Regions and Countries

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Country Strategy and Program Update 2003-2005: People's Republic of China

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I. Current Development Trends and Issues

A. Recent Developments

1. The accession of the People’s Republic of China (PRC) to the World Trade Organization (WTO) in December 2001 has set the stage for the country to accelerate its economic reforms to enhance its competitiveness in the post-WTO environment. At least 40 new laws and regulations were recently enacted to facilitate foreign direct investment and private sector development and improve government efficiency. Strict measures have been adopted to prevent corruption-related crimes, including the establishment of an anti-money-laundering system and close inspection of government-funded projects. The 16th Party Congress in the last quarter of 2002 will discuss the state of the nation and future policy directions.

2. The PRC has made significant progress in meeting the Millennium Development Goals, particularly in halving the proportion of people whose income was less than $1 a day in 1990– 2000 (Appendix 1, Table A1.1). However, the fight against poverty is continuing under the Leading Group Office for Poverty Alleviation and Development, recently upgraded to ministerial level. The new poverty reduction strategy (2001–2010) features a village-based participatory planning methodology, focusing on the 30 million officially defined as absolute poor. In addition, there are 60 million vulnerable poor with very low income. Regional disparities have also been growing with the western region lagging behind the eastern region in such indicators as income per capita, primary school enrollment rate, health care facilities, physical infrastructure and ecological aspects. In addition, decentralization has made the delivery of social services at the local levels a more challenging task.

3. With the restructuring of state-owned enterprises, urban poverty may become more serious as more workers are laid off and more rural people migrate to the cities. The central and local governments have jointly budgeted $1.3 billion in 2002, almost double the amount in 2001, to help eligible urban low-income groups. The Government has also ratified the International Labour Organization’s Convention on the Worst Forms of Child Labor of 1999 and enacted the Work Safety Law in 2002 to address the increasing number of workplace accidents. To help eradicate illiteracy, the Government is promoting distance learning to improve access of rural communities to information on education, health, and market business opportunities. The development of the western region remains the key strategy for narrowing regional disparities.

B. Economic Assessment and Outlook

4. Despite the global economic slowdown, the PRC’s economy performed exceptionally well in 2001 (Appendix 1, Table A1.2). Its remarkable performance continued during the first half of 2002 when gross domestic product (GDP) grew by 7.8%, on the back of 11.7% growth in industrial output. Exports rose by 14.1%, outpacing the 10.4% import growth, resulting in a trade surplus of $13.4 billion, which was $5.4 billion higher year on year. Foreign direct investment rose by 18.7% while foreign exchange reserves reached $242.8 billion by the end of June 2002. Given the strong GDP growth in the first half of the year and a proactive fiscal policy to boost domestic demand, the PRC is likely to achieve the 7% growth planned for 2002.

5. Notwithstanding the positive growth outlook in the near term, the Government will need to tackle unemployment, which may rise from the current level of about 7 million. At least 16 million new jobs are needed annually in the next 4 years to absorb new labor market entrants, laid-off workers and rural migrants. The Government will have to accelerate its social security reforms and rely on the private sector to create jobs. The agriculture sector will need to be restructured to boost productivity and create off-farm employment for an estimated 150 million surplus rural laborers. Corporate governance and financial sector issues such as the sizable amount of nonperforming loans also need to be addressed to reduce systemic risks in the economy.

C. Implications for Country Strategy and Program

6. Significant country, regional, and global developments, and major policy changes in the Asian Development Bank (ADB) require an updating of the PRC’s country operational strategy, which was adopted in 1997. The first PRC country strategy and program (CSP), to be completed in late 2002, will be designed to promote pro-poor economic growth and support market-oriented reforms to reduce poverty and improve productivity and people’s welfare. This overriding strategic objective has been discussed with the Government and was used to guide the formulation of the 2003–2005 operational program, presented in this CSP update. ADB will also provide more knowledge resources through its economic, thematic, and sector work (ETSW). The proposed country program will be refined as the new country strategy is finalized and eventually considered by the ADB Board.

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