East Asia

The new country partnership strategy (2008–2010), which is being prepared, will align ADB’s country strategy with the PRC’s 11th Five-Year Plan and the priorities set out in ADB’s second medium-term strategy. ADB approved 10 sovereign loans to the PRC totaling about $1.5 billion and secured $3.2 billion in nondirect value-added cofinancing. In addition, 27 technical assistance projects (including two supplementary approvals) provided grants amounting to $13.6 million. ADB began diversifying its operations away from transport, which still accounted for more than half of total lending (52.6%). Other key sectors were water supply, sanitation and waste management (25.0%), agriculture and natural resources (13.1%), and energy (9.3%).

Increasing Connectivity

Removing constraints on transport infrastructure remains a high priority for the Government. Since 1989, ADB has provided $9.8 billion for 48 transport infrastructure projects to construct, upgrade, and improve railways, expressways, and feeder or access roads. About $8.8 billion, or 90% of this investment, was allocated to the poorer central and western regions.

All three transport sector projects approved in 2006 are in less-developed regions. These include a $200 million loan (Heilongjiang Road Network Development Project) to upgrade 428 km of the Jixi–Nehe highway in the northeast, along with 170 km of rural link roads. A second transport sector project for $300 million is in southern Gansu, one of the poorest provinces. The project will support the construction of the 134-km Wudu–Guanzigou expressway, the upgrading of 357 km of rural roads in the Lanzhou–Haikou corridor, and the improvement of road transport services by constructing 200 township bus stations and pilot-testing the road transport action plan. These two road projects help diversify ADB assistance within the sector by supporting provincial roads and integrating logistics services and rural development into expressway projects.

The third transport sector project in 2006 is a $300 million loan to finance the construction of 944 km of railway line from Taiyuan in Shanxi to Zhongwei and Yinchuan in Ningxia. This will be the first east–west railway linking the provinces of Shanxi, Shaanxi, and Ningxia. The project will link Beijing, Qingdao, and other major cities and ports in the east with Yinchuan, Zhongwei, Lanzhou, and Urumqi in the west on its way to Kazakhstan. The project introduces strategic and private investors and helps transform railway enterprises from cost centers in a planned economy into profit centers in an increasingly competitive transport market.

Environmental Protection

Land degradation and air and water pollution have caused losses of up to the equivalent of 8% of gross domestic product (GDP) per year, and depleted natural resources that rural residents need. ADB continues to support the PRC in environmental protection through lending and technical assistance. ADB directly supported environmental improvement by lending $200 million to a flood control project in Hunan province, and $120 million to an energy conservation project in the Inner Mongolia Autonomous Region, and providing a $50 million multitranche financing facility for rural hydropower projects in a remote region of western Gansu province.

The clean development mechanism (CDM) allows developed countries to fulfill their greenhouse gas emission reduction obligations under the United Nations Framework Convention on Climate Change (Kyoto Protocol) through investments in emission reduction projects in developing countries such as the PRC. In June 2006, ADB approved technical assistance to help the PRC establish the CDM Fund to manage the fees applied to the large revenue from CDM projects. The CDM Fund will be used to support domestic climate change-related activities. ADB introduced innovative carbon financing to the Shandong Hai River Basin Pollution Control Project through the CDM, which introduced additional financing from international carbon markets. The Government proposed to pilot-test the recently approved carbon market initiative for the ADB-assisted medium-sized hydropower project in Gansu.

Urban Development, Environmental Management

ADB approved loans totalling $380 million for four water supply, sanitation, and wastewater management projects. These urban projects aim to support the Government’s effort to promote sustainable economic growth through urbanization while protecting the environment and improving the health and well-being of urban residents. The $100 million Nanjing Qinhuai River Environmental Improvement Project has innovative features to promote private–public coordination in urban infrastructure management and to catalyze alternative sources of investments with help from ADB’s technical assistance. ADB also provided assistance, through its private sector window, to enhance the supply of clean energy in urban areas.

Private Sector Development

The domestic private sector contributes more than 40% of GDP, 60% of economic growth, 75% of new jobs in the organized sector, and more than half the tax revenue in many areas. ADB supports government efforts to improve the enabling environment for the private sector. An ADB-supported study on private sector development was submitted to the Chinese People’s Political Consultative Conference and the National People’s Congress in March 2006. ADB provided technical assistance to formulate the supervisory framework for small and medium-sized enterprise credit guarantee companies, and to improve corporate governance of companies in which ADB has invested.

In addition to policy advice and assistance in improving the enabling environment, ADB provides project-based financial support, focusing on infrastructure and the financial sector. In December 2006, ADB invested $30 million to take a 5% minority stake in Hangzhou City Commercial Bank, the fourth largest commercial bank in Hangzhou, a city that thrives on private sector economic activity. City commercial banks in the PRC play a vital role, especially in developing small and medium-sized enterprises. However, they have weaknesses in a number of areas, including strategic risk management, corporate governance, credit risk management, and inadequate capital. Through its investment, ADB will help the bank improve its corporate governance and internal control procedures.

