China - Shandong Provincial Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY _ A & Se373 - Aloof ~ -b 9) 0 - Report No. 7602-CII STAFF APPRAISAL REPORT CHINA SHANDONG PROVINCIAL HIGHWAY PROJECT APRIL 28, 1989 Transport and Energy Operations Division Country Department III Asia Regional Office Thi documnt ha a rescted diibubdon and may be usd by recpients ify In the performanue of their oflicfd dudes. Its contents may not otherwise be dscosed witout World Bank authoiizstion.  CURRENCY EQUIVALENTS (as of April 1989) Currency name - Renminbi Currency unit - Yuan (Y) = 100 Fen US$1.00 8 Y3.70 US$0.27 - Yl.O US$1.0 million - Y3.7 million US$270,000 Yl.0 million FISCAL YEAR January 1 - December 1 VEIGHTS AND MEASURES 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) G 0.62 mile (mi) 1 square meter (m2) = 10.76 square feet (ft2) 1 square kilometer (km2) 8 0.4 square miles (mi2) 1 hectare (ha) - 0.01 km2 2.47 acres (ac) = 15 mu 1 mu 666.7 m2 = 0.0667 ha 1 kilogram (kg) 3 2.2046 pounds (lbs) 1 metric ton (m ton) = 2,204 pounds (lbs) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CAAC - Civil Aviation Administration of China ERR - Economic rate of return GOVAI - Gross output value of agriculture and industry HPDI - Highway Planning and Design Institute HSRI - Highway Scientific Research Institute ICB - International Competitive Bidding ITC - International Tendering Corporation MOC - Ministry of Communications O-D - Origin-Destination PTD - Provincial Transport Department SAA - State Auditing Administration SHAB - Shandong Highway Administration Bureau SPTD - Shandong Provincial Transport Department SPSDI - Shandong Planning, Survey and Design Institute VOC - Vehicle Operating Costs vpd - Vehicle per day  FOR OMCLIL USE ONLY CHINA SUAINDONG PROVINCIAL HIGHWAY PROJECT Table jf Contents Page No. Loan/Credit and Project Smary. .iv I. THE TRANSPORT SECTOR ................ 1 A. Economic Setting. 1 B. Traffic. 1 C. Transport Systems. 2 D. Transport Issues and Objectives in the 1980. 4 E. Previous Bank-Financed Projects in Transport. 6 II. SHANDONG HIGHWAY TRANSPORT SYSTEM ........................... 7 A. Network ................................................. 7 B. Road Safety ............................................. 7 C. Traffic Growth and Characteristics ...................... 8 D. The Vehicle Fleet ....................................... 9 E. The Trucking Industry ................................... 9 F. Highway Administration .................................. 10 G. Planning, Budgeting and Financing ....................... 10 Hl. Engineering, Construction and Maintenance ............ 11 I. Staff Training .......................................... 12 J. Highway Development: Objectives for the Seventh Five-Year Development Plan .................... 12 III. THE PROJECT ................................................. 14 A. Project Formula'tion and Preparation ..................... 14 B. Project Object:lves ...................................... 14 C. Detailed Features ........................................ 14 D. Cost Estimates .......................................... 18 E. Financing ............................................... 20 F. Implementation .......................................... 20 G. Procurement ............................................. 22 H. Disbursements ........................................... 23 I. Auditing, Reporting and Monitoring ...................... 24 J. Environmental Effects .........................,....... 24 This report was prepared by B. P. Kennedy (Engineer), S. Teravaninthorn (Economist), and G. Mahoney (Consultant), who appraised the project. 0. Raggambi (Engineer) is the Task Manager for the Project. This document has a restricted distribution and may be used by recipients only in the performance r' 0 !r nf 'd: I d t I 'e - w , v rtntI rwa V be, * clneed without World Bank authorization.  - ii - Page No. IV. ECONOMIC EVALUATION ......................................... 26 A. The Existing Corridor .26 B. Traffic on the Existing Roads (Present and Future) 27 C. Projected Traffic on the Proposed highway .28 D. Economic Evaluation .28 E. Overall Evaluation and Risks .29 V. AGREEMENTS REACHED AND RECOMMENDATIONS .31 TABLES 1.1 China: Investment in the Transport Sector (Including Posts -nd Telecommunications) . .32 1.2 China: Freight Traffic ..33 1.3 China: Passenger Traffic ..34 1.4 China: Highway Design Standards ..35 1.5 China: Motor Vehicles Manufactured and Imported, 1980-85 36 1.6 China: Total Freight Transport Handled by Public and Social Trucks. 