China - Poor Rural Communities Development Project

Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 31447-CHA PROJECT APPRAISAL DOCUMENT ON A PROPOSEDLOAN INTHEAMOUNT OF US$lOO.O MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A POOR RURALCOMMUNITIES DEVELOPMENT PROJECT May 25,2005 Rural Development and Natural ResourcesSector Unit East Asia and Pacific Region T h ~ document has a restricteddistribution and may be usedby recipients only inthe performanceof their s official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective M a y 19,2005) Currency Unit = Renminbi (RMB) or Yuan (Y) Y1.0 = US$0.12 USS1.0 = Y8.27 FISCAL YEAR July 1 -- June 30 ABBREVIATIONS AND ACRONYMS ACWF All China Women's Federation CAS Country Assistance Strategy cccc China Cross-Cultural Consulting Center CMS Cooperative Medical System CDPF China Disabled PeoplesFederation CLG Central Liaison Group CPMO County PMO DFID Department for International Development EA-EMP Environmental Assessment-Environmental Management Plan E h D P EthnicMinority Development Plan FCPMC Foreign Capital Project Management Center HI Handicap International BRD Intemational Bank for Reconstruction and Development IDA International Development Association MOF Ministry of Finance M&E Monitoring and Evaluation NBS National Bureau of Statistics O&M Operation andmaintenance PHRD Japan Policy and Human ResourcesDevelopment Fund PIM Project Implementation Manual P M ParticipationManual PLG Project Leading Group PM&E Participatory M&E PMO Project Management Office PP Participatory Planning PPA Participatory Poverty Assessment PPMO Provincial Project Management Office PRCDP Poor Rural Communities Development Project QBPRP Qinba Mountains Poverty Reduction Project SWPRP SouthwestPoverty Reduction Project TPWS Township Project Work Station VDP Village Development Plan VPEG Village Project ExecutionGroup VPP Village Participatory Plan Vice President: Jemal-ud-din Kassum, EAF'VP Country ManagerDirector: David R. Dollar, EACCF Sector Director: Mark D. Wilson, EASRD Task Team Leader/Task Manager: Alan L.Piazza, EASRD  FOROFFlCIAL USEONLY CHINA POORRURAL COMMUNITIES DEVELOPMENT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supportedby the project 3 2. Main sector issues and Government strategy 3 3. Sector issues to be addressedby the project and strategic choices 7 C. Project Description Summary 1. Project components 8 2. Key policy andinstitutional reforms supported by the project 15 3. Benefits and target population 15 4. Institutional andimplementationarrangements 16 D.ProjectRationale 1. Project alternatives considered andreasonsfor rejection 17 2. Major related projects financed by the Bank andor other development agencies 19 3. Lessons learned andreflected inthe project design 19 4. Indications o fborrower commitment and ownership 20 5. Value added o f Bank support inthis project 20 E. Summary Project Analysis 1. Economic 21 2. Financial 21 3. Technical 22 4. Institutional 22 5. Environmental 24 6. Social 26 7. SafeguardPolicies 28 F. Sustainability and Risks 1. Sustainability 29 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization.  2. Critical risks 30 3. Possiblecontroversial aspects 31 G. MainLoanConditions 1. EffectivenessCondition 31 2. Other 32 H. Readinessfor Implementation 33 I.CompliancewithBankPolicies 34 Annexes Annex 1: Project Design Summary 35 Annex 2: DetailedProjectDescription 42 Annex 3: EstimatedProject Costs 54 Annex 4: Cost Benefit Analysis Summary, or Cost-EffectivenessAnalysis Summary 55 Annex 5: Financial Summary for Revenue-EamingProjectEntities, or Financial Summary 59 Annex 6: ProcurementandDisbursementArrangements 60 Annex 7: ProjectProcessing Schedule 79 Annex 8: Documentsinthe Project File 81 Annex 9: Statement of Loans and Credits 82 Annex 10: Country at a Glance 86 Annex 11: Summaries of Participatory Approach and SocialAssessment 88  CHINA POOR RURAL COMMUNITIES DEVELOPMENT PROJECT Project Appraisal Document East Asia andPacific Region EASRD late: May 25,2005 Team Leader: Alan L.Piazza jector Managermirector: Mark D.Wilson Sector(s): General agriculture, fishing and forestry sector Sountry Managermirector: DavidR. Dollar (45%), Roads andhighways (20%), Generalwater, 'roject ID: PO71094 sanitationand floodprotection sector (15%), Primary ,ending Instrument: Specific InvestmentLoan (SIL) education(lo%), Health (10%) Theme@): Participation andcivic engagement (P), Rural services and infrastructure (P), Other rural development (P), Educationfor all (S), Other humandevelopment(S) [XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ]Other: For LoanslCreditslOthers: Loan Currency: United States Dollar Amount (US$m): $100.0 The UnitedKingdom's Departmentfor Intemational Development(DFID)has agreed, in principle, to provide to the People's Republic of China(PRC) a grant not exceedingUS32.45 million (as ablend) to reduce the effective interestrate of the IBRDloan. Borrower Rationale for Choice of Loan Terms Available on File: Yes Proposed Terms (IBRD): Fixed-SpreadLoan (FSL) Grace period (years): 8 Years to maturity: 20 Commitment fee: 0.85% for first four years; 0.75% Front end fee (FEF) on Bank loan: 0.50% thereafter. Payment for FEF: Capitalize from LoanProceeds Initialchoice of Interest-rate basis: Type of repayment schedule: [XI Fixed at Commitment, with the following repayment method (choose one): level [ ] Linked to Disbursement 2onversion options: [XICurrency [XIInterest Rate [X]Caps/Collars: Capitalize from LoanProceeds Borrower: PEOPLE'S REPUBLIC OF CHINA Responsible agency: MINISTRY OF FINANCE Address: Sanlihe Lu, Beijing, 100820, China Contact Person: Mr.GuangyaoZhu Tel: 86-10-68551122 Fax: 86-10-68551125 Email: Other Agency(ies): Central Liaison Group, Guangxi Autonomous Region, SichuanProvince, andYunnan Province. ContactPerson: Mr.Ou Qingping. Tel: 86-10-82617155 Fax: 86-10-82617165 Email: fcpmc@public2.bta.net,cn  IEstimated Disbursements I Bank FYIUS$mk Project implementation period: 2005-2010 Expected effectiveness date: 09/15/2005 Expected closing date: 12/31/2010 - 2 -  A. Project Development Objective 1. Project development objective: (see Annex 1) The development objective o f the project is to improve livelihoods security and achieve sustained participation o f the poorest ruralpeople inproject design, implementation, and monitoring and evaluation ineighteencounties ofthethreeprojectprovinces. 2. Key performance indicators: (see Annex 1) The progress towards the achievement o f the project's development objective will be monitored through a set o f indicators which will cover: (a) the establishment andimplementation o f policies reflecting new approachesto poverty reduction; (b) the degree o f effective participation o f community, NGOs, and civil society throughout the whole project cycle; (c) improved access to, and use of, transport, market, drinking water, irrigation, health and education infrastructure and services; (d) improved food security andnatural resource managementbehavior; and (e) increasesinmarketable products, andon andoff-farm employment. B. Strategic Context 1.Sector-related CountryAssistance Strategy (CAS) goal supported by the project: (see Annex 1) Documentnumber: 25141-CHA (CAS) Dateof latestCAS discussion: 12/19/02 One of the central goals of the Bank's current CAS is to assist "the poorer anddisadvantaged people and lagging regions through investment lending inrural development, infrastructure andsocial sectors, as well as training." The project directly supports this CAS goal by targeting the poorest villages and the most severely disadvantagedethnic minority groups ineighteen o f China's poorest counties with a multisectoralpackage of assistance including improved agricultural productivity, basic infrastructure, primary education andpublic health services, andcommunity capacity building. Many of the ethruc minority groups which would benefit from the project have received very little internationalassistance in the past. The project provinces and counties are all located inthe laggingregion o f western China. 2. M a i n sector issues and Government strategy: Background. China is widely recognized for its achievementsinreducing the incidence o f absolute poverty since the adoption of a broadprogram o f rural economic reforms beginningin 1978. The Chinese government has a strong commitment to poverty reduction, and the scale and funding o f its poverty reductionprogram, and the sustained dramatic reduction o f absolute poverty over the last twenty-five years o f reform, are exemplary by any standards. Based on the government's austereruralpoverty line (US$O.66/day o f income), official estimates indicate that extreme poverty declined from more than 30 percent o f the ruralpopulation in 1978 to about 3 percent by 2003, or from about 250 millionruralpoor in 1978 to 29 million in2003. Beginningin2003, the Government adopted an additional ruralpoverty line of 882 yuan (equivalent to one thirdo f average rural per capita income inthat year). Onthe basis o fthis somewhat less austerepoverty line, the Government has estimated total ruralpoverty to be about 85 million people. By comparison, estimates based on an international poverty line strongly confirm the continuing remarkable decline inpoverty incidence, but document much greater numbers o fpoor inall years. For example, recent estimates indicate that the proportion o f China's poor population livingbelow US$1per day o f consumptiondeclined from 64% of total population in 1981to 17% in2001, or from 634 million in 1981to 212 millionin2001. - 3 -  While the decline inpoverty has been striking, it appears to have beenuneven over time, across locality, andbetween social groups. Available evidence suggests that the reductionofpoverty was greatestduring the early-l98Os, but may have stalled during the years 1989-94 and again since 2000. Official reports suggest that the number of poor increasedslightly in2003. Inaddition, the reduction o fpoverty was greatest inthe coastal provinces, andit is certain that the most severeruralpoverty is now more concentrated inthe central and, particularly, the westem provinces. Certain disadvantagedethnic minority groups, people with disabilities, andwomen are knownto be heavily over-representedamong the poor. Lastly, athough almost all o f China's poor reside inrural areas, there is a growing concern about the possible emergence o f urbanpoverty. Main Sector Issues. Evenwith this great success, China's ruralpoor still comprise a large share of global poverty. The rural poor are heavily concentratedinnatural resource deficient mountainous areas o f the central and westem provinces where single sector poverty reductionmeasureshave had limited sustainable impact. Overcoming the remainingrural poverty will require innovative approaches and continued strong support: (a) Participatoryapproach and other innovations. Development work around the world has found that givingstakeholders a voice inproject design, management, andevaluation improves results. The Government recognizes the importance o f strengtheningthe participatory approach inpoverty reduction work. Intemationally-assisted and national projects have built a body o f experience andknowledge in participation inChina. Most o f China's achievements with participationhave beensupported by grant finance and ledby nationalparticipation experts, conducted at relatively small scale andfocused on poverty reductionproject identification anddesign. There is a need to consolidate work inparticipatory implementation andmonitoring andevaluation and to ensure the quality o f a participatory approach when it is usedat scale and facilitated by county and township stakeholders. Similarly, the Government has identifiedthe need to better include NGOs and civil society inpoverty reductionwork. NGOs and civil society are playing an increasing role inpoverty reduction work, and a variety o f innovative approaches (such as the cooperation program between the more developed coastal provinces andthe poorer interior provinces) have been adopted inrecent years. Nevertheless, it is believed that NGOs and civil society can play a significantly greater role inChina's poverty reduction work than they do at present. (b)Targeting. China's poverty reductionprogram and fundingis targeted to 592 nationally-designated poor counties, and focuses on improvingaccess to assets, services andmarkets. Government estimates indlcate that the proportion o f the ruralpoor residinginthe nationally-designated poor counties has declinedfrom 72% in 1994 to about 60% in2000. This means that about 40% o f the ruralpoor reside outside the poor counties andreceive very little or no central government assistance. Inaddition, since central government assistanceto the nationally-designated poor counties is not targeted to the absolute poor within those counties, there is a tremendous leakage of available poverty reduction funding to the nonpoor within those counties. The effectiveness and efficiency o f available poverty reduction funding can be significantly improved through better targeting. Inaddition to the Government's principal poverty reductionprogram, there are various social protection schemes for the poorest households, such as the Five Guarantees for the elderly with no alternative means o f support, and natural disaster reliefprograms. Such social protection is important for those without labor power who require social assistanceto meet their basic needs. However, existingreliefschemes suffer from very low coverage andbenefit level. (c) Addressingthe poverty of ethnic minoritiesand peoplewith disabilities. Ethnic minority groups andpeople with disabilities are knownto represent ahighly disproportionate share of the rural poor. Ethnic minority groups make up less than9 percent o f the total population, but are believed to account for about 40 percent of the remaining absolute poor," often live inthe deepest poverty. Minority autonomous counties also account for more than 40 percent o f the nationally-designated poor counties. - 4 -  The poorest ethnic minority groups often reside inextremely remote townships andvillages, andthe outreach o f China's poverty reduction programto these isolated communities needs to be further strengthened. Similarly, people with disabilities and householdswith disabled members represent a large and risingshare o f the poor. It is believedthat people with disabilities comprise about one thirdo f the remaining rural poor at present (that is, o f China's 29 million rural absolutepoor in2003, some 9 million were people with disabilities). Inpoor areas, there is a mutually reinforcing relationship between poverty anddisability: the inadequacy of effective public health measures andmedicalcare inpoor areas increases the chances o f suffering a disabling injuryor illness, andpeople with disabilities (and their families) are often pushedinto extreme poverty by medicalcosts related to their injury or illness andby limitedor no employment opportunities other thanfarming. (d)Improvingaccess to basiceducation and health services. The educational, healthandnutritional status o f the remaining absolutepoor is deplorable. As many as halfo f the boys inmany o f China's poorest villages and, particularly inthe most remote ethnic minority areas, an even greater share o f the girls do not attend or complete elementary school andwill not achieve literacy. Infant mortality rates and matemal mortality rates invery poor counties exceed 10% and 0.3% respectively (or at least 50% to 100% greater than the national average), and are greater yet inthe poorest townships ahdvillages. Incidence o f several infectious andendemic diseases, including tuberculosis andiodine deficiency disorders, i s concentrated inpoor and remote areas. Roughly half of children inhouseholds at or below the absolute poverty line are at least mildlymalnourished (stunted), andiron, vitaminA, and other micronutrient deficiencies remain a severe problem among the poor. (e) Improvingproductivity of mountain agriculture. The majority o f China's remaining absolute poor reside inmountainous areas with either low rainfall, limitedarable land, or both. Inmany cases, the farm population greatly exceeds the limitedcarrying capacity o f these uplands. InYunnan, for example, the provincial government selected 506 key townships as the core focus o f its poverty reductionprograms beginningin 1995. Almost all ofthese poor townships are distributedinbghmountainranges anduplands, andinminority andborder areas. About 86 percent ofYunnan's remainingpoor in 1996reportedlyresided inthese 506 poortownships. Achieving evensubsistencelevels of agncultural production inmanyof mountainous areas is a difficult challenge. Existingsingle-sector strategies for mountainous area development have tended to underestimatethe integrated nature o fthe problems andchallenges, andhave not ledto adequate and sustainable improvements inthe well-beingo f the poor inthese areas. Instead, there remains a need to better integrate individual sector strategiesinto a more comprehensive multisectoral approach to promote economic development andsustainable poverty reductioninmountain areas. Investmentpriorities withinagriculture include strengthening agncultural training and technical support services, andproviding greater support for expanding animal husbandry, land improvement, food crop production, tree and cash crops, and watershed management. (f) Further strengthening basicinfrastructure. China's poverty reductionprogramhasemphasized the establishment andconstruction o f a wide variety o f basic rural infrastructure including water resource works, arable land, transport, power and communications. Between 1984 and 2000, for example, nearly 100 million mu(or 6.7 million ha) o f basic farmland were improvedor established inthe poor areas, and drinkingwater systems were establishedfor more than 77 million people and 84 million head of large animals. However, at present about 8% o fpoor area administrative villages are still not accessible by road, more than25% o f poor area adminstrative villages are not accessible by telephone, andthere are about 21 million people inthe nationally-designatedkey poor villages with difficult or inadequatelocal supplies o f drinkingwater. Although great strides have been achieved, further improvements inbasic infrastructure in China's poorest areas remains an effective and rapidmeans o f improvingpeople's lives andreducing poverty. - 5 -  The Government's Strategy. Overcoming rural poverty remains one of the Government's top priorities, andis consideredto be a very challenging task which will require manyyears of struggle andcontinued financial support. The National Poverty ReductionConference heldinMay, 2001 approved the Government's curret strategy, "China: Rural Poverty Alleviation and Development Program: 2001-2010." The new Program updatesthe principles and strategies of the previouspoverty reduction program and introduces a number o f new initiatives including: (a) Participatory approach and the role of NGOs and civil society. The new Program calls for strengthening the participatory approach inpoverty reduction work and for expanding the role o fNGOs and civil society. The Government regards "the poor as the mainbody conducting andbenefitingfrom the poverty alleviation and development striving," andhas taken concrete steps to support empowerment at the village level. Most importantly, a simplifiedparticipatoryapproach has beenadopted informulating village poverty reductionplans, andnationwide all o f the more than 140,000 key poor villages have now established such plans on the basis o f the participatory approach. Inaddition, with the support o f the central and local governments, national social organizations, NGOs, and private enterprise are becoming increasingly active inpoverty reduction work. Specific programs include the Glorious Cause, Spring Bud Plan, Project Hope, the New Great Wall Plan, and a host o f local initiatives supported by smaller NGOs andindividuals. Theseprograms andinitiatives directly assist inpoverty reduction work, andalso increase awareness among the generalpopulation o f the need for continued poverty reductionwork. (b) Targeting. Inorder to strengthenefficiency and outreachto the poorest villages andto reduce leakage to the nonpoor, the new Programhas adopted an improvedtargeting system. A nationwide list o f 148,000 key poor villages has now beenestablished, and these key poor villages are now the core focus o f the central and local governments' poverty reductionprograms. It is believedthat 83% o f the remaining rural poor reside inthese 148,000 poor villages. Provincial and local governments are required to take a lead role inassisting those key poor villages which are located outside o f the nationally-designated poor counties. (c) Assistance for ethnic minority groups, people with disabilities, and women. China's poverty reduction program gives special emphasis to assisting poor ethnic minority groups, people with disabilities, andwomen. For example, the five autonomous regions andthreeprovinces with large numbersofethnic minority people have receiveda large andpreferentialshare (about 40%) o f total poverty reduction program funding. Similarly, special programs andearmarked funding assist poor people with disabilities and women, andthe new Programexplicitly calls for continued assistancefor these special groups. Nevertheless, it is certain that ethnic minority groups, people with disabilities, andwomen are both heavily over-representedamong the poor andcomprise the poorest of the poor. Outreach to the most remote and disadvantagedethnic minority people must be strengthened. Existingprograms to assistpeople with disabilities focus primarily on farming and animal husbandry activities, and inadequate attention has been givento a quantitative understanding ofthe causes o fdisability, to preventivemeasures, andto rehabilitation measures andprograms. (d)Basic education and health. Educational progress inChina hasbeenimpressive, and the compulsory education systemand increasedfunding for basic education has ledto significant improvements in educational attainment throughout rural China. The new Program specifically calls for "implementing nine-year compulsory education inthe poverty-strickenareas" by 2010. Nevertheless, these nationwide plansmask notable imbalances inthe availability o feducational services betweenthe economically advancedand underdeveloped areas. There is a continuing needto ensure that there are adequateresources for the weakest parts of the education system, especially inthe poor rural areas, inorder to provide increasedaccess to high-quality eductionto all. Similarly, the new Program calls for hospitals inmost poor townships and clinics inmost poor villages inorder to control the main diseases inthese areas, andthe - 6 -  Government's Tenth FiveYear Plancalls for improved sanitation andbasic health care for all by 2010. However, while some progresshasbeenmade and some interestingexperiments with improving access to basic healthcare services inpoor townships have beenpiloted inrecent years, there has been only minimal andsporadic improvement inaccess to basic healthcare inthe poorest partsof China. (e) Mountain agriculture. Cropping and livestock production, which canbe efficient andreliable ways o f increasing income levels o f the poor and improving basic production and living conditions, remain as priority activities to be supported by the new Program. Inaddition, the new Programcalls for increased training, improvedextension o fpracticaltechnologies andbetter marketingservices, andstrengthening o f the participatory process to better ensure that the poor farmers themselves are empowered to determine what agricultural activities they invest in. (0Rural infrastructure. A core focus of China's poverty reduction program is assisting the poor through development activities which improve productivity. Investment inwater conservancy, transport, power, communications, and other basic rural infrastructure is explicitly noted as a priority area. While investment inrural infrastructure has provento be anextremely effective means ofpoverty reduction, it is important that (a) the level of such investmentbe lowered so that it can reach the poorest andmost remote villages, (b) the poor are empowered to determine what infrastructure is most needed, and (c) infrastructure activities with little or no poverty reductionimpactbe excluded. (g) Localcapacity building. The new Program also highlights the needto strengthen capacity at the local level. Specific measures include effective training programs for local staff, and the rotation o fhigher-level staff to remote poor townships andvillages for fixedperiods. 3. Sector issuesto be addressed by the project and strategic choices: The project would support the Government's current "Rural Poverty Alleviation and Development Program: 2001-2010" anddirectly address many o f the key sector issues identified inSection B.2 above. Most importantly, the project would improve the effectiveness andquality o f the participationprocess throughout the project cycle including preparation, implementation, and monitoring and evaluation. Provincial government hnding and financial support from DFID and a Japanese PHRD Grant was used duringproject preparation to upgrade the existing participation methodology, train project staff inthe improved methodology, anddeepenthe participatory process inproject preparation ina subset o f project villages. The improved approach will be rolledout to all project counties, townships, and villages in several stages during the initial years ofproject implementation. Second, the project applies the new Program's approach to improved targeting by including only nationally-designated poor villages in GuangxiandYunnan anda blendofnationally-designated andprovincially-designated poor villages in Sichuan. This strong focus on geographic targeting should sharply limitor eliminate the leakage o f project benefits to the nonpoor within the project counties. Third, the project would assist several o f the most extremely disadvantagedandremote ethnic minority groups inChina including the Wa people in westemYunnan, the MaonanandMiao people innorthem Guangxi,andthe Yi people insouthern Sichuan. Eleven of the project's eighteen counties are ethnic minority autonomous counties. The project would concentrate on (a) outreach to the poorest andmost remote ethnic minority villages, and (b) empowering the poor inthose villages to design, implement, andevaluate project assistance in accordancewith their needs anddesires through the improved participatory approach. Inaddition, apilot Disabilities Assistance activity wouldbe supported with aparallelDFIDgrant (still pendingconfirmation) inYuexi County in Sichuan to assist people with disabilities. With support from the China DisabledPeoplesFederation (CDPF) and the Sichuan DisabledPeoples Federation, Handicap Internationalis assisting with the conceptualization and design o f the Disabilities Assistance pilot. This - 7 -  activity gives increased attention to a quantitative assessment o f the causes o f disability withinYuexi and, on the basis o f that assessment, assistancefor preventive activities, rehabilitation measures and programs, and employment opportunities. The pilot activity supports mainstreaming measures to ensure the full inclusion o fpeople with disabilities andtheir families incore poverty reductionwork inYuexi. It will also pilotpractical approachesto implementingthe national policy on Community-Based Rehabiliation, with a focus on empowerment ofpeople with disabilities to participate fully ineconomic andsocial life. The pilot Disabilities Assistance activity is detailed inthe Project Implementation Manual (PIM). Success inlifting whole communities out o fpoverty and increasing health and prosperity requires recognizing the differentchallengesfaced by women, men, girls andboys, as well as drawing on each o f those members' productive contributions. Women andmeninthe project areas experience poverty differently. Women do not enjoy equal access to services (health and education), decision-making bodies (village committees), or the ownership o f assets including landandcredit, andshoulder heavier labor burdensthanmen. Inorder to enableall women andgirls to develop anduse their potential as fully as men andboys, the project will identify and address the barriers to equitable development outcomes. Through the participatory processes women will be involved inplanninganddecision makingtogether with men. The monitoring andevaluation (M&E) systemwill monitor the impact ofthe project on equality betweenmenandwomen. The new Program reconfirms the importance o f support for basic education, health, agriculture, infrastructure, and local capacity building. The project would directly support these activities and give special emphasis to (a) delivering appropriate technologies, services and infrastructure to the village and household level, and (b) empowering the project villages andhouseholds to have a greater voice in determining which activities are supported. The community capacity buildingcomponent would have a complementary impact on all o fthese activities by strengthening managementcapacity andthe participatory process at the local level. C. Project DescriptionSummary 1. Projectcomponents(see Annex 2 for a detailed description andAnnex 3 for adetailed cost breakdown): Participation andVillage Participatory Plans (VPPs). Government increasingly recognizes that participation is a key mechanism for better targeted andmore effective poverty reduction, although there is somewhat limitedexperience with usingparticipation throughout the project cycle incommunity-centered projects withinthe government system inChina. Nonetheless, Chinese poverty reduction work is progressively movingtowards one inwhch the poor themselves increasingly play an active role. The Village Development Plan (VDP) initiative is an important step inthis direction. The PRCDP Development Objective includes the aim o f fully involvingpoor people from project villages inthe design, implementation, monitoring and impact assessment of the project. The PRCDP participatory approach buildsonthe foundations ofthe Government's VDP initiative and other participation experiences, and aims to empower local communities andpromote inclusion o f all disadvantaged social groups throughout the project cycle. For these benefits to be achieved by PRCDP, the project implementing agencies need to continue shiftingtheir perceptiono f participationfrom afunctional operation, whereby communities are just consulted about plans formulated from above, to beingan empowering process that emphasizesthe voices and choices of different groups inthe community, andbuildstheir ownership of, andcapacities for, self-reliant community development. - 8 -  The PRCDP participatory project cycle consists of four main steps: (a) Participatory Poverty Assessment, (b) Participatory Planning, (c) ParticipatoryImplementation, and (d) ParticipatoryM&E. The Participatory Poverty Assessment (PPA) will be undertaken by villagers, especially the poor and the disadvantaged, usually with outside facilitation, o f their poverty situation andtheir development needs and options, Itwill help to identifydifferent social groups within the communities andhouseholds under consideration, and it will help inbetter understandingpoverty, especially from villagers' perspectives. The main elements of PPA will be: sub-village sampling (that is, identification o f poor natural villages); identification o fwithin-village poverty groups (social disaggregation); seasonality poverty analysis; poverty history and trend analysis; vulnerability analysis; institutional analysis; gender analysis on poverty; analysis o f the poverty situation o f ethnic groups; and assessment o f problems andsolutions. Participatory Planning(PP) is a decision-making process where poverty groups and other stakeholders have the opportunity to participate actively and voice their priorities and preferences regardingformulation o f village-levelhub-project development objectives, approachesand activities as well as on resource allocation andproject management issues. Participatory Implementation(PI) is the processthrough which communities will be involved inimplementationtakingplace at village level, andhow a participatory approach will be usedfor differenttypes o f project component activities. A basic premise o f Participatory M&E(PM&E) is the acknowledgement that different socio-economic groups will have differingmeasures o fproject success and impact, andwill be affected by the project differently. The PRCDP PM&E system will thus encompass the full range of poverty groups inthe PRCDP villages. A ParticipationManual(PM) is included inthe PRCDP PIM. The aim of the P Mis to provide guidance to management staff and county/township facilitators on how to implement andmonitor the participatory approach inPRCDP. It describes the basic principles o f the participatory approach, details the main steps inthe participatoryproject cycle, elaborates institutional and management issuesinusingthe approach, discusses its costs andbenefits, andprovides some resource material on methods and tools. It is illustrated with case studies from the provinces, introducing good practices onparticipation. Inaddition it proposesa quality assurance methodology for assessinghow the participatory approach i s being used. This includes a number o f indicators o f `quality o f participation' ineach o f the project cycle steps. The participatory process will be extended through a phasedprocess to all of the PRCDP project villages, Itis expected that about 20% o fproject villages will fully participate inall project activities duringthe first year ofproject implementation (that is, duringPhase One). Through the PPA and PP steps, the year one project villages will select from a flexible andwide-rangmg list (menu) o f project activities. These selected activities will comprise PRCDP Village Participatory Plans (VPPs). This participatory methodology will be gradually expanded, benefiting from lessonslearned, to eventually cover 100%of the project villages. Based on the experience gained under previousprojects as well as duringPRCDP preparation, the implementation o f these PRCDP VPPs would comprise activities within the following six project components: Component I:SustainableMountain Agriculture. The component will support agricultural development andsustainablelivelihoods ineacho fthe 1,063 project villages. Most o fthese villages comprise communities livinginremote mountainous environments. The design andimplementationof the component i s basedon the two principles o f targeting and reachmg all poor households, and environmental sustainability. The component includes the following activities: Improving household agricultural productivity and diversification. Households will receive project support to improve, diversify and develop their productive activities. Activities will be determined by the communities andhouseholds themselves from a highlyflexible menuo f options usingthe project's participatoryprocess. It is expected that many households will choose to participate inanimal - 9 -  husbandryactivities. Other selections are likelyto includeimprovement of food security, cashcrops andtree crops. 0 Developingfarmer-to-farmer services. Some community members will elect to receive project support to develop farmer-to-farmer services. These community members will provide essentialservices to ~ other community members, mostly inveterinary services, micro-scale processing, storage, marketing, and transportation. 