ADB provided $150 million in assistance to the China Gas Group, consisting of a $50 million direct loan, a $25 million equity investment, and $75 million in commercial loans under ADB’s B-loan program to help construct natural gas distribution infrastructure in municipalities for supplying natural gas to residential, industrial, and commercial customers. The project supports the Government’s efforts to promote the use of natural gas to reduce particulates and sulfur dioxide emissions from households and small industries. This will benefit the urban population, particularly the poor, who are exposed to indoor and outdoor air pollution. ADB’s assistance to the project is expected to have a demonstration effect and help catalyze support for more such projects in the PRC.

20 Years of ADB–PRC Partnership

The ADB–PRC partnership has grown in many ways since the PRC became a member of ADB in March 1986. The PRC has become the third largest shareholder of ADB, with 6.5% of subscribed capital and 5.5% of voting power, and an important middle-income country client. Its cumulative borrowing reached $17.9 billion by the end of 2006. The PRC has also received project preparatory and advisory technical assistance grants amounting to $270.4 million.

Since 2003, ADB’s lending to the PRC has focused on four sectors: infrastructure, mainly transport and energy; agriculture and natural resources; urban development; and environmental protection, largely in the central and western regions. Increased attention is being given to integrating ADB assistance into the Government’s socioeconomic development priorities, and to promoting balanced and sustainable development.

ADB support has played an important role in the PRC’s economic development and structural reforms. Before the late 1990s, capital was scarce in the PRC. As the economy boomed and reforms deepened, financing became less of a constraint. ADB’s lending and nonlending assistance also evolved with client requirements and continues to focus on innovative approaches in management, new modalities in project implementation, and initiatives for reform. ADB is becoming increasingly active in delivering knowledge-based products in agriculture and natural resources, energy, environment, finance, governance, macroeconomic management, transport, and urban development. These products provide valuable inputs for socioeconomic reforms.

The PRC has strengthened its partnership with ADB in new ways by contributing $30 million to the Asian Development Fund (ADF), and establishing the $20 million Fund for Regional Cooperation and Poverty Reduction in ADB, becoming the first developing country to set up such a fund with an international development agency.

The 11th Five-Year Plan period of 2006–2010 will see a stronger ADB–PRC partnership on many new fronts. ADB is exploring new areas in social development, including technical education and vocational training, and public health. ADB is also looking to expand its assistance to rural development.

ADB began diversifying its operations away from transport, which still accounted for more than half of total lending

Agricultural Waste Raises Production in the PRC

Contractors construct biogas digesters under ADB’s
Efficient Utilization of Agricultural Wastes Project

An innovative ADB pilot project to help develop efficient ways to use agricultural waste for sustainable rural development in the People’s Republic of China (PRC) is paying multiple dividends. A $6.4 million grant from the Global Environment Facility supplemented ADB’s assistance of $33.1 million and improved the project’s sustainability.

The Efficient Utilization of Agricultural Wastes Project, approved in 2002, is boosting farm production and the income of poor farmers, reducing household costs, and helping tackle the PRC’s environmental and energy challenges by using agricultural waste from crops and animals to fuel biogas digesters and biomass gasification plants.

More than 13,000 households in 145 villages in Henan, Hubei, Jiangxi, and Shanxi provinces are benefiting as operators of smallholder biogas digesters incorporated into farming systems, or as consumers of gas from medium-scale biogas and gasification plants.

In the project area, agricultural production has increased between 10% and 25%, and the annual production of biogas in the project area has reached about 104,000 cubic meters.

“This is the best development project in 30 years in our county,” says Huang Lingqiang, deputy governor, Jing’an county, Jiangxi province. ”Project implementation is clear, simple, and the benefits to farmers are sustainable.”

The project is promoting local and national awareness of the advantages of biomass rural energy development. It has created a high level of interest and participation in the project area with increasing direct private investment in biogas digesters at the farmer, technician, and digester production levels, and greater understanding and management capacity for further expansion and after-installation management by farmers and local officials.

The use of biogas for cooking and lighting is helping improve household air quality and reduce the incidence of respiratory diseases. It is reducing the time women spend collecting firewood for cooking, and helping regenerate forests.

Biofertilizers from biogas digesters are helping reduce the need for chemical fertilizers that pollute the environment.

Technical support and training are being provided to promote and improve biomass technology and to establish adequate service infrastructure to ensure sustainability and the development of biomass systems in rural areas. This project will also provide valuable field experience to prepare effective interventions to implement the Government’s new thrust to develop sustainable rural energy sources as part of its rural development strategy.

“This is the best development project in 30 years in our county. The project implementation is clear, simple, and the benefits to farmers are sustainable”