Countries and Regions

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p. 4 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2005-2007: People's Republic of China

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IV. Country Performance and Assistance Levels

A. Proposed Lending Level

27. Substantial financial resources are needed to help the PRC restructure its economy to improve income levels, reduce poverty and address environmental concerns. During 2005- 2007, ADB’s lending to the PRC will be around $1.5 billion per year³³, about the same level in 2003 and the anticipated $1.37 billion in 2004. The proposed level is appropriate for a large country with sound macroeconomic fundamentals, large absorptive capacity, and a good project implementation record. Achieving this level of lending will depend on several factors, including project readiness, quality of project preparation work, the cost of OCR loans relative to domestic sources and available human and financial resources in both ADB and key Government agencies. During 2005-2007, more than 80% of lending will finance projects in the poorer central and western regions, compared to about 59% during 1986-2004. The transport sector will continue to dominate ADB operations, accounting for 59% of total lending. Lending for water supply and sanitation will increase from 5.7% of the total lending in 2004 to 24.4% in 2007 (Appendix 1, Table A1.10).

B. Nonlending Program

28. The PRC’s performance in managing its complex development agenda has been strong during the past 25 years. Solid economic management is expected to continue. Carefully targeted ADB knowledge-based products will help address strategic policy issues, although ADB’s contribution in the broader context will be modest, given resource availability. The continued decline in funding available for knowledge-based products is a potential risk for the program. A planned annual core TA program of about $11.4 million is included in the program. Efforts will be made to mobilize more funding from other sources. Priority will be given to project preparatory technical assistance (PPTA). During 2004-2007, the advisory technical assistance (ADTA) program will provide support to sustainable economic growth (20% of total program amount), environment protection (21%), inclusive social development (25%), governance (24%), and private sector development (10%) (Appendix 1, Table A1.11).

29. A strong nonlending program is essential for ADB to have a strategic impact. However, the core of the PRC TA IPF was cut in the 2004 Planning Directions from the $14 million envisioned in the PRC CSP to $11 million. This makes it even more important for the nonlending program to be better focused; better targeted; more forward-looking, with greater attention to quality at entry; and better managed to improve the strategic impact. To improve effectiveness of the nonlending programs, the programming will focus more on the first 2 years of the 3-year period. An annual best ADTA award will be launched on pilot basis to publicly recognize excellent ADTAs that have a strong strategic impact and improve incentives for both executing agency and ADB staff. A 2004 ADTA³⁴ provides a mechanism for ADB to quickly respond to priority policy support needs. This approach will be replicated if it proves successful. For these TAs, the government and ADB will jointly select topics high on the government agenda that are consistent with the strategic areas of ADB’s operations. The government will actively participate in the design and implementation stages, which will enable ADB to provide well targeted outputs within a short period of time at relatively low cost.

C. Summary of Changes to Lending and Nonlending Program

30. Changes in the lending and nonlending programs compared to what was shown in the PRC CSP are shown in Appendix 5, Tables A5.3 and A5.4, respectively. Changes in the 2004 CSP lending program include (i) advancing Gansu Road Development from 2005 to 2004; (ii) deferring Sanjiang Plains Wetland Protection Project, Henan Hai River Wastewater Treatment, and Jiangsu Urban Environment Improvement to 2005 as more time is needed to resolve processing issues; (iii) reducing the loan amounts³⁵ for the Liaoning Environment Improvement, Coalbed Methane-Greenhouse Gas Abatement (Shanxi),³⁶ and Fuzhou Environment Improvement; (iv) increasing the loan amount³⁷ for Hunan Road Development II; and (v) dropping Zhoushan Islands Infrastructure Development from the program. As a result of these changes, the expected 2004 total lending fell from $1.47 billion to $1.37 billion (see Appendix 5, Table A5.3). The forward program includes loans in two new areas of operation, i.e. energy conservation and integrated urban development. After completion of ADTA: Exploring New Areas of Operation, more new areas and innovative projects are expected to be added to the lending program in 2007 or 2008. The TA program in the PRC CSPU was reduced to $11.71 million from the $13.45 million shown in the PRC CSP to fit within the smaller resource envelope. Nine TAs were dropped from the program totaling $1.30 million and nine TAs were deferred from 2004 to 2005 amounting to $2.30 million (see Appendix 5, Table A5.4).

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