The Chinese government is expected to strengthen its grip on foreign loans after unveiling a new foreign debt regulation Tuesday.

Officials said the regulation, which takes effect on March 1, will play an important role in improving efficiency and reducing the risks of using foreign loans.

The State Development Planning Commission (SDPC), the Ministry of Finance and the State Administration of Foreign Exchange have been authorized by the State Council to govern foreign loans.

The regulation is based on the experience the government has gained in foreign loans management over the previous two decades, since China started its opening-up policy.

"After unveiling the regulation, we are going to take stricter measures to supervise loan flows but this is not aimed at cutting the volume of borrowing," the official told China Daily. He helped devise the regulation but refused to be identified.

He said the country will still take up loans offered by foreign governments, international financial organizations and commercial banks.

The infrastructure projects and public undertakings in western China are the priority investment goals for future foreign debt in the next five to 10 years.

"Our foreign debt volume is far below levels that would cause alarm internationally and our ability to clear debt is robust," said the official.

"But we need to more closely watch the situation as China has increasingly become part of the global market since it entered the World Trade Organization (WTO)," said the official.

He said closer relationships with the international market spurred China to strengthen governance of foreign loans and maintain a sound balance of payments.

"The safety of foreign loans is closely related to the healthy performance of the country's whole economic situation," said the official.

He said foreign loans have contributed a lot to China's development during the past two decades because they have been well-supervised. Many key infrastructure projects were finished and core technologies and equipment imported by using the loans.

"But borrowing randomly can cause disaster," said the official, citing the 1997 Asian financial crisis as an example.

At present, China is among the world's major debtors. In 1985, its inflow of foreign loans stood at just US$8.3 billion but during the 1994-99 period, the inflow jumped above US$30 billion every year.

During the last three years, the volume of foreign loans decreased to about US$25 billion annually as the country encouraged foreign direct investment.

(China Daily January 16, 2003)