37 2.1 Shandong: Demographic and Transport Network Data, 1985 .38 2.2 Shandong: Road Network, 1987 .39 2.3 S'atandong: Vehicle Fleet, 1984-1988 .40 2.4 Shandong: Freight Handled by Public and Social Trucks, 1985 41 2.5 Shandong: Road Maintenance Revenues and Expenditures, 1980-1986 .42 2.6 Shandong: Capital Construction Investment in Transport Sector, 1985 .43 3.1 Eouipment for the Road Pavement Strengthening Program . .44 3.2 Road Maintenance Equipment .. 45 3.3 Traffic Monitoring and Communication Equipment . . 46 3.4 Road Research Equipment ..47 3.5 Staff Training Program for SPTD ..48 3.6 Estimated Disbursement Schedule ..49 4.1 Four-City Economic Profile .. ............. 50 4.2 Qingdao Port Traffic .. ............. 51 4.3 Annual Traffic Volume Surveys for Existing Jinan-Qingdao Road ............... 52 4.4 Traff', on the Existing Road without the Project . ....... 53 4.5 Through Motor Vehicle Traffic ............... 54 4.6 Traffic on Proposed Road .. ............. 55 4.7 Economic Cost of the Project ............... 56 4.8 Vehicle Operating Cost Summary ............... 57 4.9 Economic Rate of Return and Sensitivity Analysis .............. 58  - iii- ANNEXES 1. Terms of Reference for Supervision of Construction . . 59 2. Terms of Reference for Preparation of Road Data Bank, Pavement Evaluation and Strengthening Program, 3nd Maintenance Management Study .. 65 3. Road Safety Program .. 71 4. Project Implementation Schedule .. 73 5. Project Monitoring Indices . ..................................... 75 6. Selected Documents and Data Available in the Project File .. 77 CHARTS 1. Relationship Between Central and Provincial Transport Departments 2. Organization of the Shandong Provincial Transport Department and the Highway Administration Bureau 3. Organization of the Jinan-Qingdao Highway Headquarters HAP IBRD 20256R: Shandong Provincial Highway Project  - iv - CHINA SHANDONG PROVINCIAL HIGHWAY PROJECT Loan/Credit and Project Summary Borrower: People's Republic of China Beneficiary: Shandong Province Amount: Loan: US$60.0 million equivalent Credit: SDR 38.8 million (US$50,0 million equivalent) Terms: Loans 20 years, including 5 years of grace, at standard variable interest rate. Credit: Standard, with 35 years maturity. On-lending Rate: 20 years, including 5 years of grace, at 5.3?, with 0.75? commitment fee on outstanding balance. Project Objectives and Description: The project will assist the Shandong provincial government in meeting the transport demand in the most important and congested corridor in the province and ;n improving management of the road networkt by introducing modern planning and management technique Specifically, the project comprises: (a) constructl if a 319 km four-lane divided highway between Jinan, the capital of Shandong Province, and Qingdao, one of the major ports in China; (b) consulting services to assist SPTD in construction supervision and help train SPTD staff in supervising and maintaining quality control over highway construction; (c) specialized equipment and technical assistance to evaluate about 560 km of existing road pavements and prapare a pavement strengthening and maintenance management program; (d) equipment and expertise to set up a ccapute-ized road data bank to improve road planning; (e) road maintenance, traffic monitoring, and communication equipment; (f) research equipment for the Central Road Laboratory; (g) training of SPTD staff; and (h) road safety improvements. Project Benefits and Risks: The principal benefits accruing to users of the new highway would be savings in vehicle operating costs and reduced accidents. There are no major risks foreseen with the project.  v Project Costs: Local Foreign Total ------ (US$ million) ------ Construction of the jinan-Qingdao highway 152.2 158.4 310.6 Consultant services for supervision, technical assistance, etc. 5.4 1.3 6.7 Equipment for highway research, road maintenance, etc. 0.0 10.5 10.5 Staff training 0.0 0.9 0.9 Base Cost (March 1989 prices) 157.6 171.1 328.7 Physical contingencies 15.8 17.1 32.9 Price contingencies 24.9 27.0 51.9 Subtotal 198.3 215.2 413.5 Land acquisition 10.0 - 10.0 Total Project Costs La 208.3 215.2 423.5 Financing Plans Local Foreign Total ------ (US$ million) ------ Central Government 40.5 - 40.5 Provincial Government 167.8 105.2 273.0 IBRD - 60.0 60.0 IDA - 50.0 50.0 Total Financing 208.3 215.2 423.5 Estimated Disbursements: Bank Group FY 1990 1991 1992 1993 1994 1995 ---------- (US$ million) --------- Annual 11.0 11.0 26.4 28.5 24.2 8.8 Cumulative 11.0 22.0 48.4 77.0 101.2 110.0 Economic Rate of Return: 25Z for the project. /a Import taxes and duties are not included in project costs, since the project is exempted from these taxes and duties.  