the upper reaches of the Yangtze River and the middle and upper reaches of the Yellow River, and to prevent flood in every regions, dust prevention measures, protection of endangered species, and conservation of biodiversity. (*9)

Sustainable use of water resources is directly related to environment issues, and has become increasingly important as the population grows and the urbanization proceeds. The challenge before China is to develop a water-conservation society by promoting rational use of rivers, aquifers and other water resources, enhancing sewage and encouraging reuse of water.

C. Rectification of inter-regional economic disparities

The gaps in economic development between the eastern coastal regions and the inland regions of the center and the west are expanding, and the problem of poverty, particularly in the inland regions of the center and the west, has become a major issue. China has an estimated 200 million or more people at the absolute poverty level (a living standards of less than one dollar a day). The government of China has been positively implementing anti-poverty programs, but this is an issue that requires long-term efforts. "Development-oriented poverty programs" have thus been proposed.

D. Education and human resources development

One of the reasons for the large population in poverty in the inland regions of the center and the west is the lack of appropriate educational opportunities. The government of China emphasizes the role of education from a viewpoint that it can contribute to economic and social development. There are manifold issues to be addressed in this area, including the spread of compulsory nine-year education, enhancement of secondary and higher education and vocational training, and improvement of scholarship programs. In order to promote market economy and respond to globalization, China will also need to enhance its human resources development and study-abroad programs in order to provide people with appropriate levels of expertise.

E. Enhancement of employment insurance and social security

In recent years, the urban registered unemployment rate has hovered around 3%, but the actual unemployment rate is probably much higher when the temporarily laid-off workers and latent surplus labor in rural areas are factored in. The creation of new employment opportunities will become even more urgent as the reform of state enterprises and other economic structural adjustments proceed. At the same time, the reform on social security programs that have to this point been operated internally by enterprises and other organizations are also being promoted. Thus China will need to enhance its social insurance systems such as old age insurance, pensions, medical insurance and unemployment insurance as well as to improve a wide range of social security programs, and medical and health systems.

A. Relations with international institutions

Between 1994 and 1998, China accepted a total of US$800-900 million ODA a year from international institutions, primarily from the International Development Association (IDA) and the United Nations Development Program (UNDP). Since 1999, however, China lost its eligibility for concessionary IDA lending under the lending guidelines of the World Bank, and is now eligible only for lending only from the International Bank for Reconstruction and Development (IBRD). In 1998, the IBRD lent China approximately US$1.6 billion (net disbursements [gross disbursements - repayments] basis), although this is not ODA. The Asian Development Bank (ADB) has never provided China with concessionary ADF (*10) since China joined the institution, but lending at market interest rates from the ADB is growing steadily, and in 1998 reached approximately US$500 million (net disbursements basis). The ADB is increasing further its presence and activities in China; in 2000 it opened the representative office in Beijing.

The United Nations Children's Fund (UNICEF) also provides aid, primarily for child health programs.

B. Assistances from other donors

China's major donor countries in 1998 were Japan, Germany, United Kingdom, Canada and France in that order. Japan is the largest donor country and accounts for over 60% of all bilateral aid provided to China.

The priority areas in German aid are vocational training, environment conservation, poverty alleviation programs, economic structural reform, and transportation infrastructure.

UK has traditionally employed a mixed aid scheme consisting of grant assistance and export credits, but suspended this scheme for new projects originating in 1997 and beyond, moving instead to grant aid and technical cooperation. Priority areas in British grant aid are poverty reduction and environment conservation; in technical cooperation, environment conservation, English language education and public-sector efficiency.

Canada formulated its "Development Aid Policy Framework on China" in 1994. Priorities in Canadian aid are on transition to market economy, environment conservation, urban policies, and human rights and democratic development.

French aid focuses on technical cooperation and soft loans for human resources development and institution building. Technical cooperation includes French language education, human resources development in the legal and administrative fields, and health and medical care activities.

A. Japanese economic cooperation to date

China embarked on its Open and Reform Policy in December 1978, and requested the provision of yen loans in 1979. In response, then-Prime Minister Ohira committed during his visit to China in December 1979 that Japan would provide ODA to China. This decision was based on the idea that support for China's Open and Reform Policy would benefit not only the stability and prosperity of China and Japan, but those of the entire Asian region and indeed the entire world.

