Abstract: Since 1979, loans trom international financial institutions has cumulated to several tens of billion dollars and been an important source of external debt in China. Its ratio to external debt is relatively stable 40 percent. Whether the foreign aid has been devoted to public investment, consumption or tax deduction by Chinese government has never been studied. This paper tries to establish a group of simultaneous equations based on macroeconomic theories and empirical models and to answer the above questions using national and provincial data from 1978, respectively. Our econometric analysis indicates that loans from international financial institutions do have some fungibility, and the extent to which they perform in different regions is varying. However, the kind of fungibility has no negative impact on public and private investment.