0 Agricultural training and technicalsupport services. Diverse operators includingpublic extension services, private enterprises, training centers andNGOswill apply tojoin a program o f information, trainingandsmall demonstrations. Agricultural technology disseminatedbythese operatorswill be appropriate technology adaptedto local environments, to the small scale o f household operations, and to indigenous cultures. The expected outcome andimpact of the component will be strengthenedthrough the close interlinkage with investments into rural water resource and land development (see Component I1basic rural infrastructure below) and the community capacity buildingcomponent (see Component V below). Together, these components are designed to create a markedincreaseinhouseholds' productive assets and labor productivity, while permittingthe pursuit o f sustainableupland agriculture, and improvingmarket access. Component 11: Basic Rural Infrastructure. Lack ofbasic infrastructure affects all project areas, compounding the harshliving conditions, the lack of livellhood opportunities andpoor access to social services inthese remote areas. This component includes: 0 improvement invillage access through construction and improvement o f roads, tracks and paths; 0 provisiono f potable water supplies for humans and livestock; 0 constructiono f small water conservancy works (including irrigation and drainage) with associatedland improvements; 0 extension o f rural electrification and communications networks; and, 0 household energy andsanitation improvements, Giventhe scale o fneedandthe relative costs of infrastructure inthese remote project areas, infrastructure subcomponentswill be limitedto small-scale works that directly benefit the project communities who will be involved intheir prioritisation, construction and maintenance through a rigorous community participation process. Designs will be adaptedto suit the varied geology, resource availability and local preferences. Agreement on the operation andmaintenance responsibilities will form part o f the subcomponent approval process. Local labor will be engaged andpaid to construct public works providing additional sources o f income for the communities. Household-based improvements (such as bio-gas and sanitation systems) will be available inthe form o f household loans. Voluntary labor contributions will be limitedto small infrastructure improvements that are implementedby the communities through Community andVillage Households participatory procurement. All voluntary labor contributions will bebasedon farmer informed choices and agreedby village implementation groups. Infrastructure works will be carefully phasedandintegrated with other project components to maximise the benefits o f the multisectoral approach. For example, access improvements will be undertakenearly such that they can complement subsequent project inputs, and water andsanitation facilities will be integrated -10-  into school andhealth facilities to strengthenhygienepromotion. The capacity buildingcomponent will support the participatory approach and community implementation o f the small-scale infrastructure works which can serve as a useful entry point and incentive for training and community development initiatives. Component111:Basic Education. Despite notable achievements at the national level, primary schooling inthe proposedproject areas is still markedbypoor attendanceandvery low on-time graduation rates, and adult education has been not active and is o f limitedrelevance to local community development. There is a clear strong demand for basic education services, including adult functional literacy education. The component would address the challenges o f (a) limited access to primary education by poorer and more vulnerable children, particularly girls and disabled children, (b) ineffective adult training and education for rural community development, (c) inadequate skills andcapabilities of many teachers for both schooling andadult education, (d) lughburden ofeducation expenses onpoor families, and(e) poor infrastructure, much o f which is inneedo f rebuilding or repair. To respond to these challengesthe basic education component will include the following activities: 1. additional DFIDgrant fundingis being sought to pilot anine-year compulsory education program in selectedproject villages which will cover all charges for all children inthe selectedpilot areas inorder to reduce the cost burdenfor basic education for poor families; 2. integratingthe development ofthe schools and communities with the transformation ofthe village schools into community learningcenters; 3, training primary school teachers with innovative teachmg methodologies and improvingtheir ability to provide effective andrelevant training andeducation to community members; and, 4. providingtraining services to adults inthe project villages with a focus on functional literacy education and practical technical skills. To maximize the component'spoverty impact, a maximumceiling for investments inhardware(including civil works, furmture, equipment, etc.) has been set at 60% o f the total budget o f the education component. Fundswill beprioritizedfor the rehabilitationof dilapidated schools inpoor andremote villages where existingbuildings present healthand safety risks to pupilsand staff, No resourceswill be allocated for buildingbigvillage center schools that merge small village schools andteachmg points, or for investments instudent dormitories. ComponentIV: Basic Health. As an integral part of a poverty reductionproject, the health component will aim to improve the healthstatus of the populationinthe project areathrough improved access to basic healthcare. Specific objectives include the reduction o f matemal mortality, infantmortality, andthe incidence o f some key preventable infectious diseases. Investments inhardware have beenrestricted to less than 50% ofthe total healthcare component budgetfor eachprovince. The activities to be supported through the component are: 1, financial assistance for medical care for the poorest to ensure that they can utilizebasic health services. A minimumbenefitpackage will include free maternalcare andimmunization, and support for inpatient care expenses; 2. essentialpublic healthinterventions includingmaternal andchild health care, immunizations for all children, children's nutritionand control o fparasitosis, andhealtheducation for communities on basic health knowledge and HN/AIDS; and, 3. improvement of basic health service capacities at the townshp and village levels through training for -11 -  healthworkers, buildingvillage clinics andrehabilitatingtownshp health facilities, provision o fbasic equipment andessential drugs, and adoption of clinical protocols, an essential drug list, and a mutual referral system. ComponentV: Community CapacityBuilding. The component objective is to promote project implementationeffectiveness and sustainability through strengthening the grass roots capacity inmanaging community development activities. The design principles for the component are: (a) activities underthe component should be driven by beneficiaries' demands, (b) most activities should be broad enough to cover the whole community instead o f targeting some specific focus group, and(c) civil works should be kept to a minimumlevel. Based on these principles, the component includes the following four types of activities: 1. activitiesto improve basic production and livingskills of the poor farmhouseholds, including applied technology training, vocational training, literacy education, andbasic healthknowledge extension; 2. activities to strengthen community leaders' basic skills, including skills on local administrative management, basic financial management, development o fvillage-level planning, local dispute resolution, and small-scale infrastructure construction; 3. activities to address the demands o f some specific disadvantaged groups, particularly inethnic minority areas, and includingspecial training for women; 4. activities to promote andstrengthen community participation inthe decision-making process of local public development affairs, including training inparticipatory approach methodologies and the stablishment o f farmer participatory monitoring groups. 5. activities to promote ICD (hardware andsoftware) to share information and support capacity building for project components, creating linkages with monitoring mechanisms at all levels, as set out in the provincialICD strategies. ComponentVI: Project Management and Monitoring. PRCDP is a complex multisectoralproject with several highly innovative aspects including the improvedparticipatory approach, outreach to extremely remote and disadvantaged ethnic minority groups, assistancefor people with disabilities, and the free education pilot. Past experience clearly shows that successful preparation, implementation, andmonitoring and evaluation (M&E)o f such projects requires (a) strong support from all levels o f government, (b) an extremely capable Project Management Office (PMO) system at all levels, and(c) apowerful andtimely M&Eand managementinformation system (MIS). Inorder to meet the extraordinary demandsofthis complex andinnovative project, PRCDP includes an explicit component to support project management andM&E. The project management system (described inSection C.4 below) builds upon the highly successful model (and the existing PMOS)o f the previous Southwest and Qinba Mountains Poverty Reduction projects. One key difference for PRCDP will be the absence o f a central project management office (CPMO). It is acknowledged that the CPMO played an important role inoverall project coordination and management under the previous World Bank-assisted poverty reduction projects. Its absence inPRCDP may engender unexpected difficulties inproject management at all levels, whch may become impedimentsto the timely provision of counterpart funding, smoothcoordination among government line agencies, effective project supervision, andmonitoring andevaluation (see Section C4 below). To mitigate against the risk o fproject progress beingnegatively affectedby the absence o f a CPMO, the Bankand DFIDteams will work to strengthen and further develop cooperative relationships withkey central government actors. These government agenciesmay provide the support to the teams as deemed - 1 2 -  necessq. Inaddition, strong working and coordinating relationships will needto be developed between the teams andprovincial govemments and PMOSat all levels to ensurethat project management standards andprocedures are adheredto throughout the project cycle. Inaddition, aproject Central LiaisonGroup (CLG) was formed duringproject preparation. The CLG was established withinthe ForeignCapital Project Management Center o f the Leading Group for Poverty Reduction, andhas played an important role duringproject preparation. The CLGwill continue to operateas the mainproject coordinatingandprocess management mechanism during implementation. The M&Esystem, which also builds on the successfulexperience o f these previous projects, will comprise both an "intemal" physical monitoringand information system, and an "extemal" independent impact assessment system. The intemal system will (a) monitor disbursement andrecovery o fproject funds and physical progress o f the project, and (b) combine surveys o f a small numbero fproject households with Village Monitoring Groups and other measuresto gauge the quality and success o f the participatory approach. The independent impact assessment system will monitor the project's impact onpoverty and well-being. This independent mechanism for monitoring and evaluating the project will be vital to get a clear and unbiased picture of project impact, and will measure changesinabsolute andrelative poverty and vulnerability inproject areas. DFID grant funding is being sought to (a) extendthe frequency o f the householdsurveys from three years to all six years o f the project (that is, without the additional DFID grant funding, the household surveyswouldbeundertaken at the beginningofthe project, at the mid-termreview, andat the conclusion of the project), and (b)provide technical assistanceto ensurethat the M&E methodology used integrates both quantitative (based on annual surverys o f 1800project andnonproject households) andqualitative surveys andapproaches. Total Project Costs (US$m, including contingencies) ndicative Bank- % of costs % of financing Bank- (US$M) Total (US$M) financing Component I:Sustainable MountainAgriculture 62.88 44.1 47.00 47.0 Component 11: Basic Rural Infrastructure 50.38 35.3 30.20 30.2 Component 111: Basic Education 8.58 6.0 5.70 5.7 Component IV: Basic Health 6.68 4.7 4.70 4.7 Component V: Community Capacity Building 7.00 4.9 6.50 6.5 Component VI: Project Management andMonitoring 6.58 4.6 5.40 5.4 Total Project Costs 142.10 99.6 99.50 99.5 Front-end fee 0.50 0.4 0.50 0.5 Total Financing Required 142.60 100.0 100.00 100.0 - 13-  Sichuan Guangxi ~ Yunnan Component Indicative % of Total Bank- Y o of costs fiancing Bank- (US$M) (US$M) financing Component I : Sustainable Mountain Agriculture 16.2 32.4 12.4 35.3 Component 11: Basic Rural Infrastructure 21.7 43.5 12.9 36.9 Component 111: Basic Education 4.5 8.8 3.3 9.3 K n tIV:Basic Health I 2.3 I 4.7 I 1.7 1 4.9 1 Component V: Community Capacity Building 1.7 3.2 1.7 4.8 Component VI: Project Management andMonitoring 3.5 7.0 2.9 8.3 Total Project Costs 49.8 99.6 34.9 99.5 Front-end FeeI 0.2 0.4 0.2 1 0.5 I Total Financing Reauired 50.0 I I I 100.0 35.0 100.0 1 -14-  2. Key policy and institutionalreforms supported by the project: The Government's current "Rural Poverty Alleviation andDevelopment Program: 2001-2010'' explicitly recognizes the need to promote community participationthroughout the entire project process, strengthen outreach to remote ethnic minority groups, andimprove targeting (see Section B.2 above). The proposed project will directly support these and other sectoralpolicy andinstitutional reforms (see Sections B.3 above). Most importantly, it hasbeen agreedthat (a) improved participation will be a key feature o f the proposedproject's design, implementation, monitoring andimpact assessment, and(b) the project will assist some o f the poorest and most remote ethnic minority peoples. The project's participatory approach is summarized inSection E.6.2 below and inAnnex 11. The project's approach to assisting ethnic minority people is summarized in Section E.6.1 below and inAnnex 11. 3. Benefits and target population: The projectwould improve the income levels andwell-being of about 1.4 million absolutepoor in 18 counties inSichuan, Yunnan, and Guangxi. The two provinces andone Autonomous Region are in China's lagging western region, andall 18 counties are nationally-designated poor counties. All o f the project villages inYunnan and Guangxiare designatedkey poor villages, andtwo-thirds o f the project villages in Sichuan are designatedkey poor villages. As summarized inthe table below, ethnic minority people comprise two thirds of project beneficiaries, and include people o f the Yi, Wa, Dai, Lahu, Zhuang, Miao, Molao, Dong, Maonan and other groups. The mainproject benefits would be (a) a greater sense o f community cohesion andempowerment through the participatory project design, implementationand M&Eprocess, (b) increasedincome levels andfood security from improvedupland agricultural productivity, (c) greater utilizationo f basic social and other infrastructure services from increased access to markets, safe drinkingwater, transportation, electric power, education, health and other social services, (d) stabilizationandreversal o f environmental destruction through land improvement andnatural resource conservation works, and (e) improved project design and implementationcapacity at different levels that can be mobilisedfor the Government's ownpoor areas development programmes. A special pilot activity, implementedby DFIDthrough separate parallel institutional and fimdingchannels, would also benefitpeople with disabilities inYuexi County in Sichuan. There are strong gender differences inproject areas, whtch are lmkeddirectly to levels o f poverty. Genderdisparities are growing withinmanyareas despite a formal commitment by the Chinese Government to gender equality. The ratio o f newborn boys to girls was 116.9% in2000. The maternal mortality rate (1985-99) is 55 per 100,000 live births, but figures inpoorer regions are reported to be muchhigher.From 1990-95, the gender ratio of HIV infection was 1woman to 9 men, but by 2001 this hadrisen to 1woman to 3.4 men. Women constitute two thirds o f China's 85 million illiterate or semi-illiterate people. Girls are less likely thanboys to receive medical care or go to school. The project will support interventions and approaches to mainstream gender equity andaddress discrimination through the project. The mainvehicle for this will be the participatory approach which supports the participation o f women throughout the project cycle. Inaddition, the project will institutionalize gendermainstreaming by developing a gender mainstreaming strategy for eachprovince. Thts will include gender training inmanagement capacity building, disaggregating data andmonitoring the specific impact of interventions on equity betweenwomen andmen, and supporting specific initiatives to meet the particular needs o f women, for example, maternalhealth. -15-  Project Beneficiariesby Provinceand County. Provinces NumberofCounties Numberof Direct Proportion o f Ethnic Project Beneficiaries Minority number number % Sichuan 6 426,779 43% Yunnan 6 432,100 56% Guangxi 6 542,800 90% Total 18 1,40 1,679 65% 4. Institutionaland implementationarrangements: World BanklDFID Partnership. DFIDandthe World Bankworked inpartnershipwith the Government to help prepare the proposedproject. DIFDplayed a very active role duringproject development, andi s expected to play an equally active role duringproject implementation. This project design combines DFID grant funds with an IBRDloanto soften lendingterms for highpriority social sectorprojects withthe overarching objective of poverty alleviation. Indoing so, it expands the availability o f concessional financing for development to provinces for key social sector investments. Followingthe path o f the recently negotiated Bank-DFIDsupported CHINA:Tuberculosis Control Project and CHINA: Basic Education in WesternAreas Project, the UnitedKingdom's Department For IntemationalDevelopment (DFID)hasagreedto providethe PRC a grant ofUS$32.45 million to beblended with anIBRDloanof US$lOO.O million to significantly reduce the effective interest rate to China. Upon approval, the DFID grant will be usedto prepay 32.45 percent of IBRDdisbursements inorder to reduce the effective interest rate on the total Bank loanto no more than 2 percent per annumover the 20 year loanperiod. The MinistryofFinance (MOF) willpassthe proceedso fthe loanto the project provinces inUS dollars at the guaranteed interest rate o f 2 percent per annum. CentralLevel. At the central level, the project CLG hasbeen established within the LeadingGroup for Poverty Reduction's Foreign Capital Project Management Center (FCPMC). The CLG played a vital role duringproject preparation in(a) coordinatingall communications between DFID, the World Bank, the Central Government agencies involved inpreparation, andthe provincial PMOs, (b) managing the participation and outputs o f a number o f national and intemational experts, and(c) ensuringthat all of the many preparation activities were completed on a timely basis. The CLG will continue to undertake thus vital coordinationrole throughout the life o f the project. Provincialand PrefecturalLevels. At the provincial level, Project LeadingGroups (PLG) have been established to (a) mobilize the institutional, technical and financial resources andsupport for the preparation and implementationof the project, and (b)provide the critical coordinationandmonitoring function for project implementation. The PLGs include staff o f the provincial PlanningCommissions, Finance Bureaus, Poverty Alleviation andDevelopment Offices, andother related agencies (such as the Irrigation, Agriculture, Transport, Education, Health, Environmental ProtectionDepartments, and the Statistical Bureaus). Inaddition, the existing provincialPMOs have ensured effective and timely preparation of the project. The Yunnan and GuangxiPMOs were established under the China: Southwest Poverty Reduction Project (SWPRP) andthe Sichuan PMO was established underthe ongoing World Bank supported China: Qinba Mountains Poverty Reduction Project (QBPRP). These three provincial PMOs already have a great deal ofproven capability andexperience with project design, implementation, - 16-  andM&E. The complexity and innovativeness ofthe proposedproject requires that the capacity of the provincial PMOs be further strengthenedthrough the institution buildingcomponent o f the project. Provincial level Techrucal Advisory Groups have also beenestablishedto provide technical support for project implementation. Prefectural PMOs have also been establishedto coordinate work within the project prefectures andto monitor and assist withproject fund withdrawal andreimbursement. Due to the absence o f a Central PMO andthe special demands o f the project's participatory approach throughout the entire project cycle, it is anticipated that the provincial PMOs will find it very challenging to acheive smooth andeffectiveproject coordinationandmanagement. For this reason, the CLG's roles and responsibilities have now been refinedandupdatedto ensure that they will be able to play a more effective role inoverall project coordination between DFIDlWorldBank andthe provinces during the period o f project implementation. DFID andthe World Bank will also undertake to mobilize extra resources for the independent M&Esystem and for project supervision inorder to partially mitigate some o f the potential effects o fthe absence o f a Central PMO. County and Lower Levels. PLGs and PMOs have also been set up at the county level. The several county-level technical bureaus directly involvedinthe project would, inclose cooperation with the participatingtownship governments and their offices at the administrative village level, play a key role in the day-to-day implementationo f the project. Together, the county levelPLGs, PMOs andtechnical bureaus have played a key role inproject design and preparation, and will play the most important role in project implementationandM&E. Successful implementationdepends most critically on the capabilities o f the county PMOs. Since most ofthe county PMOs have not previouslybeen involvedinsuch large scale, complex, and innovativeprojects, the project's institutionbuildingcomponent will focus on strengthening capacity at this key level o f the PMO system. SWPW andQBPRP have demonstrated that the extension and capability o f the PMO systemto the township andvillage level is absolutely crucial to effective project implementation and outreach to the poorest naturalvillages andhouseholds. Buildingon this experience, the proposed project will establish Township Project Work Stations (TPWS) andVillage Project Execution Groups (VPEG) at the township andvillage levels. The TPWSs andVPEGswill be responsible for the day-to-day execution ofthe project intheir corresponding areas. Inadditionto members ofthe village committee andthe All C h a Women's Federation (ACWF), VPEGs would also include at least one household representative. The project would provide the TPWSs andVPEGs with a yearly budget to allow project staff to carry out frequent follow-up activities for individual village development plans. The project's institution buildingcomponent will also help strengthenplanning and implementationcapacity at the township andvillage levels. D. Project Rationale 1. Project alternatives considered and reasons for rejection: Selection of Project Provinces: Several possible sets o f project provinces were considered during the early stages ofproject preparation. The Government first proposedincluding Hebei andNeimeng which include a number of nationally-designated poor counties and areas o f significant soil erosion due to the extension o f cropping onto fragile hillsides. This option was eventually dropped infavor o f a more remote project area subject to more severe poverty. A second optionwas to concentrate the project injust one province insouthwest China, but it was decided that confining the project to just one province would limit the project's potentialimpact on the nationalpoverty reductionprogram. Finally, it was determined that the project would focus on two o f the poorest of China's eighteen regional "poverty blocks." These poverty blocks are the Hengduanmountain area including Yunnan and Sichuan andthe Jiuwan mountain area including Guangxiand Guizhou. These two blocks have substantial concentrations o fpoor people and -17-  sigmficant numbers of a variety of disadvantagedethnic minority people. A thirdpoverty block -- the Wulingmountain area -- was also considered. However, a significant portion ofthis block was to be assistedby a separate AusAID project, and it was decided that the project would not include the Wuling block. Similarly, the Government decided to drop Guizhou from the project because it was scheduledto receive a large bilateral grant for a poverty reductionactivity covering the proposedproject area. Selection of Project Counties: Similar exerciseswere undertaken to select the project counties within each o f the project provinces andthe project townships withineach o f the project counties. Only nationally designated poor counties were considered for the project, and the list o fpossible project counties was further reducedby excluding those counties which hadalready received substantial international assistance. Itwas eventually decided that the project wouldcover eighteen counties including six counties ineach province. Most o f these counties are withinthe HengduanandJiuwanpoverty blocks and most include large numbers o f disadvantaged ethnic minority groups. Targeting the Poorest Townships and Villages: The provinces' initial project proposals targeted a blend o f the poorest townships andvillages as well as a number o f relatively better-offtownships andvillages withinthe poor counties. Inmany instances, the initialprovincial project proposals excluded the very poorest townships andvillages and the most remote and disadvantaged ethnic minority peoples since it was believedthat these townships, villages, andethnic minoritypeople would experience greater difficulty repayingproject support andwould have more limiteddevelopment opportunities. Through extensive discussions, it was decided that the project would concentrate on assisting those with the greatestneeds in the poorest townships andvillages anddisadvantagedethnic minority areas. Onthis basis, the final provincial and county project feasibility studies now include only the poorest townships with the greatest number o f ethnic minority people. The selection of project townships withinthe Yunnan project counties was cross-checked against township poverty incidence and severity data from the China: Poverty Mapping Project. Within the project counties andtownships, the project would focus on the nationally designated keypoor villages (see Section B.3 above) and onthe most disadvantaged ethnic minority groups. Overall, theproject is closely targeted to the very poorest villages andneediest ethnic minority groups. Household-based Multisectoral Approach and Project Complexity: Duringthe early stages o f project preparation it was proposed that a larger-scale infrastructure-based approach would have a better chance o f achevingpoverty reduction and loan repayment objectives. Inthe May 2002 Project Logframe Workshop inChengdu, for example, it was proposed that the project content inSichuan would comprise two toll roads to tea and livestock productionbases intwo poor regions o f the province. This project approach was eventually rejected infavor o f a multisectoral approach which better addresses the variety o f expressedneeds o fthe poorest villages andhouseholds. Available evidence strongly documents that the poorest villages and households have a wide variety o f needs includingbetter access to (a) basic education and health services, (b) transport, dnnkingwater, communications, and other basic infrastructure, and (c) appropriate agricultural technologies andtraining and increasedproduction assets to achieve food security and expand the output of marketable crops. It is believed that this multisectoral approach has the greatest potential to achieve a sustainable reduction inpoverty inthe most severely affected areas. It was recognized that the household-based multisectoral approach greatly increasesproject complexity. However, the highly successful experience o f SWPRP and QBPRP has shown that a strengthened project managementsystem can meet the challenge o f greater than average project complexity. - 1 8 -  2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings (Bank-finance1 projectsonly) Implementation Development Bank-financed Progress(IP) Objective (DO) Poverty reduction, natural resource China: Southwest Poverty S HS management, community participation, Reduction Project andvoluntary settlement China: Qinba Poverty S H S Reduction Project China: Loess Plateau S S Watershed Rehabilitation Projects (I and 11) China: Shanxi Poverty S S Alleviation Project China: Western Poverty S S ReductionProject Other development agencies IFAD-PovertyAlleviation AusAid-Poverty Alleviation UNDP/WFP-Poverty Alleviation EU-Poverty Alleviation EU-Basic Education DFID-Basic Education and Health IP/DORatings: HS (Highly Satisfactory),S (Satisfactory),U (Unsatisfactory),t I (Highly Unsati: ICtOry) 3. Lessons learned and reflected in the project design: Successful implementation o f SWPRP andQBPRP (which are similar multisectoralpoverty reduction projects) provides important lessonsfor the design andimplementation o f the proposedproject: (a) SWPRP andQBPRP's hghly effective organizational andmanagement structure was able to satisfy the demands o f these highlycomplex andinnovative projects. The extraordinarily strong support o f the central govemment played a vital role inproject preparation, implementation and M&E. (b) Community participation is essentialto the success ofthe project, andthe vigor ofthe participatory approach must extend throughout the life o f the project including implementationandM&E. (c) Institution and capacity buildingat the local level (that is, the township and village levels) are key to outreach to the poorest and most remote villages andto sustainability o f the project activities. (d) Goodsynergy was achieved by bringingina great variety ofpoverty reductionactivities downto the township andvillage level. Inparticular, early provision o f support for basic education and health extended the outreach o f the project to the poorest villages and greatly encouragedthose villagers to -19-  participate inall other aspects o f the project. There was a real organizational and management cost to providing such a wide rangeof benefits to the poor, but the PMO systemrose to this challenge andfound that the benefits and synergy from a multisectoralapproach outweighed these costs. (e) SWPRP and QBPRP illustratedthat the effectiveness and efficiency o f ruralpoverty reduction activities can be greatly enhancedthrough more support, supervision andmanagementby the central andprovincial levels o f govemment. The active involvement of higher levels o f govemment inthe allocation andutilization ofpoverty reductionfunding can greatly enhanceits effectiveness, anda certain portionofpoverty reduction program funding should be allocatedto independent andrigorous supervision and monitoring of the use o f those funds. (9There is aneedfor simplifyingandintroducinggreaterflexibilityinthe Bank's procurement procedures inview ofthe seasonalandscatterednature ofmost project activities. These lessons from SWPRP andQBPRP are all closely reflected inthe proposedproject's design. First, the provincial and lower level PMO system builds upon that established inthe earlier projects, and an explicit institution buildingcomponent will further strengthenthe PMO systemat the provincial and lower levels. Although central govemment support for the project has beenminimal, it i s believedthat the three provincialPMOs have now accumulated more than sufficient experience andcapability to largely overcome that lack o f support from the center. Second, the project greatly advances the participatory approach pioneered through SWPRP andQBPRP. Inparticular, concrete plans have beenestablished to sustain a more robust participatory process throughout the full project cycle. Third,the institution building component will strengthen capacity at the county, township andlower levels. Fourth, the project plans call for early implementatioin o fbasic education, health, and rural infrastructure activities inthe poorest and most remote villages. This will serve to better include the most remote andmost disadvantaged ethnic minority communities right from the outset o fproject implementation. Fifth,an improved M&E, MIS and supervision system has beenestablished. Lastly, the project's procurement arrangements are simpler and far more flexible than those of SWPRP andQBPRP. 4. Indicationsof borrower commitmentand ownership: The Govemment has demonstrated strong commitment to and ownership ofthe project. InMay 2000, the Government, with the assistanceo f the Bank, successfully hosted an InternationalConference on China's Poverty Reduction Strategy inthe 21st Century, andthe project concept originated at that Conference. The Vice Premier, Wen Jiabao, subsequently discussedthe project with the UK Government during a visit to the UK. The provincial govemments also have a strong commitment to the project, and the provincial PMOs have played the leading role inproject preparation. All three provinces and every project county has prepared an initial project proposal anda subsequent detailed project feasibility study. 5. Value added of Bank support in this project: The major value added from the Bank andDFID's support has beento (a) keep the project closely targeted to assisting the poorest villages and households andthe most remote and disadvantaged ethnic minority groups, (b) help design a multisectoral package o f assistanceactivitieswhich more closely reflects the expressedneeds o f the intended beneficiaries, and (c) upgrade the participatory process and establish a mechanism to ensure that the participatory process will extend through the full life o f the project. Bank and DFIDsupport also played the key role inthe inclusion o f the People with Disabilities Assistance Pilot andthe Community Capacity Buildingcomponents. - 20 -  E. Summary Project Analysis (Detailed assessments are inthe project file, see Annex 8) 1. Economic(see Annex 4): 0Costbenefit NPV=US$ million; ERR= 30 % (see Annex 4) 0Costeffectiveness 0 Other(specify) A traditional methodology has beenusedfor conducting economic analysis. For differentactivities, an estimate was made of the future stream o f costs andbenefits inorder to calculate the net present value (NPV) and an economic rate o f return (ERR). Data for calculatingthe ERRcomes from provincial level feasibility studies and a series o f Poverty MonitoringReports for Qinba project (State Statistical Bureau, 1998-2003). Projectbenefits have beenquantified for three major components: (a) sustainablemountain agriculture; (b) basic rural infrastructure; and (c) basic education. Investment inthese three major components accounts for about 85% o f total project investment. To calculate the ERRo f the project as a whole, the individual ERRSwere weighted bythe investmentproportionof corresponding components inthe totalproject. The benefits o f other components are difficult to quantify (e.g., basic health, community capacity building, and project management andmonitoring) andhence ERRSare not calculated for them. Several conventional and conservative assumptionsare made. First,per capita income inbothproject and nonproject areas are projectedto increase at 5% eachyear inthe first ten years, and then remain unchanged. Second, the estimated benefits (revenues) are extrapolated over a 35 year period. Third, the capital discount factor is 0.1. No other major assumptions are made. The overall ERRof the proposedproject is estimated to be around 30% (see table below). It should be noted that, as a result of the conservative assumptions made andreasons explained indetail inAnnex 4, the estimated ERRi s ldcely to underestimate the real benefits o f the project and hence it should be regarded as the lower bound o fthe project's expectedreal ERR. However, even from the lower boundperspective, the economic viability o f the proposed project is welljustified. Project as a whole Sustainablemountain Basic rural Basic agriculture infrastructure education ERR 30% 35% 27% 19% 2. Financial(see Annex 4 andAnnex 5): NPV=US$ million; FRR = % (see Annex 4) N o estimate o f the the financial rate o f return (FRR) has beenmade separately. After more than two decades o f market-oriented economic reform, price distortions due to the Government's intervention have basically beeneliminated. Convincing evidence shows that an integrated domestic markethas already been established andit is increasingly integrated with the internationalmarket. Against this background, there is essentially no additional value to calculating the ERRand FRR separately to capture the impact o fprice distortion. -21 -  Fiscal Impact: The short-run fiscal impact of the project on counties is interms o f counterpart finds and operation and maintenance (O&M) costs. For Sichuan no counterpart funds will be requiredfrom county governments, while Yunnan will require only minimal funds. However, Guangxiis requiring500,000 RMB per year from each county incounterpart funds. Giventhe weak fiscal position o fproject counties, there is a significant risk for Guangxithat these funds will not be providedon time, causing delays to project implementation. This riskwill be minimisedby close monitoringwith rapid interventionif delays occur. The riskofinsufficient funding of O&M costs at county, township andvillage levels is to be minimisedby the participatory approach which should increaselocal willingness to contribute to O&M, and by provincialimplementation guidelinesrequiringestimation o f O&M costs as part o f subproject design. Although there is a relatively highERR, the reduction and abolition o f agncultural taxes will mean that there is less o f an impact from the project on government revenues. However, basedon the fact that most project counties are the poorest ethruc minority counties, and on the experience from the Southwest and Qinba projects, higher level (provincial and central) governments will have some special arrangementsor favored policy towards these counties interms o f fiscal resourcetransfer. They may therefore provide support ifcounties have difficulties with repayment. 