By fiscal 1999, Japan had provided yen loan of 2,453.5 billion yen and grant aid of 118.5 billion yen (on an Exchange of Notes basis), together with technical cooperation of 116.3 billion yen (actual outlays via the Japan International Cooperation Agency (JICA)). Japan had net disbursements of $1.22597 billion in fiscal 1999, and China ranked second behind Indonesia in terms of Japanese bilateral ODA.

Japanese ODA to China as a whole, mainly through yen loans, has contributed to the alleviation of infrastructure bottlenecks in the coastal regions and stabilization of China's macroeconomy. (*11) In addition, the grant aid and technical cooperation have contributed mainly to projects related to basic human needs such as health and medical care, as well as those on environment conservation and human resources development. (*12) This cooperation, which includes assistance for Chinese students studying in Japan (*13), has successfully contributed to the provision of materials and facilities as well as transfer of expertise and technology, both of which China needs.

Japanese ODA has thus supported China's Open and Reform Policy and substantially contributed to the extraordinary development that China has achieved.

B. Japan's presence in the overall economic cooperation to China

As noted above, among the countries of the Organization for Economic Cooperation and Development (OECD)/ Development Assistance Committee (DAC) which have provided bilateral aid to China, Japan has more or less constantly accounted for more than half of all bilateral assistance to the country ever since it began providing assistance in 1979. Japan is China's largest donor country, and its presence in assistance to China is extremely large.

The DAC has recognized the achievements of Japanese assistance in its "Development Cooperation Review Series: Japan" which mentions that Japanese yen loans and other assistance to China, "together with trade and direct investments, have made a positive contribution to the rapid economic growth of China in recent years." (*14) China also expresses high appreciation and gratitude for the role played by Japanese ODA in its economic development.(*15)

C. Changes in the situation surrounding economic cooperation to China

Thus Japan's ODA to China has significantly contributed to the economic development of China. However, compared to the situation in which Japan began to extend ODA to China, the present situation surrounding ODA has dramatically changed. Major changes are shown below, and it is necessary to implement ODA to China by reflecting fully such changes.

1. Under the severe economic and fiscal circumstances that Japan currently faces, together with the changes such as the increasing national power of China both in terms of its economic and military power as well as the emerging presence as a business competitor, increasing skepticism within Japan over ODA to China has been raised by the astounding development in the eastern coastal regions, the modernization of Chinese military capabilities, and China's own assistance to third countries and its lack of transparency.
2. As the Chinese economy develops, China is better able to raise private sector funds from the domestic and international markets, and indeed the Chinese private-sector itself is better able to raise funds. This has produced changes in Chinese expectations and demands for Japanese ODA funding.
3. As the market economy progresses in China, there are development needs in so-called "soft" areas that cannot be solved merely by investments of funds. These needs include the building of institutions and legal systems as well as the development of human resources, all of which are necessary for the integration of China into the international economic community (including the accession WTO).

D. Direction of economic cooperation over the next five years Below are the basic concepts in implementing future ODA to China.

1. Japan will conduct detailed reviews on individual project proposals and efficiently implement assistance based on priority areas and issues in light of both newly emerging development needs of China and Japan's own national interests with the understanding and supports from the people of Japan.
2. China should implement on its own those programs that it is capable of implementing. As the Chinese economy develops, private-sector funding raised by China from both domestic and international markets will, over the long term, play a larger role.
3. Efforts must be made to achieve objectives of Japan's cooperation with China efficiently and effectively by coordinating ODA not only with other public funding but with private funding.
4. Japan should implement ODA in a way to encourage Chinese efforts to marketize its economy based on the recognition that it is in Japan's interest for China to be integrated into the international economic community and to play a responsible political role in the international community as well.
5. Attentions must be paid to ensure that Japanese ODA to China does not lead to a strengthening of Chinese military capacity or other developments inconsistent with the "Principles" (*16) of the "ODA Charter."

Yen loans are to be changed from the traditional form of committing loan targets over multiple years, to a single-year commitment system (*17) based on a "long list" (list of candidate projects for yen loans). From this fiscal year, the amount of total ODA comprising of yen loans as well as grant aid and technical cooperation would be decided on the so-called "projects accumulation formula," without making the previous levels as a prerequisite. In other words, while responding to new demands for Japanese aid in China, Japan will examine and implement each individual project requested, with a focus on the priority areas and issues described in Subsection (3) below, and taking into consideration the severe economic and fiscal situation that Japan currently faces.

