China - Forestry Development in Poor Areas Project

Document of The World Bank Report No: 17506-CHA PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN OF $1 00 MILLION AND A PROPOSED INTERIM FUND CREDIT EQUIVALENT TO SDR 74.3 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A FORESTRY DEVELOPMENT IN POOR AREAS PROJECT APRIL 27, 1998 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective 04/01/98) Currency Unit = Yuan (Y) $1.00 = Y8.30 YI.00 = $0.12 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ABC - Agricultural Bank of China ADB - Agricultural Development Bank of China CAS - country assistance strategy EMP - environmental management plan FRDPP - Forest Resource Development and Protection Project ICB - intemational competitive bidding IDA - Intemnational Development Association 1IF - Interim Trust Fund LGPR - Leading Group for Poverty Reduction MFO - Ministry of Forestry MIS - management information system MOF - Ministry of Finance NAP - National Afforestation Project NCB - national competitive bidding NGO - non-governmental organization NLS - non-lending services OECD - Organization for Economic Cooperation and Development OED - Operations Evaluation Department PMC - Project Management Center in SFA PMO - Project Management Office SAR - Staff Appraisal Report SFA - State Forestry Agency SOE - Statement of Expenditure T&E - training and extension TVE - township and village enterprises Vice President Jean-Michel Severino Country Director Yukon Huang Sector Manager : Geoffrey Fox Task Team Leader Richard Scobey  China Forestry Development in Poor Areas Project CONTENTS Paee No. A. Project Development Objective .............................................................2 1. Project development objective and key performance indicators .................................................2 B. Strategic Context .............................................................2 1. Sector-related CAS goal supported by the project ............................................................. 2 2. Main sector issues and Government strategy .............................................................2 C. Project Description Summary ..............................................................4 1. Project components .............................................................4 2. Key policy and institutional reforms supported by the project ...................................................6 3. Benefits and target population .............................................................6 4. Institutional and implementation arrangements .............................................................6 D. Project Rationale .............................................................9 1. Project alternatives considered and reasons for rejection ...........................................................9 2. Major related projects financed by the Bank and/or other development agencies ................... 10 3. Lessons learned and reflected in the project design ............................................................ 11 4. Indications of borrower commitment and ownership ............................................................ 12 5. Value added of Bank support in this project ............................................................ 12 E. Summary Project Analyses ......................... 13 1. Economic ........................ 13 2. Financial ........................ 13 3. Technical ........................ 13 4. Institutional ........................ 14 5. Social ........................ 14 6. Environmente assessment ........................ 15 7. Participatory approach ........................ 16 F. Sustainability and Risks ........................ 16 1. Sustainability ........................ 16 2. Critical Risks ........................ 17 3. Possible Controversial Aspects ........................ 17 G. Main Loan Coniditions ........................ 17 1. Effectiveness Conditions ........................ 17 2. Other ........................ 17 H. Readiness for i mplementation ........................ 20 I. Compliance with Bank Policies ........................ 20  Annexes Annex 1. Project Design Summary ................................................ 21 Annex 2. Detailed Project Description ................................................ 24 Annex 3. Estimated Project Costs ................................................ 30 Annex 4. Cost-Benefit Analysis Summary ................................................ 31 Annex 5. Financial Summary ................................................ 35 Annex 6. Procurement and Disbursement Arrangements ................................................ 36 Table Al. Project Costs by Procurement Arrangements ........................................ 39 Table A2. Consultant Selection Arrangements ................................................. 40 Table B. Thresholds for Procurement Methods and Prior Review . ........................................... 41 Table C. Allocation of Loan Proceeds ................................................. 41 Table D. Estimated Disbursement Profile ................................................. 42 Annex 7. Project Processing Budget and Schedule ................................................ 43 Annex 8. Documents in Project File ................................................ 44 Annex 9. Statement of Loans and Credits ................................................ 45 Annex 10. Country at a Glance ................................................ 48 Map IBRD 29501 (Project Sites)  China Forestry Development in Poor Areas Project Project Appraisal Document East Asia and Pacific Regional Office Rural Development and Natural Resources Sector Unit Date: April 21, 1998 Task Team Leader: Richard Scobey Country Director: Yukon Huang Sector Manager: Geoffrey Fox Proj. ID: CN-PE-46952 Sector: Agriculture Prog. Obj. Cat.: Environmentally Sustainable Development Lending Instrument: Specific Investment Loan Program of Targeted Intervention: [XI Yes [ I No Project Financing Data [X] Loan [X] Credit [] Guarantee [ Other For Loans/Credits/Others: Amount (US$m/SDRm): $100 million Loan/SDR 74.3 million equivalent Interim Fund Credit Proposed terns: [] Multicurrency [XI Single currency, specify USD Grace period (years): 7 Loan/10 Credit [ Standard Variable [ Fixed [X] LIBOR-based Years to maturity: 16 Loan/35 Credit Commitment fee: 0.25% Loan/0.00% Credit Service charge: 0.75% Credit Financing plan (US$m): Source Local Foreign Total Govemment 164 0 164 IBRD 78 22 100 IDA 77 23 100 Total 319 45 364 Borrower: People's Republic of China Guarantor: not applicable Responsible agency(ies): Ministry of Forestry and twelve provinces/autonomous regions (Anhui, Jiangxi, Hunan, Hubei, Guangxi, Sichuan, Guizhou, Yunnan, Hebei, Shanxi, Henan, and Liaoning). Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003 2004 2005 Annual 21 33 57 51 24 12 2 Cumulative 21 54 111 162 186 198 200 Project implementation period: 6.5 years Expected effectiveness date: 9/1/98 Expected closing date: 01/01/06 OSD PAD Form: July 30, 1997  Page 2 A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): The main project objective is to develop forest resources in poor areas of central and western China on a sustainable and participatory basis to support poverty reduction, forestry development, and improved environmental management. Achievement of the poverty reduction objective would be measured by the increase in household income of project beneficiaries arising from the sale of project production and from project labor payments (target of 30% by the mid-tern, 60% by closing, and 100% by full impact). Achievement of the forestry development objective would be measured by the amount of timber and horticultural production produced under the project (target of 3 million ni3 standing stock by closing and 54 million rn3 standing stock by full impact for timber, and RMB 857 rnillion by closing and RMB 2.3 billion by full impact for horticultural production). Achievement of the environmental objective would be measured by the rate of forest coverage in project counties (from a baseline of 45% to 47% by closing and 50% by full impact). B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): CAS document number: 16321-CHA Date of latest CAS discussion: 3/18/97 The project would contribute to two key goals of the CAS: reduction of poverty in rural areas, and reforestation of denuded upland areas. 2. Main sector issues and Government strategy: The forestry sector plays a critical role in the Chinese economy, providing 40 percent of rural household energy, almost all of the lumber and panel products for the large construction sector, and raw material for the large domestic pulp and paper industry. The resource base is small; forest cover amounts to only 0.11 hectares per capita, which is significantly below the world average of 0.77 hectares per capita. Forest land is divided into two categories: natural forests (about 98 million hectares), which are located in isolated areas in the northeast and southwest and account for 95 percent of standing wood volume; and plantations (about 33 million hectares), which account for only 5 percent of standing volume, since most are newly established. China is the third largest consumer of timber in the world and faces a worsening imbalance between supply and demand for wood products. The present consumption level (about 300 million m3 of standing stock) exceeds the annual growth increment of the forests and total imports by about 50 million in3 per year. As a result, about 500,000 hectares of natural forest area are lost each year, equivalent to one-half of one percent of total forest area. This loss is causing increased soil erosion, serious deterioration of the plant and wildlife habitat, and other environmental degradation, such as declining levels of carbon sequestration. The over-reliance and over-exploitation of forest resources is particularly severe among poor households in the mountainous areas of central and western China, as a result of their limited access to productive land, low agricultural productivity, limited off-farm employment, and underdeveloped human capital. As reviewed in the 1992 World Bank report on poverty in China (No. 10409-CHA), a large share of the absolute poor are located in these remote upland areas where agricultural land is extremely poor and forest resources are the only significant productive asset at their disposal. Consequently, the development of the forest sector is a key element in the Bank and Government's strategy to reduce poverty. The Government is taking a number of steps to expand supply and manage demand throughout the country, including extensive investment in a wide variety of afforestation programs and promulgation of new regulations encouraging conservation and substitution. The Ministry of Forestry (MFO), which was recently reorganized into the State Forestry Agency (SFA) as part of a large-scale government restructuring, aims to establish about 7 million hectares of intensively managed plantations in 1985-2000, of which about  Page 3 30 percent would likely be financed by the World Bank under this and previous projects. SFA has announced a long-term program to reclassify all forests according to their public welfare or conmmercial functions, with a corresponding change in the organizational structure of forestry agencies at the national and provincial levels. The Government's sectoral development program is supported by a relatively sound policy framework (including secure land tenure, market-based resource pricing for 90 percent of all timber, and increased emphasis on private sector activity) and a good institutional framework (SFA has effectively managed national afforestation programs, including four earlier IDA operations). At the same time, the Government has launched an ambitious and comprehensive poverty alleviation program under the National Seven-Year Plan for Poverty Reduction, which is supporting strengthening of institutions responsible for poverty reduction, establishment of an independent poverty monitoring system, greater investment in the social sectors to develop human capital, and continued investment in agriculture, forestry, rural enterprise and rural infrastructure to raise rural incomes. While most of this work has been led by the State Council's Leading Group for Poverty Reduction, SFA has been involved in pilot poverty reduction programs in Guangxi and Guizhou since 1986. The key issues for the development of the forest sector include: (a) elimination of the remaining distortions in the policy framework, particularly the high level of domestic protection that impedes efficient international trade, and the very high level of taxation on timber products; (b) more rigorous implementation of sustainable land use requirements in the legal framework, particularly greater enforcement of rules related to annual allowable cuts in natural forests; (c) expansion of forestry resources to support continued growth of construction and agro-processing sectors, with an emphasis on productivity gains through improvements