By Chris Buckley

BEIJING, June 7 (Reuters) - Accused of turning a blind eye to misrule and corruption as it woos resource-rich nations, China is debating an overhaul of its foreign aid policy to mine its financial strength for greater diplomatic clout.

Amid the international outcry over the strife in Darfur, China has wavered between working more closely with the West and guarding ties with major oil supplier Sudan, highlighting how nervously Beijing handles its rising prominence.

But now Beijing is pondering how to align its foreign aid with increasingly complex stakes in Asia, Africa and other poorer regions, analysts said. In a flurry of government-sponsored meetings and papers, some experts have pushed for a separate aid agency.

One Chinese scholar involved in the discussions said the debate reflects dissatisfaction with the current fragmented handling of expanding aid programmes.

Food and money grants, low- and no-interest loans, medical and agricultural teams, infrastructure support and other expanding support are handled by some 15 agencies, he said.

"There is a lot of debate now in different branches of government about the rules to control aid and whether we need a new mechanism to coordinate aid," said the scholar, who asked not to be named because of the closed-door nature of the discussions.

The discussion reflects deepening awareness that China must learn to wield new policy tools to match its new economic weight and political ambitions, said Frank Jannuzi of the Council on Foreign Relations, a U.S. think-tank.

"The Foreign Ministry types and a lot of the foreign policy elite are not very familiar with how to wield those tools," said former Senate aide Jannuzi. "They're used to playing defence and now suddenly they have an opportunity to play a little offence."

AID AS A SHARPER TOOL

China has faced criticism from Western aid groups that it encourages corruption and misrule by failing to demand accountability when giving aid, loans and investment.

The U.S. House of Representatives urged China, which buys most of Sudan's oil, to use its influence and economic leverage to stop what President George W. Bush has called the genocide in Darfur.

China is tight-lipped about how much foreign economic support it gives, to what countries and in what forms.

There is no doubt, though, that its aid has grown. Visits to developing nations by President Hu Jintao and other leaders are accompanied by offers of roads, buildings and ports that also help Chinese companies investing there.

Hu offered $5 billion in loans and credits and a doubling of aid at a China-Africa summit in Beijing last November.

But Beijing's deepening international involvement has spurred contention in government about how to coordinate aid with diplomacy and business, said Bonnie Glaser of the Centre for Strategic and International Studies in Washington.

Diplomats want to use aid as a sharper tool as they confront rising expectations from poor partners, but direct say over much spending lies with commerce officials, leaving room for discord.

"The Ministry of Foreign Affairs has no clout, and that creates problems for them, but the Ministry of Commerce is very reluctant to give up the power in its hands," said Glaser.

Foreign critics criticise Beijing for giving unconditional aid to violent and corrupt governments in Asia and Africa. That "no strings" approach is unlikely to change soon.

But China could counter Western accusations that its aid is too secretive and self-interested by working more closely with other donor nations and agencies, said Zha Daojiong of the People's University of China in Beijing.

"We can make aid an instrument for strengthening relationships with other donor countries," he said.

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