A. Cooperation towards resolving environmental and other global issues

China has serious environmental problems: in addition to pollution, it is also experiencing a rapid expansion of areas subject to acid rain and desertification. Many have pointed to the negative impacts caused by the spreads of the yellow sand due to desertification.

Rapid increases in China's energy consumption are also exacerbating various environmental problems, not the least of which is global warming. Chinese energy consumption may also have an impact on energy security for the entire Asia-Pacific region.

China has HIV/AIDS infections and patients of approximately 500,000, 50-times more than Japan. It also has an estimated 1.41 million tuberculosis sufferers (from UNAIDS (*18) materials (1999)). These global issues have come to be challenges which need to be tackled urgently.

Some of these issues have a direct impact on Japan via the oceans and atmosphere. Japan will continue to actively address these issues, making maximum use of cooperation results gained so far and its own experiences. (*19) Of particular importance are the management of water resources and the forest conservation and forestation to maintain and restore eco-systems. In light of this, Japan will make efforts to provide cooperation in these areas. In so doing, Japan will endeavor effective implementations of cooperation through the compiling of environment information that provides a foundation for cooperation including, among others, mapping of eco-systems and land-use, and surveys of forest conditions, as well as the research and study on policy options.

For energy-related environmental issues, Japan will support Chinese efforts to introduce new and/or renewable energy sources and for energy conservation.

Furthermore, by utilizing the successful achievements Japan gained through its cooperation in the eradication of polio (*20), Japan will address the issue of infectious diseases, mainly through projects on HIV/AIDS and tuberculosis.

B. Assistance for Open and Reform Policy

It is important for Japan to encourage China to develop toward a more open society through its assistance for Open and Reform Policy. In particular, Japan will provide assistance for efforts to accelerate economic marketization so as to encourage stronger ties between the Chinese and international economies.

Japan will provide assistance for strengthening "(good) governance," including the establishment of legal systems to regulate economic activities, in order to ensure stimulating private sector activities that are a driving-force for marketization.

To support Chinese integration into the world economy, Japan will enhance assistance that promotes marketization, including institution building and human resources development, and assistance that encourages understanding of the global standards and rules that govern economic activities (including the WTO Agreements).

To strengthen good governance, Japan has already implementied JICA training programs on Japanese criminal-justice systems and on administrative laws on science and technology. In the future, Japan will provide assistance that improves the rule of law, and the transparency and efficiency of administration among the officials of local governments, and support for grass-roots educational activities.

C. Promotion of mutual understanding

Promotion of mutual understanding among the peoples of Japan and China will build the foundation for long term, friendly relations between the two countries. It is extremely important that China itself make concrete efforts to improve the way in which it views Japan, but, at the same time, it will be an effective means of promoting mutual understanding between the peoples of the two countries to provide the Chinese people with more opportunities to come in actual contact with people and culture of Japan.

Japan has in the past made active use of ODA to invite Chinese students to study in Japan, to give the leaders of future generations and a broader spectrum of Chinese people the opportunity to make direct contact with people of Japan, and to learn about present Japan and Japanese culture. In the future, Japan will utilize its ODA to further promote personal-level interaction in cooperation with the private sector. From this perspective, enhanced efforts will be made for the strengthening of human resources development programs that contribute to mutual understanding, through the dispatch of experts to China and the acceptance of trainees from China, support for Chinese students studying in Japan, youth exchange and cultural exchange programs, as well as academic exchange and university-level exchange programs (including promotion of Japanese studies joint research projects). ODA will be used to improve the environment for the acceptance of students from China in order to facilitate support to them and other human interaction on this level.

Japan will also provide support in the form of policy recommendations and human capacity development to promote tourism that provides opportunities for the people of Japan and China to make direct contact. (*21)

D. Assistance for poverty alleviation

Poverty alleviation is a key issue in Chinese development, and assistance in this area will require, among others; 1) economic and social development that rectifies the disparities between the coastal and inland regions, which face the large differences in per-capita income; 2) sustainable agricultural and rural development programs to alleviate poverty in the inland and other regions with unfavorable natural conditions; and 3) support for programs to assist the most vulnerable members of society.