3. Technical: Although the proposed project comprises a number o f diverse sectors, the project activities within each of these sectors together represent an integratedpackage o f very basic andproven technologies. The earlier Southwest and Qinba Mountains Poverty ReductionProjects, which includedvery similar component contents, encountered no significant technical challenges. It is therefore believedthat the proposedproject will not face any significant technical difficulties. The only likely exceptions might be technical challenges associatedwith pilotinga free compulsory education programinselectedproject villages andpilotingthe disabilities assistanceactivities inYuexi County. However, these technical challenges would be modest, andthe proposedproject benefits from strong technical support from the provincial Education Bureaus, National and Sichuan Provincial DisabledPeoples Federation, and Handicap International. While the free education and disabilities assistance pilots would be innovative and challenging activities within the context o f the proposed project, these Government agencies andHandicap Internationalhave substantial experience with these activities. With their technical support, it is believedthat any technical challengeswould be surmounted. Furthermore, these two pilots represent a very small share o f total project cost, so the modest technical risks for these activities pose no threat to the overall viability o f the proposedproject. 4. Institutional: Overall, the Bank-financedprojects inChina have had a very good implementationrecord. Inaddition, the PMO system for Southwest and Qinba Mountains Poverty Reduction Projects has an excellent record of project implementation. However, one o f the key lessonso f SWPRP and QBPRP is the importance o f Central Government leadershp inproject preparation, implementation, andevaluation. Unfortunately, the Central Government has provided only limitedsupport for PRCDP. Stronger central government support could have contributed to more timely andeffective project preparation, and would inthe future contribute to more effective project implementationand evaluation. However, while stronger Central Government support would still be prefened, the three provincialPMOSare highly committed to the project andhave a proven recordo f capable implementation. Onbalance, it is expected that the three provinces will effectively implement the project and achieve its development objectives. - 22 -  4.1 Executingagencies: See Section C.4 4.2 Project management: See Section C.4 4.3 Procurement issues: Based on the findings reported inthe Procurement Capacity Assessment Report, the key procurement issues and risks are related to the fact that (a) the majority o fprocurement activities will be conducted at the county level andbelow, (b) there will be substantial community involvement andparticipation inthe procurement process, and (c) most county PMOs do not have previous experience with Bank-financed projects andthe village communities do not have previous formal knowledge o f community participationin procurement. The issues andrelatedrisks can be resolved or reducedby: (a) sufficient staffing -- untilnow, all three provincial PMOs have establishedprocurement units andall 18 project counties have appointed two to four staff ineachcounty PMO to be responsible for procurement activities. The county PMOs are requestedto maintain the stability ofprocurement staffing; (b) timely and adequateprocurement training -- the provincial PMOs are requiredto make detailed procurement training plans to ensure that the responsible procurement staff at various levels have beentrained and have gained not only the requiredprocurement knowledge, but also the capacity to take leadership inassistingthe counties andcommunities to carry out procurement inaccordancewith the procurement plan and agreedprocedures; (c) the procurement manual has been completed. The finalized procurement manual provides procurement guidance and detailed reference to PMOs at all levels andto the communities; (d) the provincial PMOSwill clearly specify the distribution o f responsibilities o f the lower level PMOs, the related technical agencies, andthe communities. Detailed procurement procedures for the proposedproject, including procedures for community participation activities will be formulatedby the completion o f the project appraisal; and (e) the provincial PMOs will establish sound systems to maintainprocurement documents andrecords and ensure smooth supervision andreview by the Bank. 4.4 Financial management issues: The financial managementspecialist (FMS) has conducted anassessment of the adequacy ofthe project financial management system. The assessment, based on guidelines issued by the Financial Management Sector Board dated October 15,2003, has concluded that the project meets minimumBank financial management requirements, as stipulated inBP/OP 10.02. Inthe opinion o f the FMS, the project will have inplace anadequateproject financialmanagementsystemthat canprovide, with reasonableassurance, accurateand timely information on the status o f the project inthe reporting format agreedwith the project andas requiredby the Bank. Fundingsourcesfor the project include the Bank loan, counterpart funds and a DFIDgrant. The Bankloan proceeds will flow from the Bank into the project Special Accounts to be set up at andmanaged by the Provincial Finance Bureaus (of Yunnan, Sichuan andGuangxi), to project implementing agencies and finally to contractors or suppliers. Counterpart funds will come from the central andthe provincial, municipal, andcounty governments. The Loan will be disbursedbasedon traditional disbursement techniques andwill not use FMR-baseddisbursements, inaccordancewith the agreement between the Bank and MOF. - 23 -  No outstanding audits or audit issuesexist with any ofthe implementing agenciesinvolved inthe proposed project. The FMS, however, will continue to be attentive to financial management matters and audit covenants duringproject supervision. The World Bank's Operational Policy OP 8.30, whichrefers to Financial Intermediary Lending(FIL), provides guidelines andprinciples for Bank-financed operations containing line-of-credit (LOC) elements. Inthe EAP Region, the Central Operations ServicesUnit(COSU), withthe collaboration ofthe Financial Sector Board, is responsible for organizing Quality Enhancement Reviews (QERs) for each operation having LOC elements. The objective o f these QERs is to ensure full compliance with OP 8.30 by providingtimely assistanceand guidance to the project teams regardingthe treatment o f specific financial sector issues inproject design. The PRCDP Project intends to provide support to extremely poor households inremote villages directly through the provincial financial bureaus, without the establishment o f a formal revolving loan fund managed by a financial intermediary. The project support will cover the requirementsto implement Village Development Plans (VDPs), prepared by the beneficiaries through a comprehensive participatory methodology. The presence of commercial banksor other formal financial institutions hnctioning inthe project areas is currently very limitedandthe financial assistanceto the target beneficiaries inthe project areas is almost non-existent. The Project was not designed as a vehicle to address the financial sector issueso f China andthe government agenciesinvolved inprovidingthis assistance to project villages should not be considered as commercial financial intermediaries as definedby OP 8.30. A preliminary review was heldwith members of the LOC RegionalReviewGroup to determine whether this project fell underthe guidelines o fthe OP 8.30. The conclusion was that the project was outside the purview ofthe guidelines anddidnot trigger OP 8.30. Therefore, no special QERwas requiredregardingthe applicability of OP 8.30 to this Project. The review concluded that the procedures usedby the government administered support system(initial assessment, supervisiodmonitoring, andpartial cost recovery), should be strengthenedto ensure efficiency andeffectiveness. 5. Environmental: EnvironmentalCategoiy: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. The overall objective and design of the proposed project suggestthat its net environmental impact will be positive, and that any negative environmental effects will not be significant, sensitive, irreversible or long-term. The project's focus on poverty reduction and improvingthe livelihoods o f the poorest through a decentralized participatory approach is likelyto have the largest cumulative positive impact on the environment, given the demonstrated causal connection between poverty andenvironmental degradation. The project will bringspecific environmental benefits through improved soil and water management, increasedpermanent vegetation cover, training andpromotion o f improved agricultural and livestock raisingpractices, and capacity buildingo f government staff, contractors and farmers inenvironmental issues and better practices. There are no knowncultural properties inthe locations o fthe project, however there are a number o f naturalhabitats inproject townshps comprising nature reserveso f different types (wildlife, forest ecosystems, natural resources, scientific research) ando f different levels (national, provincial and county). No project activities shall take place inthe nature reserves, and any activities locatednearby, as well as any road rehabilitationthat might improve access to these habitats, will be closely examined to determine the potential for negative impact on the nature reserves. Duringproject appraisal, improved mapping and detailed discussions were heldto ensure that the project will not have a direct impact on naturalhabitats and that monitoring measures are inplace. - 24 -  The most substantial potential negative environmental effects o f the proposed project are: (a) natural habitat andforest degradation from improved road access; (b) grazing exceeding the land's carrying capacity and causing soil erosion; (c) loss o fbiodiversity andnative species; (d) organic andnon-organic solid and liquidwaste disposal; (e) quarrying o f stone and road construction damaging natural landscapes and causing land slips and undisposed spoil; and (0higher use o f fertilizer, plastic sheeting, pesticides and herbicides with consequentaccumulation insoil, water and people. The cumulative effect o f these possible impacts is not significant although local problems can be expected to occur. It is anticipated that the overall improvement inthe conditions of the populace will outweigh the negative impacts inthese locations andserveto reduce other morenegative impacts that would occur should no projecttake place. Management, mitigationand monitoringmeasureshave beenproposed to negate or reduce these impacts withinthe EnvironmentalManagement Plan(EMP). 5.2 What are the inain features of the EMP and are they adequate? The EMP includes an environmental supervisionplan, anenvironmental protectionactionplan and an environmentalmonitoring plan. These plans provide a number o f measuresto reduce negative impacts. For infrastructure works these include: (a) examinationo f initial designs for roads including routing, investment inenvironmental protection, materials acquisition and spoil disposal; (b) monitoring o f construction works for all infrastructure to ensure no excess materials usage anddisposal, compliance with mitigationandmonitoring measures proposed, and publication o frequirements inlocalareas and investigation o fproblems; and (c) checking o fproblems during operation o f facilities andimpacts on nearby populations. For agriculturalprojects these include: (a) examinationo f initial design including investment inenvironmental protectionand scale o f animal production; (b) analysis and inspectiono f implementation andmitigation measuresfor disposal o f pesticide residues, fertilizer pollution, plastic film pollution and livestock waste; (c) promotion o f Integrated Pest Management (IPM) and Integrated Nutrient Management (INM) and closed cycle projects; (d) monitoring o f application o fpesticides, fertilizers and plastics, andanimal waste disposal; and (e) review o f any epidemic handlingand regular monitoring and follow-up. For other investments, such as health andeducation, these include the examination o fplans (especially investmentsfor treating sewage and hospital waste) and the regular follow-up o f waste disposal. The measuresoutlined inthe EMPwill bemade more effective duringproject implementationby involving the line agencies more deeply inthe work rather than leaving inspection and compliance to the small and under-funded Environmental Bureaus. Increased public participationinthe environmental aspects during design, implementationandmonitoring, andawareness-raising targeting the most important issues will be incorporated into the investmentsand project processes. 5.3 For Category A and B projects, tiineline and status o f EA: Date o f receipt o f final draft: September 24,2004 The date and receipt of the final ENEMP was January 31,2005. 5.4 How have stakeholders beenconsulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted? The agency undertakingthe environmental assessment conducted public surveys o f the local residents o f all o f the project counties through discussions, interviews andquestionnaires inApril, May andJuly o f 2004. Inaddition, public questionnaireswere distributed inallproject counties to ordinary residentsandvarious government agenciesto gauge their opinion and gain their feedback on the project design andactivities. A brief summary o f the EA-EMP was printed and distributed inpublic locations such as libraries and - 25 -  billboards outside county offices ina number ofproject townships inall o f the project counties. A detailed list of the groups consulted and locations where consultation occurred is included within the draft EA-EMP. The EA-EMP has been reviewedand clearedby the Provincial EnvironmentalProtection Bureaus which are responsible for the review andclearance o f the safeguardsaspects of the province. The feedback fiom the stakeholders was broadly positive. Major environmental issues raised as concerns were: 61% o f the public thinks the project may bringabout damage to the eco-environment to a certain extent (such as damage to the trees) ifthe project is inappropriately implemented, and 30%, 6% and 3% o f the public believe the project will cause impact on water body pollution, construction noise and air pollution, respectively. 5.5 What mechanisms have been establishedto monitor and evaluate the impact of the project on the environment? D o the indicators reflect the objectives and results of the EMP? M&Eindicators have beenprepared, basedonthe logicalframework analysis andthe EA-EMP. These indicators would form the basis on which to measure environmental impact and would reflect the objectives andresults ofthe EMP section ofthe EA. Principles ofparticipatoryM&Ewouldbe adopted. 6. Social: 6.1 Summarize key social issuesrelevant to the project objectives, and specify the project's social development outcomes. The project's principal social issue is achieving effective andappropriate outreach to the poorest and most disadvantagedvillages and households, ethnic minority groups, and women andgrrls. Ethmc minority people comprise the majority o f the project's beneficiaries, and the success o f the project will depend critically onprovidingthese people with full participatory access to the entire range o fproject activities. These project activities mustbe tailored to the expressedneeds o f the individual ethnic minority groups and, to the full extent possible, should be designed and determined by the ethnic minority people themselves. Several of the ethnic minority groups inthe project area, including the Wa people inYunnan, the Yi people inSichuan, andthe Miao (Hmong) people inGuangxiandelsewhere, are among the poorest andmost severely disadvantagedinall ofChina. The diversity of the many ethntc minority groups, and their remoteness andlanguagedifferences, make this one ofthe principal challenges to successfulproject design andimplementation. The project preparation processhas directly addressedthis challenge. First, an intensive Social Assessment has helpedidentify the poorest communities, clarify the special characteristics and needs o f the most disadvantagedethnic minority groups, determine gender-basedinequalities, detail the decision-making process at the village level, and otherwise inform the project o f the social context at the local level. The Social Assessment is summarized inAnnex 11and is included inthe PIM. Second, Ethnic Minority Development Plans (EMDP) for six of the project counties have beencompletedto insure that ethnic minoritypeople receive preferentialaccess to the project benefits inthose counties where ethnic minority people comprise less thanhalfo f the county population. An overall Ethnic Minority DevelopmentPolicy Framework has also beenestablished. Third, the participatory approach developed duringproject preparation helps empower the poorest villages, the most disadvantaged ethnic minority groups, and women andgirls to demandfull accessto all project benefits andto better define, implement, and evaluate the project. Fourth, for the first year program where specific investment programs have been identified, Ethmc Minority Development Plans (EMDP) have been completed for six o f the project non-ethnic minority - 26 -  autonomous counties. Inthe twelve project counties which are ethmc minority autonomous counties, the county project plans, developed under the participatory process, are considered as EMDPs themselves. Limitedandscattered landacquisitionwill be requiredfor some ruralineastructure activities, but no physical relocation of people is anticipated to be necessary. Basedon the programmatic nature o f the project, a two-step approach has beenadopted. An overall project Resettlement Policy Framework has beendeveloped to guide future planningefforts incase o f any resettlement or land acquisition needs. For the activities requiringlandacquisitioninthe first year program, Resettlement Action Planshave been prepared. 6.2 Participatory Approach: How are key stakeholders participating in the project? China's current poverty reduction program could be further improved through greaterparticipation o f poor communities and disadvantaged groups. The project's approach is, therefore, poor people-centered, with the focus is on mountainous areas, minorities and other disadvantaged groups. Special attention is givento including particularly poor natural villages and marginalised groups (including the poorest households, women, ethnic minorities, and the disabled). It is a basic premise o f PRCDP that the nature andcauses of poverty differ fromplace to place, between individuals and groups, between genders, andbetween ethnic minorities. It is not possible to effectively address poverty by applying a single solution inall locations. The differentneedso fdifferent poverty groups mustberecogmzedandrespected, andthe project is tailored to address different specific needs at the lowest possible level (that is, including poor groups within natural villages). The project buildson the participatory analysis o f poverty andvulnerability, andemploys participatory planningat the village level. Participatory techniques are employedthroughout the project cycle to ensure that activities are driven by poor peoples' priorities, that these are reflected inannual planning processes, andthat access to funds is demand-driven. The participation processwill be systematically monitoredboth by the communities themselves andthe project management (as part ofthe wider M&E)to ensurethat poor andmarginalisedgroups are included. The participatory poverty assessment developed as the first stage o f participatory planning is beingused to identify the poorest andmost excluded households and social groups within poor villages. Implementation of PRCDP will be basedon ParticipatoryPlans which are unique to the place andthe people that created them. All targetedvillages inPRCDPneedto produce their ownParticipatoryPlans and all villages need to be engagedina participatory mannerbeyondthe planningprocess, which means that communities must be able to participate fully inall aspects o f the project cycle (needs assessment, planning, implementation, and M&E). 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? The social andparticipatory assessments included extensive consultations at the village andtownship levels. These consultations involveda very wide range o f farm households, people with disabilities, women andchildren, the elderly, andlocalofficials andvillage leaders. Additionally, the provincial PMOs andthe BanMDFIDproject team consulted extensively such groups as the All China Women's Federation, ethnic minority representatives, andDisabled People's Federations at the national, provincial and county levels. The Chinese Government has also stressed the need to better include NGOs and civil society inits poverty reductionprogram, andconsiders PRCDP to be an important opportunity to advance this national goal. The provincial PMOs and the Bank/DFIDteam consulted with several international andnationalNGOs, including Karamosia (Japan), the China Poverty Alleviation Foundation (China), andHeifer International (US). At present, Handicap Internationalis working closely with the Sichuan Disabled People's -27-  Federation, the Sichuan Provincial PMO, andYuexi County PMO staff to help conceptualize the Disabilities Assistance Pilot Activity. 6.4 What institutional arrangements have beenprovidedto ensure the project achieves its social development outcomes? The project M&Esystem, whichbuildsonthe successful experience of SWPRP andQBPRP, comprises both an "intemal" physical monitoring andinformation system and an independent impact assessment system. The independent impact assessmentsystemincludes both a quantitative program, basedon annual surveys o f 1800project and nonproject households, and a qualitative program which will be dnvenby the expressedviews o f the primary beneficiaries. Grant funding is beingsought to provide technical assistance to ensure that the methodology usedintegrates both quantitative and qualitative methodologies for poverty assessment. 6.5 How will the project monitor performance intenns o f social development outcomes? The project M&Esystemswill specifically measurethe impact ofproject activities on equity as well as absolute poverty reductioninorder to extendthe benefits o f the project to poorer households and individuals. The M&E system will also yield poverty lessons on reaching the very poorest to support Government priority to improve the efficiency o f poverty funds. 7. Safeguard Policies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. Environment: The EMP includes an environmentalsupervision plan, an environmental protection action planandan environmental monitoring plan. These plansprovide anumber ofmeasuresto reduce negative impacts. For infrastructure works these include: (a) the examinationo f initial designs for roads including routing, investment inenvironmental protection, materials acquisition andspoil disposal; (b) the monitoring of construction works for all infrastructure to ensure no excess materials usage and disposal, compliance with mitigationandmonitoring measuresproposed, publication ofrequirements inlocalareas and investigationo fproblems; and (c) checking o fproblems during operation o f facilities and impacts on nearbypopulations. For agncultural activities these include: (a) examinationo f initial design including investmentinenvironmental protection andscale o fanimal production; (b) analysis andinspectionof implementationand mitigation measures for disposal o fpesticide residues, fertilizer pollution, plastic film pollutionandlivestock waste; (c) promotiono f IPM andINMand closed cycle projects; (d) monitoring o f application o fpesticides, fertilizers andplastics andanimal waste disposal; and (e) review o f any epidemic handling and regular monitoringandfollow-up. For other investments, such as health andeducation, these include the examination o fplans (especially investments for treating sewage and hospital waste) andthe - 28 -  regular follow-up o f waste disposal. Indigenous Peoples: An intensive Social Assessmenthas helpedidentify the poorest communities, clarify the special characteristics andneedsof the most disadvantagedethnic minority groups, determine gender-based inequalities, detail the decision-making processat the village level, and otherwise inform the project o f the social context at the local level. Second, the project has developed aparticipatory approach for village level project planning. A village participatory planningmanual has been developed under the project for village investment. This participatoryprocesswould empower the targeted ethnic minority communities and drive the decision-making process for the detailed project planning at village level. Third, given the programmaticnature of the project, a policy framework for ethnic minority people's development has beenprepared for future project planning.Fourth, for the first year program where specific investment programs have beenidentified, EMDPs have been completed for six o f the project non-ethnic minority autonomous counties. Inthe twelve project counties which are ethnic minority autonomous counties, the county project plans, developed under the participatoryprocess, are considered as EMDPs themselves. (In China, the term "indigenous peoples" refers to "ethnic minority peoples.") Involuntary Resettlement: Limitedandscatteredlandacquisition will be required for some rural infrastructure activities, but no physical relocationo fpeople i s anticipated to be necessary. Dueto the programmatic nature o f the project, a two-step approachhasbeenadopted. An overall project Resettlement Policy Framework has been developed to guide future planning efforts incase o f any resettlement or land acquisitionneeds. For the activities requiringland acquisition inthe first year program, Resettlement Action Plans have been prepared. F. Sustainability and Risks 1. Sustainability: The experience o f SWPRP and QBPRP indicates that overall project sustainability is highly likely. Most importantly, experience has shown that the higher level o f ownership o f the planning andimplementation processby the villages andvillagers, andthe degree to which the infrastructure provided becomesbroadly owned, provides a sound basis for subsequent effective operation and maintenance. The project's primary beneficiaries will have beendirectly responsible for plantingtrees, improving crop production, expanding animal husbandry, andall other activities on their own farms. These farm households directly receive the benefits from these improvements andare vitally interested insustaining the improvements and increased benefits derived from these activities. Insome cases, sustainability o f individualactivities has been underminedby unusual weather (such as a deep winter freeze sufficient to killtrees), animal diseases, or market collapse for niche crops. However, the wide diversity o f the project's agricultural activities and the techcal overview provided by local bureau staff mean that such events are rare and limited inscale, and therefore do not threaten overall project sustainability. O&M of project community works andservices, including schools and primary education, health clinics and public health care services, rural roads, drinking water andsmall-scale irrigationsystems, do require a community-level commitment and funding for O&M activities. Past experience shows that project villages directly benefit from these works andservices and are therefore highly committed to their maintenance duringandbeyondthe project implementationperiod. County andtownship governments also have a demonstratedcapability o f assisting villages withthe O&M o f these community works and services. - 29 -  2. Critical Risks (reflecting the failure of critical assumptionsfound inthe fourth column o f Annex 1): The financial sustainability of the project requires adequate funding o f the O&M costs o f project investments. Ownership of the planningand implementation process by villagers through the participatory approach provides a sound basis for subsequent effective O&M. However, givenlimited resources available to townships and villages for O&M, these costs shouldbe estimated as part o f subproject design withplans agreed for how they will be financed. l%s requirementis includedinthe project's Participation Manual and will be carefully monitored. An important element of sustainability is replicability. Inorder to support the government policy of promoting community participation, strengtheningoutreach to ethnic minority groups, andimproving targeting, the project will pilot approachesthat can be readily replicatedbothwithin the project provinces andinother provinces. Attentionhas therefore beenpaidto ensureboththe cost effectiveness andtechnical feasibility o f the project design. Risk Risk Rating Risk Mitiaation Measure Erom Outputs to Objective Poor counties are unable to mobilize S :a) facilitate dialogue between Central start-up funds for the agricultural 3overnment Agencies andprovincial zomponent and counterpart funds for governments to mobilize funds for the yblic good components causing delays to qyicultural component, and (b) closely monitor project start-up andprogress. the availability o f start-up funding and intervene zarly to avoid significant delays Project funding repayment M Strong supervision to ensure that at least 50% responsibilities lead to prioritization o f o f project budget i s allocated to public goods. investments in `productive activities' over `public goods.' Lack o f Central PMO makes project M (a) the CLG must focus on the key activities coordination andsupervision difficult. required for coordination and supervision, (b) the provincial PMOs must clearly understand the processes,reporting and logistical requirements for implementation, and(c) the provincial PMOs andline agencies at all levels musthave a clear division ofroles and responsibilities and work ina coordinated manner. Participationis not mainstreamed S (a) ensuring that implementation guidelines for throughout the project and quality i s not all project components specify how participatior adequate. will be mainstreamed, (b) engaging technical specialists to analyse and document progress in advance o f supervision missions, (c) township andcounty facilitators and associatedcounty bureau staff receive capacity buildingtraining . and support from provincialPMOs, (d) independent reviewo fparticipationduring implementation, (e) community monitoring o f the participationprocess addresses quality as well as coverage, (f) monitoringperformance targets during supervision, and (g) engaging - 30 -  with senior representativeswithinprovincial governmentsto encouragegood performance. From Components to Outputs Insufficient funding o f O&M costs at S (a) participatory approach increases local county, township andvillage levels limits willingnessto contribute towards O&M, and (b) the long-term impact ofproject provincial implementation guidelines require the investments. estimation o f O&M costs as part o f subproject design. Relationships betweenPMOs and sector S (a) ensuring that implementationguidelines for bureaus are unclear and this undermines all project components specify the mechanisms project progress. for coordination andcollaborationbetween PMOs and sector bureaus, (b) ensuringthat sector bureaus are integrated into project planning and implementation(including capacig building), and(c) includingsector bureausinall feedback following supervision. Project implementation capacity and S (a) compiling sex-disaggregated data to analyse commitment to address gender inequality local context for gender relations, differential are not sufficient to have the expected needsbetween women andmen, division o f impact on gender dimensions ofpoverty. labor and sharingo fburden, (b) implementing remedialmeasures (such as quotas, special sub-projectdactivities) inproject implementationplans, to support women and girls, and (c) assigning gender focal points and ensuring adequateresourcesare made available to support the mobilization o f women cadres including those from the All China Women's Federation and sector agencies for gender equality inproject villages. Overall Risk Rating S Risk Rating - H (High Risk), S (Substantial Ri: ), M (Modest Risk), N(Negligib1eor Low Risk) 3. Possible Controversial Aspects: There are no knownpossible controversial aspects to the project. Review of SWPRP andQBPRP suggests that only the labor mobility and township andvillage enterprise development components couldbe 'controversial. The proposedproject does not include either o f these components. G. Main Loan Conditions 1. Effectiveness Condition 1. The Borrower willprovide the Bankwith ImplementationAgreements, acceptableto the Bank, entered into betweenthe Government andthe three project provinces. 2. The execution of the Tripartite Arrangement by DFID, the Borrower andthe Bank. 3. Completion o f the first DFIDdeposit into the Trust Fund. -31 -  2. Other [classify according to covenant types used in the LegalAgreements.] Disbursement Conditions Prior to any disbursementto Guangxi from the LoanAccount, Guangxiwill have trained the newly appointed project staff at the county project management offices on the application o f the Financial Management Manual andthe Bank's financial management, anddisbursementprocedures, ina manner, satisfactory to the Bank. Prior to any disbursement to Sichuan from the LoanAccount, Sichuan will have trained the newly appointed project staff at the county project managementoffices on the applicationo f the Financial Management Manual and the Bank's financial management, anddisbursement procedures, ina manner, satisfactory to the Bank. Prior to any disbursementto Yunnan from the Loan Account, Yunnan will (a) prepare a training plan andits operational guidelines for participatoryplanningina manner andsubstanceacceptableto the Bank, and(b) have trained the newly appointed project staff at the county project management offices on the application o f the Financial Management Manual andthe Bank's financial management, and disbursement procedures, ina manner, satisfactory to the Bank. Implementation Unless the Bank shall otherwise agree, the Borrower shall, through the State Council's Leading Group Office for Poverty ReductionandDevelopment, maintain, throughout the period o f implementation o f the project, with composition, terms ofreference, staffing and other resourcesacceptable to the Bank, the project CLG established within the Foreign Capital Project Management Center o f the State Council's Leading Group Office for Poverty Reduction and Development, to be responsible for overall coordination andoverseeingproject implementationat the provincialandlocal levels. The Borrower will maintain throughout the project implementationperiod PMOs at the provincial and county levels, with composition, terms o f reference, staffing andother resources acceptable to the Bank. The provincial PMOs will prepare and furnishto the Bank detailed annual action andwork plans, which include the following year's civil works plans, maintenance plan, and training programs, acceptableto the Bank by October 31of each project year. Sichuan andYunnanprovinces will have a learningsystem, as outlined inthe ParticipationManual, in place for implementing the full participatory approach by March 31,2006. Each o f the project provinces will undertake their participatory poverty assessments and participatory planning, inaccordancewith the Phasing Plan and its respective Operational Guidelines for Participatory Planning, ina manner and substance, satisfactory to the Bank. Each o f the project provinces will (a) ensure, unless the Bank shall otherwise agree, that at least 50% o f the total cumulative project expenditures (including the Bank loan and the counterpart funds) have been incurredon components 2 through 6 (that is, on all ofthe components other thanthe sustainablemountain agriculture component) through the end o f each calendar year duringproject implementation, and (b) ensure that farmers are not required to making contributions to the cost recovery for carrying out these components (other than sustainable mountain agriculture). - 32 -  Reporting and Monitoring The Borrower will ensure that each project province shall maintain policies and procedures, adequateto monitor andevaluate on an ongoingbasis, inaccordance with the project indicators satisfactory to the Bank, the carryingout of its respectiveparts o f the project andthe achievement of the relevant objectives. The Borrower will ensure that eachproject province prepares, under terms o freference satisfactory to the Bank, and furnishes to the Bank, the annual progress report not later thanApril 15 ineach calendar year, integrating the results o f the M&Eactivities. The Borrower will prepare a mid-termreport by September 1,2008 according to guidelines acceptableto the Bank. Financial Eachproject province will have the records and accounts for each fiscal year audited, and will furnish the audit reports to the Bank as soon as available, but inany case not later than six months after the end o f each fiscal year. Project Design Eachproject province will carry out the project inaccordance with the PIM, acceptableto the Bank, which includes (a) a Financial Management Manual, including reporting requirements andfinancial management procedures, (b) the EnvironmentalManagement Plan, (c) the overall Resettlement Policy Framework, (d) the Ethruc Minority Planning Framework and six EMDPs, (e) the ParticipationManual, (f) the Phasing Plan, and (g) the Procurement Manual. Eachproject province will provide to the Bank for its prior concurrence any proposed amendment to the provisions o fthe PIM and, thereafter, will put into effect such amendment as shall have beenagreedwith the Bank. H. Readiness for Implementation 0 1,a) Theengmeeringdesigndocumentsforthefirstyear's activitiesarecomplete andreadyforthestart o f project implementation. H1.b) Notapplicable. 