China - Key Studies Development Project

Document of The World Bank FOR OFFICIAL USE ONLY C/E ZZ IV _ - Report No.8206-CHA STAFF APPRAISAL REPORT CHINA KEY STUDIES DEVELOPMENT PROJECT JANUARY 29, 1991 Environment, Human Resources and Urban Development Division Country Department III Asia Reglonal Office This document has a resticted distribution and may be used by reipients only in the performance of their official duties. Its contents may not otherwise be disclosed without Wodd Bank authorizadon.  CURRENCY EQUIVALENTS (as of November 1990) Currency name - Renminbi (RMB) Currency unit - Yuan (Y)-100 Fen Yl.00 = US$0.19 US$1.00 Y5.22 FISCAL YEAR January 1 - December 31 ACADEMIC YEAR September 1 - August 31 ABBREVIATIONS CAS - Chinese Academy of Sciences FILO - Foreign Investment Loan Office (of SEdC) IHE - Institutes of Higher Education LAN - Local Area Network NCFC - National Computer and Network Facility of China NSFC - National Natural Science Foundation of China OEF - Office of External Financing (of CAS) PAG - Program Advisory Group PIMP - Pilot Laboratory Management Program SEdC - State Education Commission SKL - State Key Laboratory SL - Special Laboratory SPC - State Planning Commission SSTC - State Science and Technology Commission UNDP - United Nations Development Programme GLOSSARY Province - China is divided into 23 provinces, 5 autonomous regions and three municipalities, Beijing, Shanghai, and Tianjin. In the report, the term "province" refers to provinces, autonomous regions and municipalities.  FOR OFFICIAL USE ONLY CHIN KEYS DVL PMNT PRJECT Credit and Progect Summary Borr,ower: People's Republic of China Beneficiaries: Universities, Chinese Academy of Sciences (CAS) Credit Amount: SDR 92.9 million (US$131.2 million equlvalent) Terms: Standard, with 35 years maturity Onlending Terms: Credit proceeds will be onlent to universities and research institutes at an annual interest rate of 1.5% repayable over a period of 15 years, including 5 years of grace. The foreign exchange risk would be borne by the repaying institutions. Cofinancier: The United Nations Development Programme (UNDP) is expected to provide a grant to finance US$1.6 million equivalent of training and technical assistance costs. Project Obiectives and Description: The Credit would support the Government's decision, issued in 1985, to reform the management of scienoe and technology programs. The proposed project would: (a) increase the output of scientific researchers trained to international standards through master, doctoral and post-doctoral programs; (b) enhance the quality and productivity of research in strategic areas relevant to long-term economic and social development; (c) strengthen the management of scientific research at both the national and laboratory level; (d) provide a modern scientific infrastructure for Chinese scientists trained at home and abroad; and (e) encourage scientific cooperation across institutional and national boundaries. The project consists of: (a) support for research and graduate student training in 133 State Key Laboratories (SKL) and Special Laboratories (SL) affiliated with universities and with the Chinese Academy of Sciences (CAS); (b) a pilot program to assist seven of the project laboratories to improve management efficiency and the quality of research and training of graduate students in science; (c) development of a demonstration computer network that would link Qinghua and Beijing Universities and the Computer Center of CAS, and establish an enhanced 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 authotization.  - ii computing facility at the CAS center; and (d) a program advisory group (PAG) of Chinese and foreign experts that would provide science and technology advice to implementing agencies on the overall direction and progress of all components. The Credit would finance the foreign exchange costs of equipment and materials needed for research, spare parts and maintenance, books and journals, travel, technical assistance and training. Bgnefits: The project would, in general, improve the country's science and technology programs. Given the vital long-term link between scientific research and social and economic development, the general Chinese population will benefit from the application of research results in industry, agriculture, health care and other important sectors over the long-term. The project would specifically benefit the research laboratories included in the project through better managed research programs, equipment and improved scientific computing capacity. Furthermore, the beneficiaries of tl.e project will also be the Chinese science students and researchers at the master, doctoral and post-doctoral levels, who will be provided with the necessary inputs to utilize their talents to the maximum and upgrade the quality of their research. Risks: The project faces two risXSs. First, difficulties in managing the project may arise, given its complexity. The project includes a large number of laboratories which conduct research in many diverse fields, and several different implementing agencies. Implementation requires strong leadership and coordination, which the Government recognizes and has agreed to furnish. Staffing and structure of the major implementing agencies have been agreed and a project steering committee has been appointed to provide oversight. The second risk arises because the competitive mechanisms that will be used to allocate research funds to individual laboratories is newly established, and may not function as expected to provide sufficient research funds to project laboratories. This risk would be mitigated by the project's proposed improvement of the mechanism for monitoring the availability of research funds, and by the agreement of the Government to take appropriate action when necessary.  - iii - Estimated Project Cost*: Local Foreign Total -(US$ million)- Labo:atory Component 81.8 106.4 188.2 Pilot Laboratory Management Program 0.1 0.8 0.9 Nati' il Computer and Network Facility 1.0 4.3 5.3 Program Advisory Mechanism 0.0 0.6 0.6 Total Base Cost ALI 112.2 195.1 Physical Contingencies 6.8 9.2 16.0 Price Contingencies 16.0 11.4 27.4 Total Project Cost 105.7 132.8 238.5 Financing Plan*: Government 105.8 0.0 105.8 IDA 0.0 131.2 131.2 UNDP 0.0 1.6 1.6 Total 105.8 132.8 238,6 Estimated Disbursement*: IDA FY 1991 1992 1993 1994 1995 - ----- (US$ million) ---------- Annual 10.0 55.0 56.2 8.0 2.0 Cumulative 10.0 65.0 121.2 129.2 131.2 Economic Rate of Return: Not Applicabie MAP IBRD No. 21935 Location of Project Laboratories *Figures may not total exactly due to rounding.  - iv - CHINA KEY STUDIES DEVELOPMENT PROJECT Table of Contents Page No. I. SECTOR BACKGROUND ........... ... 1 A. Graduate Education. 1 Historical Background . . . . . . . . . . . . . . . . . . . 1 Present Structure and Status. 2 B. Science and Technology. 4 Institutional Structure. 4 Financing Research and Development (R&D). 5 Recent Reforms . . . . . . . . . . . . . . . . . . . . . . . 8 C. Key Sector Issues. 9 Career Prospects. 9 Adequacy of Inputs .10 Appropriateness of Training .10 Communication Among Institutions and With Industry . . . . . 11 II. GOVERNMENT STRATEGY AND BANK INVOLVEMENT ..12 A. Government Objectives .12 B. Bank Group Work and Strategy .12 C. Project Origin .14 D. Rationaie for Bank/IDA Involvement . . . . . . . . . . . . . 14 III. THE PROJECT ..15 A. Project Objectives . . . . . . . . . . . . . . . . . . . . . 15 B. Project Components . . . . . . . . . . . . . . . . . . . . . 15 Research and Training in SKLs and SLs (Laboratory Component) . . . . . . . . . . 15 Pilot Laboratory Management Program (PIMP) . . . . . . . . . 20 National Computer and Network Facility (NCFC) .21 Program Advisory Group .22 This report is based on the findings of a preappraisal mission to China in May, 1989 comprising B. W. Searle (Principal Educator and Task Manager); T. Bassler (Operations Assistant); H. Beemer (Science Administrator, Consultant); A. Kuppermann (Chemical Physicist, Consultant); Y. H. Kwong (Education Economist, Consultant); S. McIntyre (Research Laboratory Director, Consultant); and S. Karin (Computer Specialist, Consultant) and an appraisal mission in September comprising M/M Searle, Bassler, Beemer, Kuppermann and McIntyre. L. Mih assisted in cost analysis and preparation of statistical material. Peer reviewers comprised: Messrs. P. Cadario (AS3CO), R. Harbison (EM4HR), M. Goldman (ASTIF), G. Hunting (AS5PH), and W. Rees (ASTPH). The Division Chief is Z. Ecevit (AS3EH) and the Department Director is S. J. Burki (AS3DR).  Page No. IV. PROJECT COSTS AND FINANCING ...... .. .. . .. .. ... 24 A. Project Cost . . . . . . . . . . . . . . . . . . . . . . . . 24 Summary of Costs .... . . . . ...... . . . . . . . . 24 Cost Estimates . . . . . . . . . . . . . . . . . . . . . . . 24 Contingencies .... . . . . . ... . . . . . . . . . . . 25 Foreign Exchange Costs . . . . . . ...... . . . . . . . 26 B. Financing .... . . . . . . ....... . . . . . . . . . 27 Investment Costs .... . . . . ...... . . . . . . . . 27 Financing Ongoing Research Costs . . . . . . . . . . . . . . 27 Cofinancing . . . . . . . . . . . . . . . . . . . . . . . . 28 V. ORGANIZATION AND IMPLEMENTATION ...... . . ......... . 29 A. Project Management . . . . . . . . . . . . . . . . . . . . . 29 Laboratory Component . . . . . . . . . . . . . . . . . . . . 29 Pilot Laboratory Management Program . . . . . . . . . . . . 39 National Computer and Network Facility of China . . I . . . 30 Program Advisory Group .... . . ...... . . . . . . . 30 B. Annual Reporting and Eval.uation . . . . . . . . . . . . . . . 30 Annual Reporting . . . . . . . . . . . . . . . . . . . . . . 30 Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . 31 C. Project Implementation . . . . . . . . . . . . . . . . . . . 31 Status of Project Preparation . . . . . . . I . . . . . . . 31 Project Implementation Sozhedule ... . . .. . . . . . . . 32 D. Procurement .... . . . . . ...... . . . . . . . . . . 32 Equipment . 32 Books and Educational Materials . . . . . . . . . . . . . . 33 Technical Assistance . . . . . . . . . . . . . . . . . . . . 33 Graduate Education and Laboratory Operations . . . . . . . . 34 Bank Review .... . . . . . . ... . . . . . . . . . . . 35 E. Disbursements .... . . . . . ...... . . . . . . . . . 35 Documentation of Expenditures . . . . . . . . . . . . . . . 37 Special Accounts .... . . . . ..... . . . . . . . . . 37 F. Accounts and Audits .... . . . . ..... . . . . . . . . 37 VI. PROJECT OUTCOMES. BENEFITS AND RISKS . . . . . . . . . . . . . . . 38 A Outcomes ..38 B. Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Special Considerations . . . . . . . . . . . . . . . . . . . 39 C. Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 VII. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . . . . . 40  - vi - TABLES IN TEXT Page No. 1.1: Expenditures and Scientists in R&D Institutions (1985) ... 6 1.2: Sources of Funds for Key Studies Development Project Laboratories (1986-1988) ............................. 7 1.3: Annual Sources of Funds: A Project Comprehensive University (1985) ..............7 ................... 7 3.1: Distribution of Laboratories and Research Topics Among Scientific Fields ............... 17 3.2: Current and Projected Number of Researchers in Project Laboratories ............... 19 3.3: Current and Projected Graduate Student Enrollments ....... 20 4.1: Summary of Project Costs By Component .................... 25 4.2: Summary of Project Costs By Category of Expenditures ..... 26 4.3: Financing Plan ........................................... 28 5.1: Training and Specialist Services - Laboratory Component.. 34 5.2: Procurement Arrangements ................................. 35 5.3: Disbursement Forecast .................................... 36 FIGURES 3.1: Distribution of Research Topics Among SKLs and SLs ....... 18 AMNEXES Annex 1: Project Laboratories Annex 2: Research Proposal and Peer Review Process Annex 3: Significance of Project-Supported Research for China's Economic and Social Development Annex 4: Pilot Laboratory Management Program Annex 5: Terms of Refere.ace for Program Advisory Group Annex 6: Annual Reporting Annex 7: Project Costs Annex 8: Guidelines for the Use of Technical Assistance Funds for the Laboratory Component Annex 9: Outline of Proposed Special ICB Procedures Annex 10: Draft Guidelines for Use of Discretionary Funds Annex 11: Project Implementation Schedule Annex 12: Selected Documents and Data in Project File Chart 1: Project Management Structure MAP IBRD No. 21935 Location of Project Laboratories  CHI KEY STUDIES DEVELOPMENT PROJECT I. SECTOR BACKGROUND A. Graduate Education Historical Background 1.1 Over the past 40 years, higher education in China has undergone dramatic changes as the Government has attempted to shape the system of undergraduate and graduate education to meet changing development and political needs. In the period 1949-1956, the focus of higher education was on training skilled manpower for economic development and industrialization. Using models of higher education structure derived from the Soviet Union, the Government put in place a system of coexisting general comprehensive universities, technical universities and research institutes. The general comprehensive universities, run by the Ministry of Higher Education, .zxere responsible for training political, economic, cultural and scientific personnel, whereas the technical institutes and universities, primarily run by and for the line ministries, were responsible for training technical and managerial personnel. In response to perceived needs, and following the Soviet pattern, research was separated from teaching, curricula were highly specialized, study programs were narrow, and few basic fot.ndation courses were taught. 1.2 Basic resedrch in the natural, engineering, agricultural, military and medical sciences became largely the responsibility of the newly created (or recently expanded) Chinese Academies of Sciances, Agriculture, and Medicine as well as research units directly tied to the line ministries. Graduate education was little emphasized because of its length and cost and the relative lack of qualified faculty to act as mentors. A relatively small number of senior professors each supervised only a few graduate students. This model was used in both universities and institutes. Between 1949 and 1956 about 12,200 students entered graduate fields of study, and some 7,000 completed their studies. During the same period, about 676,000 students entered undergraduate fields of study and roughly 300,000 graduated. 1.3 During the ,eriod from 1949 to 1966, expansion of university- based graduate education in the natural and engineering sciences placed academic leadership largely in the hands of mentors who themselves had only completed undergraduate education. These mentors had been schooled in narrow curricula, had not been trained in research methods and, for the most part, had not conducted much original research. Experience in university laboratories was focused on prescribed experiments for undergraduate curricula in sciences and engineering, using equipment more suitable for student practice than for research. Under the circumstances, it was difficult for mentors to teach graduate students methods useful for original research.  2 - 1.4 Central funding and the assignment of graduates by the Ministry of Education or line ministries encouraged the narrow curricular focus in training. Graduates were placed either in teaching positions or research institutes where their functions were driven by economic development goals of the parent agency. They were often used to fulfill short-term manpower requirements. In the natural, engineering and medical sciences, this need to train for immediate job placement often froze the graduate to a rapidly obsolescing stock of knowledge while not providing him or her with the broad-based education necessary to deal adequately with a changing technological environment. 1.5 It was not until after the Cultural Revolution (1966-1976) that the Ministry of Education initiated serious efforts to enlarge and restructure the higher education sector so as to strengthen its capability to train skilled manpower and to develop a research capacity within the universities and technical institutes. The Government reintroduced a nationwide university entrance examination system in 1977, created a national system of undergraduate and graduate degrees in 1981, and initiated substantial efforts to build research laboratories and computer centers in laboratories in 1982. In 1985, the Ministry of Education was elevated to the State Education Commission (SEdC) and charged with providing policy guidance on all higher education and training. The reforms begun in 1978 are being undertaken in recognition that new skill mixes are necessary in an economy which is moving from central planning to one more influenced by market forces. In a technological environment that is evolving at an ever-increasing rate, the old structure and philosophy of undergraduate education is no longer completely valid. Present Structure and Status 1.6 Current Chinese graduate education largely reflects the structure of the higher education system. In 1987, of about 755 institutions awarding graduate degrees, slightly over 50% were universities. These institutions include both the 36 comprehensive universities directly administered by SEdC and those under the jurisdiction of line ministries, provinces and municipalities. The remaining graduate degree granting institutions are research institutes, falling under the Chinese Academy of Sciences (CAS) and other academies (15%), line ministries (25%), and provinces, municipalities and autonomous regions (10%). The infrastructure for awarding graduate degrees has grown dramatically, from 370 institutions and 11,000 students iti 1978 to 755 institutions and 113,100 students in 1987. 1.7 Although many types of institutions award graduate degrees, the bulk of students (almost 90% in 1987) are now studying for these degrees in universities. Master and PhD programs each typically last two to three years and both require a thesis. Entry is through competitive examination, which is nationwide for basic courses and institution-based for specialized courses. Not all faculty or researchers are permitted to supervise graduate students. Authorization is granted by a committee of the State Council to qualified full professors and, on an exceptional basis, to  associate professors. In 1987, about 43,500 faculty/researchers were entitled to supervise masters students and 3,800 of these could supervise PhD candidates. Limiting master and PhD supervision to senior faculty has systematically deprived the recently trained and considerably younger PhD holders of opportunities to supervise graduate students officially. In practice, many younger scientists are working closely with graduate students under the general guidance of senior faculty. This practice is far from universal, however. 1.8 Many young PhDs have recently returned from overseas; they are often the repositories of the most current scientific and technical information and research techniques. Their graduate programs have exposed them to a breadth of interdisciplinary course work not generally found in China and to research and computing instrumentation that is only recently becoming available locally. It is important that these researchers be supported by policies that recognize them as an important new generation of highly skilled scientists, engineers, economists and managers. 1.9 Several policy changes initiated in the past few years encourage better utilization of Chinese graduate degree holders. A measure of flexibility has been added to the ,ob assignment process, allowing for some degree holders to seek their own job opportunities. The eventual delinking of the job assignment process from the line ministries, which control most of the institutes and universities which produce these graduates, would assist in breaking down the inbreeding which characterizes much of the hiring of teaching faculty and research personnel for universities and research institutes. This process should also encourage universities and institutps to strengthen and broaden curricula, knowing that their graduating degree holders will not be automatically assigned to teaching or research responsibilities within only one ministry, but will have to seek employment in a larger arena where a greater array of skills and talents will be necessary. 1.10 Another policy innovation has been the creation of post-doctoral stations. These are positions created in universities, technical institutes and research institutes that provide recent doctoral recipients with two years of research funding, along with extra housing and other benefits. Funding levels are modest by international standards, but adequate to allow for support of small research groups. Available to those who have earned their PhD in China or abroad, post-doctoral stations are expected to encourage recent PhD recipients to initiate research work within a Chinese institutional framework. The policy attempts to support new PhDs (especially those returning from abroad) by allowing them more time and funding to conduct research. 1.11 Finally, many laboratories have been designated "open laboratories." In return for additional financial support from the State, these laboratories agree to appoint an independent Academic Committee responsible for major policy guidance, and to open their facilities to researchers from other departments or institutions. An Academic Council established for each laboratory, two-thirds of whose members must be from  outside the parent institution, plays a major role in funding decisions and in maintaining quality through evaluation of theses and research proposals. More than half of the research projects in an open laboratory are expected to come from nationally awarded research grants; others are financed by the open lab using its dedicated funds from the State. 