Poverty is ultimately an issue of income redistribution within China. However support for policy and institution building and human resources development in these areas will enable the efforts of the Chinese government to better alleviate poverty, which will also contribute to the maturation of Chinese society as a whole.

"Development Partnership Strategy: Shaping the 21st Century: The Contribution of Development Cooperation" (*22) of the OECD/DAC sets forth the orientation for development cooperation in the twenty-first century. One of its goals is to halve the ratio of the world population in poverty by 2015. This goal was reconfirmed at the Kyushu-Okinawa Summit in July 2000. Efforts toward the reduction of poverty is one of the important roles that Japan can and must play as a leading member of the international community.

In the past, Japan's cooperation has been extended to poverty-stricken regions to meet their basic human needs--agriculture, health and medical care. In the future, Japan will provide support to the poor at grass-roots level in the areas such as education and health, which form the foundation for future human resources development. In case of cooperation which aim to improve the public welfare in regions with large populations in poverty, Japan will provide support to those which benefit the poor. The impact on Japanese agriculture and others should be noted when making decisions on assistance.

E. Support for private sector activities

A large number of Japanese companies have operations in China and play a major role in broadening and strengthening relations between the two countries. From this perspective, it is important to provide support for improvement of the environment that will facilitate business activities by Japanese companies in China and broaden and deepen private sector economic relations between Japan and China.

In light of China's accession to the WTO, assistance to the efforts to enhance the foundation of China for the acceptance of foreign investment, such as assistance for the strengthening of intellectual property rights protection policies, will lead to facilitate the activities of Japanese companies,.

Further, in providing assistance, efforts will be made to utilize the experiences and know-hows of the private sector, and to actively seek out such proposals that will make use not merely of funds provided but of superior Japanese equipments, systems and technologies in case of yen loans, by which it is expected to result in higher presence in procurement of materials, etc. is the yen loan projects for Japanese companies that have experienced substantial declines. The use of superior Japanese technology, facilities and expertise may also deepen Chinese understanding for Japanese assistance.

F. Promotion of multilateral cooperation

Japan and China have agreed to go beyond their bilateral "friendly neighbor" relationship to create a "friendly, cooperative partnership" (*23) in which they will cooperate for the solution of issues facing the East Asian region and the international community as a whole. The use of ODA to achieve concrete results will be extremely significant in promoting these efforts. To this end, for example, Japan will cooperate with China on assistance activities for third countries, building on the achievements gained in assisting human resources development centers (for example, Japan-China Friendship Hospital ) that Japan has provided support with priority.

Japan will also provide active assistance for regional cooperation in East Asia, such as cooperation on environmental issues under the framework of Japan, China and Korea or in the East Asian region as a whole.(*24)

A. Strengthening of efforts to ensure ODA based on the ODA Chater

There have been criticisms in Japan in recent years that Japan's assistance to China does not conform to the "Principles"articulated in the "ODA Charter" because of substantial increases in Chinese defense expenditures, China's development of nuclear weapons and missiles, China's imports and exports of arms, or questions about democracy and human rights protection.

Japan has been implementing its ODA in conformance with the "ODA Charter," and made efforts to watch carefully nuclear weapons development (See Note), military expenditure and arms imports and exports in China, and to pay due attention to China's promotion of democracy and protection of basic human rights and freedoms.

Japan has taken many opportunities to convey to China its domestic anxieties over recent substantial increases in defense expenditure and to seek Chinese understanding on this issue. Japan has also encouraged China to improve its transparency and capacity to explain the policy in military areas. For example, in meetings between the foreign ministers of the two countries, Japan has urged China to make greater efforts to increase the transparency of its defense policies. Japan has also provided support to those which contribute to democratization through, for example, the development of the Chinese legal system.

In the future, Japan will make utmost effort to deepen Chinese understanding and recognition of the "ODA Charter" by raising the issues at every opportunity from assistance policy discussions to other bilateral consultations, including high-level meetings. In particular, there are sectoral consultations between the relevant authorities in both countries on sectors such as security, military management and disarmament, and human rights. These are excellent opportunities to deepen the recognition and understanding of the Chinese side on the idea behind the "ODA Charter." Japan will actively use these consultations to make the points that needs to be made, to increase mutual understanding and trust, and to encourage China to better discharge its responsibilities as a major member of the international community, as well as will provide support for China's efforts in that direction.