CHINA SUANDONG PROVINCIAL HIGHWAY iROJECT 1. THE TRANSPORT SECTOR A. Economic Setting 1.1 A national policy emphasizing self-sufficiency and the development of heavy industry has been in place throughout the four decades following the foundation of the People's Republic in 1949. This policy emphasis has left China with the legacy of a "transport-intensive" economy and has created heavy demands for trunsportation. These demands stem from the country's very high volume of long-haul traffic in bulk materials and fuels, especially coal. Ths government's recent pelicy statements repeatedly identify transportation and energy as the two most critical bottienecks in the economy. The government has made considerable efforts to reduce waste within the transport system, for example by eliminating cross hauling of the same commodity and increasing the processing of raw materials before shipment. However, the current transport problem in China arises not only from the need for long oistance shipment of coal and other raw materials, but also from the extraordinarily rapid growth which has resulted from the accompanying structural reforms of the country's economy in recent years. In the past, China did not provide sufficient investment to meet the level of demand for transpcrt in such a large country. Between 1953 and 1985, the transport sector received some Y154 billion, or 142 of the total national investment for capital construction (Table 1.1). This percentage appears somewhat low compared to other countries at a similar stage of development. Furthermore, the investments were made without giving due consideration to the most economical mode of transport and this resulted in a rather unbalanced transport system. Improving efficiency through investment in and modernization of China's transportation infrastructure, institutions, and services, will continue to be a top priority in the development program for many years to come. The government is addressing these problems and calls for the construction of about 1.2 million km of paved roads by the year 2000. This indicates the high priority assigned to improving road transport and the substantial economic return expected from road investments. B. Traffic 1.2 Freight Traffic. Domestic freight transported in 1986 reached 1,383 billion ton-km, an 82 increase over 1985; tnis represents an average growth rate of about 8.52 p.a. since 1980, substantially higher than the growth of domestic product. Conservative projections based on these data and expected growth in the economy as a whole indicate that domestic freight traffic could approach 3,000 billion ton-km by the year 2000. The modal split has been moving toward a better balance, with the road share of freight transport increasing from 92 in 1980 to 14% in 1986. This trend is expected to intensify with diversification and the continuing rapid growth of short-  - a - haul traffic. Indeed, between 1980 and 1986, the growth of road freight transport reached an average of 17.02 p.a.; this is s-bstanti&lly higher than the growth rate recorded by any other mode (Table 1.2). 1.3 Passenger Traffic. Passenger traffic reached 459 billion passenger-km (p-km) in 1986, a 72 increase over 1985. Tnis reflects an average annual growth rate of over 122 since 1980 (Table 1.3). Growth in passenger traffic might have been even more rapid if it had not been constrained by the limited capacity of the transport sector to offer more passenger services. The modal split has changed more rapidly than for freight; roads now handle about 372 of the traffic compared to less than 1O0 in 1952 and 282 in 1917. Nevertheless, the mobility of the Chinese people is still much lower than that of people in countries with comparable income levels. By :-he turn of the century, passenger ttaffic may well reach about 1,500 billion p-km per year. or about three and a half times current levels. C. Transport Systems 1.4 The railway system consists of 52,000 operational route-km, of which about 9,700 km are double- or multiple-track and about 3,100 km are electLi- fied. The network is served by 11,100 locomotives, 291,000 freight cars, and 19,600 passenger coaches. At present, 68Z of tractive power is still driven by steam, 282 by diesel, and 42 by electricity. Freight traffic density averages 15 million tons per route-km, the second highest freight density in the world after the Soviet Union and more than 50 higher than the freight density in the United States. Freight traffic reached 876 billion ton-km in 1986. Growth in freight traffic has averaged 7.32 p.a. since 1980 and reached 82 in 1986. Three quarters of all freight traffic involves 10 commodities including coal, iron and steel, grain, timber and construction materials. Despite some possible rationalization in the transport of natural resources and heavy industrial outputs, transport demand for the major commodities is expected to grow rapidly. Passenger traffic in 1986 was 258.7 billion p-km; this density of 4.6 million passengers per route-km ranks second in the world, after India. Although the share of rail in total traffic is decreasing, the volui..e of rail traffic will continue to grow, requiring massive investments in line capacity, motive power, and rolling stock well into the future. The system now absorbs about 502 of the investment allocated to the transport sector for capital construction (Table 1.1). 