in silvicultural technologies, particularly planting stock development and silvicultural man- agement; (d) shifting the focus of afforestation activities from the more developed southern and coastal provinces to the poorer inland provinces, with appropriate adjustments to silvicultural technologies that reflect the socio-economic requirements of poor households; (e) developing more participatory approaches for the design and implementation of large-scale afforestation campaigns to strengthen incentives for sustainable resource management by local communities; (f) developing comprehensive integrated mianagement plans for forest resources, particularly for natural forests, that maximize economic and environmental benefits for local communities; and (g) improving the efficiency of the wood processing sector through continued reform of the policy framework for state-owned enterprises. ITe key issues for poverty reduction work include: (a) strengthening of institutions responsible for implementing poverty ireduction programs; (b) establishment of an independent and objective poverty monitoring system; (c) improved targeting of interventions to the absolute poor in the poorest counties; (d) improved access of the poor to employment and income-generating opportunities; (e) greater investment in the development of human capital, including increased access to rural facilities, improved teacher and health service worker technical skills, and upgrading of bilingual education in minority areas; and (f) continued investment in poor area agriculture, rural enterprise, road, and other rural infrastructure requirements. 3. Sector issues to be addressed by the project and strategic choices: The key sector issues to be addressed by the project include: (a) shifting the focus of government afforestation efforts from wealthier to poorer provinces to provide expanded employment and income- generating opportunities for the poor; (b) introducing new models for social assessment and community participation into the design and implementation of government afforestation programs; (c) expanding the supply of forestry products in line with domestic consumption and investment requirements, particularly the raw material needs of the construction and agro-processing sectors; (d) development and dissemination of new silvicultural technologies to raise the productivity of forestry resources, particularly on lower quality and higher elevation sites; and (e) institutional strengthening of SFA in the design and targeting of poverty reduction programs. The main strategic choice focuses on the role of the public sector in the project: What market failures  Page 4 preclude the private sector from producing more or less than the socially optimal quantity of forest products? What sort of government intervention is appropriate? The justification for public sector provision of capital and technical assistance for afforestation under the project arises from the following market failures. * First, poor rural households face limited access to capital as a result of thin and underdeveloped financial markets, which severely constrain both mobilization and channeling of financial resources in poor areas. The few financial institutions that are active in project areas (Agricultural Bank of China, Agricultural Development Bank of China, and rural credit cooperatives) generally do not lend to poverty households, and for long-term investments such as forestry. * Second, the opportunity cost of capital is dramatically higher for poor households than for society as a whole, as they heavily discount future income in pursuit of their short-term consumption and investment requirements. Thus, they will typically reject investments with long gestation periods such as forestry unless the government provides technical assistance and support. * Third, poor households have limited access to information about improved silvicultural technologies, which impedes adoption of improved planting materials and better designed plantations. The main source of this information in project areas is the government research and extension system, which requires institutional strengthening. - Fourth, the private valuation of forestry project costs and benefits diverge from the overall social valuation: individuals do not experience the indirect benefits of improved environmental management, such as reduced soil erosion and preserved biodiversity, and consequently do not plant as many trees as would be desirable from the country's point of view. * Fifth, the project has an explicit redistribution goal that is outside the ambit of private sector investment. C: Project Description Summary 1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown): Component Category Cost Incl. % of Bank- % of Contingencies Total financin Bank- (US$M) g financing (US$M) Timber Plantation Component: Establish Physical 121.8 34 66.2 33 about 315,000 hectares of plantations primarily for construction timber and secondarily for pulpwood and pit props on mountainous wasteland. Economic Forest Crops Component: Physical 135.2 37 82.5 41 Establish about 230,000 ha of economic forest crops, including 110,000 ha of new and rehabilitated bamboo, and 120,000 ha of fruit, nut, and medicinal trees (including chestnut, walnut, ginkgo, eucommia, apple, pear).  Page 5 Component Category Cost Incl. % of Bank- % of Contingencies Total financin Bank- (US$M) g financing ___(US$M) Technical Support Services Component: 81.5 22 38.6 19 Strengthen technical support programs for project afforestation activities in four areas: (a) the planting stock development program Physical 43.2 12 21.8 11 would raise the quality of planting materials through introduction of improved genetic materials and nursery management technologies, and support the production of the 0.8 billion seedlings required under the project; (b) the training and extension program Institution 8.0 2 2.1 1 would disseminate key technical Building silvicultural guidelines to project staff and beneficiaries, through preparation of new extension materials, domestic and overseas training programs and study tours, equipment for grassroots extension workers, and demonstration plantations; 29.5 8 14.6 7 (c) the rural infrastructure program would Physical, support the construction of forest trails, Credit limited irrigation facilities, and small guard/storage sheds, and the provision of sub-loans for small-scale marketing and post-harvest treatment of horticultural production; and 0.8 .. 