1.12 Efforts to reform undergraduate and graduate curricula are being made at both the national and institutional level. The reforms are aimed at decreasing the large number of narrow specialties in which degrees are conferred while increasing the number of basic or fundamental courses students must incluee in degree programs. For example, SEdC, which must approve new curricula, has recently reduced the number of narrowly focused engineering degree programs from about 665 to about 100, broadening their scope of concentration and increasing the number of required basic courses in physics, chemistry, mathematics, computational science and, in some cases, biology. Curricular reform has been carried out mainly by key comprehensive universities which have been encouraged by SEdC to experiment in course design and development of syllabi and educational materials. Many of the experimental courses are taught by young PhDs or visiting scholars who have recently returned from abroad. In the process of broadening degree programs, SEdC has also added new programs focusing on new emerging technologies, interdiscipliLary approaches to complex scientific research and technology development (S&T) issues, and state-of- the-art scientific fields. Although much has been achieved in the past ten years, these reform efforts have been made difficult by the lack of adequate teaching materials, appropriately stocked laboratories, and faculty broadly trained in the new degree programs. In addition, some line ministries resist changing programs that are narrowly targeted on specific jobs. B. Science and Technology Institutional Structure 1.13 The S&T system in China includes research and development (R&D) organizations, education and training institutions, and service organizations. (Service organizations include those responsible for collecting and disseminating data and information, for setting standard weights and measures, and so on.) S&T institutions may be subordinate to governmental organizations, such as those directly responsible to the State Council, various line ministries or CAS. Alternatively, they may be subordinate to institutions of higher education at the national, provincial or municipal level. Some are responsible to nonprofit groups such as professional societies or social welfare organizations, and a substantial amount of research is carried out by the military. An increasing number of S&T organizations have affiliated commercial units which manufacture and sell products directly or indirectly related to the S&T organization's focus of research. These units have grown substantially in recent years and continue to be viewed as making an important contribution to China's economic development.  1.14 Major responsibility for policy formulation rests with the State Science and Technology Commission (SSTC). SSTC was established in 1958 and was originally expected to prepare broad plans for development of S&T, but coordination with the State Planning Commission (SPC) proved difficult. Thus, in the early 1980s, a joint SSTC-SPC planning bureau was formed to better integrate economic and research planning. This bureau, which has taken the lead in the formulation of the proposed Key Studies Development Project, is unusual in the Chinese Government in that it provides a structural bridge between two administrative entities. 1.15 SSTC currently comprises about 30 departments and affiliated organizations and has about 1,000 stiff at the central level. In addition to planning and policy formulation, the SSTC and its provincial level counterparts are involved in S&T personnel matters (including certification of the qualifications of technical staff at various levels), formal assessment of research achievements, and promoting exchange of information bot.L- domestically and internationally. SSTC has also launched development programs in priority areas, including high technology (computer science, remote sensing, biotechnology, and the TORCH program to support small high tech firms) and the application of S&T to rural development through the formation of the National Center for Rural Technology Development and initiation of the SPARK program. (The SPARK program, which assists development of village and township enterprises, was assisted by a Bank- financed project that has been recently approved by the Board.) Financing Research and DeveloRment (R&D) 1.16 In 1985 the Government spent almost 12 billion yuan (US$2.3 billion) on research and development. Table 1.1 on page 6 provides a breakdown of numbers of research institutes, scientific manpower and expenditures for research institutes under different sponsoring organizations. In terms of expenditures, research institutes run by line ministries were (and still are) the most significant, accounting for more than half of the expenditures. Universities as a group provide the most staff. Although the expenditure data for universities are not strictly comparable to the remainder of the data (they were collected separately, using somewhat different definitions), the table suggests that university researchers are underfunded relative to those under other sponsorship. Using a crude measure of dividing expenditures by number of scientists and technicians, scientists in line ministry, CAS and locally run institutes (but riot counties) spent roughly 20,000 yuan per person in 1985. More specific data available to the mission suggest that about 11,000 yuan per researcher is available to researchers in universities. 1.17 Sources of funds for research are diverse. Table 1.2 on page 7 shows the sources of funds during 1986-88 for research in the laboratories to be supported under the project. Increasingly, funds are being allocated for specific research work, most of which is targeted to research identified through central planning mechanisms. Of total funds, institutions under line ministries spend about 40%, tniversities under SEdC 40% and those under local governments 20%. For CAS, in 1988 about 80% of  funds were from the CAS budget, 11% from contracts with enterprises, 2% from NSFC and the remainder from other sources. Table 1.3 on page 7 presents data for one comprehensive SEdC university visited by the mission. This university had available about Y 14 million for research expenses (cf which 1 million yuan was for social science). More than half its research funds came from special research projects funded by the state. This university had 1,400 researchers, so the per capita funds available from all sources were about Y10,000. Table 1.1: EXPENDITURES AND SCIENTISTS IN R&D INSTITUTIONS (1985) Sponsoring Number of Research Number of Scientists Expenditures Organizations Institutions and Technical PersonnelP . (Y Million) Line Ministries 932 272,000 6,050 Localbi 4,706 223,000 4,007 County 3,360 23,200 215 Universities 1,254 426,000 5990/ CAS 122 44,500 851 Total 10.374 988.700 11.722 a/ It is estimated that about 25% of scientists and technical personnel are women. bI Below national, above county level. Cl Includes only funds spent on R&D. Hence, probably not strictly comparable to other expenditure figures, which are more comprehensive. Source: R. P. Suttmeier, Science and Technology Research in China, 1988, unpublished draft. Data are from SSTC and SEdC.  - 7 - lable 1.2: SOURCES OF FUNDS FOR KEY STUDIES DEVELOPMENT PROJECT LABORATORIES (1986-1988)91 Source Percentage Research project funds from SSTC, SPC, CAS and SEdC 25 Targeted funds from other ministries and central government agencies 29 Contract research for enterprises and revenue from other services 19 Targeted funds from local governments 5 NSFC 9 Other 13 100 4 Does not include funds for graduate student training. Source: Science and Technology Bureau, State Planning Commission Table 1.3: ANNUAL SOURCES OF FUNDS: A PROJECT COMPREHENSIVE UNIVERSITY (1985) Source Amount Percentage (Yuan thousands) SEdC PhD research funda/ 500 3.5 SEdC support for research 900 6.4 University operating funds 200 1.4 NSFC 2,000 14.2 SSTC funded projects 7,500 53.2 Local governments 1,000 7.1 Contracts with enterprises 2.000 14.2 Total 14,100 100.0 Number of researchers: 1400 Average per capita expenditure: 10,000 yuan a/ A significant percentage is applied to university overhead. Source: Mission data  -8- Recent Reforms 1.18 Recognizing the importance of science and technology to economic development, and the concomitant requirement to strengthen the pool of skilled S&T personnel, China in 1985 issued a decision on Reform of the S-%ience and Technology Management System, which calls for vigorously promoting technology development; redoubling efforts in applied research; ensuring steady, continuous progress in basic research; and reforming S&T parsonnel administration. The decision grants increased decision-making power and financial responsibility to research units and their directors; announces the formation of Science Foundations to support basic and some applied research and the awarding of grants through peer review to introduce competition into financing of research, thereby improving quality; advocates promoting S&T personnel on the basis of performance; reduces institutional and other barriers to the free flow of scientists and other scientific and technical personnel between institutions; and strengthens links between researchers and production units. 1.19 To implement the proposed reform, recent State Council policy directs research units in the 100 largest universities, ministry and academy research institutes to establish or strengthen ties with export related, foreign exchange earning enterprises and industries in coastal provinces. These policies reflect the importance placed by the Chinese Government on speeding up the process of moving the results of basic and applied science from the laboratory into the economy. 1.20 In 1986, the State Council established the National Natural Science Foundation of China (NSFC) to provVe grant funding throughout China for research projects chosen through a peer review mechanism that for the first time introduces competition into the funding of research. Policy for NSFC is set by a 25-member Council comprising well-known scientists and managers from SSTC, SEdC and CAS. Funding decisions are made by about 40 evaluation groups that draw on the services of almost 500 scholars. An additional 10,000 specialists are available for initial technical review of proposals. From 1986 to 1988 NSFC provided 258 million yuan for 8,690 research projects. While many projects are supported, individual grants are small, on average about 30,000 yuan, which covers only direct research costs, not equipment or salaries. 1.21 In general, the Government policy regarding provision of recurrent costs for research is to encourage laboratories to find funds themselves through two mechanisms, peer-reviewed competition organized by NSFC and SSTC, and through contracts with industry. NSFC grants finance only recurrent costs: SSTC grants are larger and often allow for the purchase of equipment. The introduction of competitive procedures for allocating scarce research funds is a significant advance. A November 1989 government report indicates that peer review procedures for financing research have been adopted by 17 State ministries and departments as well as a number of provinces and municipalities. The experience in other countries indicates that peer reviewing is an important procedure for selecting research studies that have a high probability of meeting their  objectives and supporting scientists with good track records. China, like many other countries, sets aside special funds for young scientists to help them establish the necessary track record. A major shortcoming of this effort is that the grants do not finance equipment. The newly established open laboratories (para. 1.11) will help solve this problem by allowing researchers to use their research grants at laboratories already equipped with the appropriate instruments. 1.22 In the early 1980s the State Planning Commission initiated the State Key Laboratories (SKL) program, which concentrates scarce resources on existing laboratories affiliated with universities and Chinese Academy of Sciences (CAS) institutes that: (a) work on key specialties of economic and social relevance; (b) excel in research output, staff and facilities; (c) demonstrate links with industry; (d) play a significant role in educating graduate students; and (e) as open laboratories (para. 1.11), provide opportunities for researchers from other labs as well as foreign researchers to work collaboratively on projects of national and international importance. After prospective SKLs are identified, SPC provides support for an organization phase, during which a lab is expected to establish appropriate management procedures, including fulfilling the requirements for becoming an open lab. The State also provides funds to upgrade the level and quantity of equipment. 1.23 A first phase of the SKL program will be nearly completed by the time of initiation of the proposed project. Of the 70 labs participating in this first phase, about 40 have satisfactorily completed the organization phase. The newly established laboratories are evaluated according to SPC criteria, and if they meet these standai4s, they are conferred the status of SKL, which entitles them to special grant funding, currently about Y350,000 per year. C. Key Sector Issues 1.24 'While great progress has been made in restructuring and improving the quality of scientific research and training, many problems remain. Major issues fall into four categories: (a) limited career prospects; (b) difficulties in acquiring the physical and intellectual inputs necessary for conducting research; (c) inappropriate methods of training, for both scientists and technicians; and (d) poor articulation between research institutions themselves and with end users of technology in industry. Career Prospects 1.25 Recently, for the first time, spaces in graduate programs are remaining unfilled because research careers are no longer as attractive as in the past. Not only is advancement slow, but transfer from one institution to another is still difficult, and many scientists and technicians, including many younger ones with high quality education, report that their skills are underused. In some instances, women report  - 10 - difficulties in being placed in top research laboratories and in finding opportunities to use their training. In recent years, there has been a tendency to accord higher status to advanced degrees obtained abroad than to those obtained domestically, creating another cause for underutilization of skills. Adeguacy of Inputs 1.26 Virtually all laboratories report difficulty in acquiring, on a regular and timely basis, the physical inputs necessary to conduct research. Cumbersome methods for obtaining consumables and spare parts slow the pace of research. Administrative difficulties often must be resolved by laboratory managers and senior scientists, inappropriately using their time and talents. Paradoxically, when laboratories do acquire expensive equipment, it is often underused because of reluctance to sharing. Scientists must also devote considerable time to clerical work which is an inefficient use of their time. Information, an essential requirement for modern research, is difficult to acquire in China. Domestic and foreign journals and books circulate, albeit not quickly, but in many fields, keeping up requires even faster communication than that achieved through journals. Telepbnne, fax, and computer networks now play an essential role in modern science and China is short of adequate service in all these areas. Time on high speed computers is also a necessity in many areas of modern research, both basic and applied. The availability of computer power is growing, but continuing attention must be paid to expanding and updating the provision of this crucial input to research. 1.27 Funding levels and mechanisms also constrain research. Laboratories must still rely to a certain extent on budgetary allocations from SPC, SSTC, CAS or SEdC, although funding sources are gradually being diversified to include significant levels of support from NSFC and contracts with industry. The main sources of revenue are generally for capital improvements or equipment purchases linked to the specific research needs and priorities of the funding agency. Often there are shortages of funds to support ongoing research and to enable researchers to undertake basic science or to pursue new or neglected areas of inquiry. University laboratories, in particular, experience a shortage of funds for consumables and spare parts, and all institutions have difficulty acquiring foreign exchange for these purposes. Appropriateness of Training 1.28 As noted above (para 1.12), China is working to overcome a tradition of excessively narrow specialties at both undergraduate and graduate levels. Many graduate programs still do not provide the broad- based training that is required to stay current in a rapidly changing scientific and technological environment. Furthermore, many institutions are not able to provide adequate hands-on experience with laboratory instruments. Many graduate students do not have the opportunity, which scientists in many fields consider essential to modern research training, to design, build, use and modify equipment. Laboratory technicians also  - 11 - lack the generalized training that allows them to adapt readily to developments in scientific instrumentation. Communication Among Institutions and With Industry 1.29 Within the research community, prior practice has been for scientists to remain at a single institution throughout their working career. Often this is the same institution at which the researcher has been trained. The stimulation and cross-fertilization that comes from both temporarily and permanently changing institutional affiliations has been almost entirely absent. 1.30 Enterprise reform is improving the environment for technological change in China. In addition, China introduced its first patent law in 1985 and is formulating a legal framework for other forms of technology contracts. Despite these developments, there remain organizational and incentive problems to linking work in the laboratory to the requirements of enterprises. Mobility of scientists between research institutes and enterprises is limited. It is estimated that of those scientists who work in enterprises, only half are working in manufacturing entities. Lack of labor mobility in general continues to work against the dissemination of applied research and adoption of new technology.  - 12 - II. GOVERNMENT STRATEGY AND BANK INyOLVEMENT A. Government Objectives 2.1 The Government is undertaking a variety of programs, funded both internally and externally, with the aim of strengthening the S&T system (paras. 1.18-1.23). The World Bank is being asked to assist through the proposed project and through studies to be supported by the Planning Support and Special Studies Credit (Cr. 1835-CHA) (para. 2.6). The timing of the proposed studies is such that they will be closely coordinated with the work of the project. The project itself, through its support of applied research, through its use of research proposal appraisal procedures that require peer review, and through contemplated management changes, would contribute directly to achieving the objectives of the Government's reform programs. 2.2 Fundamental to the SPC's planning of the present project has been a strong commitment to overcoming some of the structural differences and outdated institutional goals of the institutes of the Chinese Academy of Sciences and the universities. Through this project, SPC seeks to enhance the graduate training programs of CAS and, within universities, to support the recently created research infrastructure and thereby move the universities toward a more comprehensive scientific environment in which the best graduate training is done in conjunction with the most advanced scientific and computational equipment. Through the proposed project, SPC, SEdC and CAS seek to develop a comprehensive, complete and mutually supportive education and research structure which will better serve China in meeting the new and rapidly changing challenges of economic and social development. B. Bank Group Work and Strategy 2.3 The Bank Group has financed nine projects supporting higher education in ahina, three of which are closely related to the proposed project. The first University Development Project (Ln. 2021-CHA/Cr. 1167- CHA) assisted 28 universities administered by SEdC to increase the number of graduates and the volume of scientific research work and to improve the quality of research and university management. The Second University Development Project (Cr. 1551-CHA) '-ad similar objectives for 34 universities, almost all of which are affiliated with line ministries. The Provincial Universities Project (Cr. 1671-CHA) is providing similar assistance to 60 universities administered by provinces. 2.4 Only one of the projects has been completed. The PPAR for the University Development Project (Report No. 7561, dated Dec. 30, 1988), concludes that "it is possible to undertake a large-scale improvement and modernization program in education and research within a short time if an effective implementation structure is in place and a broad base of professional manpower is already available for systematic upgrading"  - 13 - (p. vi). The PPAR raises two issues. The first concerns equipment utilization and replacement. It suggests that a phased operation might have been preferable to the very large project so that experience could have been gained gradually with large, sophisticated equipment and some duplication c-.uld have been avoided. The present project has been designed taking into account the modest absorptive capacity of individual laboratories (para. 3.3) and the need to avoid duplication (para. 3.6). The second issue concerns the failure of many of the students sent overseas for long-term training to return to China on schedule although scholars sent abroad for shorter periods have a very high rate of return. The proposed Key Studies Development Project aims to improve the capacity to train scientific researchers domestically, thus reducing substantially the number sent abroad for long-term training, and to increase the opportunity for active researchers to conduct research collaboratively with foreign researchers, both in China and abroad. Thus, the project directly addresses this second issue raised by the PPAR. 2.5 The Bank strategy in education calls for assisting the Government in three areas: (a) to build a modern education system that can produce the innovative entrepreneurs and skilled v'orkers required for China's goal of economic development through advances in science and technology and improved quality of the work force; (b) to adjust the structure and functions of the education system so that it can better adapt itself to the dynamic changes taking place in the economy; in particular to adjust to the more flexible employment policies and practices and growth in the private and tertiary sectors; and (c) to strengthen the capacity of local education authorities to carry out their new responsibilities under decentralization, fiscal and otherwise. The proposed project addresses all of these objectives by improving the quality of training for scientific research personnel, by tightening the links between research and graduate training, and by improving the management of scientific laboratories that carry the major burden of meeting the needs of industry for trained personnel. 