China - Country partnership strategy : Chairman's concluding strategy

CHINA: COUNTRY PARTNERSHIP STRATEGY 36419 CHAIRMAN'SCONCLUDING REMARKS Meeting of ExecutiveDirectors May 23,2006 Executive Directors welcomed the FY06-10 Country Partnership Strategy (CPS) for China. They endorsed the CPS emphasis on a two-way partnership, as well as the broad alignment betweenthe CPS's five pillars and the challenges in the Government's 11" Five Year Program. They appreciated country ownership and the Bank Group's integration ofIBRD,IFC and MIGA interventions, as well as incorporatingthe lessons learned from the previousCAS. Directors commended China for its performance in maintaining macroeconomic stability, sustaining growth, and reducing poverty. They noted the major progress in economic growth and China's membership in WTO. Directors observed that in China, where more than 130million people live on less than $1 a day, poverty, inequality, resource scarcity, and environmental degradation poseenormous challenges to the realization of China's developmentgoals. They also noted China's increasingexposure to diverse external shocks (includingtrade, financial, pandemics). Inaddition, severalDirectors observed China's emergingrole as a donor and encouraged it to participate more fully in donor coordinationand to consider debt sustainabilitywhen offering lending. Directors noted the need for continuing reforms to sustain growthand reduce inequality. They. supported Bank's and China's partnership in support of sustainable environmental management,and noted the need to preserve resource efficiency in the face ofgrowing energy needs, as well as implementing reforms in the energy sector. They encouraged further Government action to reduce barriers to trade and investment, strengthen the financial sector, increasingly shifting the sources of growth from export-oriented industries to domestic consumption, and accelerate the reform of state- owned enterprises and social welfare systems. With respect to rural development,Directors encouraged further reform to strengthen landuserights, expand rural access to finance, increase equity insub- national fiscal relations, and provide additional servicesto vulnerable groups. They also noted therecent gender assessment, showing the country's firm direction toward gender equality, despite challenges in some regions. Directors noted that increasing economic integration, reducing poverty and inequality, economic growth and strengtheningpublic and market institutionsalign well with Governmentpriorities and global development challenges. Some, however, remarked that the issue of disparities, which could eventually slowdown China's economic growth, meant that it needs to explore opportunities directly to assist sub- national entities. Directors welcomed the WorldBankGroup's continued emphasis on lagginginlandprovinces, where mostIBRD is targeted, and endorsed the proposedIBRD lending level of $1.0 billion to $1.5 billion per annum. A few Directors, however, questionedthe need of continued large IBRD lending, and urged the Bank to consider developingalternativeengagementmodelswith countries like Chinathat have much access to international capital markets. Several Directors urged China to increase the number of projects in the poverty and social sector, noting that such projects can bring high social and economic returns, especially since it appears that some MDGs will not be met by the country by 2015. Directors also welcomed the planned expansion of IFC programs and their focus on supporting the adoption of international best practices by the private sector, developing small and medium-sizedenterprises, investing in rural finance and the market areas of forestry and agribusiness, as well as reforming the financial sector. In addition, Directors welcomed the deliverance of a large technical assistance program. Several Directors also urged China to consider undertaking FSAP and ROSC exercises to help address problems inthe financial sector.  2 Directors appreciated the CPS emphasis on promoting innovation through analytical workand demonstration projects, and urged the Bank to continue its role of a knowledge Bank in working with China. In light of the small scale of the Group's financial resources relativeto China's overall investment and economy, Directors strongly urged the Bank Group better to integrate instruments around targeted results and monitoring of long-term challenges, including those in the banking sector, pension obligations, external borrowing by state-owned enterprises and unrecordedlocal government debt. Finally, they encouraged the Governmentand the Bank Group jointlyto monitor closely the implementation of the CPS, and to share actively the lessons of China's very successful experience within the Bank Group.