1.5 The ports and waterway system is composed of about 109,000 km of navigable inland waterways and over 18,000 km of coastal lines. Domestic coastal shipping--which offers an alternative to the north-south railway--has grown in recent years but remains underdeveloped. Foreign trade shipping grew at an average of about 6Z p.a. between 1979 and 1984, 222 p.a. between 1984 and 1985, and 122 p.a. between 1985 and 1986, reflecting the opening up of China to foreign trade. As a result, ports have become congested. Most of the 15 major coastal ports are being renovated or expanded, with particular emphasis on the construction of container and bulk terminals, the latter mainly for coal. In 1986, 22Z of the investment for capital construction in transport went to this subsector (Table 1.1). 1.6 The civil aviation system consisted of about 216,7r5 domestic route-km (and 107,575 international route-km) in 1986, more than a threefold increase over 1976. This network, relatively underdeveloped for the size of  -3- China, is served by about 400 aircraft, most of which are light or medium in size and seat fever than 100 passengers. The network has only 97 airports, of which no more than 15 can serve the larger modern jet aircraft. It was not until the early 1980s that the civil aviation system received attention; Its allocation for inves'cment in capital construction reached Y2.0 billion in 1985 for the first time, after maintaining a level of Y100-300 million for a long tIme. The system's share of total transport investment increased from about 3% in 1980 to 13Z in 1985, and to about Oz in 1986 (Table 1.1). However, the present development emphasizes only passenger transport. Passenger traffic density was 67,350 passengers per route-km in 1986 compared to about 2,300 tons of freight traffic per route-km. Despite poor facilities, the system's capacities are utilized to the fullest extent. Since 1980 the national airline, Civil Aviation Administration of China (CAAC), has purchased 50 large passenger aircraft such as Boeings 737, 747, 757, and 767, the Airbus, the MD-82, and the TU-154. The introduction into service of such a large number of aircraft will place tremendous pressure on ground facilities including runways, terminals, and navigation control. The Bank may be in a position to make useful contributions in this area. 1.7 The highway system totalled about 962,800 km in 1986 and, althougn still relatively underdeveloped, it is the sixth largest in the world. Investment in the highway subsector has been rather modest, at 162 of total investment in the transport sector. Since the early 1980s, the network has borne an increasing share of traffic (paras. 1.2 and 1.3). The network is, for the purposes of design and technical specifications, classified by the Ministry of Communications (MOC) as Expressway, and Classes I, II, III and IV for various traffic capacities in different terrain. These classifications are shown in Table 1.4, which also shows the geometric standards now being used. For administrative purposes, roads are classified as trunk, county, rural, and special purpose. 1.8 The rapid growth of highway traffic stems not only from the country's rapid economic growth but also from other factors such as the national policy of shifting short-haul rail transport to road transport, the expansion of the service sector and rural industries, and the increased processing of primary materials before shipping. Furthermore, with the increase in foreign trade, growth in road traffic will be concentrated in transport corridors serving the main ports and their hinterlands and, vith the containerization of the higher value commodities, much of this foreign trade is expected to go by road. The new economic activities have generated traffic far in excess of what the existing facilities can accommodate. Congestion on roads resulting from the mix of slow-moving non-motorized and motorized traffic is a serious problem, and road pavements are showing irncreasing signs of distress. 