2.6 Two studies which are closely coordinated with the project were proposed by the Government for separate funding. The first, by the State Science and Technology Commission, would address issues of science policy, especially the identification of priority areas and criteria for allocating funding and the refinement of indicators used to track progress in S&T development. The second, by the National Natural Science Foundation of China (NSFC), would study means for strengthening the newly established system for scientific grant funding. These studies have been approved for  - 14 - financing by the Planning Support and Special Studies Credit (Cr. 1835- CHA). C. Project Origin 2.7 In 1986 the State Education Commission approached the Bank for support for a project to improve graduate education, as a follow-on to earlier university development projects. Subsequently, SPC decided to use the project to support new laboratories under the State Key Laboratory program (para. 1.22). A reconnaissance mission visited China in August 1988 and agreed with the Government that the project would support about 70 prospective State Key Laboratories chosen through a competitive process. During an identification mission in November 1988, agreement was reached to include a further group of university-based laboratories, designated Special Laboratories (SLs), that were worthy of support but did not meet all of SPC's criteria for becoming SKIs. D. Rationale for Bank/IDA Involvement 2.8 The changing economy of China requires a corresponding strengthening in the country's science and technology capacity. The proposed project contributes towards this purpose. A key to this effort is strengthening the institutional mechanisms through which scientific research and training of future scientists are conducted. The Bank has been involved in projects in such countries as China, Brazil and Korea, assisting governments in improving their higher education subsectors, in particular the science and engineering disciplines. This is particularly the case in China where the proposed project would continue the support for development in science education begun under several previous projects (para. 2.3). 'If the 48 universities to be included in the Key Studies Development Project, about 80% have been supported by previous Bank projects. Because of these earlier projects, as well as through China's own efforts, there are now large numbers of science and engineering graduates who are well qualified to undertake graduate education, and significant numbers of young PhDs who have been trained overseas and are ready to propel scientific R&D in China to an internationally competitive level.  - 15 - III. THE PROJECT A. Proiect Objectives 3.1 The proposed project would: (a) increase the production of scientific researchers trained to internationial standards through master, doctoral and post-doctoral programs; (b) enhance the quality and productivity of research in strategic areas relevant to long-term economic and social development (these are: energy, transportation and communication, raw and processed materials, machinery and electronics, agriculture, biotechnology, new materials, health and pharmaceuticals, environmental protection and natural geo-engineering and basic science); (c) strengthen the management of scientific research at both the national and laboratory level; (d) provide a modern scientific infrastructure for Chinese scientists trained at home and abroad; and (e) encourage scientific cooperation across institutional and national boundaries. B. Project Components 3.2 The project would comprise four components: (a) research and training in State Key Laboratories and Special Laboratories; (b) a pilot laboratory management program; (c) a national computer and network facility; and (d) a program advisory mechanism. The Credit would finance primarily the foreign exchange costs of the equipment, experts, travel, books and journals, raw materials and other consumables, spare parts and maintenance that would be required to conduct the specific research projects proposed by project laboratories. The project would also provide for technical assistance and a small amount of equipment for the pilot laboratory management program and establishment of a program advisory group, which are described below in more detail. Research and Training in SKLs and SLs (Laboratory Component) 3.3 The laboratory component would finance research and graduate student training in 133 laboratories affiliated with 48 universities and with 22 CAS institutes.'/ Seventy-five of the laboratories are candidate SKLs. For these labs, the project would finance laboratory "construction" or formation, a formal process during which the laboratory acquires the management structure and procedures, equipment, and appropriate level of skilled researchers to meet the State's rigorous standards for final designation as an SKL (para. 1.22). SLs are distinguished from SKLs by their sponsorship and level of funding. Many of the SLs are not eligible to be SKLs because their work is in basic rather than applied sciences. 1/ The laboratories are listed in Annex 1 and their locations indicated on IBRD Map No. 21935. They are located in 19 provinces and municipalities.  - 16 They remain under the jurisdiction of their respective host universities and do not receive additional special funding from the State. In these labs, great importance would be given to developing a strong research program as a means of providing modern training for graduate students in a wide variety of fields. Some SLs would be considered for accreditation as SKLs. 3.4 Key to achieving the overall project goal of integrating advanced scientific research with high quality graduate education is the incorporation of the following innovations: (a) the introduction of a peer review process both to select those laboratories to be included in the project and to screen requests for advanced and appropriate scientific and computational instrumentation; (b) the creation of an Academic Committee (para. 1.11) for each laboratory; (c) strengthening of the management role of the laboratory director with increased responsibility for finance and administration and delegation of decision making to a level closer to the actual process of education and research; (d) a continuous and rigorous monitoring, reporting, and evaluation process organized by the SPC in consultation with NSFC and carried out by SEdC and CAS to assure that the goals set by the SKLs and SLs are being pursued with purpose and vigor, and that the achievements of the laboratories are recognized nationally and internationally and incorporated into China's larger goals of economic and social development. Each laboratory would determine how its technical assistance funds would be used, following State guidelines. Funds would be spent for collaborative research (bringing foreign scientists to laboratories in China and sending Chinese scientists abroad), visits by university scientists to give lectures and review graduate education programs, seminars, workshops, and attendance of Chinese scientists at international conferences. 3.5 Project laboratories, although identified as new for purposes of funding under the project, are building on existing infrastructure and accomplishments. The proposed laboratories have fixed assets worth (original value) Y648 million (US$125 million), of which Y564 million is instruments and equipment. The remainder represents 184,300 m2 of laboratory buildings. According to SPC records, since 1983 these entities have published 747 treatises, presented or published 2,840 papers at international forums or in international (refereed) journals, e i presented or published 18,000 papers at domestic forums or in Chinese journals. Almost 500 items have been granted patent rights in China or abroad and 325 projects have won state awards. 3.6 SKLs and SLs were chosen through a rigorous selection procedure that included examination of the laboratory's past achievements and plans for research and graduate student training. The evaluation was carried out by peer review groups of prominent Chinese scientists through review of written proposals and site visits. Each lab has submitted a proposal comprising a laboratory-wide profile and individual research proposals which include a budget to finance the proposed research work. A particular focus of the review was the appropriateness of the equipment for the research proposed, and the absence of other local sources of equivalent  - 17 - capabilities and facilities. The guidelines for laboratory proposals and the peer review process are summarized in Annex 2. The SKLs and SLs to be established under the project would be expected to carry out research of international quality in a way that makes rational use of scarce resources, to train researchers to that international standard, to strengthen the management of research, to provide a modern scientific infrastructure for their researchers, and to do research in selected areas of importance for China's long-term economic and social development. 3.7 Table 3.1 presents the number of laboratories and the number of individual research topics falling in each of the 10 fields covered by the project (para. 3.1). About one-fourth of the laboratories and the research topics are in fields broadly character;.ed as machinery and electronics. The remainder are more evenly spread, 'th more attention given to environment and geo-engineering, and basic sciences, and relatively less to biotechnology and health and pharmaceuticals. The distribution of SKLs and SLs among the fields is shown in Figure 3.1. A discussion of the contribution of the work of individual laboratories to China's economic and social development, prepared by SPC, is presented in Annex 3. Table 3.1: DISTRIBUTION OF LABORATORIES AND RESEARCH TOPICS AMONG SCIENTIFIC FIELDS Number of Number of Field Laboratories Research ToRics 1. Energy 11 37 2. Transportation and communication 10 31 3. Raw and processed materials 13 41 4. Machinery and electronics 34 135 5. Agriculture 10 22 6. Biotechnology 6 36 7. New materials 12 60 8. Health and pharmaceuticals 3 17 9. Environment and geo-engineering 17 80 10. Basic science 17 62 Total 1 521 Source: Mission data.  - 18 - Figure 3.1 of Labs 100 80-_ 40 20 t 0 E 1 2 3 4 5 6 7 8 9 10 Distribution of Research Topics Among SKLs and SLs _ SKL inSL Note: Number corresponds to field Identified in Table 3.1 3.8 The current and projected number of researchers in project laboratories is shown in Table 3.2 on page 19. On average, SKLs have about 80 researchers. SLs tend to be smaller, with 65 researchers on average. Project laboratories already play an important role in educating graduate students. Collectively, the laboratories have abeut 2,000 faculty/researchers authorized to supervise master and doctoral students. Table 3.3 on page 20 presents data for prevent and projected enrollments, nationwide as well as for project institutions and laboratories. Total enrollments in project SKLs and SLs is not expected to rise. However, a shift in the ratio of masters to PhDs from about 4:1 to about 3:1 would occur. The projected steady enrollment in project laboratories is in contrast with the present policy to reduce graduate enrollments nationwide by 5S. The Government is thus protecting the levels of enrollment in these institutions which have been deemed to be of exceptional quality and designated to conduct research and training in scientific areas of national importance.  - 19 - Table 3.2: CURRENT AND PROJECTED NUMBER OF RESEARCHERS'I IN PROJECT LABORATORIES 1990 1991 1992 SKLs Universities 5,625 6,146 6,667 (56 labs) CAS 824 1,024 1,239 (19 labs) SLs (58 labs) 3,761 4,282 4,803 Total 10,210 11,452 12,709 aI "Researchers" includes staff researchers of laboratories as well as graduate students undertaking research. 3.9 In addition to improving the quality of training and shifting the ratio of PhDs and Masters toward the former, the investment in SKLs and SLs would be expected to improve the productivity and quality of work of laboratories in several ways, addressing many of the issues raised earlier (paras. 1.24-1.30). Project laboratories would become open to researchers from other Chinese institutions and technical assistance funds would allow an increase in collaborative research with foreign researchers. Utilization rates for expensive equipment would also be increased through more widespread sharing of equipment among scientists and across institutions. Movement of researchers would become customary, resulting in better utilization of skills and more attractive career prospects, and information exchange would be improved. The investment funds made available under the project would continue the process of equipping outstanding laboratories in China, a process that must be both incremental and continuous, if these laboratories are to continue to remain at the forefront of research and provide training comparable to that of universities abroad. To improve communication of research results among laboratories, and contribute to openness, NSFC has established a journal of research abstracts that will report on research undertaken in China and initially will focus on the results of work in project SKLs and SLs.  - 20 Table 3.3: CURRENT AND PROJECTED GRADUATE STUDENT ENROLLMENTS 1988 Enrollments ___1992 Enrollments Type of Institution Masters Doctorates Masters Doctorates SEdC/Line Ministries/ Provinces Institutions of Higher 88,300 8,700 74,000 9,500 Education (IHE) of which IHE in Project 44,200 5,700 39,000 6,555 of which SKLs and SLs in IHE 5,484 1,370 5,300 1,580 Chinese Academy of Sciences CAS Institutes 5,428 1,469 4,500 2,,20 of which CAS Institutes 2,689 782 1,629 1,014 in Project of which CAS SKLs 501 190 401 214 Pilot Laboratory Management Program (PLMP) 3.10 With grant financing from UNDP, the project will provide special support to a small group of project laboratories in undertaking experimental initiatives in the management and administration of scientific research and graduate education. The main objectives of the component are to: (a) increase operating efficiency of the pilot labs in key aspects of laboratory management; and (b) improve the quality of scientific research and enrich the learning experience in the labs, particularly for graduate students and post-doctoral researchers. Seven laboratories have been selected to participate on the basis of their reputations for producing excellent research and their capacity and willingness to experiment with new management techniques. The laboratories include two CAS SKLs, three university SKLs and two university SLs. They are located in different geographic areas and undertake research in a variety of disciplines. The pilot labs are listed in Annex 4 and locations are indicated on IBRD Map No. 21935. 3.11 The key laboratory management areas to be addressed under this component are technology transfer, internal and external communications, personnel management, professionalism and staff training, financial management and laboratory safety. The program would also monitor implementation of both the open labs program and post-doctoral stations.  - 21 - The areas to be covered are described in Annex 4. Beginning in 1991 through a series of workshops with Chinese and foreign management specialists to be coordinated by the NSFC, the directors of the pilot labs will develop and carry out management plans focusing on priority issues for their own laboratories in the management areas identified above. In addition to workshops for managers, special training activities may be organized for laboratory technicians from the pilot labs and for staff designated to perform administrative and secretarial work. An initial planning workshop for the pilot program would be held in spring 1990 and would be financed by project preparation funds (already approved) from the UNDP umbrella project CPR/86/003 for which the Bank is the executing agency. A more detailed description and implementation plan for the component is included in Annex 4. The program would be expected to identify measures to improve the efficiency of procurement and increase personnel mobility within and between laboratories. It would also identify training needs for support staff and assist in adapting existing courses or developing new courses to meet these needs. SPC has agreed to support dissemination of successful programs to other project laboratories and then nationwide. National Computer and Network Facility (NCFC) 3.12 The project will support development of a prototype scientific computing facility that ultimately would be expanded nationwide. The objective of the component is to facilitate resource sharing among institutions by establishing an enhanced computational facility linked by a demonstration network to the computer centers of Beijing and Qinghua Universities and the Computing Center of CAS. The introduction of the computational power of a networked mini-supercomputer will allow the Chinese academic community to work on scientific and technological problems of a more advanced and complex level than has been possible up to now. 3.13 The strategy for implementing the NCFC is first to construct the local area networks (LAN) at each participating institution (to be financed by the Government), and then to establish the NCFC backbone network connecting the three institutions. The Government is supporting the first phase because work is already underway, the technology is straightforward, and high priority is being given to making the LANs operational quickly. Selection of the advanced scientific computers to be housed in the NCFC computer center would be undertaken later to permit the most advanced computer possible to be acquired. Procurement of the computer would be contingent on successful completion of the network. The proposal for procurement of the computer would include a full justification of the need for a computer of the size proposed ani satisfactory arrangements for managing its use. The proposal would be expected between 1991 and 1993. It would require the Association's no objection. The project will provide for development of facilities, equipment and technical assistance. UNDP will provide grant financing to support technical assistance. 3.14 The CAS has been selected through a competitive peer review mechanism to establish the computing facility. A national center would be  - 22 - established to operate the facility and the proposed network. CAS has completed a detailed proposed implementation plan for the development of the backbone network. The proposal specifies: (a) cost estimates and equipment list; (b) configurations of computers and LANs; (c) project management arrangements; (d) plan for future expansion of computing resources on the network; (e) plans for future growth to accommodate changing technology and geographic as well as institutional expansion; and (f) plans for eventual connection to international academic research networks such as BITNET. Program Advisory Group 3.15 This fourth component would establish a Program Advisory Group (PAG) of nine persons, including both Chinese and foreign experts, to provide continuing, high quality scientific advice to SEdC and CAS on the overall direction and progress of implementation in the various components. The PAG would support the SPC's role in providing guidance to the project at the policy level as well as help to integrate the implementation activities of SEdC and CAS. The group would be chaired by a leading Chinese scientist. The other eight PAG members would be highly qualified Chinese and international researchers, science educators, arnd laboratory directors. Draft terms of reference for the FAG are provided in Annex 5. The PAG would be established within six months of Board approval. The foreign costs of the PAG would be financed by UNDP. 3.16 Design of the PAG component is built on prior experience in four education projects2/ with two bodies that played a similar role: the International Advisory Panel (IAP) and the Chinese Review Commission (CRC). For each of the four projects, an IAP and CRC were established with appropriate membership. The groups were separately constituted, but met together regularly. In each case, the IAP was assisted by an externally- based secretariat. The role of the IAP extended beyond providing advice to assisting universities in recruiting foreign specialists and orgarizing workshops in China. The experience with IAPs has been judged quite successful but also quite expensive. The Chinese authorities and the Bank agree that it is no longer necessary to provide external assistance to PAG in carrying out its functions. Therefore, building on the overall experience with IAPs and CRCs, several sign.ficant changes have been made in the structure of the proposed advisory group. First, there is a single group, with a majority membership from China and a Chinese chairperson. Second, the secretariat will now be located in China. And finally, the PAG will concentrate on providing advice and assistance to the agencies implementing the project. In particular, the PAG would: help to ensure that SKLs and SLs develop in a sound and well coordinated manner; give advice to SEdC and CAS concerning the development of scientific research 2/ University Development, Ln. 2021-CHA/Cr. 1167-CHA; Polytechnic/TV University, Cr. 1411-CHA; Second University Development, Cr. 1551- CHA; and Provincial Universities, Cr. 1671-CHA.  - 23 - and graduate education in SKLs and SLs; review the results of PLMP and assist in developing plans for dissemination of successful interventions; review the design and operation of the National Computer and Network Facility; and provide such other advice as requested by the implementing agencies during project implementation.  - 24 - IV. PROJECT COSTS AND FINANCING A. Project Cost Summary of Costs 4.1 The total cost of the project including contingencies is estimated at Y1,244.8 million or US$238.5 million equivalent. The estimated costs by project cJmponent and category of expenditure are summarized below in Tables 4.1 on page 25 and 4.2 on page 26. Detailed costs are presented in Annex 7. Cost Estimates 4.2 Base costs are expressed in mid-1990 prices and grouped into five categories. Civil works includes construction or expansion of buildings to house SKLs, SLs and the computer center for the NCFC. EguiRment includes the purchase of new items as well as spare parts and maintenance. The books and materials category is broadly defined, including books and journals, computer software (except that purchased with computer hardware), patents, instructional audio and videotapes, and page charges for publishing articles in international journals. Training and specialist services is the cost of foreign experts, exchange visits and domestic and overseas training. Graduate education and laboratory operations includes costs associated with graduate training, as well as expenditures for consumables, local travel and other program costs of research and education. 4.3 The bulk of the project costs (97%) are under the laboratory component. These costs were estimated through the research proposal and peer review process (para. 3.6 and Annex 2) and based on budgets approved by SPC for each laboratory. Civil works costs and requirements were estimated by the laboratories and reviewed by the capital construction bureau of SEdC or CAS as appropriate. Equipment costs were based on detailed lists and estimated unit prices of similar imported or locally available items. The costs of books and educational materials were estimated by individual laboratories based on their own experience and knowledge of required items to support research in their particular fields. The costs of technical assistance and specialist services were estimated for the laboratory component by lab directors based on previous experience. For the PLMP, NCFC and project advisory mechanism components, technical assistance was costed according to UNDP budgetary guidelines. Costs for graduate education and laboratory operations were estimated by individual researchers and laboratory directors. Under the laboratory component, the average estimated total base cost per laboratory in all expenditure categories was US$1.42 million, of which about 57% was foreign cost (Annex 7, Table 3). Project-financed goods will be exempted from import duties and taxes.  - 25 - Table 4.1: SUMMARY OF PROJECT COSTS-I BY COMPONENT (in Mid-1990 Prices) Local Foreign Total Local Foreign Total Foreign ----- Y Million ----- --- US$ Million ---- Laboratory Component 427.0 555.6 982.6 81.8 106.4 188.2 57 Pilot Laboratory 0.3 4.3 4.5 0.1 0.8 0.9 89 Management Program National Computer and 5.3 22.4 27.8 1.0 4.3 5.3 81 Network Facility Program Advisory 0.1 3.3 3.4 0.0 0.6 0.6 100 Mechanism Total Base Cost 432.7 585.6 1.018.3 829 112.2 195.1 57 Physical Contingencies 35.5 48.0 83.5 6.8 9.2 16.0 58 Price Contingencies 83.5 59.5 143.0 16.0 11.4 27.4 42 Total Project Cost 551.7 693.1 1.244.8 105L7 32.8 238.5 56 a/ Project-financed goods are exempt from import duties and taxes. Note: Figures may not total exactly due to rounding. Contingencies 4.4 Physical contingencies represent 8% of base costs. Price contingencies were estimated on the basis of 1990 costs and the implementation schedule in Annex 7 and expected annual price increases as follows: local costs - 10.0% for 1991, 8.0% for 1992 and 5.0% thereafter; foreign - 9.0% for 1991, 1.1% for 1992 and 2.95% thereafter. Total contingencies are estimated at about 22% of base costs. The project cost includes the indirect cost of import duties and taxes on materials for locally manufactured equipment, which have not been identified separately because the amount is negligible. 4.5 In addition to the calculation of contingencies according to the Bank's operational guidelines, project costing includes an unallocated amount of about US$0.5 million in the base costs of the laboratory component. These funds would be designated for SEdC and CAS to apportion as needs arise during implementation. Such needs might include training  - 26 - for project implementation staff, unexpected equipment needs, or speci4l studies. Draft guidelines for the use of these funds (Annex 10) were agreed at negotiations. Foreign Exchange Costs 4.6 Foreign exchange costs are estimated at about Y693.1 million (US$132.8 million equivalent). Based on an analysis of expenditures of other projects in China and the implementation and counterpart funding arrangements for the project, the foreign exchange component for the major categories of the proposed project was estimated as follows: (a) civil works 0%; (b) equipment 75% (based on an assessment of locally available items and sophisticated items that would need to be imported); (c) books and educational materials 63%; (d) training and specialist services 72%; and (e) graduate education and laboratory operations 2%. Table 4.2: SUMMARY OF PROJECT COSTS" BY CATEGORY OF EXPENDITURE (in Hid-1990 Prices) Local Foreign Total Local Foreign Total Foreign - ---- Y Million ----- --- US$ Million ---- Civil Works 92.6 0.0 92.6 17.7 0.0 17.7 0 Equipment 166.5 511.9 678.3 31.9 98.1 130.0 75 Books and Educ 7.4 12.3 19.6 1.4 2.4 3.8 63 Materials Training and 22.9 58.1 81.0 4.4 11.1 15.5 72 Specialist Svcs Graduate Educ and 143.6 3.3 146.8 27.5 0.6 28.1 2 Lab Operations Total Base Cost 433.0 585.6 1.018.3 82.j 112.2 195.1 58 Physical Contingencies 35.5 48.0 83.5 6.8 9.2 16.0 58 Price Contingencies 83.5 59.5 143.0 16.0 11.4 27.4 42 Total Project Cost 552.0 693.1 1.244.8 105.7 132.8 238.5 56 LI Project-financed goods are exempt from import duties and taxes. Note: Figures may not total exactly due to rounding.  - 27 - B. Financing Investment Costs 4.7 Bank Group financing would be an IDA Credit of SDR 92.9 million (US$131.2 million equivalent) which would cover 55% of the total investment costs of US$238.5 million equivalent. UNDP is expected to finance US$1.6 million of training and technical assistance costs. The counterpart funding required would be US$105.8 million equivalent (44% of total project costs). Of this amount, approximately 75% would be provided by SEdC, 20% by CAS and the remaining 5% by line ministries and local governments. Agreements have been reached with all participating laboratories and with their sponsoring agencies to make available the required counterpart funding for civil works (100%), locally procured equipment (27% of total equipment), graduate education (98%) and other costs that would be financed locally (Table 4.3 on page 29). Credit funds of about SDR 90.3 million, equivalent to US$127.3 million, would be passed on to universities and research institutes through SEdC and CAS at an interest rate of 1.5% per year, repayable over a period of 15 years, including a five-year grace period. The remaining funds equivalent to US$5.5 million would be onlent directly to SEdC and CAS on the same terms. The foreign exchange risk would be borne by the repaying institutions. At negotiations, assurances were obtained that Credit proceeds would be made available to project laboratories through SEdC or CAS on terms and conditions satisfactory to the Association. Financing Ongoing Research Costs 4.8 All agencies participating in project implementation (SEdC, CAS, line ministries, a provincial government, NSFC) have agreed to supply all required counterpart investment and training funds (para. 4.7). The situation regarding financing of research costs is less clear. This is necessarily so because of the Government's policy of devolving to laboratories responsibility for finding their own funding (para. 1.21). The research proposals presented to SPC as part of the laboratory proposals have already been peer reviewed and, in principle, should be financed by the project. However, the Government has not agreed that project funds should cover the full research costs. It is also clear that the facilities being constructed using project funds will be able to support additional research efforts beyond those contained in project proposals. Therefore, it becomes important to examine the issue of availability of funds for covering research costs, outside the project. 4.9 A mission survey of budgets of 43 representative project laboratories compiled information on sources of research funds. Three central sources, NSFC, SSTC and SPC, accounted for about 42% of research funds. Another 36% came from sponsoring agencies (SEdC, CAS, line ministries). Smaller amounts come from the individual universities, local governments, and industry. Laboratory directors and scientists report that the financial resources available to individual laboratories are not fully adequate to allow efficient use of both instruments and trained scientists.  - 28 - SPC expects that, becauso project financed laboratories will have better equipment and better trained scientists they will qualify for additional funding in competition both domestically and overseas for research grants. Agreement was reached that the adequacy of funds for research would be monitored on a laboratory by laboratory basis. Indicators would be developed for this purpose and reviewed annually by PAG. PAG would be expected to immediately call to the attention of SPC, SEdC and CAS as appropriate any shortfalls found to occur. If insufficiency of funds results from the inability of the lab to qualify for funds available competitively, SPC or SEdC as appropriate would institute measures to correct the situation. At negotiations, assurances were obtained that: (a) the availability of research funds of the laboratories assisted under the project would be monitored in accordance with indicators acceptable to the association; and (b) if it is determined that there is a shortfall, the causes would be identified and appropriate measures taken to address the causes. Cofinancing 4.10 The United Nations Development Programme (UNDP) has indicated its willingness to provide a grant equivalent to US$1.6 million to finance the full foreign costs of the PIMP and PAG components and a portior, of the technical assistance (US$0.08 million equivalent) for the NCFC component of the project. A formal request f.oPr financing and proposal for implementation has been prepared and submitted to the UNDP. The Government, the Bank and UNDP have agreed that the Government would be the executing agency for the grant. If the UNDP grant does not become available, the Government will finance the required activities. Table 4 3: FINANCING PLAN Government IDA UNDP Total IDA ---------- US$ million --- -- Financing Civil works 21.7 0.0 0.0 21.7 0 Equipment 42.8 115.9 0.2 158.9 73 Books & educational materials 1.8 2.8 0.0 4.6 61 Training and specialist services 5.8 11.8 1.4 19.0 62 Graduate education and laboratory 33.7 0.7 0.0 34.4 2 operations Total Project Costs 105.8 131.2 1.6 238.6 55 Note: Figures may not total exactly due to rounding.  - 29 - V. ORGANIZATION AND IMPLEMENTATION A. Project Management Laboratory Component 5.1 The SEdC has formed a Leading Group to coordinate development of university laboratories. The Group is headed by a Vice Chairman of SEdC and comprises representatives of SEdC departments of foreign investment and loans (FILO), finance, higher education, construction and equipment, and science and technology. In addition, an inter-departmental Working Team has been established to carry out administration. The team's main functions will be to: (a) prepare written procedures for project implementation; (b) coordinate and assist the universities in procurement and staff development; and (c) coordinate project reporting and monitoring. With respect to the project laboratories being established in universities other than those directly under SEdC, the team will liaise with the line ministries and provincial governments concerned. SEdC has asked each participating university to establish a project implementation office to assist project laboratories. In about two-thirds of the universities, such offices already exist for implementation of the Bank-supported university development projects. 5.2 In CAS, under the auspices of a Leading Group for the project, the Office of External Financing (OEF) of the International Cooperation Bureau will be primarily responsible for implementation and for coordinating the activities of various departments. The planning bureau will oversee procurement. The capital construction bureau will oversee civil works. The bureau of education will help to arrange domestic training and staff development activities. The bureau of international cooperation will assist with international exchange visits. Academic/scientific bureaus of CAS (e.g., Biology, Mathematics and Physics) will provide guidance as necessary on specific research proposals. At the institute level, the deputy director concerned will have chief responsibility in formation of the lab. At negotiations, assurances were obtained that FILO and OEF will be designated and maintained as the project implementation units throughout project implementation. Pilot Laboratory Management Program 5.3 The National Natural Science Foundation of China (NSFC) would be responsible for management of the PLMP. This would include planning activities and coordinating technical assistance shared by more than one laboratory, maintaining contact with pilot laboratory directors, monitoring the progress of programs, and reporting to SEdC, CAS, SPC, UNDP and the World Bank. A small unit within NSFC would be established to handle these tasks.  - 30 - National Computer and Network Facility of China 5.4 Management of the NCFC will be carried out under the direction of SPC by three bodies operating at different levels of generality. A Management Committee, headed by a vice president of CAS, and including representatives from SPC, SEdC, CAS, NSFC and Beijing and Qinghua Universities, will be responsible mainly for strategic management and broad policy guidelines. An Academic Committee of experts from CAS and the two universities, NSFC, and the Ministry of Communications, including prospective users of the NCFC, will be responsible for technical issues. The Network Center will be responsible for day-to-day management of the NCFC. Program Advisory Group 5.5 The PAG would be organized and administered by SEdC. FILO would serve as the secretariat for PAG and would take major responsibility for recruitment of the Chinese members. Recruitment of the international members would begin shortly after Board approval of the project according to procedures agreed with UNDP end .'EdC. Assurances were obtained during negotiations that the PAG will be established and maintained throughout project implementation according to selection procedures and terms of reference agreed with the Association. B. Annual Reporting and Evaluation Annual Reporting 5.6 To provide effective monitoring and evaluation, SEdC, on behalf of the entire project, will assemble data on project implementation and submit an annual report to the Association, the PAG, UNDP as well as other related agencies. Data on laboratories would be collected by SEdC and CAS. NSFC would report on the PLMP, and the CAS Computer Center would provide an assessment of progress on the NCFC. The annual report is expected to include (a) a description of the project status and plans for the coming year; (b) reports on the PLMP and NCFC; (c) data on expenditures at individual laboratories; and (d) indicators of progress in laboratory "construction" or formation, equipment utilization, availability of funds for research, and degree of openness (para. 1.11). The format of the annual progress report is included in Annex 6. Progress on the key indicators of equipment utilization, availability of research funds, and openness would be reviewed by the PAG annually. A mid-term review of project implementation would be held in mid-1993 with representatives from SPC, SEdC, CAS, NSFC, PAG, NCFC, UNDP and the Association. It is expected that, beginning in August 1992, SEdC would provide to the Association for review and comment an annual progress report on project implementation in accordance with indicators and a schedule accpetable to the Association. Assurances were obtained during negotiations that a mid-term review of project implementation would be held in mid-1993.  - 31 - Evaluation 5.7 Two types of evaluation would be conducted at the end of the project: (a) accreditation of SfLs; and (b) overall assessment of outcomes. Accreditation, which would measure candidate SKLs within the project against established standards, would be carried out by CAS and SEdC or responsible ministries entrusted by SPC in the same manner as for all other candidate SKLs (in particular, the 63 SKLs already established and not included in the project). Outcome assessment would use a set of indicators to draw conclusions about the appropriateness and cost- effectiveness of various investments made by the project. It would focus on measuring improvements within individual laboratories that result from inputs and activities funded by the project and undertaken between 1990 and 1993. Among the outcomes to be measured are: (a) number and qualifications of graduate students trained; (b) increased participation of women in graduate training and faculty staff upgrading; (c) capacity to conduct high quality research; (d) openness of the laboratory to outside scientists, both Chinese and foreign; and (e) efficiency of utilization of equipment. In-depth monitoring in these areas in the first year of the project would be for pilot laboratories only. After trial and modification, this monitoring would be expanded to other project labs. The degree of change is expected to vary greatly among laboratories because at the start of the project some labs will already be more firmly established or producing a higher quality of research and better trained scientists than others. SEdC and CAS would collect data for the evaluation, using a combination of quantitative statistical analysis and qualitative review by experts in undertaking both accreditation and impact assessment. 5.8 Responsibility for preparing the project completion report would rest with SEdC in consultation with the PAG. SEdC would compile informatinn from laboratories under its jurisdiction, and from CAS, NSFC and NCFC. The report would be submitted to the Association within six months of the closing date (June 30, 1996). C. Project Implementation Status of Proiect Preparation 5.9 Project preparation is well-advanced. Each SKL and SL participating in the project has prepared a detailed proposal and budget which has been reviewed by teams of Chinese experts and formally approved by SEdC or CAS and SPC. Detailed equipment lists have been compiled for the laboratory component. The seven pilot laboratories have been identified and held an initial planning meeting in November 1989. SPC, SEdC, CAS and the Association have agreed in principle to the terms of reference for the PAG and the Government is beginning the identification of Chinese members. The project proposal has been approved by UNDP/Beijing and is being forwarded to New York for final approval.  - 32 - Prolect Implementation Schedule 5.10 The project implementation schedule is shown in Annex 11. All civil works included in the project would be procured by standard government procedures and completed by mid-1993. Procurement of equipment would be phased and all major contracts are expected to be awarded by mid- 1993. Direct purchase of books and educational materials are expected to be carried out during mid-1991 through 1994. Overseas training would take place from 1991 through 1994. Local training would be conducted throughout project implementation. Within six months after the Closing Date, SEdC would submit a project completion report to the Association. D. Procurement 5.11 The main items to be procured are: (a) equipment; (b) books and educational materials; (c) training and specialist services; and (d) items and services for graduate education and laboratory operations. Most of the equipment and materials to be financed from the proceeds of the Credit would be procured following ICB procedures. Some specialized items, spare parts, books and educational materials would be purchased through international shopping. SEdC and CAS would each coordinate and assist their respective laboratories in procurement. For ICB, SEdC and CAS would use the services of the International Tendering Company or another government agency suitable to the Association. For other procurement, CAS wouid use the Oriental Scientific Instrument Import Export Corporation (OSIC), an experienced procurement agency within its organization. The appraisal mission reviewed the legal status of OSIC and its capacity to handle the procurement tasks assigned to it, and found OSIC to poss ss the required experience and capabilities. Eauipment 5.12 Equipment and materials, with an estimated value of about US$92.1 million (70% of the Credit amount) would be procured through ICB. Scientific research equipment, which must conform to specific functional parameters and specialized requirements of individual research activities, would be procured following a two-step procedure. This procedure, described in Annex 9, is designed to accommodate the special nature of the instruments intended to be procured under the project, providing tne flexibility needed for scientists to acquire items conforming to the exact specifications required for individual research activities, and at the same time retaining competition to meet the objectives of procurement under ICB. Under all ICB procedures, local manufacturers would be permitted to participate, where appropriate, and would be eligible for a 15% margin of preference or prevailing customs duties, whichever is lower, in evaluation of bids. A limited number of highly specialized instruments, spare parts, and instruments where standardization is warranted, would be procured through LIB or international shopping, as appropriate. Specifically, goods estimated to cost less than the equivalent of US$200,000 per contract, up to an aggregate not tc exceed the equivalent of US$12.5 million may be  - 33 - procured under contracts awarded through LIB; proprietary items, spare parts, auxiliary equipment and accessories, and goods estimated to cost less than the equivalent of US$25,000 per contract up to an aggregate not to exceed the equivalent of US$1.5 million, may be procured under contracts awarded on the basis of comparison of prices from at least three suppliers; items needed for standardization, or of a highly specialized nature, up to an aggregate of US$11.5 million may be procured through international shopping in accordance with the procedures acceptable to the Association. 