(Note) China continued to perform nuclear tests despite the repeated requests by Japan to cease. In response, Japan took measures to freeze in principle all grant aid to China until it became clear that Chinese nuclear testing had been suspended. China announced a nuclear testing moratorium after completing a final test in July 1996, and in September of that year it signed the Comprehensive Test Ban Treaty (CTBT). In light of these, Japan resumed grant aid in March 1997.

There has been a growing concern on China's aid to third countries in recent years. This aid lacks clarity and transparency, which is one of the reasons for the critical view against assistance to China taken in Japan. In the future, Japan will urge China to improve transparency in its third country assistance by encouraging China to make public the results.

B. Promotion of economic cooperation "with visibility"

It is important for mutual understanding between Japan and China that a broad spectrum of the Chinese public be aware of Japan's assistance. Indeed, this will also be essential to rebuild the basis for support in Japan for assistance to China. China has indicated its intention to make stronger efforts to publicize Japan's ODA to its people, and Japan will therefore encourage further these efforts of China, and at the same time engage in broad public relations activities for the Chinese people as follows.

1. ODA is implemented based on the result of negotiations between central governments, but steps will be taken to directly reflect at the project formulation stage the opinions and needs of the local governments who will implement projects. This will have the effect of deepening local governments' awareness of Japanese assistance.
2. There are many examples of local governments in Japan who have "Friendship City" arrangements with Chinese counterparts implementing their own cooperation projects, and NGOs interested in China doing the same. In implementing ODA, Japan will enhance further collaborations with local governments and NGOs, and support grass roots level exchange activities by those entities. (*25)
3. Grant assistance for grass-roots projects (*26) has been extremely active in China. While the scale of individual projects is limited, these projects contribute directly to improve living standards for residents. These are welcomed by local governments and residents alike, and are visible. Therefore Japan will more actively utilize this type of assistance in the future.
4. Taking account of the changes in the Chinese mass media, Japan will endeavor to strengthen its ties to the local media. It will also strengthen public relations activities for ODA in general and incorporate PR activity into the implementation individual cooperation projects in order to bolster the publicity on Japan's ODA among the Chinese people.
   

C. Greater use and more flexible implementation of technical cooperation

In light of the economic and social development in China, Japan will place greater emphasis on "soft" assistance, i.e. expertise assistance for policies and institutions, in addition to traditional technology cooperation and human resources development. In order to respond flexibly to these changes in assistance needs and implement projects in an effective manner, Japan will review its own systems and develop institutions by, for example, making greater use of NGOs, local governments, and senior overseas volunteers (*27) in addition to experts and Japan Overseas Cooperation Volunteers, (JOCV), as well as fostering assistance personnel with expertise in these "soft" areas Japan will endeavor to obtain full understanding from China for the participation of NGOs and local governments in ODA. Further consideration should be given to the Chinese-side liaison functions from the perspective of formulating ODA projects jointly with China.

In addition, Japan will strengthen further the collaboration with financial assistance from the perspective to promote effective technical cooperation. In so doing, Japan will encourage coordination among relevant institutions on the Chinese side because different government institutions in China serve as liaisons for different assistance schemes and this may impede effective cooperation. Furthermore, in order to positively utilize the results of technical cooperation so far, Japan will continue providing support to the basis for cooperation which have achieved so that the effect of cooperation would spread to the country as a whole.

D. Joint formulation of projects

Traditionally, assistance projects have been screened to some extent by China and submitted to Japan. In the future, Japan will be more actively involved in the process of project formulation, working jointly with the Chinese side, including local governments, to formulate projects and to enhance transparency.

The "round" system (*28) has been curtailed for yen loans. From now onward, a single-year system (*28) based on a "long list" of candidate projects for the next 3-5 years are to be employed, with projects selected each fiscal year. Japan will faithfully implement this system and improve the transparency of the process towards project adoption.

In addition, Japan will consider the process for selection of grant aid projects and trainees and youth programs to be invited to Japan through technical cooperation to improve their transparency.

E. Other issues

1. Promotion of model approach
   Two model approaches focusing on development in specific regions or specific issues/areas will be instrumental in effective, visible assistance to China having an enormous territory and population. The first approach is to select a specific region as a model, provide a variety of forms of Japanese assistance to the region, and support intensively the development of the region.
   
