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Tokyo and Beijing agree to phase out China aid by 2008

Japan has reached a basic agreement with China to cut off fresh yen loans in 2008, when Beijing will host the Olympic Games, and to reduce the aid gradually until then, a report said yesterday.

Beijing had initially resisted but eventually agreed to Tokyo's proposal made in January to phase out yen loans, which are Japan's chief means of aid to its neighbor and growing rival, the Nihon Keizai Shimbun said.

Japanese Foreign Minister Nobutaka Machimura and his Chinese counterpart are expected to reach a formal agreement later this month, the economic daily said without naming its sources.

Japan will reward China's agreement by making the phase-out gradual, with an 8 percent reduction in yen loans in the current fiscal year to ?89 billion (US$856 million), much gentler than the more than 20 percent drops in loans imposed over the previous three years, the report said.

Japanese foreign ministry officials declined to comment.

Japan has said Beijing should "graduate" from its aid, without setting a timeframe, as China has developed into a growing economic power with increasing military spending.

Previous reports have indicated that Tokyo planned to cut the China-bound aid by the Beijing Olympics, a symbol of the country's growing might, with the resources to be shifted in part to Africa.

Since 1980, Japan's yen loans to China have exceeded ?3 trillion for projects including the building of highways, airports, sewage systems and other infrastructure.

Calls for ending aid to China have become more vocal among lawmakers against a backdrop of cool bilateral relations as the two countries spar over their wartime past and scarce energy resources.
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