5.13 Technical support services (TSS) would be included in the bidding and contracts from suppliers for an agreed list of major items (computers and sophisticated research equipment) to be procured under the project. Such services, which would be for an extended period beyond the usual warranty, would include stocking of spare parts, services of expatriate maintenance experts as and when required, and training of Chinese scientists and engineers in the operation and maintenance of the equipment or instruments. SEdC and CAS would identify the equipment requiring technical support services and discuss and agree on the list with the Association before initiating the procurement process. TSS would be procured as an associated service at the time of equipment purchase. Books and Educational Materials 5.14 Books and educational materials estimated to cost US$4.6 million equivalent, including inter alia computer software, patents and page charges for publication of research papers in international journals, would be procured through international shopping and, up to an aggregate not exceeding US$3 million equivalent, would be procured on the basis of comparison of prices from at least three suppliers or through direct purchase. Technical Assistance 5.15 Each laboratory will arrange its own technical assistance under the Research and Training component subject to regulations of SEdC and CAS respectively (Annex 8). Each project lab will make its own contacts with overseas labs and will arrange exchanges and visits for scholarly work, and any other training mutually agreed upon. These exchanges and training programs will be carried out by laboratories using existing CAS and SEdC procedures. Estimated numbers of persons and months for the laboratory component are shown in Table 5.1 on page 34. Arrangements for procuring expert services under the other three components (Pilot Laboratory Management Program, National Computer and Network Facility, and Program Advisory Group) would follow procedures agreed with UNDP.  - 34 - Table 5.1 TRAINING AND SPECIALIST SERVICES L(ZORATORY COMPONENT Fellowships Scientific Exchange Specialists Total Total Total Number Months Number Months Months SY.> University 200 1,600 280 420 90 CAS 756 1,185 630 1,050 135 SLs University 130 1,040 170 255 80 Total 1,086 3,825 1,080 1,725 305 Graduate Education and Laboratory ODerations 5.16 Consumables, travel and other items and services needed to support graduate education and laboratory operations, which are estimated to cost US$28.1 million equivalent, are predominantly local costs and would be financed by the Government and procured locally except for special chemicals and other imported consumables which would normally be of small value, up to an aggregate of US$1.0 million, and would be procured following procedures outlined in para. 5.12. The procurement arrangements to be used for the above categories are summarized in Table 5.2 on page 35.  - 35 - Table 5.2: PROCUREMENT ARRANGEMENTS Procurement method Total Category of Expenditure ICB LCB Other cost', (US$ million) Civil Works 21.7 21.7 Equipment 92.1 -- 101.2 193.3 (92.1) (24.5) (116.6) Books & educational materials -- -- 4.6 4.6 (2.8) (2.8) Training and specialist services -- -- 19.0 19.0 (11.8) (11.8) Total 92.1 -- 146.5 238.6 (92.1) (39.1) (131.2) Note: Figures in parentheses are the prospective amounts financed by the Bank Group. at Totals represent total estimated costs per category including price and physical contingencies. Bank Review 5.17 All goods contracts of an estimated value of US$200,000 or more would be subject to prior review by the Association. All other contracts would be subject to ex-post review by the Association. E. Disbursements 5.18 The proposed Credit of US$131.2 million would be disbursed over a period of about four years (Table 5.3 on page 36). The project is expected to be completed by December 31, 1995. Disbursements will be made against the following categories of expenditures: (a) equipment, books, and educational materials - 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 75% of local expenditures for other  - 36 - items procured locally; (b) training and fellowships, incldding overseas study tours--100% of total expenditures; (c) specialist services--100% of foreign expenditures; and (d) graduate education and laboratory operations- -100% of foreign expenditures. It is expected that the Credit would disburse quicker than other China education loans/credits because all major contracts, most of them already well prepared, are scheduled to be awarded by mid-1993. Table 5.3: DISBURSEMENT FORECAST Disbursement IDA Disbursement Cumulative profile (%) fiscal year Semester Cumulative as % of rhina education and semester --- (US$ million) --- total projects FY91 2nd 10.0 10.0 8 8 FY92 1st 40.0 50.0 38 16 2nd 15.0 65.0 50 33 FY93 1st 50.2 115.2 88 49 2nd 6.0 121.2 92 62 FY94 1st 6.0 127.2 97 70 2nd 2.0 129.2 98 76 FY95 1st 1.0 130.2 99 83 2nd 1.0 131.2 100 90 FY96 1st - 131.2 100 94 2nd - 131.2 100 100 Closing Date: June 30, 1996  - 37 - Doc-umentation of ExRenditures 5.19 Withdrawal applications for goods and services with a contract value of US$200,000 or more will be supported by full documentation. Other disbursements against contracts, each valued at less than US$200,000, and programs not undertaken by contract such as overseas fellowships would be made on the basis of Statements of Expenditure (SOEs). SEdC and CAS will be responsible for preparing withdrawal applications for submission to the Association. To the extent practicable, withdrawal applications will be aggregated in amounts of US$500,000 or more, prior to submission to the Association. Special Accounts 5.20 To facilitate disbursements, the project would have two special accounts. One would be used for CAS expenditures, including NCFC, and the other would be for SEdC laboratories and remaining expenditures. The accounts would be established in a bank on terms and conditions satisfactory to the Association and maintained in U.S. dollars with an authorized allocation of $8 million for the SEdC account and $2 million for the CAS account, each to cover expected eligible expenditures during any four-month period. Applications for replenishment of each account would be sent monthly from FILO or OEF reflecting disbursements from the Special Account for agreed expenditures, or when the remaining balance to the account is reduced below 50% of the initial deposit, whichever occurs first. F. Accounts and Audits 5.21 Project accounts and details of the Special Accounts would be maintained by SEdC and CAS. Accounts and documentation supporting statements of expenditure will be maintained separately and will be readily available in SEdC and/or CAS for review by visiting Bank missions. Accounts and statements of expenditure for each fiscal year will be prepared by FILO and OEF, consolidated by FILO and audited by the Audit Administration of the People's Republic of China (MAPRC). A single annual audit report prepared by AAPRC with separate opinions on the SOEs would be submitted to the Association within eight months of the end of the Government's fiscal year.  - 38 - VI. PROJECT OUTCOMES. BENEFITS AND RISKS A. Outcomes 6.1 By project completion in 1995, it is expected that: (a) The physical infrastructure of 133 major scientific laboratories around China will have been significantly upgraded through the acquisition of state-of-the-art scientific equipment, updated libraries and other infrastructure improvements. (b) Practical low-cost approaches to the improvement of research management and laboratory administration will have been developed and tested in seven key laboratories and a significant start made in introducing similar measures in other SKL and SL laboratories. (c) An advanced scientific computing facility will be functioning and a prototype computer network will connect three leading scientific research centers in Beijing, providing greatly enhanced computational capacity and expanded opportunities for cooperative research and exchange of data among the three institutions. (d) A fully detailed technical plan and organizational structure will have been prepared for the expansion of the prototype network into a National Computer and Network Facility. (e) A large number of Chinese scientists will have been provided with additional education and research experience in China and abroad, and international contacts will have expanded through study tours and international exchange programs. B. Benefits 6.2 The immediate beneficiaries of the project will be Chinese science students and researchers at the master, doctoral and post-doctoral levels, who will be provided with the necessary inputs to utilize their talents fully and upgrade the quality of their research. The research laboratories included in the project will benefit through better equipment and better managed research programs. Given the vital long-term link between scientific research and social and economic development, the general Chinese population will benefit from the application of research results in industry, agriculture, health care and other important sectors over the long term.  - 39 - SRecial Considerations 6.3 Evironment. Research and training aimed at better understanding and addressing environmental issues of national or international significance is the focus of 17 of the 133 laboratories (138) to be supported under the project. CAS will establish an SKL in environmental geochemistry. Several higher education institutions are jointly establishing SKLs in Beijing and Nanjing to study pollution control measures. In geo-engineering, research areas of key labs will include, among others, atmospheric physics and river mouth sedimentation. Three laboratories will carry out research o- natural disasters, and two laboratories in northwestern China will study soil erosion and agricultural development of arid regions. 6.4 Particination of Women. Women scientists play an increasingly important role in China both as researchers and managers of science facilities. At the present time, about 25% of scientists and technical personnel are women. The project is expected to markedly increase career opportunities for women. In order to ensure the project's impact on a satisfactory participation of women, the share of women in graduate training and career de-elopment will be specifically monitored. C. Risks 6.5 The project faces two risks. First, difficulties in managing the project may arise, given its complexity. The project includes a large number of laboratories which conduct research in many diverse fields, and several different implementing agencies. However, this risk can be mitigated by means of strong project leadership and coordination, which the Government recognizes and has agreed to furnish. Staffing and structure of the major implementing agencies have been agreed and a project steering committee has been appointed to provide oversight. The second risk arises because the competitive mechanisms that will be used to allocate research funds to individual laboratories is newly established, and may not function as expected to provide sufficient research funds to project laboratories. This risk would be mitigated by the project's proposed improvement of the mechanism for monitoring the availability of research funds, and by the agreement of the Government to take appropriate action when necessary.  - 40 - VII. AGREEMENTS REACHED AND RECOMMENDATION 7.1 Assurances were obtained that: a) the Government would make the proceeds of the Credit available to respective laboratories through SEdC or CAS on terms and conditions satisfactory to the Association (para. 4.7); b) (i) the availability of research funds for individual laboratories would be monitored in accordance with indicators acceptable to the Associe.tion; and (ii) when it is found that a laboratory has insufficient funds, the causes would be identified and appropriate measures taken to address the causes (para. 4.9); c) the Foreign Investmant Loan Office of SEdC and the External Financing Office of CAS would be designated and maintained as the project implementation urits for their respective parts of the project throughout project implementation (para. 5.2); d) a Program Advisory Group (PAG) would be established according to selection procedures and terms of reference agreed with the Association and maintained throughout project implementation (para. 5.5); and e) a mid-term review of irnplementation progress will be conducted in mid-1993 with representatives of the Association, UNDP, SPC, SEdC, CAS, NSFC, PAG and NCFC (para. 5.6). 7.2 Subject to the above conditions the Key Studies Development Project would constitute a suitable basis for an IDA Credit of SDR 92.9 million (US$131.2 million equivalent) on standard IDA terms, with 35 years maturity, to the People's Republic of China.  - 41 - CHINA KEY STUDIES DEVELOPMENT PROJECT ANNEXES Annex 1: Project Laboratories Annex 2: Research Proposal and Peer Review Process Annex 3: Significance of Project-Supported Research for China's Economic and Social Development Annex 4: Pilot Laboratory Management Program Annex 5: Terms of Reference for Program Advisory Group Annex 6: Annual Reporting Annex 7: Project Costs Annex 8: Guidelines for the Use of Technical Assistance Funds for the Laboratory Component Annex 9: Outline of Proposed Special ICB Procedures Annex 10: Draft Guidelines for Use of Discretionary Funds Annex 11: Project Implementation Schedule Annex 12: Selected Documents and Data in Project File CHART Chart 1: Project Management Structure  - 42 - ANNEX I Page 1 of 6 CHINA Key Studies Develonment Proiect Project Laboratories 1/ Institution Lab No. Lab Name Research Field City and Province Al Shanxi institute of Coal Chemistry Energy Taiyuan, Shanxl Coal Conversion S&T A2 Lanzhou Institute of Chemical Physlis Raw Materials Lanzhou, Gansu Carbonyl Compounds & Selective Oxidation A3 Shenyang Institute of Metal Research New Materials Shenyang. Liaoning Quiclk-solidifying Non-equilibrium Alloys A4 Institute of Chemistry New Materials Beijing Engineering Plastics A5 Shanghai Institute of Metallurgy New Materials Shanghai Information Functional Materials A6 Institute of Physics New Materials Beijing Magnetics arid Magnetic Materials A7 Shanghai Institute of Ceramics New Materials Shanghai High Performance Ceramics and Ultramicrostructure A8 Xian Institute of Optics and Precision Mechanics Electronics Xian, Shaanxi Transient Optical Techniques A9 Chengdu Institute of Optics and Electronics Mechanics Chengdu, Sichuan Fine Processing Optic Techniques AlO Shanghai Institute of Materia Medica Pharmacology Shanghai New Medicine Research All Institute of Genetics Agriculture Beijing Plant Cell and Chromosone Engineering A12 Institute of Zoology Agriculture Beijing Comprehensive Treatment of Rodents and Pests A13 Institute of Chemical Metallurgy Blo-engineering Beijing Bio-chemical Engineering A14 Northwestern Institute of Soil and Water Conservation Agriculture Yangling, Shaanxi Loess Plateau Soil Erosion and Arld-land Farming Al5 Institute of Microbiology Bio-engineering Beijing Initial Development of Microbe Resources A16 Institute of Atmospheric Physics Environment Beijing Boundary Layer Physics and Atmospheric Chemistry A17 China University of Science and Technology Calamity Prev/Cont Hefei, Anhul Research of Fire Disasters A18 Institute of Geochemistry Environment Gulyang, Guizhou Environmental Geochemistry A19 Computer Center Computer Science Beijing Sclence and Engineering Calculations A20 Beijing University Prev&CureJDisasters Beijing Rainstorm Monitoring and Prediction A21 Belilng University Raw Materials Beijing Rare Earths Chemistry and Applications 1/ Each laboratory Is affiliated either with a research institute of the Chinese Academy of Sciences (CAS) or a university under the auspices of the State Education Commission (SEdC), a line ministry, or, in one case, a province. Laboratories of CAS are A1-A19 In the above list. The participation of all other laboratories In universities Is being coordinated by SEdC.  - 43 - ANNEX I Page 2 of 6 Institution Lab No. Lab Names Research Field City and Province A22 Beijing University Computer Beijing Word Processing A23 Beijing University Communication Beljing Zone Optic Communications Network and Coherent Optic Fiber Communications A23 Shanghai Jlaotong University Communication Shanghai Zone Optic Communications Network and Coherent Optic Fiber Communications A24 Beijing University Basic Science Beijing Turbulent Flows A25 Qinghua University Energy Resource Beijing Coal High Efficlency. Low Pollution Burning Techniques A26 Oinghua University Energy Resouce Beijing Power System and Large Generation Equipment Safety Control A27 Oinghua University Communication Beijing Microwave and Digital Communications A28 Qinghua University Transportation Beijing Automotive Safety and Energy Conservation A29 Qinghua University Machinery Beijing Precision Testing A29 Tianjin University Machinery Tianjin Precision Testing A30 Qinghua University New Materials Beijing New Ceramics and Refined Technologies A31 Oinghua University Chemical Engineering Beijing Monocarbide Chemical Engineering A31 Tianjin University Chemical Engineering Tianjin Monocarbide Chemical Engineering A32 Nankai University New Materials Tianjin Absorption Separation Functions of High Polymers A33 Dalian University of Technology Chemical Engineering Dalian. Liaoning Refined Synthesis of Dyes and Surface Active Agents A34 Dalian University of Technology Basic Science Dalian, Liaoning Analysis of Industrial Equipment Strucuture A35 Jilin University New Materials Changchun, Jilin Ultra-hard Materials A36 Jilin University Basic Science Changchun. Jilin Computations In Theoretical Chemistry A37 Shanghai Jiaotong University Machinery Shanghai Vibration, Percussion and Noise A38 Fudan University Electronic Engineering Shanghai Special ICs and Systems A39 Tongjl University Environment Science Shanghai Pollution Control and Its Conversion Into Resources A39 Nanjing University Environment Science Nanjing, Jiangsu Pollution Control and Its Conversion Into Resources A40 Tongji University Raw Materials Shanghai Study of Cement Materials A41 East China University of Chemical Technology Organisms Shanghai Biological Reactors  - 44 - ANNEX I Page 3 of 6 Institution Lab No. Lab Names Research Field City and Province A42 East China Normal University Geology Shanghai River Mouth and Coastal Power Sedimentation A43 Nanjing University Geology Nanjing, Jlangsu Endogenic Ore Deposit Metallogeny A44 Nanjing University Medicine Nanjing, Jiangsu Bio-medical Techniques A45 Nanjing University Basic Science Nanjing, Jiangsu Modern Acoustics A46 Southeast University Communication Nanjing, Jiangsu Mobile and Multi-station Wireless Communications A47 Zhejiang University Machinery Hangzhou, Zhejiang Fluid Transmission and Control A48 Zhejiang University Automatic Control Hangzhou, Zheilang Industrial Control Techniques A49 Zhejiang University Machinery Hangzhou, Zhejiang Modern Optical Instruments A50 Shandong University Biochemistry Jinan, Shandong Fermentation Engineering A51 Huazhong University of Science and Technology Machinery Wuhan. Hubei Plastic Shaping Simulation and Techniques for Molds A52 Zhongshan University Agriculture Guangzhou, Guangdong Biological Prevention and Control A53 South China University of Techrology Raw Materials Guangzhou, Guangdong Pulp and Paper Making A54 Chengdu University of Science and Technology Raw Materials Chengdu, Sichuan Hlgh Polymer Materials Engineering A55 Xian Jiaotong University Energy Resources Xian, Shaanxi Power Equipment and Electric Insulation A56 Xian Jiaotong University Raw Materials Xian, Shaanxi Metal Strength A57 Xian Jiaotong University Machinery XVan, Shaanxi Machine-building System Engineering A58 Lanzhou University Agriculture Lanzhou, Gansu Arid Farming Ecology A59 Southwest Petroleum Institute Energy Resources Chengdu, Sichuan Geo:ogy and Development of Oil and Gas Deposits A59 Chengdu College of Geology Energy Resources Chengdu, Sichuan Geology and Development of Oil and Gas Deposits A60 Southwestern Jlaotong University Transportation Chengdu, Sichuan Tractive Dynamics A61 Beijing Institute of Technology Prev&Cure/Disasters Beijing Prevention and Control of Explosion Disasters A62 Xidian University Communication Xian, Shaanxi Comprehensive Operational Network A63 University of Electronic Science and Technology of China Communication Chengdu, Sichuan Wide-band Optic Fiber