82. Theprocurementdocumentsforthefirstyear'sactivitiesarecompleteandreadyforthestartof project implementation. 3. The Project Implementation Planhas been appraised and found to be realistic and o f satisfactory quality. 04. Thefollowingitemsarelackingandarediscussedunderloanconditions (SectionG): - 33 -  I. CompliancewithBankPolicies 1, This projectcomplieswith all applicableBankpolicies. 02.ThefollowingexceptionstoBankpoliciesarenxm"mdedforapproval. Theprojectcomplieswith all otherapplicableBank policies. AlanL.Piazza Mark D. Wilson /4r- David Dollar Team Leader SectorM8nrgerlDlrsctor CountryManagerlDlrector -34-  Annex 1: Project Design Summary CHINA: POOR RURAL COMMUNITIES DEVELOPMENTPROJECT Key Perf St Hierarchy of Objectives lndic Critical Assumptions Sector-related CAS Goal: Sector Indicators: iectorl country reports: rom Goal to Bank Mission) Poor people in Western 1. New approaches and ;overnment's annual report suitable East Asia economic Provincessustainably lifted policies gradually n social and economic ivironment; a suitable 3ut of absolute poverty by strengthenedfor poverty levelopment; Bank's Sector hinese macro-economic 2015. reduction at national level. tudy, ivironment. 2. Numberof poor people in target western counties and townships reduced; increase in income per capita; decrease in income inequality. Project Development Outcome / Impact Voject reports: 'rom Objective to Goal) Objective: Indicators: Improved livelihoods security 1. New approachesto poverty :hanges in vulnerability as ack of central project and sustained participation ofreductionexplored and issessed through qualitative ianagement office makes the poorest rural people in promoted in strategies and itudy in sample households roject coordination and project design, plans of 3 project provinces. upervision difficult implementation and 2. Reducedvulnerability to monitoring & evaluation environmental degradation :ounty level technical achieved in 18 selected (e.9. natural habitat, erosion, apacity to implement project counties in three target forests, vegetation cover, omponents to low to ensure provinces. biodiversity, native species). uality means that omponents do not have mxpected impact. :ommunity Capacity Building inhanced capacity of poorest .ommunitiesto manage .ommunityactivities and to iarticipate in project planning, nplementation and decision naking. {elationships between PMOS ind sector bureaus remain inclear and undermine projec rogress. Sustained Particbation 3ocumentation of 'articipation is not Darticipation Process nainstreamedthroughout the 3. Project villages collectively :PPA/PPIPI/PM&E)as roject and quality is not plan projects in a gender available in the project idequate. inclusive and culturally :om munities appropriate way and Jlanningand management implement them in a timely 'ocus group interviews in irocedures give space for manner by year 3. selectedvillages :ommunity decision making 4. Project villages mobilise and address household internal resources and labour :hoices. for project implementation in an equitable way by year 3. 5. At least 30% of participants in decision making meetings during planning and implementation - 35 -  are women and they voice their opinions and concerns during those meetings by year 3. ImprovedLivelihoods& ousehold income data as Poor counties are unable to Security 3Ilected through mobilise start-up funds for the xio-economic survey in agricultural component and 6. The percentageof ample villages counterpart funds for public households below the 625 infrastructure investments RMBand 882 RMB poverty hanges in livelihoodsas causing delays to project lines is reduced more in ssessed through qualitative start-up and progress. remote project natural villages tudy comparedto non-project Land conversion program and villages by year 5. agriculture industrialization 7. All householdshave doe not reduce households' diversifiedtheir sources of access to productive land. income more in project villages than non-project villages and 50% of women participating in project activities have improved access to household-owned land and livestock by year 5 (including for remote natural villages). Improved Basic Rural ;ex-disaggregatehousehold Inhanced economic activities Infrastructure ata collected through n project villages increases ocio-economic survey in vomen's workload. 8. The reproductiveworkload ample villages of women (e.g carrying water and fire wood) in all project villages is reduced by year 5. 9. Journey times to project villages is improved and trave is more reliablethrough better roads and increased transport services available to all villagers. ImDroved key health lillage level data available in ?oor people have enough outcomes :ountybureaus wrchasing power to pay for squired services. 10. Infant Mortality and lillage level data collected Maternal Mortality rates is hrough socio-economic Clean drinking water provided reduced in project villages iurvey nith better access in project compared to non-project counties. villages by year 5. 11. The incidenceand death rate of infectious diseases is reduced significantly in projec villages compared to non-projectvillages by year 5. Improved kev education /illage level data available in Limits on investments in outcomes :ounty bureaus hardware are maintained. 12. The primary school drop /illage level data collected Focus on village teaching out rate for girls and boys in hrough socio-economic points is maintained. project areas is reduced - 36 -  iurvey significantly more in project Allages compared to ion-project villages by year 5. 13. The primary school :ompletion rate for girls and 3oys in project areas is ncreased significantly more in xoject villages comparedto ion-project villages Iutput from each Output Indicators: 'roject reports: from Outputs to Objective) :omponent: .Sustainable Mountain 1.1 100%of householdstake lata on agricultural training .arge enterprises are not \griculture: 3art in agricultural training available in county PMOs 'RCDP loan recipients but \ broad number of and 30% of agricultural sex-disaggregatenumber of ,articipate as project partners iouseholds in project :raining participants are rainees, number of o facilitate household access :ommunitiesachieve "omen. louseholds receiving project o information and market. nproved assets, skills and 1.2 Project financial support is inancial support, number of iccess to local services in availableto all households iouseholds investing in lesign of funding channel for liversified & environmentally that have expressed interest animal raising or fodder 3gricultureleads to poor iustainable upland agricultural during participatory planning jevelopment) argeting of project financial ictivities. exerciseswithin two years ;Upport to households. after start of implementation. DP documentation available ir 1.3 Significant investment by xoject villages Joor households do not lose women and men in animal jccess to communal land as i raising or fodder development dillage and household level .esult of project activities. using project financial jata collected through support. socio-economicsurvey Focusgroup interviews in selectedvillages 2. Basic Rural Infrastructure: 2.1 Sustainable technologies Data on umbers of working Farmers can afford to pay for Sustainableinfrastructure for mountainous areas biogas, energy saving stoves, mproved services. xovision to assist improved demonstrated,functioning anc use of ICD initiatives etc. access to markets & social replicated. monitored by Provinces and Migration does not affect jervices achieved. 2.2 No. of communities/poor counties project performance. that receive improved infrastructure (e.g. roads, Focus group interviews in Women's work-load doesn't tracks, paths, communication selected villages increase during all stages of facilities, electricity, housing implementationlconstruction. improvement, small water conservatory works, schools 8 health facilities etc.). 2.3 Women's labour contributions to infrastructure does not interfere with the busy agricultural seasons and the workload allocated to women is not higher than for men. 3. Basic Education: Improved 3.1 1208village schools and Monitoring data available in Relationships between PMOs squitable access to basic teaching points are converted provincial PMO and education bureaus remain ?ducationfor children to be community learning unclear and undermine project :schooling) and adults centres, effectively integrating Focus group interviews in progress. :literacy and skills training) in schools and communities by selected villages Droject villages achieved. year 5. - 37 -  .2 More than 61,000 person laysof training providedto pgrade teachers' practical kills and capacity in both lassroom teaching and adult aining by year 5. .3 All community members indertakeat leastone xhnical training provided by l e community learning entres which enhance their apacity to take up project loverty reduction initiatives by ear 5. . Basic Health: Increased ..I tohealthcarefor Access Aonitoring data available in ?oor people have enough ccess to improved health i e poor in project villages hasirovincial PMO (number of purchasing power to pay for ervices and facilities nproved and the costs for ioor persons receiving project required services. articularly for the most lealthcare have been reduced #ubsidiesfor healthcare and isadvantaged groups ~yyear 3 compared to he total amount of money Clean drinking water provided chieved. ion-projectvillages. ;pent on this in each county) with better access in project ,.2 Hospital delivery rates counties. icrease more in project lillage and household level ,illagesby year 5 compared lata collected through Relationshipsbetween PMOS s non-project villages. iocio-economic survey and health bureaus remain 1.3 Increased quality of unclear and undermine projeci nedical staff, as measured by progress. l e number of male and amale health workers at swnship and village levels nat receive technical training romthe project each year, ind total person-days. i. Community Capacity ;.I ofpoor Proportion locumentation of Participation is not 3uilding: Enhanced capacity iouseholds and marginal Jarticipation Process mainstreamedthroughout the if poorest communities to iocial groups directly involved :PPAIPPIPIIPM&E)as project and quality is not nanage community activities idecision-makingandprojec wailable in the project adequate. ind to participate in project ilanning, implementation and :ommunities )lanning, implementation and nonitoring during all stages Planning and management lecision making. iy year 3: =ocusgroup interviews in proceduresgive space for 0 Women: minimum 30% community decision making (year 3) - 50% (year 5) selected villages and address household 0 People from different choices. ethnic minorities: at leas proportionally represented 0 Poor and remote natural villages: 100% 0 The majority of participants would come from marginal groups within the above-mentioned group5 5.2 Project Implementation cumen en tat ion of Groups at village level: Participation Process 0 include at least 60 % (PPAIPP/PI/PM&E)as poor people available in the project 0 include at least 30% communities - 3%-  women 0 are set up and :ocusgroup interviews in functioning according to electedvillages communityagreed principlesand consistent with the PM by year 2. 0 maintain complete documentationon the entire planningand implementationprocess by year 3. 5.3 ParticipationApproach iterviews with mplementedaccording to the scilitators and irinciples laid down in the PM 3cus groups in n all project communities by ,electedcounties and !008 and monitored by county Dwnships during and provincial PMOs upervision xcording to the indicators ncluded in the PM by 2009. -earnina svstem/Traininaand locumentation of training 'raining and support service :apacitv buildina for PRCDP ictivities and training material irovidersdelivedfacilitate 5.4 Project provinceshave ivailable in county PMOs. iccessto quality technology jeveloped training aids and ippropriate to mountain iperation manuals covering nterviewswith ireas, especially in animal all phases of participatory -rainers, facilitators and focus aising. xoject planning, lroups in mplementationand ;elected counties and nonitoring and using gender ownships during supervision sensitive and culturally 3ppropriatetools by year 2 3nd these are upgradedand mproved on a regular basis to nclude experiencesfrom iroject villages. 5.5 All training supported by his project uses participatory nethods for training needs assessment, delivery and waluation and is tailored to jifferent audiences, incl. zthnic minorities and women, iy year 3. 5.6 Environmental training is .egularlyincorporated & lelivered within all training irograms of all sub-components. i. Project Managementand 5.1 Effectiveand 'roject documentation -ack of central project Aonitoring system established:omprehensive project wailable in county PMOs. nanagement office makes ind operational. nanagement and M&E iroject coordination and jystem established 6 months 'roject documentation ;upervision difficult. jfter project effectiveness: 3vailable in villages. 0 specifies clear roles, qelationships between PMOs responsibilities, nterviews with project staff, md sector bureaus remain relationships with line acilitators and communities i Anclear and undermine projecl agencies, and procedures selected counties and xogress. for resource allocations ownships during supervision 0 generates regular project Darticipation is not *39 -  progress reports covering nainstreamedthroughout the all logframe indicators roject and quality is not b feedback from Idequate. communities obtained through participatory M&E is integratedin project M&E 0 villagers (bothwomen and men) feed back their views, experiences and opinions on project implementation to the township work stations and these are recorded by county PMOs by year 3. 6.2 County Project Bureaus are implementing annual learning exercisesthat are used to assess experiences and feedback from projects villages and adjust their annual planning accordingly by year 3. 'roiect Coveracle donitoring data available in County level technical 5.3 The bottom third of 'rovincial PMOs capacity to implement project loorest households in all componentstoo low to ensure lroject natural villages quality means that :includingall different ethnic components are not groups) receive project sufficiently targeted. assistancewithin the first 3 (ears. Poor counties are unable to 5.4 Coverage (whole range of mobilise start-up funds for the xoject benefits) of the poores agricultural component and :hirdof the administrative counterpart funds for public iillages achieved by year 3. infrastructure investments causing delays to project start-up and progress invironmental Monitorinq 'roject documentation 5.5 Maps in use & being availablein county PMOs. Jpdated at township and :ounty levels for planning, nonitoring & evaluation. 5.6 EA-EMP annually .eviewedand updated during iroject implementation, and appropriate environmental :rainingincorporated within ,hetraining programs of all sub-components. 'roject ComponentsI nputs: (budgetfor each ?rojectreports: (from Componentsto jub-components: zomponent) Outputs) 2omDonent I: 2uarterly and special reports Sustainable Mountain igriculture: 4 broad number of iouseholds in project -40-  communities achieve improved assets, skills and access to local services in diversified & environmentally sustainable upland agriculturz activities. Component II: ruarterly and special reports Basic Rural Infrastructure: Sustainable infrastructure provision to assist improved access to markets & social services achieved. Component Ill: ruarterly and special reports Basic Education: Improved equitable access to basic educationfor children [schooling) and adults (literacy and skills training) in projectvillages achieved. ComDonent IV: 2uarterly and special reports Basic Health: Increased access to improved health services and facilities Darticularlyfor the most disadvantaged groups achieved. Somoonent V: juarterly and special reports Zommunity Capacity Building: Enhancedcapacity of poorest :ommunities to manage :ommunity activities and to 3articipate in project planning, mplementation and decision naking. ZomDonent VI: 2uarterly and special reports 'roject Managementand Monitoringsystem established and operational. -41-  Annex 2: Detailed Project Description CHINA: POOR RURAL COMMUNITIES DEVELOPMENT PROJECT By Component: Project Component 1 Sustainable MountainAgriculture US$62.90 million -- - General Features. The component will provide material andtechnical support to most o f the 390,200 households who live inthe 1,008 project villages inorder to allow them to improve, diversify anddevelop their productive activities. Project activities are being determinedby the beneficiary households themselves. A focus of farmer choices on household-basedanimal husbandry is expected since most villages are located inmountainous areas. The component is therefore designed to ensurepropoor development o f animal raising, with sustainablelanduse andimprovedmarket access. Component activities will be implemented as part o f comprehensive village development programs. The component is divided into three subcomponents: (a) improvedhousehold agriculture, (b) fanner-to-fanner services, and (c) technical support. Overall Approach to Agricultural Development. Integrated investments insmall-scale infrastructure (especially domestic water supply), crop production and animal production remain an easy-to-implement, well-adapted project approach to reducing vulnerability inproject villages. The approach has the potential to increase and stabilize the very low and unevenfarm incomes. Foodsecurity is still a critical issue among poorest communities, and can only be addressedthrough these small integrated improvements. The development o f diversified, household-basedanimal husbandry is a meansto make livelihoods more secure through an increase inhousehold assets. It is also an important income generating opportunity both directly through animal sales, and indirectly becausethe increased use o f animal manure allows a shift to agricultural products with reduced use o f agrochemicals inresponseto market demand. Animal husbandry development can be environmentally sustainableprovided grass andother fodder resources are developed and managed better. The techrucal, environmental and market development rationale o f the component i s detailed inthe PIM. RegionalApproach to Agricultural Development. The project areas include not less than seven regions with comparatively homogeneousagroecologcal andhuman environments. Eachcounty government expects to develop through the component a small number o f commodities including nuts, tea, medicinal herbs, spices and"health foods," beef cattle, pigs, goats or poultry. The component's participatory approach will facilitate more diversified choices among project communities, anda shift away from more risky commodities to simpler, propoor productive activities. The `agricultural development approach' attachment to the PIMprovides a basis for a dialogue with county governments duringproject implementationon how to respond to households' preferences inthe poorer sections o f project counties. Participatory Approach. Component activities will be implementedineach administrative village as part of a comprehensive village development program andon the basis o f PRCDP's participatory approach. A component implementationworkplan integrating the participatory approach is included inthe PIM. Key steps include (a) provision by township facilitators o f information onproductive activities to allow informed decision-making by communities, (b) training anddemonstration activities selectedby the communities themselves, and (c) community monitoringo f householdprogress inreceiving andusing project support. The provincial feasibility studies have retainedthe "subproject" format for intemal planning purposes. Each "subproject" relates to one crop or one animal speciesbeingpromotedby a county government through its development plans. Duringimplementation, "subproject" planning is - 42 -  expected to be limitedto the planningo f resources for the provision of technical support and for facilitating access to critical agncultural inputs. Project expenditures will be reported based on actual expenses incurred under subcomponent activities, not on the basis of standardsubproject unit costs. Targeting. Most mountainadministrative villages inthe project areahave a number o f natural villages with more difficult access andoverall significantly greaterand deeper poverty levels. Proactive targeting of these poorest natural villages will take place through a combination o f (a) facilitation, participation and monitoring processesinclusive o fpoorer natural villages for all components, and(b) specific attention underthe agriculture component to investment andtraining needsfor productive activities that are appropriate to poorer villages; these activities will generally relate to food security and animal husbandry. At the household level, there is generally anumberofhouseholdswith higher capacities within eachvillage, and at the other end a proportion o f absolute poor households. The PRCDP participatory process identifies specific solutions for poorer households within communities. At the same time, PRCDP invites households with higher capacity to invest into local services that are useful for their poorer neighbors. Subcomponent 1: Improved Household Agriculture. All households inproject villages would have access to a householdsupport scheme to develop their productive activities. The households would use project support to secure: (a) for animal raising activities: young animals, materials for animal housing improvements, forage seeds, supplementary feed, small tools, andveterinary and breedingservices; (b) for food securitv activities: improved seed, limitedquantities o f chemical fertilizer, andsmall tools; (c) for cash crop activities: seed, chemical fertilizer andpesticides inappropriate types andquantities, and small tools; and(d) for tree crop activities: tree seedlings, chemical fertilizer andpesticides inappropriate types and quantities, hiredlabor for tree planting when necessary, and small tools. Small works required to ensure environmental sustainability would be budgeted. Subcomponent 2: Farmer-to-Farmer Services. Most villages have a small number o f households with greater financial capacity. At the same time, local availability o f services is an important constraint within these mountain communities. Some households will therefore be eligible for small-scale project support underthe conditionthat they invest into activities to provide services to other community members,not directly into agricultural production. These microenterprises are expected to cover a large range of activities, from production andmarketing to the provision o f multiple services. This subcomponent solely targets project households. County or township enterprises are not eligible. Subcomponent3: Technical Support. Agricultural extension services inthe project area are undergoing rapidchange. Government extension systems remain well-established andthe only extension providers in some townships, while agnbusiness enterprises have become major service providers inother areas and in sectors such as fruits andvegetables. Individualfarmers are also becoming important providers. The project will invite diversified organizations, including government extension stations, agribusiness enterprises, training centers andNGOs, to undertake training and technical support activities that are identifiedto be best adaptedto the needso f communities inthe project area andto the constraints of mountain areas. Activities supported by the project include: (a) small-scale demonstrations carried out by households with support from technicians; demonstration results will be sharedamong interest groups; (b) joint training courses at the township for township techcians and service-providing farmers; (c) training days and cross-visits for households inproject villages (budgeted under the capacity buildingcomponent together with other skill development activities); and (d) the production o f information leaflets, posters and VCDs/DVDs. These activities would be implementedthrough village visits by township facilitators, The project would cover field allowances andprocurement o f motorcycles and pickups. Short-term technical assistance has also beenbudgeted. Priority needs for technical assistance include (a) the preparation o f information materials to ensure supply o f quality materials adapted to the specific needs o f the targeted - 43 -  audiences, and (b) assistancefor market development, since e t h c minority areas face a distinct issue o f coping with underdeveloped marketing systems. Animal Raising. Environmentally-friendly andpro-poor animal raisingwouldbe supported through a combination o f activities under the three subcomponents.Under subcomponent 1, the numbero f poor households not owning any animal assets wouldbe substantially reduced, while animal vaccination would decreaserisks o f animal loss; labor productivity would increase through improvements inanimal housing andinforage andanimal manurehandling-atopic of special concern among ethnic minoritywomen (see Social Assessment); forage seeds would become a more commonly-used agriculturalinput; andfarmers would establish-forage grass undertrees on converted sloped landandinanti-erosion grass belts. Under subcomponent 2, breeding and animal health services wouldbecome available inmore villages, and some forage seed would be locally multiplied.Under subcomponent 3, communities would test improved collective management o f grazing lands, andhouseholdswould be trained intechniques that minimize environmentalimpact such as fodder managementand animal disease prevention. Finally, the project would facilitate linkages betweenproducers and market operators. The establishment o f farmer technical associations would be encouraged. FoodCrops and Food Security. Foodsecurity would be reinforced through one or severalproject activities. Inproject areas with widespread food security problems, improved seed and appropriate technology would be extended to broad numbersof households. This includes the extension o f virus free potatoes inthe Liangshanmountains (Sichuan province) ando f improved technical packages for upland rice and for maize inthe Wa counties (Yunnan province). Incommunities with some lesser proportion o f food deficit households, demonstrations andtraining inimproved crop managementtechniques would be organized, and cash crop development on farmlandwhere food crops are grown would only take place gradually. InSichuan Province where the nationalprogram to convert sloped farmland into forestry land is still ongoing, the project would coordinate closely with the program. This would ensure that the program is directed to households that have already reached food security andare willing to set aside their less fertile plots for perennial uses. Cash Crops and Tree Crops. Project support to households would primarily cover the purchase of seed or seedlings, small tools and soil erosion measures. Pesticides and chemical fertilizer applications would be reduced. Packagingandtransportation o f cash crop andtree crop products, as well as primary tea processing, are expected to be important farmer-provided services that will be developed with project support. HouseholdEligibilityto ProjectSupport. Average project support to households would be small enough to allow all or most households to apply for project support. This would be achieved by capping total project support available to any household at 2,000 yuan for agnculture improvement. The project support to individual households for agriculture improvement would be sufficient to cover the cost o f all agncultural inputsplus unexpectedcosts. The amount to be invested indeveloping microenterprises would be determined inthe specific VDP (basedon the participatory methodology), with a maximuminvestment ina singleenterprise of 50,000 yuan, plusamaximum share of 30% ofthe total cost ofthe VDP. At the county level, investment inmicroenterprises would amount to less than 15% o f the total investments inthat county . Overall, project support is expected to be on average around 1,800 yuan per household for both activities, agriculture improvement and microenterprises, consideringa total beneficiary population o f 300,000 households. Women-led households and microenterprises will be prioritized for project support. Management of HouseholdSupport Scheme. Project support wouldbeprovided inamannerwhich ensures timely provision o f quality agncultural inputs inremote communities. Specific project staff - 44 -  members (other than townshp facilitators) would assist with project support to be provided to households. Eachprovince is setting up, prior to starting disbursingproject support to households, a computerized monitoringsystem incorporating all households inproject villages and showing households definedas poor. The P I M provides a set of regulations to ensure access of the poorest households as follows: (a) project support would be capped at 1,000 yuan for first time household applications for agnculture improvement inorder to avoidthe possibility that alarge share ofthe support schemeis consumedquicklybythe more able andactive households; (b) there would be no requirement regarding household assets; (c) households would form interest groups o f severalhouseholds that would commit to use project support for the intended productive activity when this is believedto help poor households to participate; (d) disbursement calendars of project support would fit the needs o f the poorest; this would often mean adjusting project activities to animal raising seasonal calendars; and (e) households with reduced family labor (because some members are away on off-farm work, are missing, or are otherwise not deemedvalid) would be equally eligible. EnterpriseInvolvement. PRCDPrecognizes agribusinessenterprisesas key decision makers inmarket development andagricultural input supply. Sound partnershipsbetweenthe project andenterprises that are active inthe project area, mainly inthe form o f intensive informationexchanges, are therefore an important element inbuildingviable and fair market access for households inthe project area. Enterprise involvement guidelines have been included for that purpose inthe PIM. Enterprises will not channel household project support but will be eligible to project funding for information, training andother support services that they will provide inthe project area. Propoor Focusof Training andTechnicalSupport. Appropriate technology guidelines have been included inthe PIM as a facilitation tool for technical change. The guidelines call for the promotion o f agricultural technology that i s appropriate to small-scale upland agnculture, is compatible with the cultural values o f ethnic minority communities, and is based on standard quality agncultural inputs and works. Training andtechnical support providers would submit, for reviewby the provincial PMOS,the technical specifications that they would use or promote inthe project villages. Any discrepancy with the PRCDP appropriate technology guidelines would be identified and resolved. Linkagewith Other Components. The agncultural component is closely linkedto the ruralinfrastructure component and to the capacity buildingcomponent. Sharedimplementation steps have been designed inthe PIMworkplan whenever this is neededbecauseo f the integrated nature o f the project. Eachtownship facilitator would be responsible for all three components ina numbero f villages. The information materials prepared under the agriculture component would be disseminated through the participatory process under the capacity buildingcomponent. Participatoryplanning and monitoring at community level would be done incombination for the three components. Project Component 2 -- BasicRural Infrastructure US$50.40 million - CurrentSituation. Project communities are typically situated inremote mountainous areas connectedby roads or footpaths invery poor condition limitingaccess to markets and social services. Many villages lack reliable water supplies; sanitation practices expose communities to a range o f communicable diseases; cooking andheating is over wood fires with associatedhealth hazards; andmany villages lack access to electricity and communications systems. Inthe project counties nearly half o f villages are not connected to the road network, about 43% o f the rural population does not have reliable water supplies, and 19% o f villages are not servedby electricity thus severely constraininglivelihoodopportunities. Households, village leadersandgovemment officials place a highpriority on improvingthese infrastructure services and demonstrate this by makingsignificant community contributions. A significant proportion o fproject investment is allocated for rural infrastructure (3 1%inGuangxi, 32% in Sichuan and47% inYunnan). - 45 -  However giventhe relative highcost o f infrastructure inthese situations, particular attention needs to be givento facilities that best meetspoor people's priorities, are of anappropriate standard, and are sustainable. TargetingandApproach. Overall the ruralinfrastructure component will aim to increaseroad access up to roughly 90% o f administrative villages, and extend potable water supply and electricity coverage to about 86% and 95% respectively o f the project area population. It will support a range o f small scale irrigation andwater conservancy works and landtransformation schemes where these are prioritised and assist inmeeting the household demands for improved rural energy supplies and sanitation improvements. A participatory menu-based selection process is to be usedto reflect community andhousehold priorities andvillage development planningprocesses. Eachscheme needs to bejustifiedinterms ofthe criteria mentioned and community priorities, supported where appropriate by community contributions. Particular efforts have beenmade duringpreparation to exclude larger infrastructure works that do not makeoptimum use of limitedproject funds interms o f direct benefits to poor target households and costs per household. This still remains a project risk duringimplementation which will bemonitored. ComponentDescription. Rural roads: This includes the construction of new roads andthe improvement o f existing roads to Grade 4 or lesser standard as well as footpath and step improvements to smaller, difficult-to-access villages. As there can be significant variations inaccess costs due to topography, road lengthand standards, selection criteria includeunitcostsinrelationto the number ofvillages and households served andalso reflect areas where a concentration o fproject improvements andpotentialwill serve to generate significant traffic demands, as well as community prioritisation and funds available. Local labour should be usedwhere possible andshould be paid for (as is stipulated by recent legislation covering such public works). Rural Water Supplies: This component would provide safe drinkingwater through a variety of schemes including water tanks and rainwater harvesting, gravity pipedsystems, and river and groundwater abstraction depending upon location andneed. Selection criteria include investment cost per household, villages sufferingfrom seasonalwater shortages exceeding 60 days duration, villages where the water source is more thanone kmdistance or there is more than lOOmdifference inelevation, and those villages where the water quality of existing supplies are unacceptable due to chemical or biological pollutants. Schemes would be low cost and the project will cover all necessarynon-local materials andtechnical assistance, with non-skilled labour providedby beneficiaries. Operating andmaintenance responsibilities andcost recovery will be identified for eachscheme as part o fthe approval prcess. Dependingupon location, schemes would includewater tanks andrainwater harvesting, gravity piped systems and river and groundwater abstraction. Where water supplies are adequate and additional costs marginal, provision will be made for livestock as well as humans. Water Conservancy Works:A range o f small scale irrigation and drainage schemes are included, comprisingpond improvements, weirs, cistems andcanals. Selection criteria will reflect costs per farmer andcommunity prioritisation. The project will cover non-local materials, technical supervision supported by community farm labour. Landtransformationworks comprising terracing andgrassland improvements are also includedon the same basis. Rural Energy: This includes some small-scale hydropower generation (10-2Okw only), anddistribution lines and transformers where there are no other options andthese services are costed andprioritisedby communities. Itmay also include assistanceinthe constructiono fbio-gas pits andprovisionof energy -46-  saving stoves. This flexible menubasedapproach should be offered inall project areas. Householdbased improvements (such as bio-gas or energy efficient