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Annual Report 2001

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People’s Republic of China

Economic performance

Despite the global economic slowdown, the economy of the People’s Republic of China (PRC) performed well with GDP growing at 7.3% in 2001. The industry sector grew by 8.9% in 2001, compared with 9.6% in 2000. Agriculture grew at a modest 2.8% in 2001, mainly because of a severe drought and a decrease in the area planted with grain. Retail sales increased by 10.1%, compared with 9.7% in 2000. Investments continued to grow strongly because of fiscal stimulation measures and increased inflows of foreign direct investment (FDI). Actual FDI reached $46.8 billion, representing an increase of 14.9% over the level of 2000. Monetary policy remained accommodative to stimulate domestic demand. Interest rates remained stable in 2001. The CPI increased by 0.7% in 2001, compared with 0.4% in 2000. While clothing prices continued to decline, housing and service prices rose moderately.

Although the expansionary fiscal policy continued in 2001, the overall deficit has fallen since 2000. The planned fiscal deficit in 2001 was 2.6% of GDP, compared with 2.8% in 2000. In 2001, revenues increased by 22.2%, the highest growth rate in the past 8 years. With the global economic slowdown, exports in 2001 rose by only 6.8%, compared with 27.9% in 2000. Imports grew by about 8.2%, compared with 35.4% in 2000. The current account surplus in 2001 is estimated at $20 billion, slightly less than the 2000 figure. Foreign exchange reserves amounted to $212.2 billion by the end of 2001. The debt service ratio was below 10%.

The official estimate of the urban unemployment rate in 2001 was 3.6%, slightly higher than in 2000.

ADB operations

Operational strategy: ADB’s operational strategy focuses on improving economic efficiency, promoting growth to reduce poverty in poor inland provinces, and improving environmental protection and natural resource management. These objectives guided ADB’s operations in 2001. However, work also started in 2001 to update the country strategy and program in view of significant policy developments and structural changes in the PRC economy and changes in ADB’s policies. Continued rapid economic growth, the PRC’s entry to the World Trade Organization (WTO), adoption of a regional development strategy focusing on the western region, and deepening economic reforms will help shape the PRC’s future development agenda. ADB’s proposed strategy and poverty reduction initiatives will have to address the problems and challenges associated with a country that is shifting from a centrally planned to a market economy and from a rural to an urban economy.

Policy dialogue: A series of consultative meetings were held to discuss poverty reduction in conjunction with drafting a partnership agreement on poverty reduction, which will be completed in 2002. The implementation of ADB-financed technical assistance projects also provided the policy inputs for exploring ways to reduce rural poverty, improving the Government’s poverty planning methodology, measuring and addressing urban poverty, and promoting the participation of poor stakeholders in policy planning and implementation. The poverty planning methodology, developed with ADB assistance for county and village planning, was adopted as a national policy.

ADB continued to advance its environment improvement and natural resource management agenda in the PRC. A loan was approved to address acid rain and air pollution in Anhui Province in the Yangtze River Valley. Discussions were held with senior policymakers to strengthen institutional capacity for combating land degradation and desertification. Continuing ADB assistance on water tariff reforms led to the enactment of local tariff regulations in pilot cities to ensure transparency and efficiency. ADB participated in 2001 in the China Council for International Cooperation on Environment and Development, a high-level advisory body to the Government.

To promote transparent and competitive bidding procedures and to reduce the potential for corruption in the longer term, ADB initiated a technical assistance grant to prepare a procurement law. More progress was also made in strengthening the development of economic laws, including the enactment of the Trust Law, prepared with ADB assistance. To support the PRC’s membership in the WTO, two seminars were held to discuss draft regulations on foreign trade, antidumping, subsidy, and safeguard measures as part of ongoing foreign trade law reforms in compliance with WTO requirements.

In a conference organized in 2001 under the technical assistance for Policy Support for the PRC 2020 (Phase III), ADB promoted the sustainable development of the western region where most of the PRC’s poor people live. Discussions were held on poverty reduction, human resource development, private sector development, environmental protection, good governance, and regional cooperation.

ADB further advanced its policy work on social security reforms with the approval of a technical assistance grant for policy and institutional support of the social security reform pilot program in Liaoning Province and with strengthening the National Social Security Fund, which was recently set up as part of the social security reforms.

Loans, technical assistance, and grants: Six loans totaling $997 million were approved in 2001. These included two road projects in the western region to promote economic growth and poverty reduction in Guangxi and Shaanxi provinces; one railway project to promote pro-poor economic growth by linking the poor and underdeveloped project area in southern Jiangxi and western Fujian provinces with more prosperous parts of the PRC; an acid rain control and environment improvement project in Anhui Province; a power transmission project in Liaoning Province; and a sector project to improve flood management along the Yellow River. The Government of Denmark provided $300,000 in cofinancing for the latter project for Flood Forecasting and Early Warning System in the Yellow River Basin.

ADB also provided 20 technical assistance grants totaling $12.4 million. Of these, 7 were to prepare new projects and 13 were to support policy-oriented studies and promote capacity building. Two technical assistance projects are focusing on poverty reduction; three on environmental protection, including one to assist the Government in enhancing partnership with the Global Environment Facility; and two technical assistance grants are helping the Government develop human resources and improve foreign capital utilization in the western regions. ADB also approved a technical assistance grant of $970,000 to finance a planning study for preparing the Yellow River Law. The $1 million JFPR grant is designed to reduce environment-related causes of poverty by supporting innovative community-managed approaches where poor communities adopt effective and sustainable ways of managing watersheds and land degradation to reduce sedimentation of the Yellow River, and thus their vulnerability to flood disasters.

Project implementation: Since joining ADB in 1986, the PRC has received 91 loans, of which 51 were active at the end of 2001. Contract awards totaled $587.8 million, bringing the cumulative figure to $6.8 billion. The contract award ratio was 22.1%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $1.1 billion, bringing cumulative disbursements to $6.9 billion. The disbursement ratio was 29.8%, higher than the ADB-wide average of 20.5%.

The Government and ADB jointly organized working groups to review the Government’s and ADB’s approval processes and cost estimates. To identify ways of improving the procurement and contracting processes, procurement in the road and power subsectors was reviewed jointly by ADB and the Government. ADB also conducted various workshops on project implementation and disbursement operations for staff of executing agencies and line ministries. A series of sector-specific studies on portfolio performance review has been programmed and the road subsector has been taken up first under these studies.

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