1.9 The vehicle fleet totalled some 4.0 million units in 1986. It consists mostly of trucks, which outnumber passenger buses by three to one and cars by nine to one. Most trucks are of four-ton capacity with outmoded designs and low fuel efficiency. Most of the trucks and buses are gasoline powered. These vehicles were manufactured domestically and the production of trucks has been barely sufficient to replace the retired vehicles, let alone meet the fast-growing demand. It was not until the early 1980s that a large number of moderr vehicles was imported (Table 1.5) and joint-ventures with foreign manufacturers were started to manufacture trucks. Production in 1985 was about 440,000 units which, for the first time, exceeded the replacement demand by 12Z, assuming a ten-year life. This production contributed to the creation of a new rleet.  -4- 1.10 The trucking industry consists of "public trucks" operated by truck- ing companies affiliated with local (provircial or district) highway authori- ties, and "social" or "own-account" trucks operated by factories, any coopera- tive organization and, recentl;, private individuals. The relaxation of trucking regulations in the early 1980s allowed own-account trucks to haul cargo for other factories and cooperatives and thus promoted competition between public and own-account trucks. In fact, own-account trucks have absorbed most of the growth in traffic over the past few years; this growth occurred primarily in ahort-haul traffic (Table 1.6). The structure of the industry is undergoing major changes spurred by the increased demand for road transport, and market forces are expected to play a more important role in shasing the industry in the future. 1.11 The administration of the highway network in the provinces is done by the Provincial Transport Departments (PTDs) through their Bureaus of Highways. Administratively, the PTDs come under the jurisdiction of the provincial government. The Ministry of Communication (HOC) provides general policy guidance and support to the PTDs through its nationwide policies and regula- tions, specifying design and conetruction star.dards. MOC also provides specialized manpower for planning and design and construction equipment for major provincial civil works, if needed. However, the PTDs are financially independent of HOC and carry out all the road planning, construction, ma4ntenance, and administration of roads and waterways in the provinces. MOC is more heavily involved only in some large projects which are considered for national construction investment and for which MOC shares part of the financial burden. Chart 1 shows the organizational relationship between MOC and the PTDs. D. Transport Issues and Objectives in the 19809 1.12 The transport system has been severely taxed by the pace of recent economic developments, and capacity constraints are evident in all modes. By the end of the Seventh Five-Year Plan (SFYP, 1986-90), freight traffic is projected to be 452 higher and passenger traffic 60X higher than in 1985. A greater share of the increase will fall on road transport, especially in rural areas, where increased agricultural and small-scale iiLdustrial production have created an urgent demand for better farm-to-market transport services. Road transport also will be called upon to meet a growing share of the demand for passenger transportation from the increasingly mobile population. A formal comprehensive sector investment plan does not yet exist, mainly because of the multiplicity of ministries and agencies dealing with transport, the decentralization of responsibilities for transport to the provinces, and the magnitude of the task of preparing such a plan in a country as large as China. There are plans to improve the coordination of transport planning at the central government level by strengthening the transport planning function in the State Planning Commission. This would greatly facilitate the preparation of an overall transport investment plan. Meanwhile the government, with the assistance of the Bank Group, is concentrating on some strategic studies and on a "transport corridor" approach which will concentrate investments to remove the most blatant transport bottlenecks in high priority corridors identified by the government (para. 1.15). In order to facilitate the flow of foreigu trade, top priority is given to corridors linking ports and industrial development zones or to links among industrial zones themselves. This strategy is well integrated with macro-economic objectives.  