Communications A64 Beijing University of Aeronautics and Astronautics Computer Beijing Environment for Software Development  - 45 - ANNEX I Page 4 of 6 Institution Lab No. Lab Names Research Field City and Province A65 Harbin institute of Technology Machinery Harbin, Heilong]iang Modern Welding Production Techniques A66 Northwest Polytechnic University Machinery Xian. Shaanxi Solidification Techniques A67 Beijing University of Science and Technology New Materials Beling New Metallic Materials A68 Northeast University of Technology Machinery Shenyang, Liaoning Rolling and Continuous Rolling Automation A69 China Textile University Raw Materials Shanghai Modification of Fiber Materials A70 Beijing University of Posts and Telecommunications Communication Beijing Program-controlled Exchange and Communications Networks A71 Wuhan Technical University of Surveying and Mapping Geology Wuhan, Hubei Remote Sensing Data Engineering for Survey and Mapping A72 Central South University of Technology New Materials Changsha, Hunan Powder Metallurgy A73 University of Petroleum Raw Materials Beijing Heavy Oil Processing A74 Qinghua University Environment Science Beijing Environment Simulation and Pollution Control A74 Research Center for Eco-environmental Sciences Environment Science Beijing Environment Simulation and Pollution Control A74 Beijing University Environment Science Beijing Environment Simulation and Pollution Control A74 Beijing Normal University Environment Science Beijing Environment Simulation and Pollution Control A75 Jilin University of Technology Transportation Changchun, Jilin Simulation of Automotive Dynamic State Bi Beijing University Basic Science Beijing Organic Molecular Engineering of Biology B2 Beijing University Basic Science Beijing Math and Its Applicatlons B3 Beijing University Geology Beijing Quaternary Period Lab B4 Beijing University Basic Science Beijing Electronic Optics-Electronic Microscope B5 Qinghua University Civil Engineering Beijing Large High-dam Structure B6 Oinghua University Basic Science Beijing Partical Techniques and Radiation Imaging B7 Beijing Normal University Computer Beijing Fuzzy Data Processing and Computers 88 Nankal University Basic Science Tianjin Basic Math and Probability Statistics Research T9 llanjin University Basic Science Tianjin Testing of Electron Optic Mechanics BIO Northeast Normal University Agriculture Changchun, Jilin Grassland Ecology Engineering  - 46 - ANNEX I Page 5 of 6 Institution Lab No. Lab Names Research Field City and Province B11 Zhejiang University Machinery Hangzhou, Zhejiang Sensor Technologles 812 Fudan University Basic Science Shanghai Physical Chemistry B13 Fudan University Basic Science Shanghai Math Disciplines B14 Fudan University Basic Science Shanghai Nuclear and Molecular Physics Based on Accelerators 1S5 Tongji University Civil Engineering Shanghai Modernization of Urban Planning and Design B16 Nanjing University Meteorology NanJinr, Jiangsu Medium-scale Disastrous Weather Forecasting B17 Nanjing University Environment Science Nanjing, Jiangsu Development of Coastal Lands, TIdelands and Islands B18 Nanjing University Basic Science Nanjing, Jiangsu Center for Astronomical Data and Computational Physics 819 Southeast University Civil Engineering Nanjing, Jiangsu Architectural Design and Modelling Assisted by Computers B20 Zhejiang University Electronic Engineering Hangzhou, Zhejiang Electric-Electronic Techniques 821 Zhejiang University Chemical Engineering Hangzhou, Zhejiang Chemical Engineering for Secondary Resources B22 Xiamen University Medicine Xiamen, Fujian Tumor Cell Engineering 823 Wuhan University Agriculture Wuhan, Hubei Virus Bo-prevention and Cure B24 Wuhan University Basic Science Wuhan, Hubei Ionosphere 825 Wuhan University Basic Science Wuhan, Hubel Rare Earths and the Chemistry of Bo-electrolysis B26 Huazhong University of Science and Technology Machinery Wuhan, Hubei New Electric Motors B27 Huazhong University of Science and Technology Computer Wuhan, Hubei External Storage Systems 828 Zhongshan University Biochemistry Guangzhou, Guangdong Plant Genetic Engineering 829 Zhongshan University Agriculture Guangzhou, Guangdong Breeding of Cash Animal Aqua-products 830 Sichuan University Agriculture Chengdu. Sichuan Bio-prevention of Grassland Rodents and Pests B31 Chengdu University of Science and Technology Raw Materials Chengdu, Sichuan Leather Engineering B32 Xian Jiaotong University New Materials Xlan, Shaanxi Eletronic Materials and Devices for Refined Functions B33 Xian Jiaotong University Energy Resources Xian, Shaanxi Machinery for Fluid 834 Xian Jiaotong University Medicine Xian, Shaanxi Electronic Techniques and Devices in Modem Medicine  - 47 - ANNEX I Page 6 of 6 Institution Lab No. Lab Names Research Field City and Province 835 China University of Geosciences Geology Beijing Mineral Rock Materials -- Development and Use B36 China University of Geosciences Geology Beijing New Boring Techniques 837 Chengdu College of Geology Prev&CurelDisasters Chengdu, Sichuan Prevention of Geological Disasters and Geological Environmental Protection 638 Beijing Institute of Technology Machinery Beijing Science and Engineering of Colors 639 Beijing Institute of Technology Electronic Engineering Beijing Information Collection and Processing 640 Beijing Institute of Technology Machinery Beijing Automotive Dynamics and Release Testing 841 Beijing Institute of Technology New Materials Beijing Research in Anti-combustion Material B42 Beijing University of Aeronautics and Astronautics Machinery Beijing Soft Manufacturing Technologies B43 Beijing University of Aeronautics and Astronautics Basic Science Beijing Fluid Dynamics 644 Beijing University of Aeronautics and Astronautics Machinery Beijing Mechanics and Mechanisms of Robots 845 Belijng University of Aeronautics and Astronautics Electronic Engingering BeiJing Electronic Systems and Testing Techniques 646 Beijing University of Aeronautics and Astronautics Energy Resources Beijing Thermal Power Engineering 647 Harbin institute of Technology Computer Harbin, Heilongjiang Computer Interface and Interface Systems B48 Harbin institute of Technology Basic Science Harbin, Heilongjiang Non-linear Optic Data Processing 649 Harbin Institute of Technology Automatic Control Harbin. Heilongjiang Intelligence Control Systems 650 Northwestern Polytechnical University Machinery Xian, Shaanxi Design and Manufacture of Computer Accessories B51 Northwestern Polytechnical University Machinery Xian, Shaanxi Dynamics and Strength 652 Northwestern Polytechnical University Electronic Engineering Xian, Shaanxi Acoustic Engineering and Testing 653 Northwestern Polytechnical University Machinery Xian, Shaanxi Thermal Engineering Data Processing B54 Beijing University of Science and Technology Raw Materials Beijing Solid Electrolyte Metallurgical Testing Techniques B55 Hehal University Water Conservation Nanjing. Jiangsu Development and Exploitation of Water Resources B56 Jinan University Medlclne Guangzhou, Guangdong Tissue Transplant and Immunization 657 China University of Mining and Technology Energy Resources Beijing Coal Resource Characteristic B58 Hangzhou University Basic Science Hangzhou, Zhejiang Industrial Psychology  - 48 - ANNEX 2 Page 1 of 3 CHINA KEY STUDIES DEVELOPMENT PROJECT Research and Training in SKLs and SLs (Laboratory ComRonent) Research Proposal and Peer Review Process 1. The State Planning Commission in consultation with the Association developed detailed guidelines and organized a systematic review to select the laboratories that would participate in the Key Studies Development Project. The review was conducted in stages, beginning with expressions of interest from 500 university labs and 124 CAS institutes. Successive reviews of laboratory qualifications reduced the numbers of labs to 184 and 70, and then to 146 and 23. Review of final proposals, described below, resulted in the final choice of 114 university-based labs and 19 CAS-based labs. (Many of the labs involved more than one university; one which involves both universities and a CAS lab is counted as a university-based lab). 2. SPC prepared guidelines for proposal preparation which were based on the following general principles for project design: (a) Selecting high priority fields--Research fields to be supported under the project must be expected to make important contributions to economic growth and modernization in China, as judged by qualified experts. (b) Qualifications of laboratories--Laboratories should have appropriate qualifications. Select.on criteria for project laboratories should include: number and qualifications of key staff; a proven track record in research and in the training and development of new researchers; an adequate starting base of scientific instruments; good use of existing facilities; and capacity to manage research. (c) Translating research into practice--Proposals should indicate how research projects to be undertaken are expected to be translated in practice. (d) Concentrating resources--Project resources should be distributed so that excessive duplication of effort is avoided, resources allocated do not exceed absorptive capacity of the receiving entity, and resources are not spread so thinly as to reduce effectiveness. (e) Developing young researchers--A major function of key labs should be to help young researchers become mature researchers. Over time post-doctoral researchers should be given full responsibility for being project leaders. Laboratories would be expected to have agreed numbers of  - 49 - ANNEX 2 Page 2 of 3 graduate students and post-doctoral researchers and to plan adequate programs for their training. (f) Increasing professional interaction- -Because scientific research is a cooperative enterprise, opportunities for interaction need to be assured both among scientists within China and with researchers abroad. (g) Assuring funding for research--Laboratories undertaking research projects of major importance to national development need assured sources of funding for ongoing costs of research. Continuation of such funding should not be automatic but should depend on performance. (h) Good laboratory management--To be productive, laboratories must be well-managed. Good management includes: setting realistic objectives, devising medium-term plans for accomplishing these, monitoring performance, exercising control over funds, ensuring efficient and safe use of equipment, staffing appropriately and providing staff with opportunity for growth and development. (i) Equity--Laboratories should provide equal opportunities for employment regardless of gender, age or other characteristics unrelated to training and qualification. Promotion should be based on performance. Research productivity should be recognized through authorship of papers, presentations at conferences and other suitable means. 3. The guidelines distributed by SPC specified that final proposals to be submitted by candidate laboratories should include both an overall feasibility report on the laboratory (providing detail on current conditions as well as plans for managing staffing, training and finances) and a description of the content and arrangements for proposed research projects. The guidelines were distributed by SPC in January 1989 to candidate SKLs and SLs through the State Education Commission (SEdC) and Chinese Academy of Sciences (CAS). Completed proposals were then returned via those same channels and reviewed in several stages. 4. The first stage of evaluation was conducted by committees of experts. For each candidate SKL or SL, a committee of a few experts was organized by SEdC or CAS. The total number of experts was about 200 for SEdC, of which about 30 came from CAS laboratories and industries; and 68 for CAS, of which 31 came from institutions not affiliated with CAS, including research institutes, comprehensive universities and industries. The experts' reputations were usually well known in their fields and to the staff of the laboratories they reviewed. The procedures used by these committees of experts to appraise the proposals were similar regardless of whether they reported to SEdC or CAS. They typically involved an analysis  - 50 - ANNEX 2 Page 3 of 3 of the proposal, a visit to the laboratory, a redraft of the proposal, more feedback and a third and final draft. 5. The appraisal crlteria adopted by the committee of experts included, among others, competence of the laboratory to perform the proposed research, appropriateness of the research to the goals of the laboratory and the project, availability of counterpart funds, management structure and training plan. Particular attention was paid to the equipment budget and trying to bring it in line with the policies adopted by SPC for the amount of foreign exchange to be allocated to each laboratory to achieve objectives of economy and efficiency and also assure sufficient funds. They suggested consolidation of research projects when appropriate and elimination of some when lacking focus. In some instances, they recommended adding topics of research. 6. In the second stage of evaluation, the reports of the first stage were analyzed by another committee. Both for SEdC and CAS laboratories, this was an administrative committee which evaluated the proposals according to the basic financial, management and training guidelines. The nature and cost of the equipment to be acquired was, again, a very important focus of attention. Out of the deliberations of these administrative committees came recommendations to the SPC about which of the laboratories and research projects should be supported and at what level. 7. The third and final review stage was then done by the SPC, based on criteria related to the overall planning of the project. SPC formed an Expert Committee consisting of 18 representatives from SEdC, CAS, industry and several of the line ministries. The net outcome of its evaluation was a list of 75 approved SKL programs and 58 SL programs and their corresponding budgets. This list was submitted to the Association for its consideration. Of the SKLs, 55 are from SEdC, 19 from CAS, and one is joint. A total of 522 research projects in 133 laboratories was approved.  - 51 - ANNEX -3 Page I of 4 CHINA KEY STUDIES DEVELOPMENT PROJECT Significance of Project Supported Research for China's Economic and Social Development (Prepared by SIC) 1. In the area of raw and processed materials and new materials, research and development of plastics, refined ceramics and new metallic materials will be strengthened. In particular with regard to organic materials, a number of key labs will be built, paying attentjon not only to new plastic materials (e.g., "research in engineering plastics" undertaken by the Chemistry Institute of CAS and "engineering for high polymer materials" undertaken by Chengdu S&T University) and functioning high polymer materials (e.g., "high polymer materials with absorption and separation functions" undertaken by Nankai University), but also to research on paper-making techniques needed in light industry and the textile industry (e.g., 'engineering for pulp and paper making" undertaken by South China Technical University) and dye techniques (e.g., "refined synthesis of dyes and surface active agents" undertaken by Dalian Technical University). Textiles are major exports by China. The key lab for "Modification of Fiber Materials" to be set up in China Textile University can be expected to help bring improvements. In addition, special emphasis is on the research and development of organic raw materials, as for instance the lab for "carbonyl synthesis and selective oxidation" to be set up in the Lanzhou Chemistry and Physics Institute of CAS, the lab for "monocarbide engineering", a joint Tianjin University-Qinghua University sub-project, and the "heavy oil processing lab" to be built by the Petroleum University. 2. In the area of inorganic non-metal materials, great attention is being paid to new ceramic materials which have broad prospective uses. Two key labs will concentrate separately on basic research and technological development. Research in cement techniques is very active internationally. Tongji University, which is famed for its civil and architectural engineering departments, will build a lab devoted to cement research. In the area of specialty materials, Jilin University will build a key lab for research in "ultra-hard materials'. 3. Metals will still be in a dominant position among materials. Important current trends are to enhance their performance and develop new varieties through continuous technological innovation. There are 3 such key labs planned: "quick-solidifying non-equilibrium alloys" to be built by the Metal Institute of CAS; "new metallic materials" to be built in Beijing S&T University; and "powder metallurgy technologies" (for manufacturing new metallic materials) to be built in the Central South Polytech University. The Physics Institute of CAS has an edge in magnetic research in the country. It will build a "magnetic and magnetic materials" lab. China has an abundance of rare earth elements, Beijing University  - 52 - ANNEX 3 Page 2 of 4 will build a "chemistry of rare earth materials and applications" lab for deepgoing research. In the research of more traditional materials such as steel, Xian Communications University will set up a key lab for "metal strength". 4. Sensing technology is a critical element in automation, and sensitive materials form the basis for its technologies. To this end, the Shanghai Metallurgical Institute of CAS will build a key lab for research in "information functional materials". 5. In the area of communications, computer, and electronic technologies, the proposed sub-projects mainly focus on communications, consisting of 6 key labs located in 7 universities. Based on a particular institute's advantage and the expertise of the lead person, the Experts Panel recommended a measure of division of work, as follows. "Prog&om- controlled exchange technology and communication networks" for Beijing Postal and Telecommunications Institute; "microwave and digital communications technology" for Qinghua University; "mobile and multi-point wireless communication networks" for Southeastern University; "wide-band optic fiber transmission and communication systems" for Chengdu Telecommunications Engineering College, with stress on transmission; "zone optic fiber communication networks and coherent light communications" for Shanghai Communications University and Beijing University; and "theory of comprehensive operational network and critical technology" for Xian Electronics S&T University. The building of these laboratories will play an important role in promoting the development of basic technologies in the communications field. In the computer field, the emphasis is on practical applications. Two examples are the lab for "word processing techniques" to be built in Beijing University and the lab for "computation for sciences and engineering" to be undertaken by the Computer Center of CAS. The latter will focus on the application of computational math to our economic reconstruction. In the area in which electronic techniques are linked to electronics, optics and machinery, there are several key labs proposed: "special ICs and systems" for Fudan University; "refined processing optical techniques" for the Chengdu Optical Electronics Institute of CAS; and "transient optic techniques" fnr Xian Optical Machinery Institute of CAS. 6. In machine building and automatic control, there are proposed labs for "modern welding production techniques" for Harbin Polytech University; "rolling techniques and the automation of continuous rolling" for the Northeast Polytech Institute; and "solidifying techniques" for the Northwestern Polytech University. (These involve the development of several basic techniques in the shaping process of machine-building.) There are also: "vibration, percussion and noise" for Shanghai Communications University; "fluid transmission and control" and "techniques of industrial control" for Zhejiang University; and "precision testing techniques and instruments" for Tianjin and Qinghua Universities. These labs will surely contribute to the development of modern machine-building techniques and industrial automation.  - 53 - ANNEX 3 Page 3 of 4 7. Energy and transportation are priority areas. In energy, the focus is on coal burning and conversion techniques and power generation systems and safety equipment. The former includes key labs for "coal conversion science and technology" (Shanghai Coal Chemistry Research Institute, CAS) and "high-efficiency and low-pollution techniques in coal burning" (Qinghua University). The latter includes key labs for "power systems and safety control for large generation equipment" (Qinghua University) and "power equipment and electric insulation" (Xian Communications University). In transport, the "tractive dynamics' labs for the Southwestern Communications University, "automobile safety and energy conservation" lab for Qinghua, and "simulation of automotive dynamic state" lab for Jilin Polytech University will contribute to the development of the locomotive and the automobile. 8. In the area of agriculture, health care, medicine and bio- engineering, attention is paid to the problem of soil erosion on the loess plateau and the development of arid and semi-arid regions. Proposed sub- projects include "loess plateau soil erosion and arid-land farming" (Northwest Water and Soil Conservation Institute, CAS) and "arid farming ecology" (Lanzhou University). To boost and maintain high grain yield, the Institute of Heredity of CAS and the Northwest Botany Institute will jointly set up a lab for "plant cell and chromosome engineering and crop breeding". To prevent rodents and pests, the Institute of Zoology, CAS and the Shanghai Institute of Entomology will jointly build a key lab for "research in comprehensive treatment of agricultural pests" and Zhongshan University will build a lab for "biological prevention and cure". Additionally in agriculture, animal husbandry and fisheries, several specialized labs will be set up. In bio-engineering, the emphasis is on two weak links, namely, initial development of microbe resources and biochemical engineering. The sub-projects proposed include: "initial development of microbe resources" (the Microbe Institute, CAS), "bio- chemical engineering" (Chemical Engineering and Metallurgical Institute, CAS), and "biological reactors" (East China Chemical Engineering Institute). In medicine and health care, two key labs will be built to develop new medicines: 'new medicine research lab" (Shanghai Pharmaceutics Institute, CAS) which focuses on pharmaceutical toxicity research, and "medical bio-techniques lab" (Nanjing University). These labs should help the bio-medical products they have already developed and bring the products up to a clinically applicable level. 