0.1 . (d) the monitoring and evaluation program would support community participation in Institution project design, effective supervision of Building project activities, and surveys for achievement of project objectives. TVE Development Component: Provide Credit 25.5 7 12.7 7 sub-loans to support the development of small-scale, labor-intensive, commercially oriented township and village enterprises (TVEs) in the forestry sector, such as pine resin extraction, bamboo processing, wicker works, edible forest product processing, and parquet and veneer production. Total 364.0 100 200.0 100  Page 6 2. Key policy and institutional reforms supported by the project: As reviewed in Section B.2, the sectoral policy and institutional framework is generally sound and will contribute to the overall viability and sustainability of the project. Nonetheless, the Government still needs to address some policy distortions that contribute to inefficiencies in resource use and a sub-optimal level of reforestation. With support from the Bank and other NGOs/donors under on-going economic reform studies and technical assistance programs, the Government is studying these issues and beginning to identify additional reform steps. In line with the Bank's country assistance strategy, this policy dialogue is not explicitly linked to specific investment operations but conducted through non-lending services (NLS). The main institutional reform supported under the project is the introduction of new social assessment and conmmunity participation techniques into the government's large-scale afforestation program. 3. Benefits and target population: The project would generate the following benefits: (a) an increase in per capita income for about 2 million poor people (about 450,000 households) that would raise them above the poverty line by the project closing date, and about 1 million non-poor people (about 250,000 households), arising from the sale of project production and the creation of new employment opportunities; (b) an increase in the supply of forest products that would support the continued growth of the construction and agro-processing sectors, including 41 million m3 of commercial timber, 10 millions tons of bamboo, and fruit, nut, and miscellaneous forest production, amounting to 2.3 billion yuan at current financial prices at full development; (c) an increase in value-added processing of forestry products through development of new TVEs, with an estimated gross output value of RMB 88 million per year at current financial prices at project closing; (d) improved environmental management of ecologically fragile mountainous watersheds, including reduced soil erosion, flooding, and river sedimentation, preservation of biodiversity, and reduced greenhouse gas emissions through increased carbon sequestration; and (e) development and dissemination of improved silvicultural technologies that would raise the productivity of forest resources on steeper, higher elevation sites. The target population would be households living below the poverty line in mountainous areas of central and western China, where the largest concentration of absolute poor reside. The beneficiary group would include a large share of ethnic minorities and women. The project meets both criteria for inclusion in the Program of Targeted Interventions: (a) it would support a specific mechanism for targeting the poor; and (b) the project beneficiary group would have a significantly larger proportion of poor than the country's population as a whole. 4. Institutional and implementation arrangements: Selection of Project Areas and Beneficiaries: Project areas and beneficiaries were selected in line with the following socio-economic criteria. First, the proposed areas contain large blocks of barren wasteland with suitable agronomic and climatic conditions for commercial forestry development. Second, the majority of the direct project beneficiaries are poor households located in remote mountainous areas. "Poor" has been defined as below the national poverty line in nationally-designated poverty counties, and below the relevant provincial poverty line in other counties. The beneficiary assessment process is reviewed in Section E.7 and the organizational structure for the beneficiary groups is reviewed below. Third, the project management units -- located in the provincial forestry departments and county forestry bureaus - have sufficient institutional capacity and managerial expertise to plan and implement project activities. Fourth, the provincial, prefecture, and county governments have agreed to finance 25-30 percent of project investment costs as counterpart funds, and have made a general commitment to finance complementary investments in social and rural services in project areas during the project implementation period. Fifth the beneficiary groups have agreed to provide 15-20 percent of project investment costs as counterpart funds, primarily in the form of voluntary labor, and assume the responsibility for debt service. In line with these criteria, 183 counties in 12 provinces have been selected to participate in the project, of which 53 percent are designated  Page 7 as national poverty counties, 27 percent are provincial poverty counties, and 20 percent are not poor counties but nonetheless have significant pockets of poverty. Of the total 3 million beneficiaries, about 2.0 mnillion, or 65 percent, are classified as below the poverty line. Project Management: Project management would be based on the successful implementation structure developed under the four earlier Bank forestry projects: Leading Groups at the central, provincial, and county levels would continue to establish general policies and procedures and review work programs; the Project Management Center (PMC) at SFA would continue to have overall responsibility for project design, execution, and supervision; Project Management Offices (PMOs) at Provincial Forestry Departments and County Forestry Bureaus would continue to manage the work, mobilize counterpart funding, and provide technical support; Seedling Production Coordination Groups at the national and provincial levels would continue to supervise production and distribution of planting materials; Environmental Protection Groups at the national and provincial levels would continue to be responsible for environmental management issues in the project; and Provincial Finance Departments and County Finance Bureaus would continue to channel project funds. The project management structure is in place and a general work plan for the first year of the project was agreed with the Bank during