Regions and Countries

	Table of Contents
p. 7 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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VI. Risks, Performance Monitoring and Evaluation

A. Risks

99. The successful implementation of the new strategy is subject to both internal and external risks. The next 5 to 10 years will be an important period in the PRC’s economic history and the PRC will be different country at the end of the next decade. The smooth change in the PRC’s top leadership in 2003 reduced political uncertainty and contributed to policy stability. The new leaders, business community, civil society, and development partners endorse the direction of the ongoing reforms and gradual transition to a market economy. Close coordination and frequent consultation with the Government and other stakeholders during the program period will help ensure that ADB’s assistance remains relevant in a changing environment.

100. The transition from a centrally planned to a market economy involves many challenges. Social tensions could increase if unemployment, poverty, and income disparities rise to unacceptable levels. Managing policy changes is a complex, challenging task. An adverse impact on economic growth and people’s welfare occurs if there is a major failure of one or more of the major reforms. The lessons from the recent outbreak of SARS show that development has to be balanced. Rapid economic growth must be accompanied by social development, including adequate investment primary health care, education, poverty reduction, and the environment. The PRC’s performance in managing this complex agenda has been strong during the past 25 years and it is likely that this solid economic management will continue. Carefully targeting ADB’s knowledge-based products will help address strategic policy issues, although ADB’s contribution in the broader context will be modest, given resource availability.

101. The success of the operational strategy depends in part on whether ADB is able to deliver a sound lending program and an increasing array of sophisticated knowledge-based products. Experience shows that there are institutional weaknesses in ADB that sometimes make it difficult to deliver high-quality ETSW. The management of the program will need to ensure that sufficient skills and resources are devoted to knowledge-based products since ADB’s relevance in the PRC will increasingly depend on the quality of such services. The strategy has been designed to strengthen the impact of knowledge based products by developing a more rigorous system to select topics at entry for knowledge-based products that involves full government partnership. ADB’s TA resources are under increasing pressure and the funds available are declining. A continuation of this funding trend represents a significant risk to ADB’s ability to deliver a broad-based program of knowledge products.

102. There is a risk that the quality of ADB’s portfolio may deteriorate with increasing lending channeled to the poor interior regions. Policies, institutions, and human resources are weaker in the interior than along the coast. The technical capacity in planning and implementing projects is relatively weak and the financial capacity to raise counterpart funds and service loans is also weaker. Mitigating the risk will require careful project preparation, a longer lead time in preparing and processing projects, a more flexible application of ADB’s local cost financing policy, and more ADB resources devoted to portfolio management, both at headquarters and in PRCM.

103. More effective monitoring and supervision of the implementation of the operational strategy will be required by the Government, civil society, and ADB to ensure that the desired development impact is generated and sustained. The Government and ADB will conduct annual reviews of the CSP, the poverty reduction and strategic impact of ADB interventions, and the portfolio quality. These reviews will be designed to determine which interventions are effective and which should be modified or dropped. Monitoring of impacts at the project level will also be intensified.

B. Monitoring Process and Plan

104. In a country as large as the PRC, where ADB’s lending is only about 0.2% of total fixed asset investment, it is difficult to develop monitorable macroeconomic or sector indicators to demonstrate the impact of the CSP and ADB’s interventions. Box 9 sets out specific, monitorable benchmarks that will be used to judge the success of each of the four pillars of the CSP.

105. The following system will be used to monitor country portfolio performance:

1. Sector policy reforms and performance targets are included in the sector roadmaps in Appendix 3. The relevance and implementation of those targets will be reviewed during annual CSP missions and country portfolio review missions, and will be
   reported in the CSPU annually and in the country portfolio review report every 2 years.
2. Loan and TA performance targets will be indicated in the individual loan and TA document. Regular review missions and PCRs, PPARs, and TA completion reports will be used to monitor project performance targets. PRCM in cooperation with other departments of ADB will develop a set of verifiable indicators to monitor the impact of projects on poverty, particularly in infrastructure projects where ADB’s operations are concentrated.

106. The PRC’s macroeconomic performance will be assessed quarterly in the Asian Economic Monitor and biannually in the PRC section of the Asian Development Outlook. Macroeconomic targets include growth, inflation, employment, fiscal deficit, and the balance-ofpayments outlook, the current account balance, and foreign exchange reserves. Social development targets consist of poverty reduction and other human development targets indicated in the MDGs. The targets will be derived from the Tenth Five-Year Plan, budget documents, and the central bank’s policy announcements. Income and regional disparities will be monitored. The PRC’s performance in achieving the MDGs will be monitored, based on annual UNDP reports.

107. In accordance with ADB business processes, the regional management team will be primarily responsible for implementing the program, supported by the country team. The teams will closely monitor the performance indicators to ensure successful implementation of the CSP. By the end of this strategy period, a second PRC CAPE exercise should be undertaken to evaluate successes and failures and to provide feedback to help refine ADB’s PRC operations.