With its rapid economic development, China's emissions of sulfur oxides, nitrogen oxides, and carbon dioxide have increased greatly, consequently increasing the damage from acid rain and aggravating environmental pollution. For this reason, when a Japanese high-level mission on economic cooperation visited China in March 1992, the two governments agreed in principle that it would make the environment one of its future ODA priorities. In April 1996, the Japan-China Comprehensive Forum on Environmental Cooperation met for the first time and exchanged views on environmental cooperation between the two countries. The second meeting is scheduled for November 1997.

At the implementation level, cooperation is already taking place in water and sewer improvement, waste treatment, antipollution technology, and forest preservation. The Japan-China Friendship Environmental Conservation Center, built with Japanese grant aid, opened in May 1996, and since then, it has been gradually reinforcing its ability to serve as a center for environmental cooperation in China.

At the September 1997 Japan-China summit meeting, Prime Minister Hashimoto proposed the idea of "Japan-China Environmental Cooperation toward the 21st Century," to which China agreed in principle. This concept has two main thrusts of cooperation: i) the establishment of Environmental Information Network, and ii) the creation of environmental model cities.

(1) Establishment of environmental information network

The goal is to complete a nationwide environmental information network with the Japan-China Friendship Environmental Conservation Center set up with Japanese grant aid as the core. For this purpose, computers will be installed to process environmental information in 100 major cities in China. In addition to installing computers, Japan will cooperate in training human resources for the environmental information network.

(2) Environmental model cities

Model cities will be designated to carry out environmental programs. Efforts such as strengthening environmental regulations in China, and Japan's assistance including ODA loans with special interest rates for environmental projects, and technical cooperation will be intensively applied. These environmental measures, directed at reducing air pollution and acid rain, for example, are aimed at generating successes that will encourage the future extension of environmental policy. The aim is to create recycling industrial and social systems for effectively using desulfurized by-products (ex. fertilizer, plaster). Measures will also be taken to combat global warming by supporting energy conservation.

An expert committee composed of Japanese and Chinese specialists will be created to study specific measures and submit reports to the Japanese and Chinese governments.

Since 1995, Japan has been granting ODA loans for environmental projects at interest rates 0.2% lower than loans for ordinary projects in order to encourage efforts to tackle environmental problems in developing countries. The upper-middle-income countries whose GNP exceeds a certain level (in 1997, the standard for ODA loan eligibility is a per capita GNP of $3,035 in 1995), have been eligible since 1989 for ODA loans to fund environmental projects, due to Japan's flexible application of this kind of loan in view of the importance of environmental protection. Thanks to these changes, the percentage of ODA loans granted for environmental programs (residential environment improvement, protection of forests, combating pollution, disaster prevention, etc.) has grown from an average of less than 10% of all bilateral loans in the period 1986 to 1990 to an average of about 20% in the period 1992 to 1996.

The majority of projects receiving environmental soft loans thus far have been in residential environment improvement and disaster prevention. Only about 20% of all environmental soft loans, or 4% of all bilateral loans, have funded projects for the promotion of antipollution measures and global environmental issues such as global warming - areas where Japan has vast experience and expertise that is highly regarded internationally and could make a great contribution to global society.

In view of these circumstances, during his visit to China in September 1997, Prime Minister Hashimoto announced new measures further relaxing the terms - lowering interest rates to 0.75% and extending the repayment period to 40 years (with a grace period of 10 years) - on those environmental loans that fund projects designed to improve the global environment (e.g., forestry, energy conservation, new energy sources) and to promote antipollution technology (e.g., reducing air and water pollution and promoting better treatment of wastes) in order to encourage developing countries to tackle such issues. These conditions are the same as those of the International Development Association (IDA: a member of the World Bank group that grants soft loans to low income countries), which grants loans at no interest (interest rate 0%, service charge 0.75%, repayment period 40 years (with a 10 year grace period)), the most favorable conditions available in the world.

This substantial lowering of interest rates on Japanese ODA loans is certain to contribute to protecting the whole world's environment and specifically that of Asia, where rapid industrialization is making pollution an increasingly serious problem.

Chart 4 "Japan-China Environmental Cooperation toward the 21st Century"