appraisal. Assurances were obtained at negotiations that: (a) all PMOs at the national, provincial, and county levels would be established and maintained in forestry agencies, with staffing, functions, and responsibilities acceptable to the Bank; and (b) an annual work and financing plan for the project for the next calendar year would be furnished to the Bank for review by December 31 of each year. Production Arrangements: All afforestation activities would be organized as follows. First, all horticultural crops would be established on land directly under the responsibility and management of beneficiary households or groups of beneficiary households. Second, the relative priority for land tenure and organizational arrangements for timber plantations would be: (a) land directly under the responsibility and management of beneficiary households or groups of beneficiary households; (b) households or groups of households participating in a shareholding arrangement with another party, such as a village committee, village/township collective farm, a township extension station, a state farm at the county/prefecture/ provincial level, or a private entrepreneur/company; and (c) village or township collective forest farms. Unlike the previous Bank forestry projects, state forest farms would not be eligible to participate by themselves in the project. Third, households and groups of households would receive use rights for a term of not less than fifty years for land directly under their responsibility and management under the project. Fourth, production arrangements based on a shareholding structure would ensure that the majority of net profit (after debt service) from project production would accrue directly to project households, and not to the share-holding partners. Fifth, as in the previous Bank forestry projects, all afforestation groups would sign "project implementation agreements" with the relevant administrative village, township or county governments that specify their respective rights and responsibilities under the project. Sixth, all afforestation groups involving different parties (such as cooperative or share-holding farrns) would sign "joint cooperation contracts" that specify their respective rights and responsibilities within the group. An assurance was obtained at negotiations that all afforestation activities would be organized in accordance with guidelines acceptable to the Bank On-Lending Arrangements: Project funds would be on-lent as follows; an assurance was obtained at negotiations with respect to these on-lending terms and conditions. * The Ministry of Finance (MOF) would on-lend the Loan to the provincial finance departments on the same terms and conditions as received from the Bank (7 years grace and 16 years maturity). MOF would on-lend the Credit on the same terms and conditions as received from IDA, with the exception that the grace period would be reduced to 5 years (with the option of two additional years of grace upon the payment of an additional interest charge), and maturity period to 17 years, in line with MOF's expectation that it will soon be asked by IDA to accelerate repayments. Foreign exchange risk between the SDR and the local currency would be borne by the provinces.  Page 8 * The provinces would ensure the following on-lending terms and conditions for the final project beneficiaries. For afforestation activities: same terms and conditions as received by the provinces, with an additional exchange rate risk fee of two percent per annum for any loan or credit funds onlent in the Borrower's currency, and an additional interest rate risk fee of one percent per annum for any loan funds onlent at a fixed interest rate; interest would be capitalized during the grace period; and these terms may be modified upon the agreement of the Bank, Borrower, and relevant province. For enterprise and marketing sub-loans: same terms and conditions as provided by the Agricultural Development Bank of China in project areas for similar activities. * The maximum interest rates for final beneficiaries would be about 6.5 percent for afforestation and 10 percent for enterprise and marketing sub-loans (based on the current IBRD rate). The more concessional terms for afforestation are in line with the Bank practice of allowing a small interest rate subsidy for environmental investments that generate social benefits that accrue to society as a whole. * The PMC would manage the portion of funds used for international procurement, consultancy services, overseas training and study tours, and other central government training and extension activities, although the provinces would assume the debt responsibility for these services. Monitoring and Evaluation: The Bank has reviewed and approved a monitoring and evaluation plan that includes: (a) the roles and responsibility of the central, provincial, and county PMOs in project supervision; (b) preparation of an annual key performance indicators table to facilitate effective monitoring and evaluation during implementation; (c) implementation of a sample survey of project households to collect the socio-economic data necessary to evaluate the achievement of the poverty reduction objective, and identify problems and lessons learned to improve implementation; and (d) implementation of a survey of plantation growth at the end of the project to collect the technical data to evaluate the achievement of the production objective. Annual monitoring will focus on: (a) Development Impact Indicators that measure the degree to which project objectives have been achieved (such as reduction in poverty levels, increased silvicultural productivity, improved environmental management); (b) Project Output Indicators that measure the quantity of goods created or services provided by the project (such as hectares of plantations established, numbers of TVE enterprises established, numbers of seedlings produced, numbers of beneficiaries trained); and (c) Project Input Indicators that measure the quantity of resources provided for project activities (such as Bank funds, counterpart funds, and technical assistance). Assurances were obtained at negotiations with regard to the implementation of the monitoring and evaluation plan; the timing and reporting requirements for the household and plantation surveys; and the timing and implementation of the mid-term review. Financial Management and Reporting: The Bank reviewed and approved the proposed financial management system for the project during appraisal, including the adequacy of accounting and auditing