stoves) should be on the basis o fhousehold loans or expansion o f available government subsidies. Sanitation: Improvement insanitation practises should be promoted through capacity buildingactivities andhygiene promotion, demonstration facilities constructedat schools and community facilities and supported by householdloans (for improvedlatrines as well as for more expensive bio-gas plants and septic tanks). Associated Building Works: Construction andexpansion of small ruralmarkets to improve trading are included where these directly benefit and are prioritisedby project communities. Constructiono f education andhealth facilities are includedunder those project componentsbutwill need to bejustifiedinterms of direct benefits to the project communities andadequateprovision of staff andrecurrent budgets, with attention to simple facilities for the more remote areas. Linkages to Other Components. There will be careful attention to the phasing o f civil works. Inmany cases the road improvements will be undertaken inYears 1and 2 to improve access prior to implementing other project components and stimulating the expansion o f services to the villages and livelihood opportunities. The proportion o fbuildingworks inthe health and education components and linked to institutional strengthening andproject management will be carefully monitored. Opportunities shouldbe taken to demonstrate improved sanitation facilities, such as ventilated latrines and water seal latrines and the use of septic tanks by adding these to community buildings wherever possible. Operations and Management. As part o f the design o f all infrastructure facilities, an operating and maintenance planwill be agreedwith all the parties concerned, which includes clearly defined responsibilities and the sources for any recurrent cost provision. Project Component 3 -- BasicEducation US$ 8.60 million - General Features. Despite notable achievements at the national level, primary schooling inthe proposed project areas is still markedby poor attendanceandvery low on-time graduation rates, and adult education opportunities are limitedandoften not relevant to local community development. There is a clear strong demandfor basic education services, including adult functional literacy education. Parentsdirectly shoulder the main education costs, and a significant portion o f the parents surveyed duringproject preparation complained that they have difficulties inpaying schoolingfees for their children. Many o f the teachers inthe project areas are not government employed, andtheir qualifications andskills are quite low compared with the national and provincial standards. The teaching conditions inthe schools are quite basic andmany ofthe buildings are considered dangerous andstructurally unsound. The government policy of combining small teaching points into bigger schools has improved efficiency, but this has also caused extreme difficulties with school access inthe most remote villages. The schools usually do not provide regular adult basic education to the community members, and this has also caused a weak sense o f community ownership of the schools. OverallApproach to Education Development. Reducing the costs that poor ruralhouseholds pay for the education o f their childrenis the most effective way o f increasing the enrollment andcompletion o fbasic education inthe villages. It is also a key practical poverty reduction mechanism since reducing household expenditures on education is equivalent to providing cash support to a large percentage o f families inthe project areas. Buildingcommunity learning centers, by transforming the village schools and teaching points, will act as the mainvehicle to promote the integrated development o f the communities andschools -47-  inthe project areas. This will leadto the trainingofthe teachers withessentialknowledge andskills in providingbasic adult education to the villagers. Targeting. The component will address the challengesof (a) low accessto primary educationbypoorer andmore vulnerable children, particularly girls anddisabled children, (b) ineffective and irrelevant adult training andeducation for rural community development, (c) inadequate skills and capabilities o f many teachers for both schooling andadult education, (d) the higheducation cost burdenfor the poorest families, and(e) poor schooling infrastructure, mucho fwhich is inneedo frebuildingor repair. The basic education component will include the following activities or subcomponentsto promote the realizationo f the poverty reductionpurpose o f the project as whole: Subcomponent1:Free EducationPilot. Inselectedproject areas, the free compulsory educationpilot will be carried out inall the project villages to reducethe cost burdenon the poor families for sendingtheir children to school. More than 17,000 boys and girls will have access to primary school without any charge to their families. Ths will be equivalent to providing 200 yuan cash support to the poorest households in the project villages. Subcomponent2: CommunityLearningCenters. The development ofschools andcommunities will be integrated with the transformation o fthe village schools into community learning centers. The village schools andteaching points will be notjust open to the school age children but also to the community members. About 65,500 square meters o fthe dangerous school buildings will be renovated or rebuiltwith the supply of desks andchairs. New schools or teaching points will be established or rebuiltifthe villagers express strong demands inthe community development plans. It is estimated that 1200o f such community learningcenters will be established. Subcomponent3: TeachersTraining. More than 61,000 persodtimes of teacher training will be trained inpracticalteaching techniques. Qualification trainingwill not beprovidedsince it isnot the mostrelevant to the realization o f the project purpose both interms o f timeliness andbudget. At least 15 percent of the education component will be used for the various teacher training activities, especially for the teachers with bilingual and multi-grade teaching needs. County-levelteachers inupgraded schools will be the main training service providers to the teachers. The training programs will equip the teachers o f the village primaryschools andteaching points with innovativeteaching methodologies andalso enablethem to provide effective and relevant training and education to the community members. Subcomponent4: Adult Basic Education. The village primary schools andteaching points will be subsidized to provide training service to the adults inthe project villages with focus on functional literacy education and also practical technical skills. The village schools or teaching points with less than 3 teachers will get 50 yuan subsidies for providingat least 100persodtimes o f training service to the community members, and the schools withmore than 3 teachers will get 100yuan subsidies for training at least 200 persodtimes o f the villagers intheir targeted service areas. Linkagewith Other Components. To a certain extent, the basic education component will establish the basis for the activities o f other project components. Specifically, the basic education component is closely linkedwith the capacity buildingcomponent andthe agnculture component. Schools and teaching point development will be a part o f the community development plans. The comunity learning centers will be also usedas the main stage for providingother technical training to the villagers for the project activities o f the other component. The training activities o f the adult basic education subcomponent will be arranged in - 48 -  consideration o f the other technical training services provided from the other components to the villagers. Project Component 4 Basic Health US$6.70million -- - Background. From 1949to the mid-1980s China witnessed substantial health improvement ofthe population. For example, the infant mortality rate fell from about 250 per 1000 live births in 1952 to 34 per 1000 in 1985, and life expectancy increasedfrom about 35 years to 68 years inthe same period. These were achieved through emphasizing preventionandpublic health, usingthe rural three-tier (village, townshp andcounty) healthsystemto provide basic healthservices, and protectingpeople from catastrophic medical expenseswiththe wide coverage o f cooperative medical system (CMS) inthe countryside andthe government and labor medical insurance schemes inurbanareas. The economic transitionbeguninlate 1970sand the fiscal decentralization since mid 1990's have undoubtedly increased the overall economic growth. However, these reforms have also profoundly affected the healthsector andthe rest o f the social services. With the collapse of commune collective economy the CMS disappeared inmore than 90% o f rural communities. This has tumedvillage doctors loose to operate as private practitioners and earn a living by prescribing and selling drugs and administeringinjections. Health facilities inpoor rural areas found it increasingly difficult to survive and have to rely on user fees to support their operations. Non-profitable preventivecare is inadequately funded inpoor regions as it relies on the financing ability of local government. The cost to indwidual families of health care rose substantially. Serious illness became a major cause o f household impoverishment. As a result, people's health status has stagnated or even worsened inpoor areas beginninginthe 1980s. The Government o f Chinahas recognizedthese healthchallenges andhas tried to reversethe situation. In January 1997 the Central Government issued the Decision on Health Reform and Development whch outlined the main policies and direction o f healthreform for the whole country. Inorder to promote rural healthreform the State Council promulgatedthe Guidancefor Rural Health Reform and Development in May 2001. And later inOctober 2002, the State Council again issuedthe Decision on Further StrengtheningRural Health. These documents require related sectors and governments at all levels to increase resource allocation to rural health, strengthenpublic health services, re-establish new rural CMS with government financial subsidies to cover all ruralpopulationby 2010, and set up a national financial medical assistanceprogram for the poorest. However, under current decentralized systemthese initiatives inpoor regions will largelyrely onthe central fiscal transfer that is still under development now, andthe new CMS is beingpiloted from 2003. At this transitionperiod the poor counties under PRCDP are facing anumbero fworrying healthproblems. Both township andvillage healthworkers are workmg invery poor conditions but tryinghardto provide services as muchas they can. The hardship includes lack o f training opportunities, lack o f technical support from andcollaborationwith higher levels, no basic equipment, andpartial or no receipt o f their salaries. The overall capacity o f health service provisionis very poor, particularly at central township hospitals, township health centers and village levels. Women andchildren living inthese counties cannot get basic preventivecare, such as prenatal visits, attended delivery bytrained staff, post-natal care, immunization, basic education on breast feeding, nutrition, STD/HIV/AIDS, etc. It is not rare that women diedof undetectedpreventable maternal risks or late referral. Children are suffering or dyingfrom preventable diseases includingpneumonia and diarrhea. Among school kids the major health problems are degraded.vision, malnutrition, decayed tooth and intestinal parasitosis (mainly ascariasis). Due to the poor living conditions andtraditional habits (e.g. living with livestock ina same buildingand eating raw meat of pigandcattle), the infections of cestode (tapeworm) andlungtrematode are prevalent insome communities. -49-  PRCDP Health Component. As an integral part ofapoverty reductionproject the healthcomponent will aim at improving the healthstatus o f the population inthe project area through improved access to basic health care. Specific objectives are reductions of the matemal mortality rate, infant mortality rate, andthe incidence o f some key preventable infectious diseases. A number o fmonitoring indicators will be set by each county. The project will support following activities: 1. Financialmedicalassistance to the poorest (MFA). The objective of MFA is to ensurethat the poorest residents can utilize basic health care so as to protect them from fallingpoverty inducedby catastrophic illness. A democratic procedure will be applied by communities to identifythe poorest households as the target population. People inthe identifiedhouseholds can get a basic healthbenefit package definedby each county: (a) free matemal care includingprenatal visits, delivery attendedby skilledhealth staff andpost-natal care; (b) free vaccinations under EPI for children; and (c) exemptionof at least 40 percent o f inpatient care expenses. The percentage to be subsihzed by the project will be decided by eachcounty. 2. Essentialpublic healthinterventions. The objective o f essentialpublic health interventions is to address the major healthproblems identifiedby each county through the participatory healthneeds assessmentsundertaken duringproject preparation. Two or three priorities will be selectedby each county from following options basedon the findings o f the assessments. (1) Maternal and chddhealth care. Strategiesto be taken are: Primary matemal care - registrationo f all pregnancies,prenatal visits, delivery attendanceby skilled staff andpostnatal visits. Highriskcases will be screenedandidentified through the primary care process and referred to hospital for monitored delivery. Communities will be mobilized to support the referrals; Referral matemal care - to refer the matemal cases with complications to central township hospitals or county institutes where emergency obstetric services are available. Township health centers and hospitals will be strengthenedto provide obstetric care; Child healthcare - village and township healthworkers will be trained to prevent and care for premature births, asphyxia and delivery trauma. Children under seven should get systematic visits for growth monitoring, regular physical examinations and nutritionadvice; Familyplanningandcounseling -selective methods for birthcontrol will bemade available to all residents andreproductive healthcounseling will be provided. (2) Immunizations for all children. Strategiesinclude: (a) improvingthe cold chain systemto ensure the quality and efficacy of vaccines; (b) strengthening the competence and accountability o f EPI staff by training; (c) ensuringuniversal coverage o f immunization throughfixed sites andmobile vaccination measures; (d) improving EPI surveillance andmanagement; and(e) reinforcing immunization through better information, education and communication. (3) Children's nutrition and control o f parasitosis. Strategies include health education on nutritionand personal hygiene among school kids; sample survey for nutritional status monitoring; and school based deworming. Incommunities where parasitosis is prevalent, special programs will be carried out to control the infections, including prevention andtreatment. (4) Healtheducation. Effective IEC strategies will be appliedto provide health education programs for various target groups for raising awareness o f local health issues, gaining basic healthknowledge, constructing healthy community environment andnorms, and forming hygienic personal behavior. Priority topics of health education will be basedon the localneeds. The following topics can be possible selections: - 50 -  basic healthhygiene knowledge; HIVIAIDS; breast feeding and child nutrition; matemal andchild care; immunization of children; andthe prevention o f other common diseases such as parasitosis, iodine deficiency disorders andhealth care utilization. 3. Improvement of basic health servicecapacitiesat township and village levels. The objective is to buildor strengthen service capacity ofvillage clinics andtownship healthcentershospitals. The projectwill support: (a) Training for healthworkers. This includes short and longterm training on basic health services for health workers at village, township, and county (ifnecessary) levels. Priority will be given to female workers at village level; (b) Buildingvillage-clinics for remote communities andrehabilitate township health facilities. Prioritywill be gwen to obstetric and pediatric services at township level; (c) Provision o fbasic equipment to village and township health facilities for public health interventions and basic medical care; (d) Adoption o f clinical protocols, essential drug list and mutual referral system; and (e) Provision o f essential drugs for village clinics. Project Component 5 -- Community Capacity Building US$7.00 million - Emphasizingcommunity level capacity buildingis one o fmajor characteristics which differentiate the PRCDP from previous poverty reductionprojects inChina. There is an obvious and strong demandfor capacity building from different stakeholders, andthat training needsvary across the different groups of stakeholders. For example, village leaders ask for training inpublic management, accounting, project management, dispute resolution, and infrastructure construction skills; women ask for training on applied production technology, basic nutrition knowledge, and family management. The objective o fthe component is to promote andmaintainthe project sustainability through strengthening the grass-root capacity inmanagingcommunity development activities. The designprinciples for the component are a) activities under the component should adequately reflect the beneficiaries' demand; b) activities shouldbe broad enough to cover the whole community insteado f narrowly targeting at some specific focus group; andc) civil works should be kept at a minimumlevel. Based on these principles, the component include the following four types o f activities: a) activities to improve basic production and living skills o f the poor farm households, including applied technology training, vocational training, literacy education, andbasic healthknowledge extension, etc.; b) activities to strengthen community leaders' basic skills, including skills on local administrative management, basic financial management, development o f village-level planning, local dispute resolution, and small-scale infrastructure construction, etc.; c) activities to address the demands of some specific disadvantageous groups, particularly inethnic minority areas, For example, women's training; and d) activities to promote andstrengthen community participation inthe decision-making processo flocal public development affairs, including general participatory approach training, establishment o f farmer participatory monitoringgroups, etc.. The total component cost is about US6.1million, accounts for 5% ofthe total project cost. Project Component 6 -- ProjectManagement and Monitoring US$6.60 million - Overview. Establishing an efficient and effective project management system is one of the key determining factors to project success. Itrequires strong support o f all levels o f government, a highly capable project management offices at all levels anda powerhl and timely monitoringand evaluation system. To this end, -51 -  the project management system of the PRCDP is builtupon the successfulmodel o f the World Bank's Southwest andQinba Mountainous Poverty Reduction Projects. Institutionalbuildingis emphasized at all stages o f the project to ensure that the project will meet its goals and objectives. For this reason, it is essential to set up a workable project management organizational structure, strengthen institutional capacity buildingat eachproject management level and establish an effective project monitoring and evaluation system. 1. Project management organizational setup. The projectmanagementorganizational setup is designed taking consideration ofthe institutionalcomplexities involved inthe project. Project management, implementation and technical support o f local and intemationalexperts systems are built up, inwhich project management procedures such as project coordination, reporting, procurement anddisbursement o f counterpart fundingare defined interms o f division o froles andresponsibilities o f project management institutions at all levels. The established project management structure is basedon the government administrative system and local social, economic and political conditions. Project management offices are set up at the provincial, prefecture, county, township andvillage levels. It is aimed to ensure that stakeholders will be able to participate at each level o f the project management, which is a prerequisite for project management transparency and accountability. Given the fact that it is highlyunlikely to have a central PMO despite all the efforts made, it is crucial to findways to either strengthenthe current role ofthe LiaisonGroup under the ForeignCapital Project Management Centre or seek other possible options. Inaddition, it is necessaryto pay more attention to the divisiono f roles and responsibilities at each level o f the project management structure and ensure their efficiency, effectiveness and coordinationinproject management. Particular attention should also be given to the identificationo f ways and means for timely provision o f government counterpart funds, reasonable use o fproject funds and timely repayment o f project loans. 2. Institutional capacity building. Improvingthe conditions of the infrastructure of the project management offices at each level is important for such a comprehensive project to function effectively. For this reason, sufficient office facilities are to be purchased and equipped. It is also necessaryto improve the skills ofthe staff especially at county andtownship levels inproject management. Properly designed training programmes onprocedure requirements o f the World Bank/DFID project, project managementrequirements, working experience exchanges, project inspection, monitoring andacceptancecheck, computer training andhosting conferences and organizingstudy tours andso forth will serve this purpose. Training will also be provided for village technicians anddemonstration households, who will be giventhe direct opportunities to learn andgrasp technical skills inagricultural production. Then they will be able to disseminate their knowledge and skills to other villagers and households. Institutional sustainability is of concemuponthe completion o f the project due to closure o f project offices andmovement ofstaff especially at the county andtownship levels. Through capacity building,these staff will have become an asset inpoverty reduction. Duringthe course ofproject design andimplementation, consideration needs to be given to developingmechanisms for sustainable institutions, where the staff will be able to continue their contribution to poverty reduction work intheir local areas when the project is completed. - 52 -  3. Project monitoring and evaluation. Monitoring andevaluation (M&E) is o f great importance for achieving the objectives of the project and ensuringthat the project will be managedmore efficiently and effectively. The M&E system consistso f two parts, the intemalphysical monitoring andinformation system andthe independent impact assessment system. The intemal physical monitoring and information systemto be set up i s basedon previous works, especially on the similar system establishedby Guangxi Foreign Capital Project Management Centre for the World Bank Southwest Poverty Reduction Project. Itwill beusedincheckingandmonitoring the project support made to eachproductive activity, evaluating investment efficiency, measuring the impact o f investment on poverty reduction and thus will ensure financial accountability. The independent impact assessmentsystemwill includebotha quantitative programme basedonannual surveys o f 1800project and non-project households, and a qualitative programme which will be h v e nby the expressedviews of the primarybeneficiaries. At present, the independent impact assessmentsystemis yet to beestablisheddue to various institutional constraints. This system is essentialto successful implementation of the project interms o f whole process o f stakeholder participation andtransparent and accountable project management processes. Steps needto be taken to make provision for funds neededinthe buildingup andmaintaining the system, screening for best national and international consultant teams and engaging with PMOSat all levels. - 53 -  Annex 3: Estimated Project Costs CHINA: POOR RURAL COMMUNITIES DEVELOPMENT PROJECT Local Foreign Total US $million US $million US $million Sustainable MountainAgriculture 29.85 29.85 59.70 Basic Rural Infrastructure 33.50 14.40 47.90 Basic Education 4.50 3.60 8.10 Basic Health 3.45 2.95 6.40 Community Capacity Building 0.90 5.80 6.70 Project Management and Monitoring 3.00 3.30 6.30 Total Baseline Cost 75.20 59.90 135.10 PhysicalContingencies 2.30 1S O 3.80 PriceContingencies 1.75 1.45 3.20 Total Project Costs' 79.25 62.85 1 142.10 Front-endfee 0.50 0.50 Total Financing Required 79.25 63.35 II 142.60 Local Foreign Total US $million US $million US $million 42.60 18.10 60.70 34.40 34.30 68.70 Consulting Services 1.40 1.40 Program assistance to social services 1.60 1.60 Training and study tour 7.40 7.40 Miscellaneous 2.30 0.00 2.30 7- . Total Project Costs' 79.30 I 62.80 I 142.10 Front-endfee 0.50 1 0.50 Total Financing Required 79.30 II 63.30 I 142.60 1 I Identifiable taxes and duties are 0 (US6m)and the total project cost. net o f taxes, IS 142.6 (US%ni). Thereforc, the project cost sharing ratio is 70 13% of total project cost net of taxes. - 54 -  Annex 4: Cost BenefitAnalysis Summary CHINA: POOR RURAL COMMUNITIESDEVELOPMENTPROJECT Qualitative discussions Before quantifying benefits o f the proposedproject, we needto develop good qualitative understandingso f possible benefits. Based on the Social Assessment conducted by the CCCC andreports from participatory village planningactivities organized by PMOSat different levels, the PRCDP is expected to generate the follow economic andsocial benefits: An increased per capita income and improvedfood security from enhanceduplandagricultural productivity; A higher living standards due to improved access to markets, safe drinkingwater, transportation, electric power, and other basic infrastructure services; Strengthened ability to manage risks due to improved access to education, health, capacity building activities, and other social services; Stabilizationandreversal o f environmental destruction through landimprovement andnaturalresource conservation works; A greater sense of community cohesion andempowerment through the participatoryproject design, implementation and M&Eprocess; and Improvedstatus o f some specific social groups, such as women group as well as the people with disabilities, through activities aimed to achieving better gender equality andprovidingmore development opportunities.' ' Comparable economic and social benefits are also observed from similar poverty reduction project (e.g., Southwest and Qinba) implementedinsimilar areas before. For example, the National Bureau o f Statistics' (NBS) independent monitoring reports show that villages in Southwest andQinba project achieved remarkable economic and social benefits, as reflectedby declining o f poverty, increasedper capita income, reduced grain deficits, more development opportunities for the beneficiaries. SSB's reports also demonstrate that project villages, inmany aspects, outperformed the non-project villages which generally enjoyed muchbetter initial conditions than that o fproject villages. All these solid evidence gives us additional confidence to the anticipated benefits from the PRCDP project. Some of these benefits are easier to be quantified than others. For example, methodologies are well developed for quantifyingthe benefits from improved agriculturalproductivity, education services, and basic infrastructure construction. However, it would be difficult to quantify some social benefits, such as improved social cohesion, more gender equality, andbenefits from other beneficiaries empowerment activities. Methodology and major assumptions A traditional methodology is usedfor conductingeconomic analysis. For differentactivities, we first estimate the future stream o f costs and benefits and then derive net benefits to calculate the net present value (NPV) and an economic rate o f return (ERR). Data for calculating the ERRcomes from provincial level feasibility studies and a series of Poverty Monitoring Report for Qinba project (State Statistical Bureau, 1998-2003). - 55 -  Project benefits have been quantified for three major components, i.e., a) sustainablemountain agriculture; b) basic rural infrastructure; andc) basic education. Investmentto these three major components accounts for about 85% o f total project investment. To get the ERRof the project as a whole, the individual ERRs are weightedby the investment proportion of corresponding components inthe total project. The benefits o f other components are difficultto quantify (e.g. basic health, community capacity building,as well as project management and monitoring) andhenceERRs are not calculated for them. Several conventional and conservative assumptionsare made. First, per capita income inbothproject as well non-project areas will increaseat 5% eachyear inthe first ten years, and ten remainunchanged. Second, the estimated benefits (revenues) are extrapolated over a 35 year period. Third, the capital discount factor is 0.1. N o other major assumptions are made. Detailedcalculations, including methodologies, specific assumptions, crop budgets, andactivity models are provided inthe project files. Results The overall economic rate of return ofthe proposed project is estimated to be around 30% (Table 4.1). It should be noted that, due to the conservative assumptionswe made andreasons explained indetail below, the estimated ERRis likely to underestimate the real benefits of the project andhence it should be regarded as the lower bound of the real ERR. However, even from the lower bound perspective, the economic viability o f the proposed project is welljustified. Activity Project as a whole Sustainablemountain Basic rural Basic agriculture infrastructure Education ERR 30% 35% 27% 19% Sustainablemountain agriculture. This component includes, among other activities, the three major groups o f activities: livestock raising, cash-cropltree planting, as well as grain crop planting. For the livestock raising, we calculated ERRs for the activities o f raising goat, pig, and silkworm. For the cash-cropltree planting, we calculated ERRsfor activities o f planting tea, sugar cane, and longan. For the grain-crop planting, we calculated ERRs for rice and maize. The ERRSfor individualactivities range from 16% (Longan) to 51% (silkworm), and an overall ERRfor the whole component is about 35%. - 56 -  Basic rural infrastructure. Rural infrastructure component is one of componentsmost welcomedby the beneficiaries as indicatedby Social Assessment report as well as reports from participatory village planningactivities. The Poverty MonitoringReport (SSB, 2001) shows that the small imgation sub-component can generate 1.4% increaseofper capita income. Based on this parameter andother three moderate assumptions, the rate ofretumto the small irrigation sub-component is estimated around 27%. This ERR can be treated as the lower bound o f the real ERR for the whole rural infrastructure component. For example, when askedto rankthe sub-componentso f infrastructure component, farmers always give the first two priorities to the road construction and electrification. Farmers generally rank the small irrigation as the thirdpriority. Therefore, we can reasonably believe that ERRSfor road and electrification shouldbe higher than that of small irrigation inorder to matchfarmers' preference order. Interestingly,other researches(e.g., Rozelle and Huang, 2003) also found the similar conclusion, which strengthens our confidence over the findings. Basic education. By usingthe data from the project provinces, Ravallion and Chen (1997) showed that the per capita income o f those who received elementary education is about 20% lugher thanthose who are illiterate. Based on this key parameter, the per capita gross income data from all three provinces in2003 (from SSB), the rate of return to elementary education is estimated to be around 19%. This ERR can also reasonably be argued as the lower boundo fthe real ERRto the basic education component, given that many other benefits are not included inthis calculation. For example, we didnot quantify the benefits o fthe adult vocational training program, locallibraries construction, teachers' training, andclassroom constructions. Researchconducted by the Intemational Food Policy Research Institute in2001 showed that investmentineducation is the most profitable investmentinterms of its retum to rural GDP inthe western China. IFPRI estimated that RMB1Yuan investment ineducation would generate RMB5 Yuan inreturn. No extra efforts are made to estimate the financial rate o fretum (FRR) separately. After more than two-decades market-oriented economic reform, the price distortion due to the govemment's intervention basically beenwipedout; or at least, significantly reduced. Rich and strong evidence show that an integrated domestic market has already been established andit is increasingly integratedwith the intemational market. Against this background, there is essentially no additional value to calculate ERR andFRRseparately to capture the impact of price distortion. Fiscal impact The short-run fiscal impact o f the project on counties i s interms o f counterpart funds andO&M costs. For Sichuan no counterpart funds will be required from county governments, while Yunnanwill require only minimal funds. However, Guangxi is requiring500,000 RMB per year from each county incounterpart funds. Giventhe weak fiscal positiono fproject counties, there is a significant risk for Guangxithat these funds will not beprovided ontime, causing delaysto project implementation. This riskwill beminimised by close monitoring with rapidinterventionifdelays occur. The risko f insufficient funding of O&M costs at county, township andvillage levels i s to be minimisedby the participatory approach which should increase local willingness to contribute to O&M, andby provincialimplementationguidelines requiring estimation o f O&M costs as part o f subproject design. Although there is a relatively highERR, the reduction and abolition o f agricultural taxes will mean that there is less o f an impact from the project on govemment revenues. However, basedon the fact that most project counties are the poorest ethnic minority counties, and also based on the experience from Southwest - 57 -  andQinbaproject, higherlevel (provincial andcentral) governmentswill have some special arrangements or favoured policy towards these counties interms o f fiscal resourcetransfer. They may therefore provide support ifcounties have difficulties with repayment. Additionality. For the project to have an impact inproject areas assumes that project investments financed by the loanare additional to investments that would have beenmadewithout the project. This requires that public andprivate financing is not withdrawn or redirected as a result o f the project financing. Interms o f public financing, each province has poverty alleviation grant funds (PAFs) allocated to key villages, with most project villages beingkey villages. According to their Rural Poverty Alleviation Plans (2001-2010), over the course o f the project (2005 to 2010) Sichuan intends to spend250,000 RMBper key village, Yunnan 300,000 RMBand Guangxi 500,000 RMB. Withdrawal ofthese public funds inkey villages can be avoidedprovided that government counterpart fundsperproject village are equal to or greaterthan these amounts. This is the case inYunnanwhere counterpart funds per village are twice as much (630,000 RMB) and inSichuan where counterpart funds are approximately equal (240,000 RMB).Althoughin Guangxithey are 70% (350,000 RMB),this is not a cause for concem. Since the PAFs are often not spent inthe keyvillages themselvesbutoninfrastructure that benefits other villages too, while the project investments will be more targeted at the key villages, 70% is an acceptable amount to preventre-directionor withdrawal. - 58 -  Annex 5: Financial Summary CHINA: POOR RURAL COMMUNITIES DEVELOPMENTPROJECT Years Ending July 2005 to June 2010 I Year1 I Year2 1 Year3 I Year4 I Year5 IYear6 I Year 7 Total Financing Required Project Costs Investment Costs 22.2 36.3 40.6 31.1 9.6 0.0 0.0 RecurrentCosts 0.5 0.5 0.5 0.5 0.5 0.0 0.0 Total Project Costs 22.7 36.8 41.1 31.6 10.1 0.0 0.0 Front-endfee 0.5 0.0 0.0 0.0 0.0 0.0 0.0 Total Financing 23.2 36.8 41.1 31.6 10.1 0.0 0.0 Financing IBRDllDA 15.8 25.4 28.7 22.6 7.5 0.0 0.0 Government 7.4 11.4 12.4 9.0 2.6 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 23.2 36.8 41.1 31.6 10.1 0.0 0.0 Main assumptions: - 59 -  Annex 6(A): Procurement Arrangements CHINA: POOR RURAL COMMUNITIES DEVELOPMENT PROJECT Procurement A. General Procurement for the proposed project would be carried out inaccordance with the World Bank's "Guidelines: Procurement Under IBRDLoans andIDA Credits" dated May 2004; and "Guidelines: Selection andEmployment of Consultants by World Bank Borrowers" dated May 2004, andthe provisions stipulated inthe LegalAgreement. The description o f various items under different expenditure categories is presentedbelow. