Country Assistance Program Evaluation for the People's Republic of China: Success Drives Demand for More Innovative and Responsive Services (2007)

Description

The relationship of ADB with the People's Republic of China (PRC) is unique in many respects. The achievements of PRC over the last 2 decades are exceptional by international standards. At the same time, ADB financial support has been minor in relation to investment expenditure of the PRC.

Although PRC would have succeeded with or without ADB, its progress has been more rapid, consistent, and sustainable because of the ADB-PRC partnership. ADB has added value as a consistent, trusted, and long-term partner, appreciated equally for providing reliable financing as for transferring knowledge and developing options. With about 140 loan and 500 technical assistance (TA) projects since the start of country operations, ADB helped introduce many new ideas. Further, through learning-by-doing in its project management systems, ADB promoted more procedural transparency, as well as discipline in financial and expenditure policies.

The relationship between the PRC and ADB is stronger today than it was a decade ago since each offers the other a package of benefits that is diverse and transcends pure financial considerations. This provides a solid basis for moving forward.

Key issues

Success has driven the demand for more innovative and responsive services. PRC is now a middle-income developing member country, and the services that worked well over the past several decades are not perceived to add comparable value for the future. At the same time, complex processes and safeguard requirements of ADB tended to increase non-financial borrowing costs. The external financial environment also changed. Accessing knowledge and skills is also easier in today's globalized and information technology-linked world.

As a result, ADB faces competitive pressure to improve its capacity to serve more differentiated clients. This evaluation identified a number of key issues and lessons with respect to the

  • alignment of the country and ADB strategy
  • diversification of the lending program
  • strong government ownership
  • building on beneficiary-pay principle
  • rationalizing use of advisory TAs
  • innovation and knowledge orientation
  • private sector operations
  • regional cooperation, and
  • institutional reforms for client responsiveness.

Whether PRC will continue a borrowing relationship with ADB in the longer term depends on several factors, including

  • perceived benefits and costs from ADB loans in the form of knowledge transfer and access to services, and benefits from technical assistance grants versus financial and non-financial costs
  • reliance on ADB as a trusted partner in promoting regional economic cooperation and integration
  • Government assessment of the role that it can play as an influential borrower in multilateral development banks, such as ADB, in shaping financial and/or developmental policies toward client countries, and
  • the potential benefits that might emerge if the PRC chooses to be seen purely as a bilateral aid agency and an important shareholding country of ADB.

Currently, PRC appears to believe that the net benefits are positive, though the value of the perceived benefits is declining while perceived costs are increasing. If this continues, the balance might shift.

Key findings

ADB, with other donors, has provided PRC with a successful development experience by bringing in state-of-the-art technical, financial, and management expertise under various lending and non-lending operations.

The results were very successful given the high level of government ownership and rapid learning process. The successes of these operations are undeniable, because the capacity development has been so rapid such that continuation of "business as usual" in the same sectors is becoming redundant in some provinces. Non-lending operations showed mixed results in policy dialogue and capacity building in some cases. While TA operations have been successful individually, they have not been more successful as a group due to a lack of strategic focus and inefficient management.

The overall assessment rating for the PRC country assistance program is successful even though progress in incorporating past lessons was mixed. ADB's program for PRC is strong in terms of the quality of its portfolio of projects and the relevance of its strategy and sectoral programs, except for its support for private sector operations. Since these operations increased only modestly since 2004, an assessment of their performance is difficult, as it is with the regional cooperation initiatives also undertaken recently.

The main weaknesses are in institutional positioning of ADB. Many of the issues are identified as systemic concerns for middle-income developing member countries, and have been raised in other ADB reviews. These relate to

  • the way TA is being used
  • weak capacity and incentives to support knowledge transfer and innovation; and
  • institutional structures and bureaucratic process and procedures, which weaken responsiveness to client concerns.

Recommendations

This evaluation provides recommendations for ADB Management's consideration in the following areas:

  • measures to strengthen the quality of non-lending services
  • the considerations that should be given to gradually diversify the lending program
  • measures to increase the private sector operations
  • suggestions on how to increase client responsiveness
  • measures to deepen regional cooperation initiatives, and
  • suggestions on how the Government can facilitate ADB's preparation of a more responsive strategy and program and its implementation.