Countries and Regions

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p. 6 of 7 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. The Government's Development Strategy and Development Issues III. ADB’s Development Experience IV. ADB’s Operational Strategy V. ADB’s Assistance Program VI. Risks, Performance Monitoring and Evaluation

Country Strategy and Program Update 2004-2006: People's Republic of China

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V. ADB’s Assistance Program

A. Overall Assistance Level

90. An annual lending program in the order of $1.5 billion is planned during 2004–2006 compared to an average of about $1 billion during 1998–2002 (Appendix 2, Table A2.11). The increase in lending is appropriate for a large country with sound macroeconomic fundamentals, strong absorptive capacity, and proven record of good project implementation. Despite the increase, ADB’s financial assistance will only account for a small portion of the Government’s development budget. Achieving this lending target will depend on several factors, including the state of project preparation, the cost of ADB’s ordinary capital resources relative to other domestic and external sources, ADB’s transaction costs, and available human and financial resources.

91. The new country strategy is giving renewed emphasis on reducing regional disparities that was highlighted in the previous strategy adopted in 1997. The regional distribution of lending is shown in Figure 4. However, the weaker capacity of the inland provinces in project formulation and implementation may be a constraint on the volume of resource transfers from ADB and portfolio performance. For this reason, a strong pipeline of projects that exceeds the proposed lending range has been developed to allow for substitution and selectivity during project processing.

Figure 4: Regional Distribution of ADB Loans to the PRC (%)

92. Road and railway projects account for 61% of the lending program. Their prominence in the proposed program reflects the priority that the Government has accorded at this stage of PRC's development to the extensive and integrated transport network. The program is designed to help meet the challenges and problems associated with rapid urbanization. Intervention will be broadened relative to past activities to address solid waste management, traffic management, and development of natural gas for urban consumption. Environmental protection projects will collectively account for 27% of the lending. In the energy sector, there will be more emphasis on the development of renewable and more environment-friendly sources of energy and rural electrification. Agriculture projects will focus on natural resource management, including flood control management and projects aimed at ecological improvement that will be developed for funding under the GEF OP12 partnership on land degradation.

93. An annual core nonlending program of about $14 million is planned to support and complement the lending program. This will be used to prepare projects and develop knowledgebased products and services as part of the advisory TA program. The Government expects ADB to strengthen its role as a provider of knowledge resources through its ETSW. The program has been structured to address such strategic themes as poverty reduction, governance, private sector development, environment improvement, and social development. This program will be updated frequently, reflecting the fact that the PRC is entering a rapidly changing environment. The Poverty Reduction Fund provided by DFID will enhance the poverty orientation of ADBfinanced investment projects. Efforts will be made to mobilize more funding from other sources to support the nonlending program.

B. Thematic and Sector Focus of ADB’s Assistance

94. Figure 5 and Table 5 give an overview of the thematic priorities and sector focus of the program.⁶¹

1. Promoting Equitable and Inclusive Growth

95. Economic and social development indicators show that the inland provinces and rural areas have lagged behind their coastal and urban counterparts. To promote more equitable growth, proposed infrastructure projects will target inland provinces. In the agricultural sector, productivity improvement is critical to raising rural incomes. Also, concerted efforts, such as the GEF OP12 on integrated ecosystem management, are needed to stem the loss of arable land through land degradation. Specific policy studies will advance reforms to relieve the financial burden faced by disadvantaged groups with regard to compulsory education and agricultural taxation and improve their access to safe drinking water and health services. About 67% of the lending program and 41% of the nonlending resources will address the strategic objective of promoting equitable and inclusive growth (Table 6).

2. Making Markets Work Better

96. The transport and energy projects will help provide the necessary infrastructure requirements for markets to function well. However, the PRC’s transition to a market economy must also be accompanied by policy and institutional reforms as central planning gives way to the increased role of market players and competition. The Sound Development Management Study⁶² and the PRC Private Sector Assessment have mapped out specific areas where ADB can help improve the policy environment needed for markets to develop and function efficiently. ADB will use its nonlending program to help achieve this goal. Priority areas identified in consultation with the Government include financial and capital market development, rural finance, legal and judicial strengthening, and the development of SMEs. These efforts will help promote the growth of the country’s entrepreneurial class and the emerging private sector. About 61% of the lending program and 39% of the knowledge-based products will be allocated to the strategic objective of making markets work better (Table 7).

3. Improving the Environment

97. The country program will intensify and broaden ADB’s collaboration with the PRC in promoting environmental protection and natural resource management. The GEF OP12 partnership will provide a mechanism for ADB to play a leading role in addressing policy and institutional issues and to finance some land degradation projects. In addition, the nexus between energy and the environment will be addressed in the program by promoting the use of renewable energy and clean coal technology. Interventions to improve the environment of urban centers will continue through wastewater treatment projects and will be broadened to cover solid waste management and traffic management in 2004–2006. Improving the environment will account for 27% of the lending program and 17% of the knowledge-based products (Table 8).

4. Promoting Regional Cooperation

98. The PRC will continue to be an active participant in the three ongoing ADB-initiatives for subregional cooperation: (i) the GMS; (ii) Central Asia, and (iii) Mongolia. ADB has supported several road projects that will link southwest PRC with GMS countries. ADB will explore possibilities to support more projects to promote regional cooperation and to support these initiatives with RETAs. During the program period, ADB will look for opportunities to broaden its regional cooperation work. Examples would include regional economic surveillance work, developing a regional bond market and building stronger relations with other organizations involved in promoting regional cooperation that involve the PRC (e.g., Boao Forum; ASEAN; APEC). Promoting regional cooperation will account for 12% of the lending program and 3% of the TA program (Table 9).