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the needfor prequalification, estimated costs, prior review requirements, andtime frame are agreedbetween the Borrower and the Bank project team inthe Procurement Plan. The first procurement planwill cover initially a 18 months period and will be updated at least annually or as requiredto reflect the actual project implementationneeds and improvements ininstitutional capacity. 1. ProcurementofWorks: A total ofapproximately US$ 51.3 millionofinvestments wouldbe procured following procurement o f works methods. These works would include: (i) construction and repair o f ruralroads and bridges, rural water supply and small scale irrigationfacilities, methane-generation pits, rural markets, low andmiddle yield landimprovements, housing and community buildingconstructiodrehabilitation, pasture construction, ruralbroadcasting andTV facilities andother small works under the Rural Infrastructure Component; (ii) construction and repair o f rural school buildings under Education Component; (iii) construction and repair o f rural clinic buildings underthe Health Component; and(iv) office buildings construction under InstitutionalBuildingand Project Management and Monitoring Component. The procurement will be done usingthe Bank's StandardBiddingDocuments (SBD) for all ICB andModel Bidding Documents (MBD) for NCB agreedwith the Bank. (i) International CompetitiveBidding (ICB) Although not anticipated, any contract for works estimated to cost U S 1 0 million equivalent or more would be procuredunder ICB procedures specified inthe Procurement Guidelines. (ii) National CompetitiveBidding (NCB) Contracts for works estimated to cost less than US$10 million equivalent may be awarded underNCB procedures acceptable to the Bank. Works contracts with estimated values o f less than US$2 million may be advertised only ina provincial newspaper. NCB procurement would be managed byprovincial PMO. The total amount o f contracts under this procedure is estimated to be around US$8.5 million equivalent. (iii)Small Civil WorksProcurement (Shopping) Contracts for works estimated to cost less thanUS$lOO,OOO equivalent per contract wouldbe awarded through shopping procedures as specified inPara. 3.5 o f the Procurement Guidelines, for an estimated total amount o f about US$36.8 million. These works would be suitable for lump sum and fixed-price contracts awarded on the basis o f quotations obtained from at least three qualified domestic contractors inresponseto awritten invitation. Small civilworks procurement wouldbemanagedby each county PMO and line agencies. (iv) Force Account (FA). A total amount o f works not to exceedUS$6million equivalent, comprising individual assignments costing not more than US$lOO,OOO each, would be carry out by force account by the township governments or the corresponding line agencies for each - 60 -  component. These investments would include simple works (e.g., irrigation rehabilitation, water supply systems, roads, markets, education and healthinfrastructure) under the Rural Infrastructure, Education andHealth components. Giventhat these works are small, located in remote areas and scattered in 18 counties, it is assumedthat it is not likely that qualified contractors wouldbid for them. With prior agreement from the Bank, these works under force account wouldbe done by the line agencies.to best utilize local know-how, their existing equipmentand locally available materials andemploy labor intensive technologies. The Bank's payments for works under FA will be made on output basis, Le., unitprices andquantities agreed mutually with the Bank. 2. Procurementof Goods: A total of US$5.8 millionof investments would be procuredunder b s project followingprocurement o f goods methods. These would include: office equipment, teaching equipment, books and teaching materials, furniture for schools, medical equipment and medicines, vehicles, agncultural inputs, andbuildingmaterials for works at the village level. The procurement will be done usingBank's SBD for all ICB andChineseModel BiddingDocuments (MBD)for NCB agreedwith the Bank. (i) International CompetitiveBidding (ICB) Although not anticipated, any contract for goods estimated to cost US$500,000 equivalent or more would be procuredunder ICB procedures specified inthe Procurement Guidelines. (ii) National CompetitiveBidding (NCB) NCBprocedures wouldbe usedfor procurement o f goods costing less than US$500,000 equivalent per contract, up to a total o f about US1.3 million. Contracts may be advertised only ina provincial newspaper.NCB would be handled byprovincialPMO. (iii)Shopping. Other goods such as office equipment, teaching materials, school fumiture, medical equipmentandmedicines insmaller quantities andavailable onthe shelf, would be procuredby each county PMO usingshopping procedures with contracts under US$lOO,OOO equivalent per contract, for a total estimated to be around US$4.5 million. 3. Communities andVillageHouseholdsParticipation in Procurement: Inthe interest of project sustainability and to ensure communities andvillages households' ownership, the Agricultural Component andthe village works underthe RuralInfrastructure Component would be managedandimplemented by communities andvillages households themselves by utilization o f local equipment, materials, labor, andtechnology. These activities mainly include: productive investments for crops, tree crops andlivestock; individual household-based small scale ago-processingand micro enterprises; village access roads, small scale irrigationfacilities, low andmediumyield landimprovement, pasture development, andmethanegenerationpits and other small works. The estimated total amount o f investments under these methods would be about US$73.2 million. All these project activities are scatteredinaround 1000 communities comprising more than 390,000 village households in 18 counties selectedin Sichuan, Guangxi and Yunnan provinces. The nature o f these works andcommunity drivenactivities would require more flexible procurement procedures andarrangements. To ensure those activities are effectively implemented, the following arrangements have been agreed: (i) WORKS: Community participationin constructionofsmall works under the Rural InfrastructureComponent. Village access roads andpaths (short, simple, low cost), small scale irrigation facilities, water supply systems, low andmiddle yield land improvement, -61 -  terracing, pasture development, methane generation pits and other works which are geographically scatteredand are labor-intensive will be procuredby community participation method. The individual value of eachwork will be quite small, averaging around US$4-5 thousand per contract andnot to exceed US$lO,OOO inany individualcontract. The total estimated value would be around US$lO.O million. They would be carried out by the communities through community participation force account, direct contracting or comparison of three quotations obtained from local communities inaccordance with the following procedures: a. Selection of Activities: Specific activities as above mentionedto be financed ineach project community shall be selectedbasedon the priorities proposed by communities andshall be included inits Village Development Plan. The detailed criteria including economic utilization o f funds has been described inthe Participation Manual andProcurement Manual. b. Construction Standards and Payment: Works shallbe carriedout inaccordancewith the technical standards including inspection and acceptanceprocedures set out by Township Work Stations andagreedby county PMOs inthe Project Implementation Manual (PIM). Payment will be madebasedonpre-agreed lump sumcostsper activity, following apayment schedule agreed between the PMO and the community on the basis o fphysical progress, and where the last payment will not be made until the activities are completed andaccepted. Physical verifications conducted and issued by Township Work Stations would also be provided as supporting documents for disbursement. (io GOODS: Village HouseholdsParticipation in Sustainable Mountain Agriculture Component. Project support would be providedto village households to carry out the activities under this component for an estimated amount o f investments o f about US$63.2 million. The average level of support for eachvillage household is about US$200, anda total about 390,000 households would be supported under this Project. The following arrangements have beenmade to ensure that village households properly use this support: a. Village Development Plans, Village Development Plans would be preparedby each administrative village basedon individual households' needsand their own development priorities through a participatory approach as outlined inthe Participation Manual. The Plan would include the project activities, inputs required, costs, implementation schedule, and monitoringand acceptance procedures. The Plans would be submittedto county PMOs for approval. The approved Plans would be basis for implementation. These Plans would be updated annually or as requiredthrough adequateconsultationand agreementwith the communities. b. SelectionofVillage Households, Village households as beneficiary wouldbe selected based on the criteria set out inthe PIM. Community workshops will be organized to discuss andinformcommunity representativesandhouseholds o f objective ofthe component and obligation o f eachparty. c. Approval of the Project Support Agreement. Township Financial Departments/Work Stations would review andapprove the proposals submittedby each village andsign a support agreement with eachVillage Committee or with eachhousehold membero fthe community to be benefiting from this agreement. The agreementwould specify the amount o f resourcesrequired, purpose of use, payment schedule and conditions. - 62 -  d. Implementation. Village householdswoulddecide to buy agricultural inputs(seeds, seedling, fertilizer andpesticide, materials and small tools, and animals), andhire technical services as needed, as well as employ outside labor when necessaryto carry out agricultural activities, either individually or collectively as a group. Inthe case o f some activities which require the services from PMO, the PMO will carry out the procurement andprovide assistance inkind. Agricultural inputs would be purchased on local markets when they are available and prices are competitive or incase that inputs are not available on localmarkets, village householdswith help o f local communities would purchase from other markets.The detailedprocedureshave beendescribed inthe Procurement Manual. e. Payment andAuditing. Payment would be made againstthe support agreement signed with eachvillage committee or individual householdineither one or two tranches definedby township work stations inthe Manual depending on nature o fpurchase. Inany case, payment will be only done on satisfactory documentary evidence that community representativesor households have attendedthe workshop and has signed the financial support agreement. A special auditingwould be arrangedby county PMOs together with financial departments, township workstations to verify the use of these funds on a six-month basis by extemal consultants. The six monthaudits by extemal consultants would include checkingwhether information from the computerized data base corresponds with the information on loans posted invillages andthat the householdsagreewiththis.The six monthaudit report wouldbe provided to the Bank supervision missionwithin one monthafter its au&t. f. MonitoringandReporting. Inadditionto above auditingarrangement, township work stations would maintain computerized database showing individual households' files including disbursements and reimbursements andprint them out andsendto each village for transparent monitoring. The progress report would be submittedto the Bank on quarterly basis. 4. Selectionof Consultants. A total o f about US$ 1.4 million o f consultants services would be requiredunderthis project. The consultingserviceswould include technical extension and assistance for crop planting, fruit tree planting, household practical farming skills, livestock breeding, teacher and medical staff training, community capacity building,andproject management, monitoring and evaluation. Most services would be providedby individual consultants andsome would be provided by consulting firms. The consulting contracts expected to cost more than US$200,000 equivalent per contract will use the Quality and Cost Based Selection (QCBS) or Quality Based Selection (QBS). Most consulting services are estimated under US$lOO,OOO equivalent per contract under this project. The Selection Based on Consultants Qualifications (CQ) would be usedfor these contracts. Chinese universities, design andresearch institutes as source o f consultants may be included inthe shortlist. Insuch cases, QBS or CQ would be used instead o f QCBS. Short lists o f consultants for services estimated to cost less than US$300,000 equivalent per contract may be composed entirely ofnational consultants in accordancewith the provisions o fparagraph 2.7 o f the Consultant Guidelines. Inspecial cases, for assignments that meet specific criteria as definedinthe Guidelines, single-source selection may be usedwith prior no objection from the Bank. 5. Trainingworkshops and Study Tours. A total o fUS$ 7.4 million for training workshops and study tours would be required. Detailedprograms will be developedbythe PMOs duringproject implementation and included inproject annual work plan for Bank's review. Actual expenditures incurred inaccordancewith the approved detailedprograms will be used as the basis for reimbursement. - 63 -  6. ProgramSupportfor Social Services. A total of about US$ 1.6 million would berequiredto provide financial support for poor children for school andbasic health services for poor people in the project areas. 7. IncrementalOperatingCosts. A total amount of incremental operating costs estimated around US2.3 million will be procured by the project following usual commercialpractices with due observanceto the principle ofefficiency. This will include: operation andmaintenance of vehxles andequipment (including insurance), offices` energy and communications, office supplies andutilities, project staffs operational travel andper diem, andhiringspace andservicesrelated to project training, coordinationanddissemination events. B. Assessmentof the agency's capacityto implementprocurement Procurement activities will be carried out by Project Management Offices (PMOs) established at provincial, county, andtownships levels and communities and village households. Eachprovince is staffed by 4 procurement officers inprovincial PMO and two procurement staff appointed to be responsible for procurement ineach county PMO. An assessmentof the capacity ofthe ImplementingAgency to implementprocurement actions for the project has been carriedout by the World Bank BeijingOffice, inMarch andJune 2004. The assessmentreviewedits organization structure and functions, past experience, staff skills, quality and adequacy o f supporting and control systems, legal andregulatory framework. The overall project risk for procurement is average. The agreedaction planto address the mainweakness identifiedinclude (i) sufficient procurement trainings; (ii)detailed andtimely guidance and supervision by both the PPMOs and the Bank's supervision andreviews; (iii) soundprocurement planning; (iv) clear distribution of responsibilities; (v) a complete support andcontrol system; and (vi) a practical anduser-friendly Procurement Manual. C. ProcurementManual The Procurement Manual not only has provided detailed guidance onorganization structure, staffing androles and responsibilities o f PMOs at each level, but also defined the procurement procedures and arrangements for each component under the project. Sample contracts for small works andgoods procurement have been developed andincluded inthe Manual for reference duringthe implementation. The detailed procedures for community and village households participationinthe project have been also worked out. D. ProcurementPlan The Borrower has developed a procurement planfor project implementation, which provides the basis for the procurement methods. This planhas been agreedbetween the Borrower andthe Project Team before negotiation and i s available at Sichuan PMO, Yunnan PMO andGuangxi PMO. Itwill also be available inthe Project's database andinthe Bank's external website. The Procurement Planwill be updated inagreement with the Project Team annually or as requiredto reflect the actual project implementation needs and improvements ininstitutional capacity. - 64 -  E. World Bank Prior Review All contracts inexcess ofUS$300,000 for goods andUS$1million for works andall contracts for consultant services inexcess o f US$lOO,OOO for firms and US$50,000 for individuals and all contracts awardedundersingle source selection would be subject to prior review by the Bank. Force Account contracts will be subject to Prior Review by the Bank, as well as all single-source selections. All other contracts would be subject to ex-post review by supervision missions, post reviewsamplingratio would be one out offive contracts. F. FrequencyofProcurement Supervision Inaddition to thepriorreviewsupervision to becarried out fromWork Bank Office Beijing,the capacity assessment o fthe ImplementingAgency has recommended at least two supervision missions per year to visit the project provinces to carry out post review o f procurement actions. - 65 -  Procurement methods (TableA) Table A: ProjectCosts by ProcurementArrangements (US$ million equivalent) Figures in parentheses are the amounts to be financed by the Bank Loan. All costs include contingencies. 21Includes civil works and goods to be procured through national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, and incremental operating costs relatedto (i) managingthe project, and (ii)re-lending project funds to local government units. - 66 -  Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent) (0.00) (0.80) (0.00) (0.00) (0.15) (0.00) (0.00) (0.95) B. Individuals 0.00 0.30 0.00 0.00 0.15 0.00 0.00 0.45 (0.00) (0.30) (0.00) (0.00) (0.15) (0.00) (0.00) (0.45) Total I 0.00 1.10 0.00 0.00 0.30 0.00 0.00 1.40 (0.00) I (1.10) I(0.00) I (0.00) 1(0.30) I (0.00) I (0.00) I (1.40) I\Including contingencies Note:QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants'Qualifications Other = 9Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parentheses are the amounts to be financed by the Bank Loan. - 67 -  Prior reviewthresholds (Table B) Table B: 'hresholdsfor Procuremi t Methods.and Prior Revic bject to iew (US$ millions) Above $10million ICB Yes; Not anticipated Less than $10 million; NCB Yes, ($5 million) above $1million ,ess than $1 million, above NCB No $100,000 Less than $100.000 ForceAccount Yes ($6 million) Less than $100,000 Shopping/Community No Participation 2. Goods Above $500,000 ICB Yes, not anticipated Less than $500,000, above $300,0000 NCB Yes ($0.8 million) Below $300,000, above $100,000 NCB No; only the first contract Below $100,000 Shopping/Community N o ParticiDation 3. Services Firms: above $100,000 QCBS/QBSISS Yes ($0.5 million) Below $100,000. QBSICQ No sss Yes Individual: above $50,000 ICISS Yes ($0.3 million) Below $50,000 T n No 4. Miscellaneous All Other No (SOE mechanism) ~ Total value of contracts subject to prior review: US$12.5 million (about 9% of total value of procurement) Overall ProcurementRisk Assessment: Average Frequencyof procurement supervision missionsproposed: One every 6 months for initial two years and once ayear for the remaining years (includes special procurementsupervisionfor post-review/audits) "Thresholds generally differ by country and project. Consult "Assessment of Agency's Capacity to Implement Procurement" and contactthe Regional ProcurementAdviser for guidance. - 68 -  Annex 6(B): FinancialManagementand DisbursementArrangements CHINA: POOR RURAL COMMUNITIES DEVELOPMENTPROJECT Financial Management 1. Summary ofthe Financial ManagementAssessment Summary 1. The FMS has conducted an assessment o f the adequacyo f the project financial management system o f the Poor Rural Communities Development Project. The assessment, basedon guidelines issued by the Financial Management SectorBoarddated October 15,2003, has concluded that the project meets minimumBank financial managementrequirements, as stipulated inBP/OP 10.02. Inthe FMS's opinion, the project will have inplace an adequate project financial management systemthat can provide, with reasonable assurance, accurateandtimely information on the status o f the project inthe reporting format agreed with the project andas requiredby the Bank. 2. Fundingsources for theproject include the World Bank loan, counterpart funds and a DFIDgrant. The Bank loanproceedswill flow from the Bank into the project special accounts to be set up at and managedby the Provincial Finance Bureaus of eachprovince (Yunnan, Sichuan and Guangxi), and thento municipal finance bureaus (MFB) and county finance bureaus (CFB). For the non-household components the funds will be usedto make payments to related keybureaus/executing agencies andcontractors or suppliers, while for the householdcomponent the funds will be delivered to the households through townships andvillages committees. Counterpart funds will come from the central and the provincial/municipal/county governments. Interms of disbursementtechnique, the project will be disbursingbasedonthe traditional disbursement techmquesand will not be usingPMR-based disbursements, inaccordancewith the agreementbetweenthe Bank andMOF. 3. No outstanding audits or audit issues exist with any of the implementingagencies involvedinthe proposed project. The FMS however will continue to be attentive to financial management matters and audit covenants duringproject supervisions. Country Issues 4. To date, no CFAA has beenperformed for China, though dialogue with the Government of Chma inrespectofthe CFAA exercisehasbeeninitiatedandunderway. The plannedapproach to CFAA is to buildon the Asian Development Bank's study ofFinancial Management and Governance Issues inChina in 2000, and analyze areas that have changed rapidly inthe past few years or that deserve further scrutiny and over time will cover all major areas usually assessed as part o f a full CFAA exercise. Currently, for reference purpose, the Bank relies on study work conducted by the Asian Development Bank. 5. However, basedon observations o f developments inthe areas o f public expenditures, accounting and auditing, and Bank experience with China projects for the past few years, we note that substantial achievement inthe aforementioned areas has beenmade andfurther improvement is expected inthe next few years. As economic reformprogram further unfolds, the Government o f China has come to realize the importance o f establishing andmaintaining an efficient andeffective market mechanism to ensure transparency and accountability, andminimize potential fraud or corruption. 6. Dueto rather uniquearrangement by the Government ofChina, funding (inparticular the Bank loan) o f Bankprojects is controlled and monitored by MOF and its extension &e. finance bureaus at provincial/regional, municipal/municipal and county level). However, project activities are usually carried out by implementingagencies o f a specific industry or sector. The above arrangement then usually requires - 69 -  closer coordination on the project, as the multi-level management o f the hndingand implementation mechanism sometimes works to the detriment o f smooth project implementation. As such, this assessment focuses o n respective provincial finance bureaus o f participating provinces, which will handle Special Account activities for the project, and Project Management Office, which will be responsible for managing and implementing various components o f the project. Risk Analysis 7. The following risks with corresponding mitigating measures have been identified during assessment processes: RiskRating Mitigating Measures Moderate Many implementing agenciesinvolved inthe project have no prior Bank experience. Close monitoring by the task team i s extremely important, particularly at the initial stage. Moderate Close monitoring by task team is neededto ensure all the Iimplementingentities are familiar with Bank procedures and requirements. Moderate IThe task team will ensurethat mechanism will be inplace to ascertainBank and counterpart funds will be released to the ultimate beneficiaries on a timely basis. c. Staffing Moderate Adequate and qualified project staff inposition prior to effectiveness; periodic check by task team on project staffing I plan or issues d. Accounting policies and Low Accountingpolicies andprocedures are already in place Moderate No intemal audit arrangement for the project. However, the provincial finance bureau and provincial PMO will periodically supervise project implementation. The external auditors, the ChinaNational Audit Office and its local offices have extensive audit experience with Bank projects. Format of financial statements and frequency o f submission monitoring Low have beenclearly defined by the Bank and MOF. h. Information system Moderate More intensive verification by the task team at the early implementation stage to ensure correct setup, followed up by regular supervision missions. Strengthsand Weaknesses 8. Strengths -The provincialPMOSo f the three project provinces (Yunnan, Sichuan andGuangxi) have extensive experience inthe implementationo f Bank's project. They have previously implemented the China Southwest Poverty Reductionproject andQinba Mountains Poverty Reduction project. 9. Project special accounts will be managed by the provincial Finance Bureaus. These provincial Finance Bureaus already have experience inmanaging Bank's projects, andthey have been found adequate - 70 -  andcompetent inprocessingwithdrawal applications and overseeingfund flows, includingBank loanand counterpart funds. 10. Weaknesses-All project financial staff at the county level do not have previous Bankproject experiences, although they do have some according experiences. Therefore, a well-defined and focused training should be provided by the provincial PMOs prior to effectiveness to these staff to ascertain that they have a good understanding of Bank operations and requirements before stepping on to the positions. The task team will provide relevant training as and when needed. ImplementingEntity 11. At the provinciallevel, ProjectLeading Groups (PLG) have been set upto (a) mobilize institutional, technical andfinancial resources and support for the preparation and implementationo f the project; and (b) provide critical coordination and monitoring function. Inaddition, Project Management Offices (PMOs) have been establishedto ensure effective andtimely implementationof the project. 12. At the municipal and county level, PMOs have beenset up. The county PMOs willplay akey role inthe day-to-day implementationoftheproject. 13. As an important measureto ensure the project sustainability and localcapacity building,the project will establish the Township Project Workmg Station (TPWS) and Village Project Execution Group (VPEG) at the township andvillage level respectively. The TPWS andVPEG will be responsible for the day-to-day executiono f the project intheir corresponding area. Funds Flow 14. Bankfunds - The Bankloanwill flow from the Bankto the special accountsto be set up at and maintainedby respective provincial finance bureau (PFB) for each one o f the participatingprovince, and thento municipalfinance bureaus(MFB) and county finance bureaus (CFB). For the public goods components, the funds will be delivered either to the relatedkey bureaus and then to contractors or suppliers, or to townships andvillages for community procurement. Inboth cases funds may be passedto households to pay for their labor. For the agriculture components, the funds will be delivered to households through Townships Project Working Station and Village Project Execution Groups to the communities. The funds flow is slightly different for eachone o fthe three provinces, as detailed inthe following paragraphs: -71 -  Sichuan province: Households Guangxiprovince: - Yunnan province: - I I Special Key Contractors/ account MFB CFB bureaus mB,keR 15. Counterpartfunds Counterpart funds will be contributedby the central, provincial, municipal, and county governments, representing about 30% o f total project cost. However, most o f the counterpart contribution will be provided by the central and provincial governments, for the works and goods, andincremental operating costs. Giventhe level o f counterpart financing, andthe fact that central government intendsto bear the majority of this funding, the availability of counterpart fimdingshouldnot be considered a significant risk. - 72 -  16. Adequate project accounting staffwith relevanteducational background and experience is one o f the`factors criticalto the successfulimplementation ofproject financial management. Basedon discussions, observation andreview o f educational background and work experience o f the staff identified for financial andaccountingpositions inimplementingentities, the task team note that `most staff are qualified andappropriate to the work they are expected to assume. However, several financial staff at the county level do not have the requiredaccountantcertificate but performed some accounting duties already. The relatedprovincial PMOs should assess their capacity to fulfilltheir responsibilities, otherwise they shouldbe replaced by qualifiedindividuals. 17. Inorder to facilitate financial managementwork, aProject Financial Management Manual (Financial Manual) was prepared. The final draft o f this Manual has been completed based on the feedback from the Bank and provinces and it has been adoptedby all provinces. The three provinces will have to prepare their detailed procedures basedon this Manual and inline with their specific circumstances, which will need to be disseminatedto all the financial staff inthe province. 18. Though some financial staff at provincial levelpossesses experience with Bankprojects, most o f the financial or accounting staff to be appointed at the county level may lack direct experience inBank projects. To ensure that staff recruitedfor the project will have good understanding o f Bank's policy and requirements, it has been agreedwith the PMO that a well-designed and focused training program will be providedby the provincialPMOs to all new financial staff coricemed, as a condition for loan disbursement from the loan category corresponding to eachprovince. The training program will include but not limited to the following: 0 Bank's procurement and disbursement procedures; 0 Project financial management manual; 0 Project financial statements; 0 Project audit arrangement Accounting Policies and Procedures 19. The administration, accounting andreporting o f the project will be set up inaccordancewith Circular #13: "Accounting Regulations for World Bank FinancedProjects" issued inJanuary 2000 by MOF. The circular provides in-depthinstructions o f accounting treatment o f project activities and covers the following: 0 Chart o f account; 0 Detailed accounting instructions for eachproject account; 0 Standard set o f project financial statements; 0 Instructions on the preparation o fproject financial statements The standardset ofproject financial statementsmentionedabove hasbeen agreedto betweenthe Bankand MOF and applies to all Bank projects appraised after July 1, 1998 and includes the following: 0 Balance sheet; 0 Statement of source and use o f fund; - 73 -  0 Statement o f implementation of loan agreement; 0 Statement o f special account 20. Each o f the implementingentities will be managing, monitoring and maintainingrespective project accounting records. Since the county PMO has beenidentifiedto be the lowest level accounting unit, original supporting documents for project activities will be retained inthe county PMO. Inaddition, each county PMO will prepare financial statements, which will then be submitted to and consolidated by the municipal andprovincial PMOs. The provincial PMOs will prepare a consolidatedproject financial statements for submission to the Bank for review andcomment on a regularbasis. 2. Audit Arrangements Internal Audit 21. There is no formal independent InternalAudit department for the project. However, this will not impact the project's financial managementas PMO management and monitoring and yearly external audits will serve as the mechanism to ensure that financial management controls are functioning appropriately. External Audit and Audit Reports 22. The Bank requires that project financial statementsbe audited inaccordancewith standards acceptable to the Bank. Inline with Bank financed projects inChina, the project will be audited in accordance with the Government AuditingStandards o f the People'sRepublic o f China (the 1997 edition). The Foreign FundsApplication Audit Department o f the China National Audit Office (CNAO) and provincialaudit bureaus ineachparticipating provinces have been identified as auditors for the project. 23. Three audit reports on annual project financial statements will be due to the Bank within 6 months of the endo f each calendar year. Details are included inthe table below. Component Submittedby Duedate Yunnan YunnanPMO June 30 ISichuan Sichuan PMO Guangxi IGuangxiPMO IJune 30 June30 Reporting and Monitoring and Format of Financial Statements 24. Eachproject province (Yunnan, Sichuan and Guangxi) will prepare its own consolidatedproject financial statements. The format andcontent o f the following project financial statements representthe standardproject reportingpackageagreedto between the Bank andMOF, andhave beendiscussedand agreedwith all parties concerned. The project consolidated financial statements will be submittedas part of the Financial Monitoring Report to the Bank for review andcomment on a semi-annual basis (prior to August 15 andMarch 15 of the subsequent year) and include the following four statements: 0 Balance Sheet; 0 Summary of Sources and Uses o f Fundsby Project Component; 0 Statemento f Implementationo f Loan Agreement; and 0 Statement of Special Account - 74 -  Information Systems 25. The accounting software named "Yongyou" hasbeenusedbyYunnan and Guangxi provinces in their previously implemented Southwest Poverty Reductionproject. Given that this is a reputable and reliable accounting software, they will continue to use this software inthe proposednew project. For Sichuan province, they usedthe accounting software that was financed by the Bank intheir Qinba MountainPoverty Reduction project and they intendto use it again inthe new project. Nevertheless, verification by the task team at the early implementation stage and duringsupervision missions will be carried out to ensure correct setup and proper usage. Impact of ProcurementArrangements 26. The impact o fprocurement arrangementso f the project on financial management is considered to be minimal. Threshold set for procurement post-review will be consistent with that set for SOE disbursementpurposes. See discussion ofprocurement arrangementsincludedinthe procurement assessmentreport. 3. DisbursementArrangements 27. The projectwill be disbursingusingthe traditional disbursementtechniques andwill not be using PMR-baseddisbursements, inaccordancewith the agreementbetween the Bank and MOF. 28. To facilitate disbursement,three Special Accounts will be established at each o f the participating provinces. The provincial finance bureaus (PFB) at the three participatingprovinces will be responsible for the management, monitoring, maintenance and reconciliation o f the respective Special Account activities. 29. Disbursement methods, such as replenishment, reimbursement, direct payment andspecial commitment, will be available to the project. The SOE limits will be set inline with procurement post-review threshold, as follows: 0 Works under contracts each costing less than US$ 1million equivalent; 0 Goods under contracts each costing less than US$300,000 equivalent; 0 Consulting services under contracts awarded to consulting firms each costing less than US$lOO,OOO equivalent; 0 Consulting services under contracts awarded to individualconsultants each costing less than US$50,000 equivalent; 0 TrainingProgram Assistance/Incremental Operating Costs. 