9. The S&T in the area of environmental studies and geological engineering have great significance and scope, so a total of 10 key labs and 7 specialized labs will be built. 10. In environmental protection, the Geochemistry Institute of CAS will build an "environmental geochemistry lab", to mainly study the geochemistry process and its law of change in the environmental interface of life elements, so as to serve environmental protection and protection of human health. In the study of pollution control, there will be one key lab each in the north and south: In the North, Qinghua, Beijing and Beijing  - 54 - ANNEX 3 Page 4 of 4 Normal Universities and the Ecological Environment Research Center of CAS will jointly build a lab for "environment simulation and pollution control"; in the South, Tongji and Nanjing Universities will build a lab for "pollution control and the study of its conversion into resources.' 11. In disaster research, 3 key labs will be built: "rainstorm monitoring and forecast labn at Beijing University, which will focus on mathematical simulation of the formation process of medium-term rainstorms and their monitoring and diagnosis, proceeding from the need for forecasting drought or flood that hit large areas; "fire research lab" at China S&T University, which will focus on the law of fire starts and their spreading to provide knowledge about fire prevention; and a lab for the "prevention and control of explosive catastrophes" at Beijing Technical University, which will focus on the mechanisms that induce burning or explosion of powder, gas or liquid in Jifferent natural and industrial surroundings, as well as the techniques that stop or suppress burning and explosion. 12. In geo-engineering, proposed key labs include: "physics of atmospheric boundary layers and atmospheric chemistry" at the Atmospheric Physics Institute of CAS (for research in the atmospheric environment, in weather change, and in the forecast of calamitous weather), "river mouth or coastal power sedimentation and dynamic geomorphic synthesis" at East China Normal University (for comprehensive research into the question, long unresolved, of the dynamic of river mouth sedimentation, which will be significant for the coastal economy), and "endogenic ore deposit metallogency" at Nanjing University (for theoretical guidance to the search for hidden metal ore beds). 13. In basic sciences, 3 key labs have been proposed: "turbulent flow", "modern acoustics", and 'computations for theoretical chemistry". The project-undertaking institutes, i.e., Beijing, Nanjing and Jilin Universities, all have solid foundations and have achieved study results with international standing. The three proposed sub-projects would enable them to maintain and push forward the advanced levels they have attained in their respective fields. 14 other specialized labs for basic research will be built, including 3 on math research at Beijing, Fudan and Nanjing Universities. These labs will play a positive role in propelling our math researeh into world advanced ranks and in broadening its applications to the national economy. Then there are sub-projects concerned with testing techniques, analytic methodology and theoretical computation. These are also needed for the development of the basic sciences. In fact, t1he implementation for these projects and advances in basic research concerned will play, to varying degrees, a guiding and supporting role for the advancement of those priority disciplines. 14. The proposed "Beijing Zhongguancun Area Computer Network Sub- Projectn is an infrastructure facility with shared resources and environment. Its implementation will create conditions for elevating the research and education levels in that geographic area and can provide a base for conducting experiments in disciplines related to an area information network.  - 55 - Page 1 of 4 CHINA KEY STUDIES DEVELOPMENT PROJECT Pilot Laboratory Management Program 1. The Pilot Laboratory Management Program (PLMP) will provide special assistance to seven of the project laboratories in the formulation and implementation of initiatives to increase efficiency and improve overall management of research and training in the project laboratories. Planning and preparation for the program will continue through April 1990 to enable managers and senior staff from the pilot laboratories to coalesce as a group, diagnose the main problems to be tackled through the program, and define activities to be undertaken in their respective laboratories. A four-year implementation period will begin in May 1990. PLMP will be coordinated by the National Natural Science Foundation (NSFC). When it is established, the Key Studies Program Advisory Group (PAG) will also play a useful role in advising, monitoring and otherwise assisting the program. The UNDP has agreed to provide resources to support program planning and implementation. 2. In all areas of program application, PIMP, using workshops and the advice of Chinese and foreign experts, would analyze the existing situation, propose possible solutions to problems that would be tried, reviewed and modified regularly. Successful procedural changes and new activities would be disseminated through meetings and written reports to other project laboratories and, subsequently, more broadly in China. 3. Areas of Program Agglication (a) Technology Transfer. The Government has given high priority to increasing the quantity and rate of transfer of research findings into either marketable products or improving industrial processes. Academic laboratories, such as those to be financed by the project, have little experience with this process. Using both Chinese and foreign experts, the PLMP would: (i) examine laboratory- industry relations in the pilot labs; (ii) analyze experience in more industrially oriented labs in China, for lessons to be learned; (iii) assist the pilot labs in adopting new procedures and identifying new modes of operating that will improve relationships with industry; and (iv) assist in dissemination. (b) Communications. Anecdotal evidence suggests that communication both within and between laboratories needs to be improved. Within laboratories, directors need to be visible and accessible to staff through group meeting, memoranda and individual contact. Seminars should be used  - 56 - ANNEX 4 Page 2 of 4 to share research results among students, technicians and professors. Laboratory staff at lower levels should be encouraged to participate. Moie use should be made of simple technologies, such as blackboards, overhead projects and duplicating facilities. Externally, labs need more communication with Chinese and foreign labs doing similar work. The PLMP would analyze the communication situation in each pilot lab and choose and implement new strategies for increasing communication. Funds would be available to incrementally augment the equipment available to each lab for this purpose. A guiding principle for designing enhancements would be that they must be low cost and replicable in other labs in China. (c) Personnel Management. The lack of specialized support staff in most Chinese laboratories markedly affects the output and efficiency of the more senior scientists, who are often required to carry out routine tasks better suited to specialized support individuals. There are far too few specialists dedicated to instrument repair and modification and those available are often too narrowly trained to service more than one or a few types of equipment. PLMP would review the staffing of the pilot lab and, where appropriate, make recommendations regarding reassignments or retraining. The situation regarding secretarial assistance would be reviewed, and if appropriate, a new course would be set up. Acquisition and training in the use of word processing and electronic test equipment might be helpful in some cases. (d) Professionalism and Staff Training. A program of constant upgrading of the quality of research staff is necessary for laboratories that want to maintain the productivity of their staffs. Many staff enter labs with overly specialized training and therefore need significant help in acquiring new skills. Labs also need to investigate incentive structures for all staff and make provision for career development. Laboratory and research team leaders at present have no opportunity for training in their roles. PLMP would expand opportunities for training in such topics and personnel supervision, evaluation of scientific personnel, financial administration and management, and managing technological innovation, either through existing courses in China or by developing new ones. (e) Financial Management. As sources of funding in China diversify, it becomes increasingly important for laboratory directors to understand how to balance the financial input from sources that may be targeted at specific research programs. In addition, past budgeting for foreign-made  - 57 - ANNEX 4 Page 3 of 4 supplies, spares and service to operate complex scientific and technical equipment has been either inadequate or non- existent. As China's use of foreign technology continues to expand, much more careful budget planning will be necessary to avoid major delays in research. The proposal, budgeting and financial control processes in the pilot laboratories will be examined and changes experimented with to improve their efficiency and effectiveness. (f) Creating Open Laboratories and Post-doctoral Stations. These al. crucial to achieving the increased productivity expected for project labs. Development of both open labs and post-doctoral stations will be monitored closely in the pilot labs. Among the problems expected to arise are: (i) publicizing opportunities to suitable candidates; (ii) making appropriate selections; (iii) providing housing and other perquisites of residence on a short-term basis; and (iv) making adequate resources available. Measures to address these and other difficulties that arise will be thoroughly explored and will contribute to improving the operation of all open labs and post-doctoral stations in China. (g) Procurement. Supply lines to most Chinese university and CAS labs remain a problem. Purchases requiring foreign currencies are particularly time consuming and expensive, but domestic requisitions also require too much time. The requisition procedures of pilot labs would be analyzed, as well as the approval procedures now in place. Based on -he results, suggestions will be made to improve the flow of foreign consumables and spare parts and to speed up approvals on major purchases. It may be necessary to provide training for some staff who have procurement responsibilities. (h) Safety. Laboratories appear to accord low priority to safety. A survey of biological, radiation, fire and mechanical hazards in the pilot labs would be conducted, and improved procedures, regulations or protective instruments proposed. Successful changes would be disseminated to other labs. Program Implementation 4. A planning meeting of the laboratory leaders was convened by NSFC for two days in Beijing in November 1989. Participants will include the director and two senior staff from each of the pilot labs, a panel of Chinese management experts and several leading Chinese scientists. The laboratory directors will be requested to bring to the meeting a written assessment of the current situation in their laboratories with respect to  - 58 - ANNEX 4 Page 4 of 4 personnel structure, professionalism and staff training, openness, technology transfer, internal and external communication, financial management, procurement, and laboratory safety. The directors will be encouraged to report and describe problems that need to be addressed in order to increase laboratory efficiency and productivity and suggest initiatives that could be supported through the program. Through discussion with one another and with expert advisors, the lab directors will outline priority areas for activity by their individual institutions under PLMP. Common priorities will form the agenda for future activities to be undertaken jointly by the seven laboratories. 5. A three to five-day workshop of the laboratory managers will be held each year during project implementation (1990-93). The first workshop will take place in the Spring of 1990. Several foreign specialists will be invited to discuss international experience on topics of particular interest to the directors, which might include, for example, technology transfer, electronic maintenance, or staff development. The outcome of the meeting will be a schedule of activities for the following year of implementation and general plan for the outer years. Additional workshops, training courses, study tours or visits to individual laboratories, both international and domestic, by Chinese and foreign experts would be arranged as needed for all or some of the laboratories. Beginning in 1991, PIMP participants will use the annual workshop to review progress in implementation and adjust activity plans for the coming year. 6. UNDP grant financing for tha program as well as limited counterpart funds would be used to support the implementation of PIMP group activities and special initiatives to be taken within individual laboratories. These resources would be used mainly for foreign technical assistance and training, although it may be necessary to purchase small items of equipment (photocopiers, word processors, communication equipment, etc.) needed to support management initiatives in the laboratories. 7. It is expected that experience in the pilot labs would be closely monitored by the pilot lab directors themselves, NSFC and the PAG. PLMP will provide information on important indicators of performance for the whole project in areas such as recurring research support costs, equipment installation and usage, fees charged for instrument use and procurement and maintenance difficulties. NSFC will prepare an annual report on the PIMP to be included in the overall project implementation report to be provided annually to the World Bank and to the directors of all 133 laboratories participating in the project. 8. In 1993, when results from the Pilot Labs become available, NSPC, in collaboration with SEdC, CAS and other relevant agencies, would convene a national workshop to review results of the PLMP and plan a phased extension of successful activities to additional laboratories.  - 59 - ANNEX 4 Table 1 List of Pilot Laboratories A 3 Laboratory of Rapidly Solidified Non-Equilibrium Alloys (SKL) Shenyang Institute of Metal Research "Alloy Lab" Chinese Academy of Sciences Shenyang, Liaoning Province A 10 Laboratory for Drug Research (SKL) Shanghai Institute of Materia Medica "Drug Lab" Chinese Academy of Sciences Shanghai A 25 Laboratory for Efficient and Clean Coal Combustion (SKL) Qinghua University "Coal Lab" State Education Commission Beijing A 54 Polymer Material Engineering Laboratory (SKL) Chengdu University of Science and Technology "Polymer Lab" State Education Commission Chengdu, Sichuan Province A 71 Remote Sensing Information Engineering in Surveying and Mapping (SKL) Wuhan Technical University of Surveying and Mapping "Remote Sensing Lab' State Bureau of Surveying and Mapping Wuhan, Hubei Province B 17 Sea Coast, Tidal Flat and Island Exploitation Laboratory (SL) Nanjing University 'Seacoast Lab" State Education Commission Nanjing, Jiangsu Province B 32 Fine Electronic Functional Materials and Devices (SL) Xian Jiaotong University "Ceramics Lab" State Education Commission Xian, Shaanxi Province  - 60 - ANEX-5 Page 1 of 3 CHINA KEY STUDIES DEVELOPMENT PROJECT Program Advisory Group Draft Terms of Reference 1. SEdC, entrusted by SPC, will appoint a Program Advisory Group (PAG) of nine persons. The PAG will operate under the guidance of SEdC and be responsible for offering advice to SEdC and CAS concerning the implementation of the Laboratory Component of the Key Studies Development Project, to NSFC concernir.g implementation related to the Pilot Laboratory Management Program and to SPC concerning implementation of the National Computer and Network Facility, as appropriate to the composition and skills of PAG but within PAG's terms of reference. 2. These draft terms of reference (TOR) for PAG will become final after review and revision by PAG in collaboration with SEdC, CAS and SPC. Final terms of reference would be agreed not later than three months after formation of the PAG Areas of responsibility for PAG would include: (a) assisting SEdC and CAS in their roles of reviewing the overall implementation of the project in the State Key Laboratories (SKL) and Special Laboratories (SL) in order to attain the project objectives and targets. In particular, the PAG would review, annually, performance on key indicators, including equipment utilization, availability of funds for research, and degree of openness, as spelled out in Annex 7. Should any laboratory have problems in any of these respects, the PAG would bring these problems to the attention first of SEdC or CAS and if necessary to SPF, and to the World Bank. Measures to resolve the problems would be reviewed by the World Bank; (b) giving advice to SEdC and CAS at periodic meetings, held at least annually, on the progress SKLs and SLs are making under the project and on outstanding issues that might arise during the course of project iml,lementation; (c) giving advice to SEdC and CAS concerning development of scientific research and postgraduate education, in SKLs and SLs and the combination of teaching and research; (d) advising on improvement of management work in SKLs and SLs with special emphasis on the Pilot Laboratory Management Program; (e) offering advice and recommendations to SEdC and CAS on equipment procurement, staff development and utilization of facilities in SKLs and SLs;  - 61 - ANNEX 5 Page 2 of 3 (f) advising SEdC and CAS on the most recent advances in scientific instrumentation and computational equipment and software: (g) assisting SEdC and CAS as well as SKLs and SLs in establishing and maintaining high quality and appropriate modes of international exchanges related to the project; (h) working with 3!EdC and CAS to strengthen graduate curricula for institutes and universities with SKLs and SLs so that formal training is both broader and deeper; (i) reviewing the design and the operation of the National Computer and Network Facility of China; (j) submitting to SEdC and CAS a summary report after each meeting with a copy to the Department of Science and Technology of SPC; (k) submitting to SEdC and CAS an annual report on the PAG's activities by the end of each year with copies to SPC, UNDP and the World Bank; and (1) assisting SEdC and CAS in evaluating the project upon completion of the project as well as submitting a PAG's final project evaluation report to SEdC and CAS with copies to SPC, MOF, UNDP and the World Bank. 3. PAG will be chaired by a Chinese research scientist. Other members of PAG should include four members of the Chinese scientific research community with a representative from a key university under the jurisdiction of SEdC, a representative from a research institute of CAS, a representative of a research institute or university of a related line ministry of industry and a representative of the expert group of SPC for the project. 4. The remaining four members of PAG should come from the international scientific research community with a representative from a major world class research university, a representative from a major foreign national research or industrial research laboratory, and a representative from a major computing center that serves university and industrial research needs. Additionally, the foreign members of PAG should be chosen by SEdC from countries that represent different international models of scientific research practice, management and funding as well as differing models in science policy development and articulation. 5. All the membership of PAG should be prominent scientists both at home and abroad with long-time practical experiences in postgraduate education and scientific research. They should be experts in the manage.ment of research laboratories with a wide range of specialized knowledge, and should familiarize themselves with the working procedures of  - 62 - ANNEL S Page 3 of 3 should devote an appropriate amount of time to the work of the project. For the convenience of cooperating with their foreign counterparts, the Chinese members should be proficient in English. 6. The Departments of Finance; Science and Technology; Planning and Construction; Conditions and Equipment; and Higher Education and the Loan Office (FILO) of SEdC will bear the responsibility for nominating candidates for PAG's chairperson and one additional member. Two members will be recommended for nomination, one each, by CAS and a related line ministry. The fifth member will be nominated by the expert group of SPC for the project. Candidates for the foreign members will be nominated by foreign scientific agencies from several countries including Canada, US, UK, Japan, Germany, France, Brazil, Sweden, and otheis as appropriate. Agencies will be encouraged to nominate outstanding women scientists. (Typical organizations include the US National Academy of Sciences, the British Royal Society, the German Max Planck Institute and the Swedish Royal Academy). Solicitation of nominations will be organized by the World Bank. Three names for each positiotn on PAG will be submitted to SEdC by the World Bank. The Project Working Group of SEdC will set up a temporary review team, which will consist of people concerned from various departments, to make the final selection of the international PAG members on the basis of consultation with SPC, CAS, NSFC and among departments within SEdC. The SEdC vice chairman in charge of the project will, on behalf of SEdC, officially appoint the PAG members after formally approving the final selection list submitted by the Working Group. SEdC will send the list of the appointed PAG members to SPC for the record. Recruitment of international PAG members will begin after negotiations. 