Regions and Countries

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p. 3 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Level

Country Strategy and Program Update 2002-2004: People's Republic of China

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III. Portfolio Management Issues

A. Portfolio Performance

26. The ADB December 2000 country portfolio review concluded that the PRC continued to demonstrate its strong project implementation capacity (Appendix 3). This finding is consistent with the experience of other major funding agencies. The portfolio’s performance improved in 2000 compared with 1999 in terms of implementing loan and TA projects, and submitting audited financial statements. The number of projects rated as unsatisfactory and partially satisfactory has also declined over the years. As of 31 December 2000, cumulative net lending to the PRC reached $9.8 billion, with contract awards and disbursements reaching $6.2 billion and $5.8 billion, respectively. The 22.8 percent disbursement ratio in 2000 was higher than the ADB-wide average of 21 percent. Contract award ratio reached 27.5 percent, higher than the ADB-wide average of 20.5 percent. However, loan start-up indicators and contract awards performance slightly deteriorated. With the establishment of the PRC Resident Mission, ADB has been playing a more active role in portfolio monitoring. A time-bound PRC-ADB action plan has been developed to improve the PRC portfolio’s performance and specific measures are being progressively implemented. The 2001 portfolio review will study sector performance to identify sector-specific and project design issues.

B. Counterpart Funding

27. In the PRC, ADB finances about 33 percent of project costs while 67 percent is financed by other, largely domestic, sources. The ADB financing is far below the 60 percent ceiling applicable to the PRC, a Group B2 country, during 2002-2004. The high level of domestic financing is a good indicator of strong project ownership. The availability of counterpart funding in ADB-financed projects has generally not been a problem. This is partly due to the rigorous screening procedures for externally assisted projects that require project proponents to demonstrate to the Government that counterpart funding will be made available through their own resources or loans from domestic banks. Because of the PRC’s strong macroeconomic performance, ADB has generally not provided local cost financing since 1995. An argument can be made that more local currency financing (LCF) may be appropriate for projects addressing poverty since such projects generally do not have sizable foreign currency requirements, or where there is weaker fiscal capacity. This issue will be examined for some projects in 2002-2004 in a manner that is consistent with ADB’s LCF and graduation policies.

C. Monitoring and Evaluation

28. Loan projects evaluated in 2000 included the Shenyang-Benxi Highway (Loan 1168-PRC),⁸ the Jilin Expressway (Loan 1262-PRC),⁹ and the Shanghai Investment and Trust Corporation Project or SITICO (Loan 933-PRC).¹⁰ Full compliance with loan covenants were noted in the two road projects, which were evaluated as having high physical and financial sustainability. The Jilin Expressway Project was rated as highly successful while the Shenyang Benxi Expressway was rated as successful. Lessons learned from these included the need to have a proper economic appraisal methodology and the need for a properly designed pavement management system. These lessons have been incorporated in subsequent ADB-financed road projects. The TA for the Preparation of a Road Safety Program (TA 2177-PRC)¹¹ was rated as highly successful in promoting road safety measures, which are routinely used in preparing road projects in the PRC. The SITICO loan, which was rated successful, recommended that similar projects in transitional economies should focus more on the needs of enterprises in a rapidly changing environment and not use traditional design of credit lines.

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