practices, standards, and internal controls. As demonstrated on the previous projects, the provincial and county forestry and finance staff have strong institutional capacity to ensure adherence to accounting and auditing standards and reporting formats acceptable to the Bank. All previous projects have been in full compliance with audit and accounting covenants. One of the four large commercial banks would serve as the project bank for disbursing and collecting all project funds in the provinces. Each provincial and county finance office would open a project account at the local branch, which would maintain sub-accounts for the different loan sources. Provincial audited accounts would be submitted to the World Bank Department in MOF, with copies to PMC, within four months of the end of the financial year. MOF would submit to the Bank within six months of the end of the financial year a consolidated audit report by the State Audit Administration (or another independent auditor acceptable to the Bank) containing a summary of the findings of the provincial audit reports and a report on the accounts maintained by MOF. An assurance was obtained at negotiations with respect to these auditing and accounting arrangements.  Page 9 D: Project Rationale 1. Project alternatives considered and reasonsfor rejection: The following different design options were considered and rejected. * First, since afforestation investments only begin generating significant income after five years, the project team considered including a micro-finance component that would provide sub-loans for short-term income generating activities, such as agricultural intercropping, aquaculture, livestock, etc. This was rejected because of institutional complexity and limited implementation experience in China. SFA does not have the requisite expertise and extension network for agricultural development and micro-credit, and consequently, the Ministry of Agriculiure and a rural credit institution would need to be brought into the project as joint implementing agencies. Previous project experience in China has shown that projects managed by more than one central ministry are often beset by poor coordination, institutional conflict, and ineffective implementation, which contributes to unsuccessful realization of project development objectives. In addition, Bank projects have only had limited experience and success with micro-credit programs in China and further pilot work is required before it would make sense to disseminate a micro-credit program in a large project of this scale. * Second, the project team reviewed the scope for channeling project funds through a financial intermediary, instead of through the MOF network. This was rejected as none of the rural banking institutions are interested in extending long-term loans to poverty households in remote areas for forestry investments, as they believe the risk and transaction costs are excessively high and not justified by the moderate returns. This issue is being studied further in the context of on-going NLS work in the area of rural credit and micro-finance. * Third, the project tearn reviewed the possibility of concentrating project activities in a smaller number of provinces (5-7) instead of trying to cover a wide range of provinces. This would allow the project to reach most of the absolute poor in each of the project counties and facilitate management and supervision of project activities. This was rejected because (a) county governments would be forced to spend a disproportionate share of budgetary resources earmarked for poverty reduction work on afforestation investments, which would limit their ability to finance other critical areas such as agriculture, health, and education; and (b) one of the important objectives of the project is to strengthen the institutional capacity of provincial forestry departments in the design and targeting of poverty programs and, consequently, the more provinces that participate the better. * Fourth, a component designed to support improved management of natural forests in project areas was dropped during preparation, in order to simplify implementation, strengthen the focus of the project on poverty reduction and forestry development, and avoid potentially harmful environmental impacts (it would be very difficult to ensure and monitor sustainable harvesting of natural forests under the project). * Fifth, a large number of timber and horticultural species were evaluated on the basis of profitability, environmental impact, and contribution to the project objective of poverty reduction. The species selected for inclusion in the project produced the highest net benefits and income impact for poor households. The rejected species included conifer timber species on long rotations, which would not generate benefits for households until 25-30 years; certain broadleaf species on short rotations that have flooded the timber market in recent years, such as paulownia; and several citrus varieties and other horticultural crops, which are currently over-supplied in the project provinces.  Page 10 2. Major related projectsfinanced by the Bank and/or other development agencies (completed, ongoing and planned): Sector issue Project Latest Supervision (Form 590) Ratings (Bank-financed projects only) Implementation Development Progress (IP) Objective (DO) Bank-financed Salvage burned timber and establish a Daxinganling Forest Fire HS HS comprehensive fire protection system in Rehabilitation Project Northeast China Support establishment of 1.38 million National Afforestation HS HS hectares of improved commercial timber Project (NAP) plantations in 16 provinces, with emphasis on development of improved planting materials, new silvicultural technologies, and new environmental management guidelines Support dissemination of the NAP Forest Resource S S plantation program to another 620,000 Development and hectares in 16 provinces and Protection Project establishment of improved models for (FRDPP) watershed management on 280,000 hectares of protection forests Promote improved management of Nature Reserves S S biodiversity resources and natural Management Project forests (GEF) Support multi-sectoral approach to Southwest Poverty S HS poverty reduction in remote upland Reduction Project areas, including investment in horticulture and forestry Support agricultural development in Shanxi Poverty S S poor areas of Shanxi, including Alleviation Project investment in horticulture and forestry Disseminate Southwest Poverty Project Qinba Mountains S S approach to