   The second is the approach used in the "Japan-China Environmental Development Model Cities Plan" (*29) in which a model region is selected to achieve goals in a specific issue/area, and model projects are implemented to this end. The approach aims that the results would then be spread to other regions facing the same problems so that the benefits are not limited only to the model region.
2. Coordination with Other Official Flows (OOF) (*30) and private sector funding
   Programs of the Japan Bank for International Cooperation (JBIC) include international financial services (services formerly undertaken by the Export Import Bank of Japan) which is categorized as OOF, and ODA services (including yen loans). The former aims to provide financial support for Japanese external economic policies; the latter is for assisting nation-building in developing countries. They thus have different objectives and intentions.
   
   Among international financial services, however, some argue that, as far as untied loans (*31) are concerned, the differences between untied and yen loans at the operational level are not entirely clear. In order to effectively and efficiently utilize public funds which are limited resources, Japan will pay due attention to the use of greater expertise and know-how to achieve better synergy between the two funds, while taking account of the characteristics of ODA which has relatively loose terms of lending, and untied loans, which are based on market interest rates. Whether ODA or untied loans, it is extremely important that providing funds contributes to Japan's national interest as a whole in light of Japanese foreign policy for China.
   
   By clearly differentiating the two funds based on the objectives and intentions of each scheme in responding to a variety of needs on the Chinese side, Japan will ensure more effective and efficient management of public funds. In addition, Japan will operate services on untied loans under an appropriate collaboration among Japanese government agencies and implementing institutions so as to contribute to Japan's national interests.
   
   It is also necessary to actively tap not only public funds but private-sector funding and expertise in infrastructure creation and other areas so as to facilitate the sustainable economic growth of China. However, there are various risks that cannot be borne by the private sector on its own, and therefore, Japan will utilize public funds in the construction of relevant basic infrastructure to facilitate private sector-driven infrastructure construction.
3. Stronger coordination with international institutions and other major donors
   As a result of its extraordinary economic development, in 1999 China lost the eligibility for IDA lending (under World Bank lending guidelines), which has looser terms, and shifted to the country eligible only for IBRD lending. China has never received concessionary ADF (*10) from the ADB since it joined that institution.
   
   Japan's ODA to China will shift its emphasis away from the traditional focus of coastal region infrastructure development to improved living standards and social development in the inland regions, as well as human resources development and environmental conservation. Japan will strengthen its collaboration with the World Bank and ADB, which have abundant expertise, human resources and information in areas like poverty reduction and social development, and from which China has been expecting support .
   
   For projects like anti-tuberculosis programs that must be simultaneously implemented across a wide area within China, Japan will work in coordination with international institutions to divide up regions and functions of responsibility.
   
   For micro-credit projects (*32) and other projects requiring large human resources at the implementation stage, Japan will explore the potential for joint implementation with the UNDP and other institutions.
4. Promotion of IT cooperation oriented towards bilateral and regional cooperation
   China has seen extraordinary IT development in recent years, and the government of China has announced its intentions to make active use of IT in domestic development. Based on this and cognizant that IT development and utilization would be driven primarily by the private sector, Japan will explore the possibility for flexible cooperation that combines a range policy measures as a supplement to private-sector efforts.
   
   Specifically, Japan will contribute through ODA to the development of human resources who will support the foundation of IT development, in addition to explore the potential to support "soft" areas such as IT standards and systems.
5. Stronger evaluation
   Japan will actively evaluate assistance to China. This will include more than just evaluation of individual projects but timely, appropriate evaluation which will be made of the conformance and rationality of assistance from more comprehensive perspectives.
   
   Specifically, an Evaluation Committee consisting of private sector experts will be established to check implementation of this program and to provide an evaluation of and advice on the assistance program for China in general at the time this plan is envisioned to conclude, in approximately 5 years.
   
   In the implementation of the evaluation, Japan will conduct joint evaluation to reflect fully Chinese ideas and assessments in the evaluation. Evaluations by third countries and international assistance institutions will also be used to improve Japanese ODA to China.
   
   Efforts will be made to improve the understanding of the Japanese public for economic cooperation to China, by further disclosing information on the intentions behind ODA to China, the process of ODA project selection and implementation, and the results and problems identified in the evaluations such as that described above. The Internet will also be used to provide this information in a more easily understood form.