Announcement of China Extends Rural Economic Reforms and Continues Railway Modernization on June 27, 1988

/ FOR IMMEDIATE RELEASE ~world Bank 0 1818 H Street, N.W ., Washington, D.C. 20433, U.S.A.• Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 88/98 Contact: Marjorie Messiter IDA NEWS RELEASE NO. 88/97 (202) 477-6342 CHINA EXTENDS RURAL ECONOMIC REFORMS; CONTINUES RAILWAY MODERNIZATION WASHINGTON, June 27, 1988--China is embarking on the second phase of a rural economic reform program and is continuing to modernize its railway system. These two initiatives are being supported by the World Bank and its concessionary lending affiliate, the International Development Association (IDA), with financing totaling $500 million. Rural Reform Program China will use a $_200 million World Bank loan and· an IDA credit of SDR 72. 2 million ($100 million) to further rural reforms, shifting economic decision-making away from government and party officials toward individual farmers, artisans, entrepreneurs, savers, investors and merchants. The government's long-term development objective is to quadruple economic production by the year 2000, and the rural sector is expected to play a major role in crea~ing employment, providing food and raw materials for domestic use; and generating foreign exchange. To meet this objective, grain production will have to increase by at least 25 percent, and the rural sector will have to provide more than 100 million new jobs. The main features of the rural economic reform program include developing internal and export markets for agricultural commodities, reducing reliance on administered prices, permitting a rural pricing system to evolve that reflects local scarcities and international trade opportunities, and improving the security of land-use rights. The program will also strengthen rural industrial enterprises regardless of type of ownership, and promote rural financial market reforms. The reforms are being introduced first at regional levels under central government supervision, and then nationwide. Fourth Railway Project The second World Bank loan, for $200 million, supports increased rail transport capacity essential to China's sustained economic growth. Railways carry more traffic in China than all other forms of transportation combined. The government plans to increase the carrying capacity of freight traffic by about 30 percent and passenger traffic by about 40 percent during 1986-90. New lines are being built and the capacity of the busiest existing lines increased. I - 2 - The $600 million project will help finance double-tracking and partial electrification of a 500-kilometer section of the Beijing-Guangzhou rail corridor, and expansion and modernization of three locomotive and rolling stock factories. On the Beijing-Shanghai corridor, a telecommunications and computerization study on improving operations and transportation capacity will be conducted. The World Bank loans are for 20 years, including five years of grace, with a variable interest rate, currently 7.72 percent, linked to the cost of the Bank's borrowings. They also carry an annual commitment charge of 0.75 percent on the undisbursed balances. The IDA credit is for 35 years, including 10 years of grace; it carries no interest, but has an annual charge of 0.75 percent on the disbursed balance and a variable charge of up to 0.5 percent on the undisbursed balance. NOTE: World Bank loans are in U.S. dollar equivalents. IDA credits are denominated in SDRs (Sp~tial Drawing Rights),.which are valued on the basis of a "basket" of currencies. The U.S. dollar equivalent of the SOR amount of the IDA credit reflects the exchange rates existing at the time of the· negotiation of the credit.