1.13 Government policy for the highway subsector in the 1980s focuses on the simultaneous 4'nplementution of programs for road network expansion to meet the increasing demand and programs for rehabilitation of existing substandard roads. Thib policy differs from that of the past 30 years which emphasized road length and left China with a legacy of substandard roads that cannot sustain the recent increase in traffic. The Bark Group supports these twin objectives and intends to assist the process of network expansion while helping to direct development policy toward greater quality improvements. Its support is provided within the framework of longer-term objectives for improving efficiency and cost-effectiveness in meeting the increasing transport demand. These longer-term objectives address specific policy, institutional and technological areas such as: improved economic evaluation techniques for the selection of road investments; improved intermodal planning; efficient transport tariff, road user taxation, and road financing systems; increased capacity to relieve road congestion; improved road safety; developing a methodology for road pavement evaluation; increased efficiency in the road transport industry; improved efficiency in construction througn continued support cf Government's policy of competitive bidding and development of the local contracting industry; staff training; modernization of highway design and updating and improvement of construction and material specifications; and support of highway research. Some studies related to these objectives are being carried out under ongoing projects, and the Bank Group has begun discussions with the Central and Provincial governments on the potential for using sector lending as a means of achieving some of these objectives. 1.14 There is severe congestion in many segments of the railway network; capacity is saturated on se'.*eral key lines and there is an acute shortage of wagons. The delivery of energy supplies (i.e., coal) is severely con. trained. The policy is to invest in rail line electrification and new line construction; however, it will take years to alleviate the bottlenecks between major mining areas and coastal cities. For civil aviation, CAAC plans to build about 20 medium to large airports between 1987 and 1990 and to enlarge and rebuild about 40 small airports. Furthermore, Beijing International Airport, Guangzhou Baiyun Airport, and Shanghai Hongqiao Airport will be expanded and equipped with advanced navigation equipment; when finished, capacity will be doubled. For the port and waterwaYs system, the policy is to expand substantially facilities to relieve the growing hindrance to external trade caused by inadequate berth capacity and container handling capacity. On intermodal transport, inadequate road and rail links between ports and hinterlands hamper the efficient turnaround of arriving cargo in a number of ports. The policy is to integrate transportation networks, in particular for coal and for import/export trade, container-handling facilities and intermodal freight and passenger transport centers. To facilitate these developments, significant institutional changes are planned for the sector, including extending the policy of separating the regulatory functions of government from the operating and financial functions of enterprises and delegating greater authority to the enterprises (recently begun in the ports subsector). Continuing adjustments of the charges for transportation services are expected to promote the funding of investments in the sector from internally generated resources.  - 6 - E. Previous Bank-Financed Projects in Transport 1.15 The Bank supports the government's objectives and initiativvs for development of the transportation sector with both financial and technical assistance. The Bank is financing two highway projects (Loan 2539-CHA/ Credit 1594-CHA and Loan 2811-CHA/Credit 1792-CHA). One involves the construction or improvement of national and rural roads, the other involves the construction of the first expressway in one of the busiest transport corridors in China, between Beijing, Tianjin and the new port of Xingang at Tanggu. The projects also support highway research to achieve some of the objectives for the highway subsector outlined above (para. 1.13) by: supporting highway research, improving the planning of the road network expansion and maintenance by preparing a Road Data Bank, preparing a suitable methodology for evaluating road pavements, seeking low-cost solutions to road congestion, improving the collection and analysis of traffic accident statistics to identify the measures needed to reduce traffic accidents and, most important of all, identifying how best to finance the expansion, improvement, and rehabilitation of the highuray network. This work is laying a solid foundation for developing a sound planning strategy and for allocating investmen's in the subsector between main highways and rural roads and amona construction, upgrading, rehabilitation and maintenance activities. Three additional highway projects were approved by the Bank in FY89. These are the Sichuan, Shaanxi, and Jiangxi Provincial Highway Projects, which also include the construction or improvement of important national and rural roads and continue support of the key objectives for the highway subsector as outlined above. 