Statement by Surendra Singh at the Board meeting of May 28, 1998

International Bank for Reconstruction and Development 87624 International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS98-238 May 27, 1998 Board Meeting of May 28, 1998 Statement by Surendra Singh CHINA - Country Assistance Strategy - Progress Report 1. We welcome this discussion of the progress report on the Country Assistance Strategy for China. Under its new leadership the country has signalled its commitment to further consolidation of structural reforms in the public sector. The economy, which has been performing exceptionally well, has weathered the East Asian crisis very well. Growth has been sustained at high rates, while inflation has been contained. The trade sector too has performed very well, taking reserves to $140 billion. The country continues to be a destination for foreign direct investment, which is a source of capital as well as technology transfer. In essence,China has continued to record a remarkable degree of economic progress, while shifting from a command economy to a market oriented one. 2. However, as the document very clearly reveals, China is now likely to confront a new set of challenges. This is particularly so in the context of reforms in the SOE and Banking Sectors. Similarly, the increase in unemployment and the associated problems of social security will need to be addressed. As noted in the document, these emerging problems are inter-related, and will need to be addressed in a comprehensive manner. 3. The Bank’s engagement with the country has been a story of remarkable success. The portfolio has performed exceedingly well, and projects have usually met their goals. The document has rightly identified the areas in which the Bank could provide assistance in coming years, given the emerging needs of the country. We also agree that in the sectors of urban development, fiscal, financial and SOE reform, Bank’s assistance should proceed with non-lending services, subsequently broadening the assistance on the platform of LILs and such pilots. The excellent performance of the portfolio so far and the strong ownership of the government provide the basis of an optimistic outlook on such future Bank engagement. 4. The fundamental focus of Bank’s involvement in China is on poverty reduction and rural development. With an estimated 270 million surviving on less than a dollar a day, and the given regional disparities, the depth of poverty and the related challenges are matters of serious concern. The compounding factor is that after next year IDA lending will not be extended to the country. China is poised at a critical juncture of economic reform and state of progress. While it has recorded remarkable achievements, there is a challenging  2 agenda that is now emerging. Within this, the social sectors, particularly health and education, will need greater attention. Yet, at the same time, the instrument of assistance in this regard is being withdrawn. No alternate has been conceived so far. As a result, the many economic achievements that China has recorded could well stand being jeopardized. To my mind, finding a solution to this issue should be a matter of absolute priority. This is a challenge that the Bank has to address while defining its relationship with China. I would appreciate it if management can inform me of the current thinking on this matter. 5. Overall, we record the encouraging progress that the economy has achieved and also note the serious challenges that are now required to be addressed. The Bank’s relationship with China has been an extremely positive one. However, in the context of cessation of IDA lending, the Bank will need to provide an innovative solution, so that the fundamental mandate of poverty reduction is addressed effectively. 6. I also take this opportunity to extend our support to the projects that have been submitted for consideration for China.