northwest China Poverty Reduction Project Strengthen institutional framework for Changing Institutional NR NR private sector investment, SFA's Roles in the Forestry regulatory role, and public sector Sector (IDF Grant) management of environmental forests  Page 1 1 Sector issue Project Latest Supervision (Form 590) Ratings Other development agenq ies Develop improved models for various projects NA NA household forestry in poor upland areas (Ford Foundation) in Yunnan and Sichuan Strengthen sectoral policy framework, Forestry Policies and NA NA including land tenure, property rights, Institutions in a Market trade, pricing, and taxation Economy (FAO) Develop improved timber plantations, Various projects in NA NA sustainable management of natural Shanxi, Ningxia, Hebei, forests, and institutional development of Anhui, Hubei, Yunnan, forestry agencies in ten provinces Shaanxi (GTZ) Develop improved models for social Social Forestry Project NA NA forestry in Fujian Province (New Zealand) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: Forestry Development: The main lessons from project work and several Bankwide reports on the forestry sector (including the 1991 OED review of forestry projects, the 1994 ENV/AGR review of implementation of the Bank's forestry policy, and the 1998 QAG/AGR review of the forest portfolio) include the following: (a) the importance of new technology development in raising timber productivity, such as performance- selected species, improved planting materials, and more efficient planting practices; (b) the need to improve the links between silvicultural research and afforestation establishment to facilitate technology transfer; (c) the role of stable and clear tenure and land use rights in ensuring efficient afforestation activity by households; (d) the importance of integrating management of protected and unprotected natural forest areas into regional forest management plans; and (e) the importance of redefining the role of the state in forestry, with less emphasis on direct investment in commercial forestry and more emphasis on regulation and environmental protection. In response to these lessons, the project would give emphasis to: introduction of new afforestation technologies, particularly improved silvicultural practices, improved planting materials, and a wider range of species; the development of standardized production contracts based on fifty-year land- use rights; institutional strengthening of grassroots extension staff; and increased afforestation activity on collective and individual forest farms, with no investment on state forest farms. Poverty Reduction: The 1992 China poverty report, project implementation experience, and several Bankwide reports on poverty issues (including the 1990 World Development Report, the 1992 Bank Poverty Reduction Handbook, and the 1997 QAG review of China poverty projects) have highlighted the importance of the following issues: (a) poverty reduction projects should support activities that both benefit the poor and have high returns, whether measured explicitly in terms of an economic rate of return or implicitly through human resource development; (b) the design of poverty reduction projects should incorporate analysis of the cultural constraints, sociological context, and political dynamics in which poverty persists; (c) risk analysis is particularly important in project design, in view of the vulnerability of the poor to downside shocks; (d) poor beneficiaries should participate in project design; (e) economic and  Page 12 sector work is important in project pre-identification, in order to ensure effective selection of project areas, activities, and beneficiaries; (f) projects need to begin with a behavioral model of the poor as decision- makers, taking into account their constraints, incentives, risks, needs, and preferences; and (g) an effective monitoring framework is essential to ensure the project is reaching the intended beneficiaries with the intended results. In response to these lessons, the project design would give emphasis to: selection of activities with high economic rates of return; detailed analysis of the socio-economic conditions of beneficiary households, including preparation of baseline and follow-on surveys; extensive sensitivity analysis of critical risk factors, particularly yield and price assumptions for project production; preparation of detailed targeting guidelines for the selection of project areas and beneficiaries, based on the findings and recommendations of the China poverty report; and development of a comprehensive poverty monitoring framework 4. Indications of borrower commitment and ownership: As discussed at the last Country Implementation Review, SFA has implemented its portfolio of Bank projects extremely successfully and has proven to be one of the more serious and effective implementing agencies in China. It has approached the preparation of this new project with its usual competency and commitment, as demonstrated by its willingness to allocate significant budgetary resources for internal preparation work and undertake key implementation steps prior to Board approval of the project (such as completion of the community forestry assessment work, preparation of detailed technical design of the first year planting sites, establishment of central nurseries, and training programs for grassroots staff). S. Value added of Bank support in this project: Bank involvement in the project would provide three unique contributions. * First, the project would demonstrate that poor households are bankable for afforesation investments. While there is no question that SFA and the lower levels are committed to the overall goal of poverty reduction, they have typically preferred to focus afforestation efforts in more developed areas where the social, economic, and agronomic conditions are easier for large-scale afforestation. This would be the first project in which the government supports a large forestry investment targeted to the poor - if successful, the project would demonstrate the complementarity of the two key national development objectives of economic growth and poverty reduction within the forestry sector. * Second, the project has introduced new social assessment and community participation planning techniques into the design and implementation of the government's afforestation program. While community forestry work has been piloted in a few areas in China, this project would constitute the first large-scale roll-out of beneficiary participation in the sector. A summary