1.16 Physical progress on the First Highway Project (Loan 2539-CHA/Credit 1594-CHA) is on schedule and work has started on four major civil works contracts recently awarded under the Beijing-Tianjin-Tanggu Expressway Project (Loan 2811-CHA/Credit 1792-CHA). Three railway projects (Loans 2394-CHA, 2540-CHA, 2678-CHA/Credit 1680-CHA) have helped to expand capacity on key routes and to manufacture electric locomotives, passenger coaches, and signaling equipment. A fourth railway project was approved by the Bank on June 23, 1988 (Loan 2968-CHA); it will further help to expand system capacity and improve manufacturing. A railway operations costing system has been tntroduced on a pilot basis as a result of a joint Bank/China collaborative effort. Four earlier port projects (Loans 2207-CHA, 2689-CHA, 2907-CHA, and 2877-CHA) ani two additional projects approved in December 1988 would finance the expansion of berths and berth handling capacity in six of the fourteen major ports in China. These projects include components to improve port operations and studies focusing on intermodal links to the hinterland and port operating costing systems. In addition to these subsector-specific operations, the Bank has recently begun to assist the government in conducting strategic studies of a wider nature. A review of the utilization of inland water transport was completed and translated into Chinese for distribution and discussion among the Chinese authorities; another study on comprehensive transportation for Guangdong Province has been completed; and a comprehensive transport study is about to start for the greater Shanghai area, including relevant parts of Jiangsu and Zhejiang provinces. All projects are proceeding satisfactorily.  II. SHANDONG HIGHWAY TRANSPORT SYSTEM A. Network 2.1 Shandong is one of the few provinces in China that has a relatively developed and balanced transport system. The network presently consists of 1,987 km of operating railways, 1,840 km of navigable inland waterways, and 37,530 km of highways. The network density for all modes of transport in Shandong province is higher than the country average. Furthermore, because it is a coastal province, coastal shipping routes have been developed between several coastal cities. Shandong has the fifth highest road network density in China and ranks tenth in terms of total road length (Table 2.1). However, as in other parts of China, the road network standard is low and quality is poor. Most of the network was built in the 1960s when economic growth was slow, so the roads were not designed to accommodate the large volnme rf traffic and heavier vehicles associated with modern traffic. Of the 37,530 km network of roads in 1986, only 268 km (0.7?) vere of Class I standard and 4,191 km (11.2Z) were of Class II standard. However, about 91? of the network is rated as all-weather road, with the remaining 92 considered impassible after heavy rains. The technical and administrative classification of the road network is sbown in Table 2.2. B. Road Safety 2.2 Under the first Highway Project (Loan 2539-CHA, Credit 1594-CHA) the Bank is supporting a research program by the Highway Scientific Research Institute (HSRI). This program includes a study on road safety which covered: (a) a review of the existing system of reporting, recording, and analyzing road accident statistics; (b) recommendations for improving data collection, recording, and analysis of road traffic accidents; and (c) identification of a program for reducing road traffic accidents. The final report on the study was issued in December 1987. 2.3 The study found that road traffic accidents are a serious problem in China. International comparisons show China to have one of the highest accident rates in the world; in 1985 the fatality rate from road accidents was 100 deaths per 10,000 vehicles. The cost of road accidents to the Chinese economy is estimated to be Y2.9 billion, or US$786 million annually. With the present low vehicle ownership rate (4.5 vehicles per 1,000 residents) and the high growth rate of the vehicle fleet (about 25? annually) over recent years, the rate of growth of road traffic accidents is bound to increase unless immediate actions are taken. 2.4 The study identified the following actions to be needed: (a) a road safety audit to assess the status of key elements of road safety; (b) improved police accident reporting; (c) introduction of a computer-based accident analysis system (developed by the U.K. Transport and Road Research Laboratory (TRRL) ar