7. The FAG members will be appointed for a period of five years. PAG operation will be reviewed by PAG, SEdC and CAS at the end of two years for any necessary adjustments in PAG operating modes and PAG membership for the next three years. 8. PAG will, as part of its function and as it judges necessary, make site visits to appropriate SKLs and SLs and meet at least once a year to review the progress of the implementation of the project and to discuss important issues which might appropriately arise in relation to management of the project. Meetings will be called by the chairperson of the PAG with assistance of SEdC. A report of each meeting will be submitted to SEdC, CAS and SPC by the PAG. In addition, PAG will submit a report of its activities to SEdC and CAS with copies to SPC, NSFC, UNDP and the World Bank at the end of each calendar year. At the end of the project, PAG will submit a final report, including a final evaluation of the project, to SEdC and CAS with copies to SPC, NSFC, MOF, NOFERT, UNDP and the World Bank. 9. FILO will establish a secreteriat to provide any necessary administration and logistical support for all members of PAG.  - 63 - ANNEX 6 Page 1 of 2 CHINA KEY STUDIES DEVELOPMENT PROJECT Annual Regorting 1. Each year by April 1 SEdC, on behalf of the entire project, will submit to the World Bank and PAG a report (in English) describing progress in implementing the project. A versior of the report in Chinese will be sent to each participating university and institute, for distribution to laboratory directors, by June 1 of each year. 2. The report will have the following four sections: Section A A narrative overview of the status of the project. This section would provide a general picture of the project, inclu4ing what took place during the year, possible results and effectiveness, and the status of disbursements. The report would note any problems of implementation and steps that would be taken to address these in the following year. Section B Two separate short reports, one on the pilot laboratory management component, to be prepared by NSFC and and one on the national computer and network facility, to be prepared by CAS. Section C A summary table showing overall planned and actual expenditures in US dollars for the year by expenditure category (civil work, equipment, books and materials, technical assistance, graduate education and laboratory operations) and broken down into subtotals for CAS and SEdC. Section D Tables reporting on implementation progress. These would include: i. a summary table reporting on planned and actual graduate intake, total enrollment and graduates at the project laboratories; ii. a table on equipment, showing the total value of equipment received during the year, the value of equipment installed and accepted, and the value of equipment whose delivery and final test dates exceeded six months;  - 64 - ANNEX 6 Page 2 of 2 iii. a table describing the numbers and types of international exchanges and specialist visits; iv. a table showing how many teachers and researchers have participated in domestic and overseas training and these as a percentage of total teachers and researchers in the project labs. The tables would show data for CAS SKLs, SEdC SKLs and SEdC SLs, and would not present data for individual laboratories. All tables reporting on numbers of people would show these numbers disaggregated by gender. Section E A report on indicators. During the first and second year of implementation, the pilot laboratories would report on progress according to performance indicators in three areas: (i) equipment utilization; (b) availablility of funds for research; and (c) degree of openness. Draft indicators in these areas were agreed at negotiations. These would be tested and modified as necessary through use in the pilot labs. Beginning with the 1992 annual report, the indicators would be finalized and all project laboratories would be required to report on progrebs using these measures.  - 65 - CHINA Annex 7 Table I KEY STUDIES DEVELOPMENT PROJECT Annual Distribution of Expenditures (US$ Million) 1991 1992 1993 1994 TOTAL Local Forelgn Locl Foreign Local Foreign LocaW Foreign Local Foreign Total Research & Trainina in SKLsISLs Civil Workl 12.32 0.00 4.11 0.00 0.84 0.00 0.01 0.00 17.27 0.00 17.27 Equipment 14.30 37.66 0.07 60.04 6.16 4.88 1.87 1.18 31.30 83.66 124.90 Books & Material. 0.61 0.93 0.48 0.86 0.31 0.39 0.11 0.17 1.41 2.36 3.76 Training &Specialist Serrioee 1.60 3.01 1.41 3.67 0.97 2.43 0.44 0.78 4.33 9.79 14.13 Grad Educ & Lab Operations 6.73 0.27 8.02 0.20 7.31 0.11 6.44 0.06 27.60 0.63 28.13 Total Baa Coost 36.36 41.76 23.09 64.67 14.69 7.80 7.87 2.19 61.81 106.43 168.24 Physil Contingency@ 6% 2.00 3.42 1.97 4.48 1.20 0.64 0.66 0.18 6.71 8.73 16.44 Price Contingency 3.64 3.76 4.68 6.68 4.22 1.06 3.17 0.37 16.77 10.70 28.6; Subtotal 41.80 48.94 30.80 64.72 20.00 9.60 11.69 2.74 104.29 126.91 230.20 Pilot Lab Manaaement Proaram Equipment 0.00 0.06 0.01 0.11 0.01 0.03 0.00 0.00 0.02 0.19 0.21 Training & SpeisttService 0.01 0.11 0.01 0.21 0.01 0.21 0.01 0.11 0.03 0.63 0.67 Tot Base Cost 0.01 0.16 0.02 0.32 0.02 0.24 0.01 0.11 0.06 0.62 0.87 Physlcal Contingency 0 6% 0.00 0.01 0.00 0.03 0.00 0.02 0.00 0.01 0.00 0.07 0.07 Price Contingency 0.00 0.01 0.00 0.03 0.00 0.03 0.00 0.02 0.01 0.10 0.11 Subtotal 0.01 0.19 0.02 0.38 0.02 0.30 0.01 0.13 0.06 0.99 1.06 Natl Comoutina & Network Facility Clvi Wolrks 0.11 0.00 0.17 0.00 0.17 0.00 0.00 0.00 0.46 0.00 0.48 Equlpment 0.06 1.27 0.17 1.27 0.23 1.27 0.11 0.42 0.67 4.22 4.79 Training & Specialist Services 0.00 0.02 0.00 0.02 0.00 0.02 0.00 0.01 0.00 0.07 0.07 Tota Base Cost 0.17 1.20 0.34 1.20 0.40 1.29 0.11 0.43 1.02 4.30 6.32 PthysicalContingency@6% 0.01 0.11 0.03 0.11 0.03 0.11 0.01 0.04 0.08 0.36 0.26 Prie Contingency 0.02 0.12 0.07 0.13 0.11 0.17 0.05 0.07 0.26 0.49 0.76 Subtotl 0.20 1.61 0.44 1.63 0.64 1.67 0.17 0.64 1.36 6.14 6.32 Procram Advisory Mechanism Equipment 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.00 0.01 Training &Speclalst Services 0.01 0.16 0.00 0.16 0.00 0.17 0.00 0.16 0.02 0.63 0.64 Tota Base Coet 0.02 0.16 0.00 0.16 0.00 0.17 0.00 0.16 0.02 0.63 0.65 Physica Contingency @6% 0.00 0.01 0.00 0.01 0.00 0.01 0.00 0.01 0.00 0.06 0.06 Prioe ConUngency 0.00 0.01 0.00 0.02 0.00 0.02 0.00 0.03 0.00 0.08 0.08 Subtottl 0.02 0.17 0.00 0.18 0.00 0.21 0.00 0.20 0.03 0.78 0.79 Total Prolect Cost Cilvl Works 12.43 0.00 4.20 0.00 1.01 0.00 0.01 0.00 17.73 0.00 17.73 Equipment 14.36 38.87 10.16 1.A1 6.39 6.18 1.99 1.60 31.69 98.06 12i.96 Books & Materiale 0.61 0.93 0.48 0.88 0.31 0.39 0.11 0.17 IAI 2.36 3.76 Training &SpeocWibstServices 1.62 3.20 1.42 3.96 0.98 263 0.48 1.06 4.38 11.13 16.61 er.d Educ & Lab Operations 6.73 0.27 6.02 0.20 7.31 0.11 6.44 0.0 27.60 0.63 26.13 SassCost 36.68 43.36 24.36 66.42 16OO .61 7.99 2.68 8Z901 11Z17 1918.0 Physical Contingenes 2.92 3.6 2.00 4.83 123 0.76 0.68 024 6.60 9.20 18.00 PriceContingeoeett 3.66 3.90 4.92 6.76 4.34 1.28 3.22 0.49 16.03 11.43 27.47 Total Project Cost 42.03 60.61 31.26 8.80 20.67 11.67 11.87 3.61 106.74 132.80 238.68  CHINA KEY SlUDIES DEVELOPMENT PROJECT Research and TraWnmg in SKLs and SLs (Laboratory Compont) Base Costs by Categorv of Exoenditure (US$ Milion) Training & Graduate Education CMI Works Equipment Books & Materials Specialist Svcs & Lab Operations Total Base Cost Laboratoies Total % foreign Total % foreign Total % foreign Total % foreign Total % foreign Total % foreign' SKs CAS(LabsAl-A19) 2.02 0 20.19 75 0.50 31 2.87 61 6.53 0 32.11 55 SEdC(LabsA20-A75) 11.30 0 71.99 76 2.00 65 7.55 73 16.06 1 108.90 56 Ss (Labs B1-B58) 3.95 0 32.77 71 1.26 67 3.71 so 5.54 6 47.23 57  - 67 - CHINA ANNEX 7 Table 3 KEY STUDIES DEVELOPMENT PROJECT Research and Training in SKLs and SLs (Laboratory Component) Base Costs for Individual Laboratories a/ (USS Million) TOTAL TOTAL TOTAL Labs b/ Local Foreign Total Labs bl Local ForeIgn Total Labs bl Local Foreign Total Al 0.890 0.930 1.819 A40 0.389 1.089 1.478 1e6 0.175 0.511 0.685 A2 0.822 0.872 1.694 A47 0.700 1.025 1.725 917 0.294 0.379 0.673 A3 0.791 0.977 1.7aS A4s 0.448 1.089 1.535 81s 0.311 0.309 0.620 A4 0.5604 0.827 1.391 A4s 1.011 0.924 1.936 519 0.127 0.367 0.494 AS 0.997 0.854 1.850 ASO 0.668 1.100 1.766 820 0.181 0.460 0.641 AS 0.677 0.934 1.612 A1 0.961 1.089 2.061 821 0.217 0.414 0.631 A7 0.953 0.630 1.583 AS2 0.738 0.726 1.483 822 0.200 0.413 0.613 AS 0.805 0.893 1.899 A53 1.065 1.134 2.200 823 0.567 0.417 0.985 As 0.982 0.840 1.822 As4 0.772 1.213 1.985 624 0.123 0.460 0.583 A10 0.691 1.054 1.745 ASS 0.622 1.065 1.587 925 0.164 0.414 0.578 All 0.455 0.823 1.278 ASO 0.607 0.649 1.25S 926 0.309 0.451 0.760 A12 0.717 0.849 1.866 A57 1.189 1.190 2.379 B27 0.352 0.609 0.861 A13 0.797 0.883 1.680 ASS 0.446 1.068 1.513 828 0.663 0.704 1.366 A14 0.688 0.768 1.450 A5s 2.070 1.160 3.230 B29 0.278 0.407 0.684 A15 0.899 0.768 1.667 ASO 2.074 1.529 3.603 930 0.809 0.497 1.306 AIO 0.556 0.839 1.394 A61 0.924 1.136 2.069 831 0.901 0.426 1.327 A17 1.005 0.816 1.820 A62 0.978 1.293 2.271 B32 0.854 0.411 1.266 A1S 0.703 0.839 1.542 A83 2.202 0.906 3.108 833 0.270 0.386 0.656 AIs 0.884 1.867 2.762 A64 2.027 1.111 3.138 834 0.423 0.441 0.864 A20 0.181 1.087 1.268 ASS 0.346 1.218 1.564 B35 0.401 0.432 0.833 A21 0.604 1.089 1.604 AGO 1.113 1.212 2.325 838 0.313 0.416 0.729 A22 0.815 1.007 1.822 A67 1.430 1.233 2.663 B37 0.984 0.397 1.381 A23 0.840 1.379 2.219 AOs 0.650 1.123 1.673 838 0.398 0.525 0.923 A24 0.312 0.899 1.211 A6s 0.838 0.895 1.734 93s 0.643 0.589 1.232 A25 0.370 1.127 1.497 A70 1.081 0.999 2.081 B40 0.500 0.586 1.086 A26 0.500 1.079 1.645 A71 0.380 1.202 1.582 B41 0.472 0.589 1.061 A27 0.309 1.044 1.353 A72 1.429 1.116 2.545 842 0.397 0.586 0.983 A28 1.645 1.018 2.663 A73 1.055 1.089 2.144 843 0.510 0.552 1.062 A29 0.586 1.272 1.868 A74 1.871 2.250 4.121 844 0.435 0.451 0.886 ASO 0.311 1.089 1.400 A75 1.192 1.201 2.453 946 0.378 0.546 0.924 A31 0.734 1.089 1.823 91 0.222 0.601 0.723 846 0.304 0.694 1.058 A32 0.831 1.385 2.216 82 0.318 0.271 0.888 847 0.203 0.409 0.612 A33 0.589 1.180 1.7e9 93 0.284 0.396 0.6So 848 0.182 0.411 0.593 A34 0.990 1.186 2.184 84 0.002 0.007 0.609 849 0.240 0.371 0.618 A3s 0.4065 0.173 0.638 Bs 0.088 0.413 0.602 650 0.290 0.551 0.842 A38 0.520 1.202 1.722 Be 0.074 0.425 0.499 8s1 0.6e4 0.607 1.255 A37 0.261 0.213 0.474 87 C.215 0.452 0.687 862 0.311 0.680 0.891 A38 0.es8 1.272 1.959 8s 0.064 0.328 0.393 653 0.403 0.501 0.964 A3S 0.634 1.213 1.847 89 0.251 0.420 0.677 B54 0.548 0.436 0.983 A40 0289 1.089 1.378 810 0.174 0.497 0.670 B85 0.339 0.422 0.761 A41 0.640 1.245 1.884 911 0.181 0.393 0.674 956 0.465 0.460 0.916 A42 0.853 1.089 1.942 812 0.108 0.409 0.517 B57 0.325 0.466 0.791 A43 0.274 1.477 1.752 813 0.500 0.271 0.770 85U 0.315 0.361 0.676 A44 0.979 1.150 2.130 814 0203 0.405 0.068 Unalloc. - 0 .600 0.500 MS 0.241 0.939 1.180 815 0.245 0.522 0.767 Total 81.813 106.431 188.243 at Figures may not total exactly due to rounding. bW Lab numbers preceded by an A are SKL and'BO signifies an SL. Ze Annex 1 for names of aboratories which correspond to letter-number code.  - 68 - ANNEX 8 Page 1 of 2 CHINA KEY STUD ES DEVELOPMENT PROJECT Guidelines for the Use of Technical Assistance Funds for the Laboratory Component Obiectives: 1. Technical assistance funds for the Laboratory Component are to be used to: (a) strengthen postgraduate education and research work in project laboratories; (b) improve the capacity of present and potential masters and PhD tutors to undertake high-quality research; and (c) oromote the integration of Chinese laboratories, universities and scientists -Ito the international scientific community. Use of Funds: 2. Funds allocated to individual laboratories under the laboratory component may be used for the following purposes: a. Collaborative research, either foreign scientists in Chinese labs or Chinese scientists in foreign labs. This may include support for domestic and international transportation, subsistence and limited support for research costs. b. Attendance by Chinese scientists and young researchers at international meetings. c. Inviti%z foreign experts to China to give lectures and provide advice on work. d. Short visits by laboratory officials or scientists to laboratories and universities in foreign countries. e. Personnel training, in China or abroad, for Chinese faculty, researchers, engineers, technical and managerial personnel. 3. To the extent permitted by Chinese regulations, laboratory directors will have responsibility for selecting the types of support needed for their own laboratory, the people who are to receive support (including those to be invited from overseas to visit China) and for approving the purpose for which the funds will be used. It will be the responsibility of SEdC and CAS to monitor that funds are used properly, but only in exceptional circumstances should the judgement of the laboratory director be overruled.  - 69 - ANNEX 8 Page 2 of 2 4. Those Chinese scientists or researchers going abroad should prepare plans for making effective use of their time and should agree not to casually change their work programs. 5. Terms of reference (TOR) for foreign experts who are invited to lecture and give advice should be prepared by the laboratory receiving the expert and discussed with and agreed to by the expert. To the extent possible, the TOR should specify: the work expected of the expert, including any advance preparation or follow-up work required in addition to the visit; the expected number of hours for lecturing, collaboration in research or providing advice; and any written reports or other outputs that will be required. The TOR should also specify arrangements for international and domestic travel and subsistence, visis, compensation and other agreements as necessary. It will be the responsibility of SEdC and CAS to ensure that individual laboratories understand and implement the principle of managing technical assistance through agreed terms of reference. 6. The project will not impose any uniform reporting requirements for foreign specialists or experts visiting China. Lab directors and SEdC and CAS would agree on a case-by-case basis about what type of report would be required. 7. When more than a few persons need a similar kind of training, preference should be given to bringing foreign experts to China to accomplish the training, rather than to send large numbers of people abroad in order to increase efficiency in use of funds.  - 70 - ANNEX 9 Page 1 of 2 CHINA KEY STUDIES DEVELOPMENT PROJECT Outline of Special ICB Procedures for Procurement of Scientific Research Eguipment. Apgaratus and Instruments Introduction Given the special nature of scientific research equipment, which must conform to functional parameters and innovative requirements of research activities, special ICB procedures may be used for purchase of certain research equipment, apparatus, and instruments required by the project. The procedures, which include features of both prequalification and the two stage bidding process, call for creation of a database of manufacturers and suppliers worldwide who have the capacity and capability to supply the items required. The database would be created using the principles of international competition and would involve the following steps. Procedure for Developing a List of Suppliers for an Item 1. Prepare preliminary basic technical specifications for the item. 2. Develop a list of potential suppliers of the item. This would be done using three methods: (a) publish tdvertisements in the national press, in the international press and in international professional journals and periodicals, which would also be circulated to embassies and trade representatives of all Bank member countries, listing basic specifications of the equipment to be procured under the project and requesting suppliers to register their interest in writing and submit technical data and catalogues of their equipment; (b) obtain from scientists and other knowledgeable people in China suggestions of manufacturers/suppliers that should be included in the list and request from them technical data and catalogues of their equipment; (c) for particularly large or important instruments or equipment, visit overseas manufacturers and suppliers to examine their capability for supplying the needed items and collect technical data and catalogues. 3. Enter the list of potential suppliers in the database and on the basis of the technical catalogues received revise the specifications for  - 71 - Page 2 of 2 the item. The manufacturer's database would be updated periodically, and at least annually. 4. For complex custom items, a two stage system would be followed. The basic technical specifications would be prepared and sent to all listed suppliers, requesting them to submit a technical proposal substantially conforming to the indicated technical specifications. 5. Using the technical responses from suppliers a determination would be made as to which suppliers are able to offer equipment conforming to the specifications and requirements of the laboratory requesting the equipment. Making a Purchase 6. When ready to make a purchase, send invitations to bid to all the technically qualified suppliers asking them to submit price quotations for the specified items by a certain date and time. 7. Open the price quotations in public and read out the prices. 8. Compare the prices, evaluate the bids and award the contract to the lowest evaluated responsive bidder. Review by the World Bank 9. Before the first purchese the Association would review the standard contract agreement and annexes. 10. For each contract under these procedures the World Bank's no objection would be required at the following stages: (a) description of basic specifications (basic equipment list); (b) text of the advertisement; (c) description of detailed specifications; (d) final list of technically qualified suppliers (the list should be sent to the Association each time it is updated); (e) contract award only if the contract is for items needed for standardization with existing equipment or are of a highly specialized nature or if the contract is estimated to cost the equivalent of US$300,000 or more.  - 72 - ANNEXC 10 KEY STUDIES DEVELOPMENT PROJECT Draft Guidelines for Use of Discretionary Funds 1. At appraisal, a small portion of project funds was not allocated to specific project components. These funds will serve as a reserve to meet specific needs that may arise during implementation. These needs include: (a) obtaining foreign specialist assistance for workshops or for financing other domestic or overseas training activities that would benefit project implementation staff or laboratory personnel from groups of laboratories; (b) equipment, spare parts or maintenance required by an individual laboratory unexpectedly or on an emergency basis, for which no other funding is available, provided that the request is reviewed and approved by the PAG, the SPC expert group, or other appropriate scientific group; (c) undertaking special studies or project preparation activities, as agreed by PAG and implementing agencies. 2. Proposals to spend more than $50,000 in discretionary funds on a single item or activity would be sent to the Association for review in advance. Expenditures of all discretionary funds would be reported in annual reports. Normal Bank procurkment procedures would be followed for all such procurement.  tWNA Key Studies Devetowment Pro ect Project Implementation Schedute I l _~~ ~ I ,I I II CY | 1991 1992 1993 1994 1995 1996 Quarter 3I tI III IV * I II III IV | I II III IV | I II III IV I I II III IV I II III IV Loan Processing Negotiations I I I I i I Board Presentation | X I I I i I Signing I X I i I i Effectiveness | X Completion I I I I XI Closing I I I I I i X PCR I I X Civil Works -- --------------- --------------------- Eaui~nentIIIII Prequatification ------------> Bidding/Award . ......------------------------------ > Delivery I-------------------------------------------------------->1 1 Books and Materials - - ---- ------------------------->1 -- >I Training and Soecialists --------------------------------------I- Graduate Educatie..O and ---I ------------------- ------ - ---- -->I Laboratory Operations onitorina and Evaluation I I I I I Annuat progress reportsl I X X X K X Z Mid-term Review j I | X X Accreditation of SKLs | I I I I X |  - 74 - ANNEX 12 CHIN KEY STUDIES DEVELOPMENT PROJECT Selected Documents and Data in the Project File 1. Guidelines for the "Key Studies Development Project" Using the World Bank's Loans, State Planning Commission 2. Outline for Laboratory Research Funding Proposals, November 1989 3. Cost and Financing of the Laboratory Development Component by Yip Hak Kwong, May 1989 4. Pilot Laboratory Management Program by N. Stewart McIntyre, September 1989 5. Comments on Proposed National Computer Network Facilities by Sidney Karin, May 1989 6. A General Appraisal Report submitted by the Expert Panels of the State Planning Commission on the Sixth World Bank Loan for a Project to promote the "Development of Key Academic Disciplines", May 1989 7. Research Fund Analysis of Key Studies Project Laboratories, State Planning Commission, November 1989 8. Draft Monitoring Report and Performance Indicators (as agreed at negotiations), April 1990  KEY STUDIES DEVELOPMENT PROJECT Project Management Structure Government Funding Government Key Studies Development Program X ' T~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~U |Laboratory ||Pilot Laboratory | Demonstration ||National| Component Management Computer Computer _ ~~~~~~~Program Network Facility