Statement by Mr. Zhang Shengman at the executive directors' meeting of June 1, 1995

International Bank for Reconstruction and Development International Development Association International Finance Corporation FOR OFFICIALUSE ONLY EDS95-202 [Verbatim] June 2, 1995 Statementby Zhang Shengman,ExecutiveDirector BoardMeeting,June 1, 1995 China: CountryAssistanceStrategy Thank you, Mr. Chairman. Last week when the Board discussedIFC's paper on China, I said that I did not particularlylike or take to the ideathat the Chair representingthe countrywhose CAS or whose strategy paper happens to be discussed should take the floor, and I continue to believe so. In the case of today, however,I am persuadedthat it may be of some benefit to my colleaguesaroundthe table and maybe to you, Chairman,since you are kind enough to preside over your very first meetingon China, that I say a few words, not so much about the CAS as by way of introduction. So it is with great hesitation and substantial reluctancethat I make a few commentsas follows: First is with regard to the relationship between China and the Bank. It is, of course, widely known that the relationship between the Bank and China has been excellent. Indeed,I would go so far as to say probablyas excellentas any that the Bank has with its many membercountries. What is less known, however, I think, is why this has been so. I thought that probablyit mightbe usefulif, from my vantagepoint,I say a few words about the reasons that made this excellentrelationshippossible. No doubt, there is a combinationof factors involved,but among them I think the most important one is the following, which is, on the Bank side, it has always been willing to listen and to customize,while on the Chinese side, it has always been eager to learn and to accept. This reciprocalwillingnessleads to mutual understandingover time which, in tum, helps form sharedobjectivesof an equalpartnership. Such objectivesthen get translated into long-termcommitment. Long-termcommitmentbecomes unwavering effort on both sides, no matterwhetherthe goingis easy or the going is tough. This document has a restricteddistribution and may be used by recipientsonly in the performance of their official duties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization.  2 So, simply put, for the attainmentof our shared objectives,when necessary,the governmentis ready to go an extra mile to act upon the advice of the Bank, while the Bank is prepared to provide more than lip service to give reflectionto the needs of the country. Thus mutual understanding,good flexibility,joint effort by both, I think, are what lie behindthe excellentstatusof the relationshipbetweenChinaand the Bank. While it's sometimesquite a temptationfor officialson the Chineseside and staff of the Bank to claim who has done more in what area, for the common peoplethat have benefittedfrom the Bank-supported projects,they thank both for the improvementin their life as a resultof the excellentcooperativerelationshipbetweenthe two. Lookingahead, clearly,this relationship,like any other, faces new challenges,but I believe these essential ingredientsshall continue to be critical. Indeed, if I may go beyond China, these critical ingredientsprobably apply to all relationshipsbetween the Bank and membercountries,particularlyborrowingcountries. The second point I want to talk about is the reform and developmentissue of China. No doubt,great achievements have been obtainedover the past 17 years. Indeed, during a much longer period. Readingthe newspapershere in Washington,I must admit to a feeling: Just as the Press tend to overestimatethe probability of China's social instability, they are often likely to underestimate the seriousness of China's developmentalchallenges. I think here the important thing is that one must look at China's reform and developmentin perspective,and in historicalperspective. Here, I'll makejust two short comments. One. In China, it is well understoodthat reform,like development,will be a long process,not a one-timething. As we all know, Chinais a countrywith a history of 5,000 years. Of this 5,000 years,China led the world duringsome 3,500 years. But it must also be noted it took China only 100 yearsto declinefrom one of the most developedto one of perhapsthe poorest. In China, we recognize very well that despite the achievementsover the past severaldecades, it will be many years before China catches up with the advancedworld again. Although we expect to put in place the major building blocks or the broad institutionalframeworkof a marketeconomybefore the end of the century,it will take at least another 15 years,or more,to have a maturemarket economy. In China, it is widely said it'll take morethan one government;it will take one generationto realizethis goal. I know when I say this, I may well be testing the patience of people not only in China, but probably in this room as well, but this is the kind of duration of the process that is understoodin China that it will take to achievethe final objectives. Two. Poverty remains a major challengefor China. Here, some figuresprobably will help illustrate the magnitudeof the challenge While China accountsfor 22 percent of the world's population,her outputtoday is only 2.4 percent of the world's total. While  3 the world average per capita is about $4,400,China's is $490; in other words, about ten times on the first count, and one-tenthof the world on the second. Indeed, 1 percent increase in income for an American citizen will yield more in dollar terns than a 15 percentjump for a Chinesenational. So notwithstandingthe tremendousachievements, there are still about 80 millionpeoplelivingin poverty, and that is equal to the population of Germany,or if you like,U.K. plus Canada. We recognizeto bring these 80 millionpeople out of povertywill be much harder than the job that we managed to have brought the earlier 170 million people out of poverty. Apart from the more targetedprograms that are cited or detailed in the CAS document here, there will have to be other forms of support, both direct and indirect, rangingfrom human resourcedevelopment to fiscal infrastructure development. In short, it will call for a developmentalapproach,combininga menu of measures. Here I quote my instructionsfrom Beijing. "The governmentbelieves in this area, for one, the World Bank will continueto play a unique andimportantrole." Finally, let me take up the issueof labor market,as well as of the labor standards, as cited in, I think, Ms. Piercy'scirculatedstatement. We all know this is a controversial issue and an issue on whichcountries,includingmy own,have differentviews. I believe that to engage in a debateover here is probablyless than desirable,nor indeedconducive to the proceedingof the entire substantive discussiontoday,giventhat there are other fora for such discussions. To the extent this is a developmentalissue, per se, I would make the following two comments. First, like in other areas, the labor market is also being reformed and perfected in China. Laws and regulations are being enacted, and probably more importantly,being implemented, consistentwith the social conditionsand development stage of China. Second, in final analysis, developmentwill provide the key. Therefore, it is important to rememberthat rising affluence, not governmentdecrees, nor even World Bank conditionalities,will effectivelybid up wages and improve the working conditions of manymillions of workersin the developing countries,includingin China. I'll stop here. Sorry,Chairman. I spoke longer than I usuallydo. Thank you.