30. The Special Accounts would be established inUS dollars, incommercial banksacceptableto the Bank andonterms and conditions satisfactory to the Bank. The Special Accounts would beusedfor all eligible foreign andlocal expenditures. Applications for replenishment o fthe Special Accounts wouldbe submittedmonthly or whenever the account hasbeendrawn downby about 50 percent ofthe initial deposit, whichever occurs first. The authorized allocation o f SA will be equivalent to about 4 months o f eligible expenses reimbursable via SA, as follows: a) Yulznan:The allocationo f SA is proposed to not exceed US$2.2 million. - 75 -  b) Sichuan:The allocation of SA is proposedto not exceedUS$2.2 million. c) Guangxi: The allocation o f SA is proposedto not exceedUS$1.9 million. Action Plan 31. The following is the only financial management time-bound actionthat is pendingandthat should be adequately addressedby the project, even though it has no major impact on Board presentation: I I Action Responsibility TargetDate 1.Each Province shouldprovide Provincial PMOS Prior to disbursements for each financial management training to Province (specific Condition o f relevant new financial and Disbursementfor eachLoan accounting project staff inthe Category). Project County Offices. Financial Covenants 32. There is no specific financial covenants for the project, other thanthe standard ones (e.g. maintainingproject accounts inaccordancewith sound accounting practices, audit requirement and SOE), as described inthe legal document. Supervision Plan 33. A detailed supervision planfor this project will be included as part ofthe China Audit Strategy document which is currently inprocess. This document will take into consideration o f the size of project and the risk identified. - 76 -  Allocation of loan proceeds(TableC) Table C: Allocation of Loan Proceeds Expenditure Category I Amount in US$million1 Financing Percentage TOTAL LOAN ALLOCATION Civil Works 34.60 60% Goods 48.60 75% Promam assistance to social services 1.50 100% Training and study tour 7.00 100% Consulting Services 1.30 100% Incremental Operating Costs 1S O 70% Unallocated 5.00 Total Project Costs with Bank 99.50 Financing Front-end fee 0.50 Total 100.00 Expenditure Category 1 Amount in US $ Million I Financing Percentage Civil Works 9.57 60% Goods 16.53 75% ProgramAssistance to social services 0.20 100% Training:and Study Tour 1.46 100% I Consultinp:Services I 0.30 I 100% I IncrementalOperating cost 0.30 70% Unallocated 1.50 7- I I I Total project cost with Bank financing 29.86 Front-end Fee 0.14 Total 30.00 - 77 -  Table C -2 Allocation of Loan Proceeds Sichuan - Expenditure Category I Amount in US $ Million I Financing Percentage ~ Civil Works 10.00 60% Goods 18.50 75% ProgramAssistance to social services 0.90 100% Training and Study Tour 2.37 100% Consulting Services 0.70 100% Incremental Operating cost 0.60 70% Unallocated 1.75 Total project cost with Bank financing 34.82 Front-end Fee 0.18 Total 35.00 ~ Table C - 3 Allocation of Loan Proceeds - Yunnan I1IncrementalODerating.cost 0.62 70% Unallocated II 1.75 II II Total project cost with Bank 34.82 financing Front-end Fee 0.18 Total 35.00 - 78 -  Annex 7: Project Processing Schedule CHINA: POOR RURAL COMMUNITIES DEVELOPMENTPROJECT IFirstBank mission (identification) I 07110/2001 I 10/22/2001 I Appraisal mission departure ~ 01/21/2002 1o/1812004 Negotiations 04/08/2002 04/25/2005 IPlanned Date of Effectiveness I 0611112002 I 06/14/2005 I Prepared by: Guangxi, Yunnan and Sichuan FCPMCs (Foreign Capital Project Management Centers under the Leading Group for Poverty Reduction) Preparation assistance: PHRD TF02624 Bank staff who worked on the Droiect included: I Name Speciality Task Team Leader, Senior Economist Co-Task Team Leader, Economist Operations Adviser Senior Procurement Specialist Procurement Analyst Financial Management Specialist ChiefCounsel Senior Counsel Senior Social Sector Specialist NavinRai Senior Social Development Specialist Jose Molina Senior Financial Officer 'ZhengxuanZhu Senior Agricultural Specialist PeishenWang Environmental Specialist Cyprian Fisiy Peer Reviewer Yutaka Takamine Peer Reviewer HuangPing Peer Reviewer Matrice Mangum ProgramAssistant Wenyan Dong ProgramAssistant Serena Brooks Program Assistant DFIDStaffwho worked onthe projectinclude:Holger Grundel (Team Leader, Pro-Poor Growthand Policy Adviser), Chris Athayde (Deputy Head, DFIDChma), Jillian Popkins (Social Development Advisor), StephenKidd (Social DevelopmentAdvisor), Alistair Wray (Senior Infrastructure Advisor), - 79 -  Catherine Martin(Enterprise Development Advisor), Strahan Spencer (Economist), Aimin Hao (Project Officer for PRCDP), Yongjun Zhao (Institional Advisor), Sue Milner(Education Advisor), John Warburton (Senior Environmental Advisor), Jiangrong Qiao (Health Advisor), Nicola Woods (ICD Advisor) Other specialistswho worked on the project include: Claude Saint-Pierre (Amculture), EnjiangCheng (Financial Management), Wenbin Hu(Education), Yunguo Liu(Health), DunchunWang (Rural Infrastructure), Wu Ning(Procurement and Financial Management), Wang Yingjie (ICD), Sevilla Leowinata (Gender), ZhibinLin(Gender), Janet Tay (M&E),NinghuiLi (M&E), Jeffrey Himel (Environment), Dezhong Shen (Environment), DamingZhou (Social Assessment and Ethnic Minority People), Weijian Zhang (Resettlement), Johanna Pennarz (Participation), Julian Barr (Participation), Dee Jupp (Participation), FrankLi (HI, Disabilities), Koen Sevenants (HI, Disabilities), KymDavis (Facilitator), Yuanming Liu(Interpreter), Jialing Luo (Interpreter), Wei Huang (Interpreter), Sandy Peng (Interpreter), Feier Chen (Interpreter), LinJinpan (Interpreter), Wanxin Li(Interpreter) - 80 -  Annex 8:. Documents inthe Project File* CHINA: POOR RURAL COMMUNITIES DEVELOPMENTPROJECT A. Project Implementation Plan The Project Implementation Manual (PIM) was updated following the October 2004 Appraisal Mission. The PIM i s a living document which will be updated on a regular basis during project implementation. The current version (March, 2005) is available on CD, and includes: 1. Project Component ManualdGuidelines 2. County Maps (18 images) 3. Social Assessment Report 4. Ethnic Minority Development Framework 5, Environmental Assessmenthvironmental Management Plan , 6. ParticipationManual 7. Resettlement Action Plan 8. Yuexi County Disabilities Pilot Component Outline 9. Financial Management Manual 10. Procurement Manual 8. BankStaffAssessments Identification, Preparation, Preappraisal, an1 Appraisa Aide Memoires. C. Other All importantproject documentation is available inthe PIM. *Including electronic files -81 -  Annex 9: Statement of Loans and Credits CHINA: POOR RURAL COMMUNITIESDEVELOPMENT PROJECT 23-NOV-2004 Differencebetweenexpected and actual OriginalAmount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO57933 2005 CN-TAI BASIN URBANENVMT 61.30 0.00 0.00 0 00 61.00 185 0.00 PO75730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0 00 17200 0 00 0.00 PO73002 2004 CN-Basic Education in WesternAreas 100.00 0.00 0.00 0 00 96 04 -3 96 0.00 PO84003 2004 CN-GEF GUANGDONGPRD URB ENV 0.00 0.00 10.00 0 00 10 00 0 00 0 00 PO65035 2004 CN-Gansu & Xinjiang Pastoral Development 66.27 0.00 0.00 0 00 61 37 7 50 0 00 PO69652 2004 CN-Wuhan UrbanTransport 200.00 0.00 0.00 100 19800 125 12 0.00 PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0 00 13167 0 92 0.00 PO65463 2004 CN Jiangxi integratedAgric. Modem. - 100.00 0.00 0.00 0 00 99 00 6 46 0.00 PO75035 2004 CN GEF-Hai Basin Integr.Wat. Env Man. - 0.00 0.00 17.00 0 00 16 55 0 96 0.00 PO77137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0 46 90 55 2 33 0.00 PO77615 2004 CN-GEF-Gansu & Xinjiang PastoralDevelop 0.00 0.00 10.50 0 00 10 50 190 0.00 PO61749 2004 CN-Hubei Shiman Highway 200.00 0.00 0.00 100 19900 0 00 0.00 PO75726 2004 CN-GUANGDONGIPRDUR ENVMT 128.00 0.00 0 00 0 00 12800 0 00 0.00 PO75602 2004 CN-2nd National Railways(Zhe-GanLine) 200.00 0.00 0.00 0 00 200 00 0 00 0.00 PO67337 2003 CN-2nd GEF Energy Conservation 0 00 0.00 26.00 0 00 1450 20 97 0.00 PO40599 2003 CN-TiANJiN URB DEV II 15000 0.00 0.00 0 00 14382 8 67 0 00 PO68058 2003 CN-Yixing Pumped Storage Project 14500 0.00 0.00 0 00 13236 -0 44 0.00 PO76714 2003 CN-2nd Anhul Hwy 250.00 0.00 0.00 0 00 238 50 29 63 0.00 PO70191 2003 CN-SHANGHAI URBENVMTAPLl 200 00 0.00 0.00 0 00 18492 15 25 0.00 PO70441 2003 CN-Hubei Xiaogan Xiangfan Hwy 250.00 0.00 0.00 0 00 11633 -23 67 0 00 P058847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0 00 92 81 1947 0.00 PO64729 2002 CN-SUSTAINABLEFORESTRYDEV. PROJECT 93 90 0.00 0.00 0 00 71 77 1594 0.00 PO60029 2002 CN-Sustain. Forestv Dev(Natura1Forest) 0 00 0.00 16.00 0 00 1208 6 20 0.00 PO58646 2002 CN-Natl Railway Project 160.00 0.00 0.00 0 00 29 76 1143 0 00 PO68049 2002 CN-Hubei HydropowerDev in PoorAreas 105.00 0.00 0.00 0 00 79 75 25 42 0.00 P070459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0 00 72 71 6 38 0.00 PO71147 2002 CN-TuberculosisControl Project 104.00 0.00 0.00 0 00 71 97 -32 03 0.00 PO56199 2001 CN-3rd Inland Waterways 100.00 0.00 0.00 0 00 68 69 1086 0.00 PO56516 2001 CN -WATER CONSERVATION 74.00 0.00 0.00 0 00 29 04 9 34 0.00 PO58845 2001 Jiangxi I/ Hwy 200 00 0.00 0 00 54 77 52 40 15 50 0.00 PO47345 2001 CN-HUAIRIVER POLLUTIONCONTROL 105.50 0.00 0.00 0 00 74 60 -30 90 0.00 PO51854 2001 CN-LIAORIVERBASIN 100.00 0.00 0.00 0 00 52 64 26 11 0.00 PO56596 2001 CN-ShljiazhuangUrban Transport 100.00 0.00 0.00 0 00 61 58 60 91 0.00 PO45915 2001 CN-Urumqi UrbanTransport 100.00 0 00 0.00 0 00 46 16 46 16 0.00 PO58643 2000 CN-GuangxiHighway 200.00 0.00 0.00 0 00 71 94 37 94 0.00 PO64730 2000 CN Yangtze DikeStrengthening Project . 210.00 0.00 0.00 0 00 99 91 99 91 0.00 PO42109 2000 CN-BEIJINGENVIRONMENTII 349.00 0.00 25.00 0 00 272 26 201 29 0.00 PO64924 2000 CN-GEF-BEIJiNGENVMT I1 0.00 0.00 25.00 0 00 23 11 21 51 8.15 PO56844 2000 3rd Henan Prov Hwy 150.00 0 00 0.00 0 00 38 31 22 64 0.00 PO45910 2000 CN-HEBEIURBANENVIRONMENT 150.00 0.00 0.00 0 00 10753 54 53 0.00 PO56424 2000 CN-TONGBAiPUMPEDSTOW 320.00 0.00 0.00 10000 10855 10442 0.00 PO45264 2000 CN-SMALLHLDRCATTLE DEV 93.50 0.00 0.00 0 00 5 08 165 0.00 PO49436 2000 CN-CHONGQINGURBANENVMT 200 00 0.00 0.00 3 70 14043 83 13 0.00 PO41268 1999 CN-Nat Hwy4/Hubei-Hunan 350.00 0.00 0.00 0 00 37 87 31 21 0.00 PO57352 I999 CN-RURALWATER iV 16.00 30.00 0.00 0 00 17 69 1568 13.66 PO36121 1999 CN-GEF-RENEWABLEENERGY DEVELOPMENT 0.00 0.00 35.00 0 00 21 87 31 40 13.08 PO56308 1999 CN-PENSIONREFORMPJT 0.00 5.00 0.00 0 00 109 106 0.00 PO60270 1999 CN-ENTERPRISEREFORMLN 0.00 5.00 0.00 0 00 180 3 30 3.08 PO46629 1999 CN-RENEWABLEENERGY DEVELOPMENT 100.00 0.00 0.00 0 00 9 03 96 03 6.16 PO46564 1999 CN Gansu& Inner MongoliaPoverty Red. 60.00 100.00 0.00 1330 22 26 22 51 ~ -13.24 PO46051 I999 CN-HIGHER EDUC.REFORM 20.00 50.00 0.00 0 00 5 69 7 31 0.00 PO03653 1999 CN-ContainerTransport 71.00 0.00 0.00 1861 2 71 21 32 1.27 PO43933 1999 CN-SICHUANURBAN ENVMT 150.00 2.00 0.00 0 00 80 95 90 04 33.22 - 82 -  Difference betweenexpected and actual OriginalAmount in US$ Millions disbursements' ProjectID FY Purpose iBRD iDA GEF Cancel. Undisb. Orig Frm Rev'd PO42299 1999 TEC COOP CREDITIV 10.00 35 00 0 00 0 00 33 18 -14 16 0.00 PO41690 1999 CN-Liaoning UrbanTransport 150.00 0 00 0 00 0 00 1667 1687 0.00 PO36953 I999 CN-HEALTH IX (ShiyongWang, Back-up) 1000 50 00 0 00 0 40 29 39 22 17 0.27 PO56216 I999 CN -LOESS PLATEAUII 10000 50 00 0 00 0 00 10 77 12 91 -3.59 PO51868 1999 CN GUANZHONGIRRIGATION - 60.00 20 00 0 00 0 00 21 30 20 40 0.00 PO51656 1999 ACCOUNTING REFORM& DEVELOPMENT 27.40 5 60 0 00 0 00 1621 16 11 0.00 PO51705 1999 CN-Fujian IIHighway 200.00 0 00 0 00 0 00 43 45 43 45 0 00 PO50036 1999 Anhui Provincial Hwy 200.00 0 00 0 00 9 60 20 23 29 63 0.00 PO49665 1999 CN-ANNINGVALLEY AG DEV 90.00 30 00 0 00 0 00 1293 12 10 0.00 PO03606 1996 ENERGY CONSERVATION 63.00 0 00 22 00 0 00 30 14 20 02 0.00 PO03566 1996 CN-BASIC HEALTH(HLTH8) 0.00 85 00 0 00 0 00 33 62 25 76 0.00 PO03539 1998 CN SUSTAINABLE COASTALRESOURCESDE 100.00 0 00 0 00 2 06 42 16 44 24 0.37 PO36414 1996 CN-GUANGXIURBANENVMT 72.00 20 00 0 00 10 19 56 34 67 53 36.27 P035696 1996 HUNAN POWERDEVELOP 300.00 0 00 0 00 14500 21 52 16652 0.01 PO03619 1996 CN-2nd Inland Waterways 123.00 0 00 0 00 37 00 14 13 51 13 4.94 PO03614 1996 CN-GuangzhouCity Transport 200.00 0 00 0 00 20 00 96 98 11898 96.98 PO36949 1996 CN-Nat HwyBHubei 250.00 0 00 0 00 0 00 21 16 21 15 0.00 PO37659 1998 CN-GEF EnergyConservation 0.00 0 00 22 00 0 00 0 71 22 06 0.00 PO45786 I996 CN-Tn-ProvincialHwy 230.00 0 00 0 00 0 00 15 14 15 14 0.00 PO46952 1996 CN -FOREST DEV POORAR 100.00 10000 0 00 0 00 21 97 -76 59 14.60 PO49700 I998 CN IAIL-2 - 300.00 0 00 0 00 0 00 121 121 1.21 PO51736 1996 E CHINNJIANGSU PWR 250.00 0 00 0 00 86 00 33 39 11939 16.97 PO40185 1996 CN-SHANDONG ENVIRONMENT 96.00 0 00 0 00 140 20 07 21 47 15.60 PO03590 1997 CN - QINBA MOUNTAINSPOVERTYREDUCTIO 30.00 15000 0 00 0 00 3 16 6 55 3.91 PO03654 1997 CN-Nat Hv@/Hunan-Guangdong 400.00 0 00 0 00 0 00 21 04 21 04 21.04 PO36405 1997 CN - WANJlAZHAl WATERTRA 400.00 0 00 0 00 75 00 1191 86 91 3 20 PO44465 1997 SHANGHAIWAIGAOQIAO 400.00 0 00 0 00 0 00 66 16 50 16 54 39 PO03650 1997 TUOKETUOPOWEWINNER 400.00 0 00 0 00 10250 26 32 13062 26.32 PO03637 1997 CN-NAT'L RURALWATER 3 0.00 70 00 0 00 0 00 0 56 3 77 3.35 PO03594 1996 CN GANSUHEXICORRIDOR - 60.00 90 00 0 00 0 00 71 13 52 61 0 00 P003599 1996 CN-YUNNANENVMT 125.00 25 00 0 00 1946 30 16 51 40 15.45 P003602 1996 CN-HUBEIURBANENVIRONMENT 125.00 25 00 0 00 47 32 10 77 60 13 3.14 PO34616 1996 CN-LABOR MARKET DEV 10.00 20 00 0 00 0 00 5 46 7 61 0.00 PO40513 1996 2nd Henan Prov Hwy 210.00 0 00 0 00 1900 12 86 31 86 27.88 PO03596 1995 CN-Yangtze BasinWater ResourcesProject 100.00 11000 0 00 192 0 06 4 47 4.47 PO03603 1995 CN-ENT HOUSING& SSR 275.00 75 00 0 00 57 46 37 63 92 94 14.60 PO03639 1995 CN-SOUTHWESTPOVERTY REDUCTIONPROJE 47.50 200 00 0 00 0 01 0 60 24 67 24.87 PO03540 1994 CN-LOESSPLATEAU 0.00 15000 0 00 0 00 0 01 -0 67 0.00 PO03632 1993 CN-ENVIRONMENTTECH ASS 0.00 50 00 0 00 0 00 0 76 131 0.99 Total 1191137 155260 20650 827 17 512803 274706 45662 - 83 -  CHINA STATEMENT OF IFc's Held and DisbursedPortfolio Mar 2004 - InMillionsUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2003 Anjia 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 2004 Antai 40.00 0.00 0.00 30.00 0.00 0.00 0.00 0.00 2003 BCIB 0.00 0.00 11.60 0.00 0.00 0.00 0.00 0.00 1999100102 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2002 CDH China Fund 0.00 10.92 0.00 0.00 0.00 0.00 0.00 0.00 2003 CSMC 0.00 9.45 0.00 0.00 0.00 8.92 0.00 0.00 2004 CUNA Mutual 0.00 12.00 0.00 0.00 0.00 1.47 0.00 0.00 1998 ChengduHuarong 5.61 3.20 0.00 6.25 5.61 3.20 0.00 6.25 1992 China Bicycles 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 2004 China GreenEner 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 China I1 28.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 China ReLife 0.00 15.41 0.00 0.00 0.00 15.41 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2004 Colony China 0.00 17.31 0.00 0.00 0.00 0.33 0.00 0.00 2005 DMK 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2002 Darong 10.00 1.50 0.00 8.00 0.00 1.50 0.00 0.00 1995 Dupont Suzhou 6.23 0.00 0.00 0.00 6.23 0.00 0.00 0.00 1994 Dynamic Fund 0.00 7.79 0.00 0.00 0.00 6.13 0.00 0.00 2004 Fenglin 19.00 6.00 0.00 18.00 0.00 0.00 0.00 0.00 2003 Great Infotech 0.00 3.50 0.00 0.00 0.00 2.80 0.00 0.00 2002 HuarongAMC 9.00 2.51 0.00 0.00 9.00 0.01 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2002 IEC ' 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Jiangxi Chenming 0.00 12.90 0.00 0.00 0.00 0.00 0.00 0.00 1998 Leshan Scana 3.46 1.35 0.00 0.00 3.46 1.35 0.00 0.00 2001 MaanshanCarbon 8.25 2.00 0.00 0.00 8.25 2.00 0.00 0.00 2001 Minsheng Bank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2001 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996104 NanjingK u d o 34.00 2.23 0.00 0.00 0.00 0.00 0.00 0.00 2001 New China Life 0.00 13.21 0.00 0.00 0.00 5.83 0.00 0.00 1995 NewbridgeInv. 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00 1997 Orient Finance 5.71 0.00 0.00 7.14 5.71 0.00 0.00 7.14 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 2003 SAlC 12.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 2000 SEAF SSIF 0.00 4.50 0.00 0.00 0.00 1.02 0.00 0.00 2004 SIBFI 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 1998 ShanghaiKrupp 26.25 0.00 0.00 57.74 26.25 0.00 0.00 57.74 1999 ShanghaiMidway 0.00 16.02 0.00 0.00 0.00 16.02 0.00 0.00 1993 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 2002 Shenzhen PCCP 3.76 0.00 0.00 0.00 3.76 0.00 0.00 0.00 2001 Sino Gold 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 1995 Sino-Forest 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Suzhou PVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 Total Portfolio: 329.14 335.40 11.60 134.13 137.28 238.90 0.00 73.99 - 84 -  Approvals Pending Commitment FYApproval Company Loan Equity Quasi Partic 2004 CCB-MSNPL 0.00 0.00 3.00 0.00 2003 Cellon 0.00 0.00 5.70 0.00 2004 ChenmingLWC 60.00 0.00 0.00 155.00 2004 China Green 0.00 10.00 0.00 0.00 2002 HuarongAMC 15.00 0.00 0.00 0.00 2002 IEC 0.00 5.00 0.00 0.00 2005 MSShipping 15.75 0.00 5.00 0.00 2004 NCFL 0.00 0.00 17.88 0.00 2005 NHC 0.00 45.00 0.00 0.00 2003 Peak Pacific 2 0.00 0.00 10.00 0.00 2004 SIBFI 0.26 0.00 0.00 0.00 2002 SML 1.oo 0.00 0.00 0.00 2002 Sino Mining 5.00 0.00 0.00 5.00 2005 Vetroarredo 8.00 0.00 0.00 0.00 2002 Zhong Chen 0.00 0.00 0.00 32.00 Total PendingCommitment: 105.01 60.00 41.58 192.00 - 85 -  Annex IO: Country at a Glance CHINA: POOR RURAL COMMUNITIESDEVELOPMENTPROJECT East Lower. POVERTY and SOCIAL Asla 8 mlddle- China Paclflc Income Development diamond' 2002 Population, mid-year(millions) 12810 1838 2,411 Lifeexpectancy GNIpercapita(Atlas method, US$) 950 950 1390 GNI(Atlas method, US$billions) 1219.1 1740 3,352 T Average annual growth, 1996-02 Population PA) 0.8 1.0 10 Labor force PA) 0.9 12 12 GNI Most recent estimate (latest year available, 1996-02) per capita Poverty(% ofpopulationbelownationalpovetlyline) 5 Urbanpopulation(% oftotalpopulation) 38 38 49 Lifeexpectancyat birth(years) 71 69 69 i Infantmortality (per lPOOlivebirths) 30 33 30 Child malnutrition(%ofchildrenunder5) 0 6 11 Access to improved water source Access to an improvedwater source(%ofpopulation) 75 76 81 Illiteracy(% ofpopulationage 5+) n U U Gross primary enrollment (?Aofschool-age population) x16 x16 111 -China Male a5 135 111 Lower-middle-incomegroup Female 138 a6 113 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economlc ratios' GDP (US$ billions) 221.5 454.6 167.1 1232.7 Gross domestic investment/GDP 33.2 36.2 38.5 410 Exports of goods and servicesiGDP 8.9 19.5 25.5 29.5 Trade Gross domesticsavingslGDP 34.8 37.7 40.9 44.0 Gross national savings/GDP 35.1 38.0 40.0 43.8 T Currentaccount balance/GDP 2.4 19 15 2.9 Interestpayments/GDP 0.2 0.6 0.5 0.5 Total debt/GDP 3.8 15.9 U.6 P.6 Total debt service/exports 8.0 8.6 7.7 6.1 Present value of debt/GDP U.l Present value of debt/exports 51.8 Indebtedness 1982.92 1992-02 2001 2002 2002-06 (average annualgrowth) GDP 9.7 9.0 7.5 8.0 7.5 -China GDP DercaDita 8.1 8.0 6.7 7.2 6.6 Lower-middle-incomeCVOUD STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of Investment and GDP (%) (% of GDP) Agriculture 33.3 218 15.8 14.5 20 Industry 45.0 43.9 50.1 51.7 15 Manufacturing 37.3 33.1 34.2 44.5 10 l o ' Services 21.7 34.3 34.1 33.7 5 Private consumption 50.7 49.2 45.7 42.5 97 98 99 00 01 General governmentconsumption 14.5 u.1 u.4 0.5 ~ : ~ ~ Imports of goods and services 7.3 18.0 23.1 26.5 -GDI -GDP 1982-92 1992-02 2001 2002 1 Growth of exports and Imports (Oh) (averageannualgrowth) 1 Agriculture 4.6 3.7 2.8 2.9 Industry 11.6 11.3 8.4 9.9 Manufacturing 11.2 a.4 9.0 8.1 Services 11.7 8.4 8.4 7.3 Private consumption 11.4 8.1 2.8 1.9 General governmentconsumption 9.9 8.4 13.5 7.0 Gross domestic investment 9.5 9.7 u.9 n.9 1 Imports of goodsand services 9.7 12.8 a.8 27.5 -Exports -Imports 1 - 86 -  China PRICES a n d GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices (% change) Consumer prices 6.0 6.4 0.7 4.8 Implicit GDP deflator 4.2 7.9 1.2 -2.6 Government finance @of GDP, includes current grants) Current revenue 22.9 16.7 77.1 17.9 Cwrent budget balance 2.0 1.1 0.0 Overall surplusideficit 4.3 -1.0 4.7 -3.0 1 -0GDP deflator -CPI I 7 1 TRADE 1982 1992 2001 2002 (US$ millions) Export and Import levels (US0 mill.) Total exports (fob) 22,321 84.940 266,155 325,565 Food 2,908 8,309 12.780 14,623 Fuel 5,314 4,693 8,420 8,372 300,000 Manufactures P,271 67,936 239,802 297,085 Total imports (cif) 8,285 80,585 243,60 295,203 200.000 Food 4,201 3,166 4,980 5,237 Fueland energy a3 3,570 77,495 8,285 1 ~ , 0 0 0 I Capital goods 3,204 31,312 x)7,040 737,030 0 Exportprice index (895=fJO) 41 85 83 78 96 97 98 99 00 Importprice index (895=WO) 71 95 91 86 Exports Imports Terms of trade (895=M0) 58 89 91 90 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Current account balance t o GDP (%) Exports of goods and services 24,906 94,m 299,409 365,395 Imports of goods and services 20,555 86,752 271,325 328,073 'T Resource balance 4,350 7,446 28,084 37,383 Net income 376 249 -8,774 -16,945 Netcurrent transfers 486 1 8 5 8,492 P.984 Current account balance 5,212 8,850 V,401 35,422 Financing items (net) -995 49.52 30,046 40,085 Changes in net reserves 4277 2.a2 -47,447 -75,507 1 96 97 96 99 00 01 02 I Memo: Reserves including gold(Us$millionS) 24,842 220,051 297,721 Conversion rate (DEC, locaWS$) 2.4 5.9 8.3 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) 1 Composition of 2002 debt (US0 mill.) Total debt outstanding and disbursed 8,358 72,428 VO.lX7 65,878 lBRD 0 3,752 tt550 P,051 IDA 1 4,287 8,654 8,729 A 9.051 Total debt service 2,P5 8,68 24,297 23,688 iBRD 0 460 1,550 1,631 IDA 0 30 151 175 Composition of net resource flows Official grants 47 327 240 Official creditors 657 2,343 2,156 -839 Private creditors -P2 8,949 4,077 -0,593 Foreign direct investment 430 11,156 44,241 49.308 Portfolio equity 0 1243 3.015 2,286 F 62.133 World Bank program Commitments 330 1865 782 563 A - IBRD E. Bilateral Disbursements 1 1331 1791 1733 B IDA - D Other multilateral - F Private . Principal repayments 0 197 904 1,157 C - I M F G -Short-term - 87 -  Additional Annex I 1:Summaries of ParticipatoryApproach and SocialAssessment CHINA: POOR RURAL COMMUNITIESDEVELOPMENTPROJECT A. Summary of PRCDP ParticipatoryApproach 1. Introduction The Project Development Objective (PDO) o f PRCDP includes the aim to "achieve sustainedparticipation of the poorest rural people". This means that PRCDP will fully involve poor people from project villages in the design, implementation, monitoring and impact assessment o f the project. The extent to which villagers are involved, i.e. participate, inall aspects o f the project is critical. A key performance indicator for the PDO is the "degree o f effective participation o f communities.. throughout . the whole project cycle". The Participatory Approach outlined inthis annex i s designedto ensure communities do participate effectively, and that their engagement is neither passive, nor limitedto being respondents in `community consultations'. 2. Background There is anincreasing recognitionthat participationcan be useful for better targeted and more effective poverty alleviation, but there is limitedexperience to date o f usingparticipation throughout the project cycle incommunity-centred projects within the government system inChina. Nonetheless, Chinesepoverty alleviation work is progressively moving from mechanistic fulfilment o f plans and targets formulated at higher levels inthe government hierarchy, towards one inwhich the poor themselves increasingly play an active role. Thus Village Development Plans (VDPs) initiative is an importantprecedent to the participatory approach inPRCDP. The broad coverage andwide acceptanceo f VDPs has successfully promoted the concept of participation, raisingthe importance o f target group consultation for successful poverty alleviation. However VDP was limitedinits scope as a fully participatory process, as the views o f villagers were not adequately reflected, nor were they disaggregated according to social group. The process was owned andguided from above, andVDP was, as its name suggests, a planningexercise. I t didnot entail community participation inthe implementationor monitoring o fthe resultant poverty alleviation activities. Inaddition to VDP, there is a growing base o f experience inusingparticipatory methodologes in South-West China, but this is mostly limitedto PRA-type methods, used for project planning and needs assessments. Therefore, the PRCDP participatory approach builds on the foundations o f VDP and other participation experiences, but goes beyondplanning tools as it aims to empower local communities and be fully inclusive of all marginalised social groups throughout the project cycle. 3. Justification for taking a participatory approach Simply put, the development community has found that when primary project stakeholders-individuals and community-based organisations -participate inWorld Bank and other donor supported activities, development relevance and outcomes improve, andproject-supported activities tend to be more sustainable. Thus projects with highlevels of community participationtendto be better targeted, have better impact, and that impact tends to be more enduring. To yield all these advantages, participationmustbe seen and usedinall stages of PRCDP, notjust as a tool inpreparation of the project. Community participation indesign means that investments occur on structures andservices that better reflect communities' needs. Participationinproject implementation improves quality and efficiency o f contracting andprocurement, and can enhance relations among members o f groups that do not traditionally cooperate, andbetween villages and government agency staff. Transparency and accountability are - 88 -  improvedthrough the project cycle as a result of participation. Participationinmonitoring and evaluation enables communities to assess whether investments have succeeded according to criteria that are important to themselves as well as the lender andborrower. For these benefits to be achievedby PRCDP, the project implementingagenciesneed to continue shifting their perception o f participation from as afunctional operation, whereby communities arejust consulted about plans formulated from above, to beingan empoweringprocess that emphasisesthe voices and choices o f different groups inthe community, andbuildstheir ownership of, and capacities for, self-reliant community development. 3.1 Costs & benefits of the approach While the benefits from a participatory approach can be very significant andenduring, it is important to recognise that the approach often entails an `up-front' cost at the beginningo fthe project. However the evidence from World Bank investments globally is that these initial costs are more than off-set by the returns from better impact and more sustainable outcomes inthe longrun. The main costs inthe approach are: Costs associatedwith training and capacity building: Buildingawareness, capacity and support fromproject partners at all levels Facilitator Training (facilitators at County, Township and Village levels) Introducingthe participatory approach to villagers Costs associatedwith facilitating the on-going participatory project cycle process: Facilitating all stages of the project cycle inthe village Materials for participatory meetings, etc. Data collection, storage, analysis, reporting andinformation dissemination Reflective learning -improvingparticipation The specific costs of training andcapacity buildingwill mainly depend on (i) the number o f andtype o f awarenessraising activities and (ii) the number o f facilitators at each level, andthe type o f training they are given. The Provinces' Project Management Offices (PMOs) will needto determine these costs for themselves andallocate sufficient budget to the activities. However there is guidance giveninthe Participation Manual (an annex to the PRCDP Operational Manual) on costing. It is considered that there shouldbe one set o f training for facilitators drawn ffom County and Township staff, and another for village facilitators. It is further recommended that the training itself takes a participatory, hands-on, approach, and trains facilitators insmall batches. The specific costs of facilitating the on-going participatory process are llnked to the project cycle stages, andthencehowmany facilitators are involvedineachstage for how manydays. Again, guidance is given in the ParticipationManual, but the Provinces' PMOs will needto make their own calculations andbudget accordingly. Inrelationto boththese sets ofcosts, it shouldbenotedthat the preferredapproach relies heavily onvillage facilitators, with few inputs from highlevel officers or outside experts. This bothminimises costs and - 89 -  ensures that capacity for leading participatory approachesis being developed within the communities themselves. General benefits of the participatory approachhave beenelaborated above, more specifically, these may be dividedinto economic benefits andsocial & institutionalbenefits, to which it is difficult to assigna monetary value. Exampleso f the economic benefits o fparticipation include: better infrastructure maintenance by communities inprojects usinga participatory approach - therefore lower maintenance costs by government better school attendance and exam results at schools where there is community participationinthe project, and similarlybetter immunisation rates at clinics developed by participatory projects - therefore better retums to the investment better quality of infrastructure construction inparticipatoryprojects -therefore a longer life cycle and retumperiod for the investment communities are more willing to contribute time and resourcesto participatory projects, especially if participation extends to some control o f the funds themselves - therefore reduced direct costs for the borrower. 4. The Approach indetail PRCDP is a poor people-centered project, that has been designed to comply with WB and DFID requirements, especially with WB social safeguardpolicies. These requirementsfocus on the inclusion of poor and marginal groups (poor households, poor naturalvillages, ethnic minorities, women, the disabled, single-headed households and older people). To address this, PRCDP will therefore adopt aparticipatory approach based on the following two principles: e Different poverty groups are identifed and their needs addressed efectively by project interventions. This targeting principle means that the approach starts by identifyingpoverty groups (including households, sub-villages, women, small ethnic minorities, disadvantaged groups) usingcriteria generatedby villagers themselves Primary targeting is done by PMOSon the basis of geographical distiribution of: poverty according to official measures, o f e t h c minorities, andon remoteness.Within administrative villages, poverty i s disaggregated usinga participatory approach. The different needs of these different poverty groups will be reflectedthrough participatory planning. e Poor communities effectively participate in PRCDP throughout theproject cycle. Poor communities and poor groups (including ethnic minorities and women) participate inthe entire project cycle and fully expresstheir opinions; there is transparency o fthe entire process; the focus is onthe needs of poor sub-villages and disadvantaged groups (ethnic minorities, women). Participationwill be employed throughout the project cycle to ensure that activities are drivenby poor peoples' priorities and that these are reflected inannual planning processesand that access to funds is demand-driven. Inpracticalterms, participationinPRCDPmaybeseeninterms oftwo levels: e ParticipationinPRCDP design e Participation inPRCDP post-appraisal - 90 -  PRCDPproject design has utilisedaparticipatoryapproach. The Feasibility Studies undertaken during preparationhave focused on a set o f sample villages inwhich in-depthparticipatorydesign activities have occurred. The focus has been on Participatory Poverty Assessment (PPA) to work with communities to identifypoverty groups andpoverty criteria intheir villages, andParticipatory Planning(PP) to facilitate the involvement o f poor people indecision-making processesaround planningwhat PRCDP should do in their village. This in-depth participation indesign has taken place to a greater or lesser extent in 18 villages inGuangxi,20% o fPRCDPvillages inSichuanand 18villages inYunnan.Inadditionto informingthe Provinces' proposals, these participatory exerciseshave also ledto further development and improvement o f the PPA andPP methodologies. Post-appraisal, the participatory approach will utilise the PPA andPP methodologies as part of a participatory project cycle that will be followed for the project as a whole, and at a micro-level within project villages. The participatoryproject cycle consists o f four main steps: 0 Participatory Poverty Assessment (PPA) 0 Participatory Planning (PP) 0 Participatory Implementation (PI) 0 Participatory M&E (PM&E) Traditional Participatory Planning PPA and PP, and integration o f PPs with county plans Budgeting Continues to be a county/township function, though there are opportunities for communities to make decisions on budgets with village allocations. Part ofparticipatory planning Procurement Procurement will involve principles of community participation- at the minimum, improved information flow to improve transparency and accountability, but community contracting andfundmanagement will be tested. This is part o f Darticiuatorv imdementation /Implementation of specific IParticipatory implementation I projects/constructiono f infrastructure Supervision o f implementation PM&E and assessmento f the use o fparticipatory approach process according to standards for quality o f participation These participatory project cycle steps are elaborated below: 4.1 Participatory Poverty Assessment (PPA) PPA is participatorypoverty assessment that will be undertakenby villagers, especially the poor and the disadvantaged,usually with outside facilitation, of their poverty situation and their development needs and -91 -  options. Itwill help to identify differentsocial groups within the communities andhouseholds under consideration; and it will help inbetter understanding poverty, especially from villagers' perspectives. The main elements o f PPA will be: 0 Sub-village sampling (i.e. identification o fpoor natural villages) 0 Identification o f within-village poverty groups (social disaggregation) 0 Seasonality poverty analysis 0 Poverty history and trend analysis 0 Vulnerability analysis 0 Institutional analysis 0 Gender analysis onpoverty 0 Analysis o f the poverty situation o f ethnic groups 0 Assessment of Problems and Solutions -by discussing ,priorities and preferences, and conflicts and conflict resolutionoption this step will help to determine community expectations, possible contributions, potential conflicts andthe solutions for implementing the projects The methods usedinthese activities will be a combinationofhousehold-basedinterviewing and focus group discussions / participation sessions with villagers and villagers' representatives. The choices ofpoor and the disadvantaged groups as revealedinpriorities, preferences, suggestionsand recommendations will be analysed andusedas the basis for participatory planning. The PPA also provides a poverty framework and poverty baseline against which impact will laterbe assessed. 4.2 Participatory Planning (PP) Participatory Planning is a decision-makingprocesswhere poverty groups andother stakeholders have opportunity to participate actively andvoice their priorities and preferences regardingformulation o f village-levelhub-project development objectives, approaches andactivities as well as on resource allocation andproject management issues. The advantages o f PP are that it can: 0 provide an effective and interactive platform for community participationand transparent decision-malung andalso a negotiating processwhere different stakeholders such as poor and disadvantagedhouseholdslgroups, community leaders andcounty andtownship officials can be actively involved inproducinga local development strategy 0 helpto ensure that project components, activities and interventions are formulated insuch a manner, that they will meet the development demands o f the differentpoverty groups. Their participation can help inbetter targeting o fproject resources,to minimize/avoid mis-targeting inresource allocation, and ensure better targeting o fbenefit from the projects and consequently beneficiary satisfaction. 0 create `ownership' by the poor and enhance their commitment to participate inthe whole project life cycle, such as annual planning, involvement inthe implementation, labour contribution, M&E and maintenance of the constructed community infrastructures, etc. - 92 -  Inthe context ofPRCDP, the PPprocesswillhaveto take place withinthe limitationsofcounty planning, County plans, as partof the overall implementation planfor PRCDP will specify the following aspects o f implementation: 0 Investment scales andpercentagesfor different sub-projects 0 Terms o f procurement and payment 0 Means o f implementation by projects 0 Types o f funds, fund sources and their purposes Duringthe implementationofPRCDP, project activities andallocation of fundingwill befurther specified withm annualplanning.The purpose ofparticipatory planning at the village level will be to support allocationo fproject fundingwithinvillages. However, PP at the village level will take place withinthe limitations set by county plans, including: 0 Totalbudget available for the community 0 Proportions for productive I non-productive activities 0 Mainproject contents (as specified witlun the feasibility study) There can easily be a tension between bottom-up planswhich maybe over ambitious or overly expensive and top-down plans that may not reflect the expressedneeds o f poor communities. InPRCDP this tension i s realised where village level PPs and counties plans meet. There is a need for an integrationprocess. The main steps for integration will be: 1. Allocation ofbudgets to villages, prior to PP. 2. PP at village level, basedon findings from PPAs. 3. Integrationo f PP results andproposed implementationprinciples into the existing draft county plans; modifying andamendingthe existing county plan accordingly to ensure they are better targeted at poverty. 4. Technical appraisal, approval and feedback to villages. 