Faced with a tight budget and China's robust growth, Japan will cut loans to Beijing for a third straight year, replacing the Asian giant with India as the top recipient of its foreign aid, officials said on Thursday.
Japan plans to scale back loans to China by 20 percent to around 96.7 billion yen ($872.1 million) in the fiscal year to March 31, Japanese Foreign Ministry officials said, adding that the exact figure would be fixed by the end of the month.
That would be far less than half of the record 214.4 billion yen given three years ago and take place China to third place. It is the third straight year that Japan is cutting loans to China.
India, one of the world's poorest countries, is set to receive 120 billion yen in loans to fight poverty, help boost its economy and improve its infrastructure to lure foreign investors.
Indonesia will become the second largest recipient of Japan's loans after receiving 104.6 billion yen in loans from Japan in the current fiscal year, the officials said.
Officials cited Tokyo's tight fiscal condition, China's robust economic growth and a shift in the focus of development projects as the reason behind the cuts in aid for Beijing.
"It is not that the strategic importance Japan attaches to China is shrinking in relative terms," a Japanese Foreign Ministry official told reporters.
The focus of projects financed by Japan's yen loans is shifting away from expensive infrastructure projects in coastal areas in China to those to protect the environment, fight disease and develop human resources, he said.
Some government officials, ruling party politicians and taxpayers have argued that China should no longer rely on Japanese aid because its economic growth has been rapid and robust in the past decade - a period of decline for Japan.
Some ruling politicians have also called for cuts in aid to China out of concern that the money is funnelled to the military.
A senior Japanese government official said Japan should continue to give economic aid to China so it could help tide Beijing over possible economic downturns in the future.
"We have been giving economic aid to China because we support China's open-door policy and stability in China serves our national interests," he said.
"It is impossible for any economy to grow at an annual rate of seven or eight percent indefinitely. China will certainly face many challenges in the future."
Japan is the world's second largest donor of development assistance and its overseas aid programme has been the most powerful instrument of its diplomacy after World War Two.
The government decides the size of its total aid budget before the start of each fiscal year but does not finalise a breakdown until the end of the year.
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