ADB $100 Million Loan to PRC to Improve Productivity, Incomes from Forestry

News Release | 30 March 2011

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is extending $100 million to raise the productivity of orchards and natural forests to increase incomes in areas of northwest People's Republic of China (PRC) that suffer from some of the worst land degradation and poverty rates in the country.

The ADB Board of Directors approved the loan from ordinary capital resources for the Forestry and Ecological Restoration Project which will be carried out in the provinces of Gansu and Shaanxi, as well as the Xinjiang Uygur Autonomous Region. Along with planting thousands of hectares of fruit and nut trees, which will bring economic benefits to over 200,000 households, the project will reforest large areas of hilly and environmentally damaged land. It will also incorporate an innovative integrated ecosystem management approach and support carbon sequestration and climate change mitigation measures.

"The goal of the project will be increased productivity of forest lands and reduced land degradation resulting in improved incomes and sustainable livelihoods for thousands of households," said Raymond Renfro, ADB's Lead Natural Resources Economist.

The drylands of western PRC cover about 40% of the country and contain some of the most badly degraded land in the world. The project area of about 165,000 sq km includes many poor rural households with diminishing income from forestry activities, forcing many to turn to planting low-yield, unsustainable grain crops on barren land.

The Government of PRC has been introducing reforms to spur investment and sustainable development of the sector. This includes collective forest land tenure that allocates forest rights to households and individuals. The project supports the government's goals of improved ecological management of forest resources and more livelihood benefits, and it will also help state forest farms become eligible to sell carbon credits from sequestration activities through carbon markets.

The loan has a 25-year term, with a five-year grace period and interest set in accordance with ADB's LIBOR-based lending facility. A grant of $5.1 million equivalent from the Global Environment Facility, administered by ADB, will be provided to support the ecological forestry management component of the project. Local governments will provide counterpart funds of almost $45 million, with beneficiary households and enterprises supplying a combined $30.6 million equivalent for a total project cost of almost $180.7 million.

The State Forestry Administration is the executing agency for the project which is due for completion by the end of September 2016.