China - Planning Support and Special Studies Project

Document of The World Bank FOR OFFICIAL USE ONLY C&7 [?S /LiA Report No. P-4599-CHA MEMORANDUM ANd RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 15.9 MILLION ($20.7 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A PLANNING SUPPORT AND SPECIAL STUDIES PROJECT June 9, 1987 This document bas a restricted distribution and may be used by recipients only in the perfortmance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Yuan (Y) 1 Yuan - 100 Fen Calendar 1986 April 1987 $1.00 - Y 3.45 $1.00 - Y 3.71 Yl.0 = $0.29 Y1.0 - $0.27 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) 0.62 miles 1 hectare (ha) - 2.47 acres 1 ton (t) - 1,000 kg - 2,205 pounds 1 kg - 2.2 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CIECC - China International Engineering Consulting Corporation IDA - International Development Association MMI - Ministry of Metallurgical Industry MOF - Ministry of Finance MWREP - Ministry of Water Resources & Electric Power PBC - People's Bank of China SINOPEC - China Petrochemical Corporation SPC - State Planning Commission SDR - Special Drawing Right UNDP - United Nations Development Programme  FOR OFFICIAL USE ONLY CHINA PLANNING SUPPORT AND SPECIAL STUDIES PROJECT CREDIT AND PROJECT SUMMARY Borrower: People's Republic of China Amount: SDR 15.9 million ($20.7 million equivalent) Terms: Standard Financing Plan: Governm.ent $ 8.9 million IDA $20.7 million TOTAL $29.6 million Economic Rate of Return: not applicable Staff Appraisal Report: Technical Annex attached This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 15.9 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A PLANNING SUPPORT AND SPECIAL STUDIES PROJECT 1 The following report on a proposed development credit of SDR 15.9 million ($20.7 million equivalent) to the People's Republic of China is submitted for approval. The proposed credit would be on standard IDA terms and would finance a planning support and special studies project. 2 Background. During the pa.c year, the Government has on several occasions, most recently in January, 1987, indicated that it intends to broaden and deepen its cooperation with the Bank Group. In this connection, it has requested that Bank/IDA lending to China during the current 7th Five Year Plan (1986-90) and beyond should increase significantly, and that its focus and specific objectives should be integrated with the developmental priorities set forth in the Plan. The Government has also expressed interest in Bank support for medium- and long-term planning studies required as background for the 8th Five Year Plan (1991-95), initial preparations for which are expected to begin during the next twelve months. 3 Meanwhile, the process of economic management and planning in China is undergoing major change. Direct control of virtually all economic activities--specifically, physical planning of production, centralized allocation of materials, and budgetary grants for fixed investment--is being replaced by increased reliance on a variety of indirect controls and macro- economic policy instruments. This new approach to planning and economic management--with the medium-term as the principal time frame for both short (annual) and longer-term planning activities--will require strengthening of the Government's statistical and analytical capability to evaluate programs and policies to address specific issues, and to monitor their results and impact. This in turn will involve changed roles for the State Planning Commission (SPC) at the central level, for the planning bureaus at the provin- cial/municipal level, and for planning and finance departments of sectoral ministries and agencies at all levels. It will also involve a new and greatly enhanced role for the People's Bank of China (PBC), recently restructured to function as China's central bank, as well as the banking and financial sector generally. Finally, economic reform will impose substantial demands on these agencies' existing systems for staff recruitment, development and training, improved data collection and processing and strengthened policy planning, analysis and research. 4 In addition to this urgent requirement to reform and strengthen China's macroeconomic planning process, there is a growing need for a variety of advisory services and/or training activities of an inter-sectoral nature which, partly because they are not the sole or main responsibility of a single  sector, ministry or agency, often do not receive the priority that their potential contribution to the modernization process deserves--for example, the recent growth of numerous local consulting companies and groups, and the development of a modern construction and contracting industry. There are also an increasing number of innovative and experimental initiatives, related to both rural and urban reforms already underway, for which Bank Group technical advice and assistance has been requested. 