CHINA'S original policy bank is embarking on its first international borrowing - a US$50 million seven-year term loan for on-lending to mainland projects, according to IBJ Hong Kong, one of the arrangers. The State Development Bank (SDB) would use the proceeds of the loan to lend to projects in Jiangsu, Guangdong province; Inner Mongolia; and Ning Xia province, said IBJ, which shares the loan mandate with Korea Development Bank. IBJ said the SDB planned to build up relationships with international banks through the syndication. It said Beijing was moving to strengthen its macro-economic control by splitting business between policy and commercial banks. 'The establishment of policy banks is deemed to be an important step to further reform the state's finance system,' IBJ said. The policy banks were set up last year by Beijing to handle state loans and allow China's four major banks to become profit-based commercial institutions. The SDB was established last April with registered capital of 50 billion yuan (about HK$45 billion) to support state projects in energy, transport, material production and industries such as machinery, electronics and petrochemicals. Its brief is to take over the policy-based lending of the People's Construction Bank of China and the roles of six former investment corporations under the State Planning Commission. SDB funds key state development projects such as the huge Three Gorges Dam project, railway systems and power stations. Such loans used to be offered by the four state specialised banks - Industrial and Commercial Bank, People's Construction Bank, Agricultural Bank and People's Bank of China. It has the task of allocating funds borrowed by Beijing from foreign governments and international organisations. SDB offers special low-cost loans and receives a subsidy from Beijing to cover the difference between SDB's funding costs and its lending costs. It offers soft loans to state enterprises and to the SDB-managed Development Investment Corp and hard loans in accordance with Beijing's fixed-asset investment and credit plan. The central government last year set up two other policy banks - the Export and Import Bank of China (EXIM) and the Agriculture Development Bank. EXIM provides long-term financing for importing and exporting equipment and machinery. With initial registered capital of 3.4 billion yuan, EXIM can issue bonds in China and offshore and can borrow from domestic and international institutions. The Agriculture Development Bank was set up to take over the policy-based activities of the Agricultural Bank of China, the People's Bank of China, the Industrial and Commercial Bank of China and the People's Construction Bank of China.