5. Implementationo f sectoral projects at the village levelandmonitoringo f implementationprocess and technical quality. PP itself will entail: 1. Follow-on from PPA, whereinpoverty analysis, priorities of the community, especially of the poor groups, poverty analysis and solutionslstrategy have been elaborated-confirmingthe findingsfrom PPA. 2. Based on achieving the agreed objectives o f poverty groups, andtakingthe PPA solutionslstrategy outputs, project officials will work with target groups to develop specific project activities as well as budgetallocations. - 93 -  3. Withpoverty groups, determine their prioritization o f the project activities. 4. The draft PP will be cross-referencedto county plan, modifiedaccordingly, and fedback to the villagers. 5. A management planfor the village for the implementation of the project activities as well as the associatedproject budgetwill be developed. This will include achieving consensus amongst stakeholders on project management such as who will be on the managementgroup, implementation rules, etc. 6. Produce and share a PP reportlproposal, and submittingto local government andPRCDP project office. These steps will involve a range o f different facilitated participatory tools, such as ranking, scoring and matrices. 4.3 Participatory Implementation (PI) Participatory implementationrelatesto how communities will be involved inimplementationtakingplace at village level, and how a participatory approach will be usedfor different types of sub-projects. Coordination andimplementation structures will be established at village level. T h ~ will ideally be a s coordination group, but may be an individual inthe village, who will coordinate the planning and implementation processbetween different natural villages, and a Project ImplementationGroup who will be drawn fiom where the project is beingimplemented (e.g. certain naturalvillages). The coordination grouplperson will have to balance group interests (with fairness andtransparency and ensure pro-poor related interestdactivities), coordinate issues which are beyondthe naturalvillages, ensure appropriate convergence o f social and technical validation, facilitate communicationbetween different parts o f the village andvillage groups andresolve conflicts as and when required.The implementationgroup will be responsible for organising physical works, procurement andmonitoring the work progress. To ensure that the coordinationand implementation structures are representative o f all groups, especially poverty groups inthe village, the people on them will be elected ina village plenary meetingor villagers' representative meetings. Such meetings will need to be organised in a transparent and fair manner and ways are found to enable the poor to express their views and priorities. Duringthe processofproject implementationconflicting interests are likely to emerge withinthe village. The decision-malung process o f the project implementation group must be robust enough to demonstrate fairness and impartiality inits decisions. The goup will have to take special care where the poor and disadvantaged groups are involved inconflict situation with wealher groups at the local level. The entire implementationprocess, including expenditure andresource allocationwill be made transparent to villagers through good communication. All important aspects o f sub-project planning (including main activities, budget andexpenses) andimplementation (including contracting, procurement and monitoring) will bepublicised inthe village inways which can reacheven the poorest of the poor households, either through displaying it on village notice boards or by holding small group meetingsindifferent localities. The community will play an important role inquality control inPRCDP. Together with the township technicians, the implementationgroup will supervise the process o f implementationand actively suggest improvements where needed. This will require some orientation for villagers to grasp the technical aspects of the assets beingcreated, and for technicians to have faith inthe abilities o f villagers to undertake activities such as monitoring contractors' work, or even select contractors. - 94 -  Inrelationto different types of sub-project, the followingpoints gives anindicationofhowthe participatory approach will be used: Infrastructure construction. For construction projects that need to acquire land, such as village road construction, the community needsto participate inthe discussion and agreement of compensation for the land acquired. Villagers Ineeds to decide the principles for contributions o f labour (voluntarylpaid, gender differentials, who gets paid labour, etc). train the members of project implementationgroups with skills for managmg materials and money. Villagers' representatives, technicians and project managerswilljointly monitor the project, examine and approve it upon completion. Health sector. Participatory development o f training material andtraining on preventive health care for different groups 4.4 Participatory M&E (PM&E) A basic premise o f PM&E is the acknowledgement that different socio-economic groups will have differing measures o fproject success and impact, andwill be affected by the project differently. The PM&E system will thus encompassthe full range ofpoverty groups inthe PRCDP villages. This links closely to the PPA and PP stages o f the participatory project cycle: PPA will identifythe different social groups, PP will elucidate their needs andaspirations, and actively seek out their differentat the planningstage; PM&E will check whether these objectives have been met. The basic the principles o fPM&E are that: 0 What is to be assessed(Le the indicators) shouldbe selectedwith community involvement. 0 The indicators should be monitoredor assessedwith community involvement. 0 PM&E will be undertaken with differentpoverty groups. The mainsteps of PM&E will be: 1. Basedon different project activities andpurposes, villagers select or recommendpeople at the village andpoverty group levels to be involved inPM&E. 2. These people agree sets of indicators for activities, outputs andimpacts. 3. They agree a PM&E plan with Township staff, including: when to monitor, what monitoring methods will be used, how to record andpresent results, how to disseminate the results, andhow to act on the findings. 4. They commence regular participatory monitoring according to the plan. 5. Findings are shared and, indiscussion with Township staff, any corrective action inPRCDP implementation is taken. 6. They undertakeperiodic participatory evaluation. - 95 -  The PM&E methods will includestakeholderworkshops,joint assessmentsusingPRA tools and beneficiary assessment, and self-evaluation usingmethods such as score cards. The choice of methods and tools from these three types will be dnven by the choice o f objectives and indicators, andthus how they mightbebest assessed. 4.5 Roles in theparticipatory project cycle The following table outlines the roles of the various levels of officials andselectedrepresentativesinthe project cycle detailed inthe preceding sections. PPA Participatory Feasibility Participatory P M&E ~Who planning assessment implementation Province PMO Monitor Monitor Monitor Monitor Monitor County PMO Coordinate Coordinate Coordinate Monitor Monitor County Bureaus To be To be informed Implement Monitor To be informed informed Township work Facilitate Facilitate Communicate Support Support station 1 Village leaders Support Support Support Coordinate/ Facilitate (and Organise monitor?) Project Support Coordinate/ onitor and Organise ~ocument 5. Training & capacity building The project will traintwo tiers o f facilitators: 0 One set o f facilitators drawn from County and Township staff. The majoritywill be from the Township. 0 One set o f village facilitators. There will need to be clarity about the roles of these two tiers o f facilitators and recognition o f this by the project staff, bureaus and cadres, and the communities is important for smoothrunningo f PRCDP. The role of township facilitators will be to initiate and support the participatory approach inproject villages; later, they would guide the monitoring and evaluation and document the implementationprocess. Village facilitators will be important inthe PPA and PPprocesses and incoordinating and facilitating the implementationprocess. Both sets o f facilitators will receive training tailored to their roles, andthe model thereafter will be for township facilitators to work with village facilitators at the start o f each step inthe project cycle. This will reinforce the training through leaming-by-doing, and the village facilitators will increasing take the lead on each step as their facilitation skills develop. The level of facilitators will have implications interms of cost. Forminga cadre o fvillage facilitators and buildingtheir capacity implies lower cost for the project. However it is not enough to have a sets ofvillage - 96 -  andtownship level facilitators, they also needto be empowered to take onthe spot decisions, ifnecessary, on behalfo f PRCDP. Hence, decentralization o f decision-making would empower township and village facilitators andcontribute positively towards the quality o f decision-making within the project. It would strengthen teambuildinginPRCDP and"ownershp" ofproject at different levels o f the management system. However it means that senior staff needto have faithboth intheir facilitators' abilities andinthe participatory process itself. Thus changes o f attitudes and administrative procedures inthe conventional systemo f governance are impliedfor PRCDP for introducing andsustaining people's participation. Inthis context, the needfor advocacy at differentinstitutional tiers inPRCDP should not be under-estimated. Therefore, there will be four sets o f training & capacity buildingactivities, and each o f these will have customised content, and use mediaand delivery mechanisms tailored to the specific audience. The different audiences will be: Leaders & senior decision makers. This will be awarenessraising and advocacy. Sessions will include: the poverty alleviation context o fparticipation, the concept o fparticipation, the costs and benefits of participation, the institutional fit of the approach, leadership inthe context o f community participation andcommunity empowerment. Trainers. This will be training o f trainers. Sessions will include: the concept o f participation, PRCDP, training methods, participatory tools. Facilitators (two separate groups: Township andVillage). This will be training infacilitation, specifically facilitation o f the participatory project cycle. Sessions will include: the concept o f participation, PRCDP, participatory tools, conflict management, facilitation skills. Facilitators will be crucial for ensuring the scope and quality o fparticipation. Their capacities need to be built up ina longer process, through training and ongoing learningandsharing with other facilitators, such as through a network o f PRCDP facilitators. 6. Maintainingquality of participation 6.1 TheParticipation Manual A Participation Manual (PM) hasbeenproduced as anannex to the PRCDP Operational Manual. The aim o f this document is to provide guidance to management staff and county/township facilitators on how to implement andmonitor the participatory approachinPRCDP. Itdescribes the basic principles of the participatory approach, details the main steps inthe participatory project cycle, elaborates institutional and management issuesinusingthe approach, discusses its costs andbenefits, andprovides some resource material on methods and tools. It i s illustratedwith case studies from the provinces, introducing good practices onparticipation. Inaddition it proposes a quality assurancemethodology for assessinghow the participatory approach is beingused.This includes a number o f indicators o f `quality o fparticipation' in each o f the project cycle steps. The manual takes the stance o fproviding guidance, rather than detailed instructions. Each of the PRCDP provinces practices the participatory approach inslightly different ways, andthe manual allows for this flexibility. However the indicators o f `quality o fparticipation' provide a set o f standards o f participation which all the provinces must reach, regardless o f the variations to the participatory approach they adopt. 6.2. Approach to quality of onparticipation The move towards a focus on quality o fparticipation is considered a very positive feature o f how the provinces will address participation inPRCDP. It means there will be a shift o f focus away from `product' - 97 -  (e.g. PRA tools) to `process' (Le. how well participationis done), and similarly, a shift away from focusing on `inputs' (e.g. participatory methods) to `outcomes' (e.g. social inclusion through use o f participatory approaches). The emphasis on PRCDP to maintain quality inthe participation approach also results from the needto comply with DFIDand WB requirements, especially with WB safeguardpolicies, on social inclusionand empowerment. The quality criteria for participationhave been developed on several levels. Principles on participation andindicators of participation quality have beenproposed inresponseto WBDFID requirements, especially focusing on the inclusiono fpoor and marginal groups (poor households, poor natural villages, women, ethnic minorities). The list o f indicators includes qualitative indicators to monitor the quality o f the participationprocess (inclusive, transparent, pro-poor) throughout all phaseso f the project. These principles andindicators are presentedinthe ParticipationManual for each o f the key project cycle steps - see table below. Based on the indicators, the provinces will need to develop their targets relating to coverage o fpoor households, poor natural villages, women andethnic minorities. Principles Oualitv indicators (indicative) -Shows diversity o fpoverty -Direct involvement o f poor households, poor and situations and poverty groups. remote villages, women groups andethnic minorities -Describes dimensions o fpoverty and the socially excluded andthe disadvantaged such as seasonalpoverty, poverty Conclusions and results are cross-checked by over time, intra-household poverty different methods andtools etc. -Geographcal, professionaland social biases are -Indigenous poverty criteria and avoided. grouping developedby the poor. -etc. -Disaggregates information on poor natural villages. -Genderedpoverty. PP mustbe based on the outcomes o Proportiordnumber o f poor households actively 'PA. nvolved and participating indecision-making and Budget frame mustbe clear inthe evealing their priorities/preferences relatedto the leginning. ilanningprocess. Consider/ protect needdinterests o f Proportiodnumber o f poor natural villages representec ninority social groups. nthe planningprocess as potentialbeneficiaries, types Conflict settlement andmediation Ifbenefitandthepotentialbenefitinterms ofhuman transparent mechanism inplace and )overty reduction. nownto people). Proportiodnumber o f women actively making Pro-poor decisionmaking. lecisions/ inthe planningprocess andtheir scope for PP needs to involve technical nfluencingdecision-making andaction interms o f lersonnelfor information, technical :ender. alidation and feedback. Different ethnic groups are represented inthe planning County feasibility/planning needsto recess andactively participating indecision-making mnkupwith PP. mdaction. Social and technical validation o f Transparency o fplanning process and impartial lata and informationduring PP. lecision-making andclarification o f mutual roles and esponsibilities. Social justice and faimess o f the results interms o f :qui@and gender aspects. Prioritiedpreferences androles o f poor and marginal - 9a -  social groups, are reflectedinproject activities. Implement Administrative village needs to set -Proportion/number o f beneficaries from: poor ation ~pcoordination structure. households; poor naturalvillages; women; different Project implementationgroup (PIG) ethnic groups directly participating and benefiting from ieeds to be basedwhere project is the project. sub-village). -Proportion/number o f people from different target Coordinators +PIG to be chosenby groups directly involved inimplementation and illage plenary meeting. maintenance. Project ImplementationGroup must -Degree o f their involvement and opportunities for be able to coordinate and solve the involvement. onflicts. -What decisions have they influenced? And inwhat Transparency throughout the manner? rocesses (publicise project -Project implementation group (PIG) set up and omponents andbudget). hnctioning according to principles. Quality need to be ensuredby -Mix o fproject activities likely to contribute to :chcians and community. sustainabledevelopment and reduction o fhuman Projects selectedanddesigned poverty. nimarily to benefitpoor natural -Villagers capacities for self-help and initiatives illages (consider poorest strengthenedby implementationof project activities. iouseholds). PM&E -Indicators onproject -Indicators for project implementationare developed implementationmust be developed duringthe participatory planningprocessby project andmonitoredby communities. beneficiaries and facilitataors. -Communities monitor project -Different groups (women, poor households, ethnic process, outcomes, impacts. groups) actively participate inPM&E (i.e. undertake -Documentation o f the process monitoring themselves) at regular intervals. -Villagers feed back their views, experience and opinions on project implementationthrough PM&E - these are recorded by the project staff. -PIG maintains complete documentation on the implementationprocess. -Lessons are sharedandvillagers learn from PM&E mocess. - 99 -  B. Summary of PRCDP Social Assessment CCCC, Sun Yat-sen University Guangzhou, China January, 2004 Background. Entrustedby the ForeignFundCenter under the Poverty-reliefOffice of the StateCouncil, 12experts from CCCC went to the 18project counties (6 ineach) inSichuan, Yunnan, Guangxi in3 groups from Nov 6 through Dec 11,2003 for the social assessmento f the "Chma Poor Rural Community Development Project (PRCDP)". This assessment could be completed on schedule thanks to the direction andassistance ofthe Poverty-reliefOffice, andthe inspiration from the training ofthe social development consulting courses by the BritishDepartment for InternationalDevelopment (DFID), the great support and cooperation offered by all levels o fproject offices inthe 3 provinces/regions, all levels o f leaders and project managerial staff inthe investigated counties, Xiangs/towns andvillages, and farmers at points o f investigation. Our sincere acknowledgement is givenhereby! Section 1. ObjectivesandMethodologyof Assessment According to the task outline, the objectives o f this assessment are: 1. Definethe poorest andmost disadvantaged groups atpoor communities, and factors that preventthem fi-om benefiting from the project equally; 2. Determine poverty-relief existinginthe project areas andthe obstacle to the existent security of different social groups; 3. Identify the minorities inthe project areas so as to embody their national characteristics inthe project design; 4. Predict the project's possible positive and negative impacts on minority groups; 5. Identifythe poorest villages by reviewingthe project counties, as well as the existingmechanisms and experiences inidentifying, aiming and financing the poorest; 6. Identifythe impetusand obstacle to the fulfillment o f the sex equality inthe project communities, includingdifferentmeans to obtain assets andassets ownership, division o f labor by sex, role in child-bearing, control and decision-making processesinfamilies and communities; 7. Establishthe indicators of participationon the basis ofpoverty analysis to serve the assessment and supervision; 8. Review the practice (method, organization, effect), lessonsand experiences (utilize, popularize these usehl experiences to develop andexecute the mechanism andtools o f the village planning) o f the participationplanning; 9. Voluntary migration for the purpose o f environmentalprotection andpoverty reliefi s an important policy under the project, the execution o f which might bringmajor influences on the project areas. Predict and assess these influences. 10. This assessment makes a thorough assessment by holding working seminars with all levels o f project management officials and using methods and means o f participatory rural assessment (PRA) on the selected poor villages, such as in-depth interview, working seminar, collection o f secondhand literatures. - 100 -  Section 2. Procedure and Coverage of Assessment The whole assessment was developed in2 stages: Stage 1, initial investigation. During Oct 19-29,2003, CCCC assigned2 experts to Yunnan, Sichuan and Guangxi for discussion with officials at the province-level, county-level project managementoffices, collection o f data related to the project areas, decision o f the points o f investigationfor the formal assessment throughjoint negotiation, the initial report was formed on this basis. Stage 2, formal assessment.The SA Team has conducted the assessment on 4 levels: Firstly,hold forms withofficials at the province-level andcounty-level project management offices, andthe selectedXiangkown-level officials, to learn (1) the existing experiencesandlessons o f the project management system inparticipating inpoverty-relief projects; (2) the present project preparation o f the project areas; (3) all interestedparties to be covered by the project, especially women, minorities, the elderly; (4) basic information ofthe project areas; and(5) county-level andXiang-level literatures and statistical statements. Secondly, hold forums with cadres o f selectedvillages to learn the village's basic mfonnation, local natural resources, conditions and customs, composition andwork of the 2 village-level committees, draw the local resource distribution map and community map. Thirdly, holdvillager forums. Attendees should include the mainbeneficiaries of this project, especially minorities, women, the poorest and the elderly. The topics o f discussion include: (1) project selection; (2) evaluation o f the plannedproject; (3) sequencingof factors affecting the local development; (4) definition ofpoor and rich families by villagers; (5) suggestions for improvingthe project effect and degree o f participation; (6) evaluation o f cadres o f the two village-level committees; and(7) relationship between nationalities and national traditional culture. Fourthly, conduct door-to-door investigationon farmers. Ask farmers for their true ideas on the project and how to improve the degree o fparticipation inthe project, existing actions anddifficulties, comments, ask them to draw seasonal charts, do labor productivity sequencing andother investigation items specified by PRA. Section 3. Selection of Points of Investigation DuringOct 19-29,2003, CCCC assigned2 expertsto Yunnan, Sichuan, Guangxi to conduct the initial investigationfor the social assessment o f PRCDP, who have collected a great deal o fbasic information on the project counties, Xiangs and villages, and determinedthe points o finvestigationthrough discussion with localproject officials. Inthe selection ofthepoints ofinvestigation, acomprehensive considerationwas givento the geographic location, resourcebasis, means o f livelihood(including work outside), nationality, development andpoverty of project Xiangs/towns and villages. Under the social assessment plano f 2 project Xiangs per project county and 1project village per Xang, the InvestigationTeam selected 36 villages under 36 Xiangs/towns in 18 counties inthe 3 provinces/regions. InYunnanProvince, the Team went deep into 6 villages in3 counties for a trial investigationto better determine the points o f investigation. Inthe course of field investigation, each SA Team replaced some villages selectedinthe initial investigationbased on the investigation progress, problems found and restrictiono f objective conditions. Inthe investigationin Ximeng County, the Yunnan Team added a point o f investigation as necessary. - 101 -  Points o f investigation Cangyuan Yongwu Village underDanjiaXiang, GongkanVillage underBanhongXiang Ximen WangmoVillageunderMengsuoTown, ManhengVillage underYuesongXiang, BannongVillage underWenggakeXiang Mennlian Xingang Village underFuyanXiang, MangxinVillageunderMangxinXiang Y Guangxi Huanjiang Xiatang VillageunderXiananXiang, ZhenbeiVillageunderXunle MiaoXiang Luocheng JinhuaVillageunder SibaXiang, KencaiVillageunderNawengXiang Rongshui XiaosangVillageunderAntai Xiang, GaowenVillage underHongshuiXiang Rongan SilangVillage under DaxiangXiang, SecondVillageunder QiaobanXiang Sanjiang LipanVillage underDudongXiang, GaobaVillageunderTongleXiang Lonnshenn ShijiaVillageunder LejiangXiang, PanneiVillageunder Sishui Xiang Section 4. Data Sources The data collected inthis assessment includes: 1. Firsthandfieldwork materials, suchas interview data, forum data, community resource map andvideo data; 2. Background materials relatedto the project andreporting o f project preparation at all levels, such as provincelcounty-level project proposal, poverty-relief development plan; 3. Official statistical data, such as statistical yearbook o f all levels o f government, statistical data collectedby project offices; 4. Policy documents enactedby the government, such as localregulations of minority autonomous areas, preferentialstate policies towards minorities; 5. Local records and annals, such as "Annals o f HuanjiangCounty", "Annals o f MenglianCounty", "Annals o f Meigu County"; 6. Existingpapers andmonographs, historical data and custom records on minorities inproject areas. 7. Inusingthe above data, the SA Team strictly follows 3 principles: (1) try to use the latest statistical data; (2) where village-level statistical figures are involved, try to use the firsthand data from the fieldwork to ensure its objectiveness andaccuracy; and (3) based on a summary o f views and opinions o f farmers, all levels of government, agncultural experts andproject companies, the analysis and discussion o f relevant issues shouldbe as comprehensive and objective as possible. - 102 -  Section 5. Report Format This Social Assessment Report contains 3 parts: The first is the introductionto the project's background, givinga brief introduction to the working objectives, methodology, procedure, selection o fpoints o f selection, data sources o f the SA Team. The second is summary, namely a summaryofthe contents of the sub-reports. The thirdis the sub-reports of the 3 provinces/regions, which is the mainbody of the Social Assessment Report. All the 3 reports are focused on the "poverty analysis", "village decision makingmechanism", "minority" and "sex problem" as the concerns o f the task outline. On one hand, they have revealed the data collectedinthe SA Team's fieldwork, onthe other hand, they have also analyzed the problems thereinand propose corresponding suggestions. Eachreport has separate sections for the "poverty analysis", "village decision making mechanism" and "minority" o f the project areas, and the sex analysis runs through the whole report. Summary The World Bank andDFIDfinanced "China Poor Rural Community Development Project" (PRCDP) mainly supports remote minority areas inSichuan, Yunnan, Guangxi. This project will relieve the poverty there through a "from the top down" participatory mode and plannedinvestment. According to the task outline providedby the employer, the SA Team has heldforums with all levels of project officials inSichuan, Yunnan, Guangxi andconducted fieldwork at 2 villages under 2 project Xiangdtowns inevery project county. This Social Assessment Report formed on the basis o f wide collection and analysis ofthe fieldwork data has made an analysis o f the social, economic, cultural, institutional factors contributing to poverty o f farmers, especially minority farmers and the decision-making process. Since the poor communities inthe 3 provinces/regions differ significantly, so that the Social Assessment Reports for the 3 provinces/regions couldhardly be written ina uniform format. However, all the 3 reports have separate sections for the "poverty analysis", "village decision makingmechanism" and "minority" of the project areas, andthe sex analysis runs through the whole report. I. PovertyAnalysisofProjectAreas Through investigation, the SA Team thinks the areas covered by this project are mostly poor, remote minority areas, all the project counties are state or provincial poor counties andmanyproject villages are key poverty-relief villages. The SA Team's investigationshows the harshnatural conditions, deteriorating environment, backward infrastructure, shortage o f social facilities, scanty natural sources, frequent natural disasters, low literacy, unitary social capital, weak credit opportunities, unitaryagricultural industrial structure, weakness inface o f risks, inability to express own demands and lack o f influence are boththe embodiment o f the present poor situationof the project areas and also the common reasons for the poverty. The SA Team's investigationshows, there is a significant correlationbetweenpoverty and nationality-minorities' degree o fpoverty is overall higher than the Hannationality, that o f minorities at multinational centrally-inhabited areas is greatly higher than those at nationality cross/scattered-inhabited areas, the degree o fpoverty varies fi-om minority to minority. There is also a certain correlationbetweensex andpoverty: firstly, ruralwomen mostly deal with heavy -103-  physical labor, such as housework, stockbreeding, field labor, which is especially true infamilies and areas where menwork outside; secondly, women's positioningby some traditional national cultures makes minority women relatively disadvantagedinopportunity, ability andcultural guarantee inparticipating in the project, which i s very apparent among Yi women inSichuan; thirdly, the backward medical care and service system inthe project areas, the influence of the medical care concept and the lower literacy of' women turn them into the group the most vulnerable to poverty. 11. Village Decision-making Mechanismof Project Areas The village Party branch andvillagers' committee are set up at all the project villages. The village Party branch secretary i s electedby the village Party branch meetingandconfirmed by the Xiang Party Committee. The villagers' committee i s electedby villagers inaccordanceto the "Villagers' Committee OrganizationLaw (Tentative) o f the PRC". The two village-level committees are significantly dependent on the Xianghown government andthe Xiang Party Committee. Informal village decision-makmg mechanism forces include: traditional social organizations andtheir headmen, such as family branch o f the Yi nationality; religious professionals, such as Bimo, Moba; economically able persons; doctors, teachers, ex-servicemen, retired cadres, past village cadres and other village intellectuals. The SA Team's investigationshows, as the formal village decision-making mechanism, the 2 village-level committees take up absolute leadership inthe village decision-making process. Inareas where the function o f traditional social organizations is still sound, such as Yi people inLiangshan,the formal village decision-making mechanism combines with traditional social organizations, becoming the co-dominators o f village decision-making. Itwas also found that villagers fairly believe inliterate persons, economically able persons, teachers, ex-servicemen, retiredcadres, doctors and other village elitists, who well understand the current existence situation o f the village, think a lot about the future way out o f the village, have a considerable influence inthe village's public affairs and enjoy a highreputationinthe community. It is found ininvestigationthat, village decisions inpoor communities are mostly dominated by a small numberofvillage able persons, while ordinary villagers seempassive and negative inthe forwardness, ability andopportunity inparticipating indecision-making. Women inthe village decision-making mechanism are often usedto hidingthemselves and even have no chance to participate, their voice appears weaker. 111. Minorities of Project Areas The SA Team's investigationinvolves all the minorities covered bythe project areas and anethnography like census was made on the history, social organization, means o f livelihood, sex relationship and traditional culture o f minorities at the investigated villages. Manyproblems on "minority" are important factors that cause the poverty and difference indegree of poverty inthe project areas. The correlationbetween minority andpoverty is mainly embodied inthe traditional minority culture related to poverty, including means o f livelihood, sense o f commodity, consumer habit, property concept, weddinglfuneral customs, sex concept and religious concept o f minorities. The traditional social organizations andreligions o f minorities are an important integral part of the informal village decision-making mechanism. The sub-reports have made a detailed discussion on this. The sex relationship o f minorities is mainly embodied indivisiono f labor, marital customs, child-bearing concept, medical tradition, female education, female participationincommunity and family - 104 -  decision-making. IV. Suggestions Onthe basis o f the above 3 aspects incombinationwith the suggestionsfrom project officials andvillagers on the project official, village cadre and villager forums, the 3 SA Teams have made suggestions based on the localpractical conditions, which can be summarized into the following 7 aspects: 1. Suggestions on improvement ofproject effect: do well inthe project publicity; provide avariety of technical training andmarket guidance to farmers; set up a project managerial body with stable staff, do well inthe managementof the project files; establish a perfect subsequent managementmechanism for social public welfareprojects; establish a project anti-disaster fund, perfect the social security mechanism; increase the fund ratio for the sub-project o f rural infrastructure construction; consider the project management and training expenses rationally. 2. Suggestions on selection of project areas andproject farmers: the SA Team considers the poor areas withthe greatestneedof poverty reliefbe selectedas project areas; as to the selection ofproject farmers, the SA Team suggests such farmers as households enjoying the "five guarantees" and the disabled should be listedas objects o f civil administrationsupport other thanthose to be covered by poverty-relief project loan innature; support some potential, capable, open-minded poor farmers as examples, which will contribute to the project's success. 3. Suggestions on "company +farmer family" pattern: Company +farmer family is a good form of agncultural integrated development at present but there is certain difficulty inpopularizing and pursuingthis patternextensively inpoor communities. The SA Teamsuggests, to employ this pattern, detailed rules shouldbe laid down to ensure the interests o f farmer families. 4. Suggestionson loan granting:Work out diversified forms of loan granting and modes ofloan repayment as the case may be; on the basis o f solving the existing problems with the present rural credit cooperative innegotiation with the credit cooperative, consider the possibility o f loan granting via the credit cooperative; be sure to endow the county-level project office with the power to supervise the loangranting. 5. Suggestions on minorities inproject areas. The SA Team suggests organizing an expert group of anthropologists, sex experts andthe local nationality & religion administrationto formulate a "multinational development program" for the nationalities at the Yi-Hanand Yi-Miao-Han cross-inhabited areas, a separate "minority development program" (MDP) for the Yi people inthe Yi centrally-inhabitedareas in Sichuan; formulate a separate MDP for the Wa centrally-inhabited areas in Yunnan, an integrated MDP for the other scattered Lahu, Yi, Lisu, Hani, Bulang and Miao people in Yunnan. Considering the social and economic level o f the Daipeople inYunnan is high,the SA Team thinks it is unnecessary to formulate a special development program for them; a separate MDP shall be formulate for every minority except the Chuang nationality inGuangxi. 6. Suggestionson women inproject areas: engage sex specialist, formulate development programs specially for minorities andwomen inthe "minority development program"; be concerned about women infamilies where menwork outside andwomen farm at home; enhancethe technical training for women; enhancethe participatory training for women; greatly develop the rural infrastructure and medicalhealth facilities construction; provide women with development funds and tailor feasible projects for them. 7. Suggestions on village decision-makmg mechanism: Pay attention to the role o f cadres o f the Xiandtown government and2 village-level committees; give play to their advantages and avoid their - 105-  disadvantages to have them serve the project basedon full understandingo f the traditional social organization; absorb ex-servicemen, workers outside, teachers, doctors andother literate, knowledgeable and informedpersons into village-level project management; for villages with great intemal differences that can hardly be planned as a whole, develop the village-level planninginthe unit o f commune. - 106 -