5 Proiect Objectives. The project's specific objectives would be threefold: (a) to help strengthen the Government's overall development policy and planning capability through sector planning studies required as background for the preparation of the 8th Five Year Plan; (b) to identify, prepare and, as appropriate, to carry out technical assistance activities of an inter4ec- toral, innovative or experimental nature through advisory services and/or special studies; and, (c) to facilitate generally the implementation of the Government's program of economic, financial and institutional reforms through in-service education and training (in country and, where appropriate, over- seas) of,officials of the central and provincial/municipal governments. 6 Project Desgritio2n. The project would consist of subprojects to achieve these objectives, for which IDA financing of $20.7 million is proposed. About two thirds would be available for sector planning studies and about one third for technical assistance and training. A breakdown of costs and a financing plan is shown in Schedule A. Amounts and methods of procurement and disbursements as well as the disbursement schedule are given in Schedule B. A timetable of key project processing events and the status of Bank Group operations are contained in Schedules C and D, respectively. 7 At the Government's request, a total of $9 million would be allocated at the outset for three comprehensive planning studies for the iron & steel, petrochemicals, and electric power sectors to be carried out, with the assistance of foreign and local consultants, by the Ministry of Metallurgical Industry (MMI), the China Petrochemical Corporation (SINOPEC) and the Ministry of Water Resources ard Electric Power (MWREP) respectively. These three studies would be initiated shortly (commencing about October 1, 1987) and are expected to be substantially completed during the first half of 1989-- in time for their principal conclusions and recommendations to be incorporated in the preparation of the 8th Five Year Plan. The balance of unallocated credit proceeds available under this category would be committed for similar planning studies to be identified by the Government during the next 12 months. Sectors under consideration include transport (highways, ports and railways), the chemicals and mining industries and water development and management. 8 Subprojects identified and prepared under the technical assistance/ special studies and training category, totalling $5 million include: (a) two State Planning Commission (SPC) subprojects: one, designed to improve the capability of its various Planning Bureaus through strengthened information systems and the introduction of modern planning methodologies, especially in macro-management; and, the other aimed at enhancing the capacity of its  -3 - National Planners' Training Center; (b) one subproject to be carried out by the China International Engineering Consulting Corporation (CIECC), the principal agency responsible for appraising and evaluating major investment projects for inclusion in the Plan, to help strengthen CIECC's capability to undertake feasibility studies, to appraise and evaluate key investment projects on behalf of SPC, and to provide project management and supervisory services; and (c) a program of in-service training, in China and overseas, for officials and staff of the People's Bank of China (PBC) in central banking functions, monetary and credit policy formulation and implementation, and policy support analysis and research. This latter program would complement a project designed to help establish a permanent PBC in-service training center, being financed by UNDP. A fifth subproject, to train central and provincial/ municipal govr..nment financial staff, has been identified and is under preparation by the Ministry of Finance (MOF). 9 Detailed terms of reference, including estimated costs, implementa- tion schedules and proposed organizational arrangements for the iron & steel and petrochemicals planning studies noted above have been agreed with the implementing agencies concerned. Terms of reference for the electric power study are under preparation. The five technical assistance and training subprojects have been reviewed and agreed wich the Government and detailed implementation plans are currently under preparation. A summary description of seven subprojects accounting for $13 million to be allocated at the outset of the project is included in the attached Technical Annex. 