Countries and Regions

	Table of Contents
p. 18 of 21 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies IV. Subregional Economic Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - People's Republic of China

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VI. Cofinancing and Catalyzing External Resources

97. From 1987 to 1999, ADB loans to PRC financed only about 34 percent of the total project costs; about 56 percent of the total project costs were financed by Government sources which reflects the strong project ownership. The remaining 10 percent was financed through cofinancing. Total cofinancing for past PRC projects amounted to $2.8 billion, of which 85 percent was from commercial sources. Of the total cofinancing, 54 percent (18 projects) was from domestic sources. While private sector projects will involve significant amounts of commercial cofinancing from international sources, the public sector program does not involve large amounts of foreign cofinancing. Cofinancing from external sources has been secured for commercially viable projects, especially in the power sector. However, domestic cofinancing is preferred by most executing agencies to avoid foreign exchange risks and because PRC interest rates are relatively low. Cofinancing from domestic sources, particularly the commercial banks and CDB, is growing in the PRC operations. Cofinancing will be substantial for the projects in the CAP. During 20010-2003, the total amount of cofinancing is estimated at $4.2 billion, representing about 87 percent of estimated total ADB lending during same period.

98. Most of the road and energy sector projects in the program will involve cofinancing from domestic sources. Much of this cofinancing will come from CDB. However there is a growing interest among PRC commercial banks to diversify their portfolios by providing financing for sound development projects in which ADB is involved. In addition to mobilizing domestic cofinancing, ADB will make a concerted effort during the program period to secure cofinancing from the GEF for selected projects.

99. While PRC’s credit rating fared well during the Asian crisis, international banks and other providers of cross-border debt are concerned about: (i) the highly publicized failure of several Non-Bank Financial Institutions (NBFIs) and land defaults and some systematic weakness of PRC’s financial system; (ii) the credit worthiness of certain provincial level undertakings associated with BOTs and bond issues; and (iii) weakness in the legal framework for BOTs. Because of these concerns, and the reduction in the number of international banks competing for business in PRC, the banks are requiring higher margins, shorter repayment periods and a greater degree of comfort or support from the Government. However, international banks still want to, and can, effectively price cofinancing for ADB’s public and private sector projects in PRC, but only if they can get support or credit enhancement from organizations like ADB, through its partial risk guarantee and/or partial credit guarantee. The potential for greater use of export credit and ADB’s partial credit guarantee in PRC continues to be explored. In 2000 ADB briefed Government officials at MOF and the SDPC and domestic and international banks of the benefits of ADB cofinancing and its credit enhancements plus ADB’s capabilities to arrange cofinancing from international financial markets at reasonable terms for infrastructure projects in PRC. These efforts are expected to encourage SDPC to propose assign larger commercially viable projects for ADB assistance so that more cofinancing can be arranged with the help of ADB.

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