10 Rationale for IDA Involvement. The overall goal of the Bank Group's financial and technical assistance to China is to help remove critical con- straints in key sectors of the economy such as energy, industry, transport, agriculture, human resource development and technology transfer. Equally important is the Bank's role--through economic, sector and project work--in promoting the effective and efficient use of both external and domestic resources by improved planning, project selection and analysis, and develop- ment policy formulation and management. The project meets both these objec- tives and, moreover, has the potential for a far reaching and longer-term contribution to China's development planning process, desired by both the Government and the Bank. It would complement the existing Second Technical Cooperation Credit (Cr. 1664-CHA) which the Government is using almost erntirely for preparation of individual investment projects for Bank/IDA financing. It would also enhance the quality of the Bank's cooperation and dialogue with the Government on issues relating to the reform of the economic planning and management system. The project's concept enjoys explicit Government support at the highest level. 11 Agreed Actions. During negotiations, the Government agreed that: (a) all subprojects proposed for financing (and for which no other suitable source of external financing is available) would satisfy the basic criteria outlined in para. 5 above; (b) the project would be coordinated by SPC with participation by MOF; and (c) the proceeds of the credit would be made available to the subproject implementing agencies on concessional terms (20  - 4 - years, including five years of grace, and a service charge of 1 per cent per annum). An understanding was also reached that the organizational and management arrangements for implementation of individual subprojects, including the designation of task forces/working groups required for their direction and overall guidance, would be determined on a case-by-case basis by agreement between the Government and IDA. 12 Justification & Riskl. Given its technical assistance nature, the project is broadly justified by the contribution it would make to China's overall planning and reform process and by the qualitative support it would provide to the Bank's economic, sector, lending and technical assistance activities. For these reasons, and because the project was jointly initiated and prepared by the Government and the Bank, it is unlikely to experience the problems of implementation sometimes experienced with similar technical assistance projects. Nevertheless, this is the first project in China to be coordinated by SPC and involving several different executing agencies, and there is some risk of delay for these reasons. Accordingly, the Bank's Resident Mission in Beijing will provide specific support to the headquarters staff responsible for monitoring and supervision of individual subprojects. 13 Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Assk iation and recommend that the Exective Directors approve the proposed credit. Barber B. Conable President Attachments Washington, DC June 9, IS87  -5- Schedule A CHINA PLANNING SUPPORT AND SPECIAL STUDIES IROJECT Estimated Costs and Financing Plan (US$ million) Local Foreign Total Estimated Cost: Consultants 1.5 9.5 11.0 Training 1.3 4.2 5.5 Equipment 1.3 4.2 5.5 National Personnel 7.6 - 7.6 Total 11.7 17.9 29.6 Financing Plan: IDA 2.8 17.9 20.7 Government 8.9 - 8.9 Total 11.7 17.9 29.6  -6- SchgdMl!, B PLANINlG SUPPORT AND SPECIAL STUDIES PROJECT Procuremgnt Method and Disbursement groject Element Procurement Method ICB Other Total ---(US$ million) ---------- Consultants - 11.0 La 11.0 (*) (11.0) (11.0) Training 5.5 5.5 (5.5) (5.5) Equipment 2.0 3.5 5.5 (2.0) (2.2)/L (4.2) National Personnel 7.6 7.6 (-) (-) (-) Total 2027.6 29. (2.0) (18.7) (20.7) La Consultant services financed by IDA would be contracted in accordance with the Bank' s Guidelines for the Use of Consultants. 1k Includes prudent shopping of up to US$1.3 million and proprietary 'tems. Note: Figures in parentheses are the respective amounts financed by IDA. Disbursement Cateeory Amount (US$ million) Consultants, training programs 16,500,000 100% Equipment 4,200,000 100% of foreign expenditures 100% of local expenditures ex-factory 75% of local expenditures for other items procured locally Estimated Disbursesents IDA Fiscal Year FY88 FY89 F190 FY91 FY92 FY93 -.----.-------- (US$ million) ---------------- Annual 1.2 4.0 5.0 5.0 4.0 1.5 Cumulative 1.2 5.2 10.2 15.2 19.2 20.7  -7 Scedule C CHIN PLANNING SUPPORT AND SPECIAL STUDIES PROJECT Timetable of Key Project Processing Events (a) Time taken to prepare: Five months (b) Project prepared by: Government and IDA (c) First IDA mission: June 1986 (a) Appraisal mission departure: March 30, 1987 (e) Negotiations: May 21, 1987 (f) Planned date of effectiveness: September 30, 1987  -8- Scbedule D Page 1of 2 STATUS OF BANK GROUP OPERATIONS 4N TOR PEOPLE'S REPUBLIC OP CHINA A. SLTAtEN 0F BANK LOANS AND IDA CREDITS (as of tarch 31. 1987) Loan or mount in US$ mtillton Credit Fiscal (less cancellations) Number Year Borroser Pur,ose Bank laUnd bursed/