description this work is included in Section E.7. * Third, the project would support the development and dissemination of improved silvicultural practices, based on the implementation experience of World Bank and private sector investments in other countries and the findings of international research work. As demonstrated with the NAP and FRDPP projects, the Chinese silvicultural system has not yet adopted many of the key technical elements of international forestry production and the Bank projects have proven to be very effective vehicles for this technology transfer. The main improvements would include lower planting densities to promote shorter production cycles, faster income generation, and agricultural intercropping; revised fertilizer application rates that reflect the specific nutrient requirements of the poorer sites; less intensive site preparation, smaller planting holes, and reduction in tending times to decrease labor requirements and minimize environmental damage on steep sites; and greater reliance on clonal planting stock and other improved planting materials in order to promote faster tree growth.  Page 13 E: Summary Project Analysis 1. Economic Cost-Benefit Analysis : ArPV = US$481 million; ERR = 24% Economic analysis has been carried out for each species, the income generating components, and the project as a whole (the analysis is based on direct costs and benefits, and does not reflect any indirect environmental benefits such as reduced soil erosion or carbon sequestration). The results are summarized below and presented in detail in Anmex 4, along with detailed assumptions about production levels, markets, prices, and methodology. The timber species generate moderate economic returns, ranging from 16 to 19 percent, reflecting their long gestation period and the moderate price levels for non-specialty timber used in the construction and paper making industries in China; however, several species generate particularly high returns, including poplar (29 percent) and eucalyptus (34 percent), as a result of their shorter rotations and higher market values. The overall ERR for the timber component is 20 percent. The ERRs for the economic tree crops are significantly higher, generally ranging from 20 to 30 percent, and reaching as high 41 percent for sympodial bamboo and a specialty apricot variety. The overall ERR for the tree crop component is 28 percent. The ERRs for sample TVE investments range from 26 percent for wicker furniture production to 44 percent for solid wood floor board, with an average ERR for the component of 38 percent. Sensitivity analysis indicates that these findings are relatively robust to wide changes in key parameters. 2. Financial: NPV = US$ 267 million; FRR = 20% The results of the financial analysis are presented in detail in Annexes 4 and 5, along with detailed assumptions about production levels, markets, prices, and methodology. The FRRs for the timber, tree crop, and TVE components are 15, 24, and 29 percent, respectively. The project is expected to have minimal fiscal impact, as beneficiaries would assume full responsibility for repayment of the World Bank funds, the projected fees and taxes under the project would more than cover government's counterpart funding contribution, and beneficiaries would be responsible for financing almost all recurrent operating c:osts during the operational period (county and provincial governments would be responsible for providing some training and extension related to stand management, forest health, and harvesting and marketing, amounting to about 7 percent of total recurrent costs in years 8-25 of the operational period). Project taxes include the special agricultural tax levied by the province (8 percent of gross revenues for timber and bamboo, and 10-12 percent for horticultural production), the education and construction surcharge levied by the central government (0.2 percent of gross revenues), and reforestation and maintenance fees levied by the county (20 percent of gross revenues for timber and bamboo). In addition, some local governments have imposed a variety of small fees and taxes on an ad hoc basis for timber and agricultural production, although the central government has recently issued national regulations designed to stop this practice. In line with the National Seven-Year Plan for Poverty Reduction, the project incorporates some tax exemptions related to the special agricultural tax and TVE income tax for nationally and provincially designated poverty counties. Cost recovery analysis indicates that the aggregate project charges would be sufficient to cover project costs with a recovery index of more than 90 percent discounted over the life of the project. 3. Technical: The selection of species, planting sites, and provinces are based on guidelines agreed with the Bank during project preparation, as follows. The species were selected on the basis of farmer preferences, market demand, growth potential, climatic and ecological suitability to specific site conditions, technical experience and acceptance in China, and environmental objectives. The sites were selected on the basis of the poverty  Page 14 status of the local population, soil fertility, rainfall, temperature, erosion hazard, and access to end-use markets. The provinces were selected on the basis of poverty incidence, land availability, institutional capacity, financing capacity, and local supply and demand conditions. All project sites have been identified and detailed technical design plans have already been prepared for about 35 percent of the sites, covering the first year planting program. The Bank reviewed and approved a random sample of the technical plans during appraisal. An assurance was obtained at negotiations that the provincial PMOs would complete the review of all technical design plans for afforestation sites in accordance with guidelines acceptable to the Bank by June 30, 1999. PMC has prepared detailed afforestation models for each species, which cover technical silvicultural prescriptions, growth targets, establishment costs, and financial and economic rates of return. These models draw on the implementation experience of the NAP and FRDPP projects, and incorporate several changes to traditional silvicultural management in China that are expected to improve yields and reduce costs. The Bank reviewed and approved all the afforestation models during preparation and an assurance was obtained at negotiations that all afforestation sites would be established in accordance with models acceptable to the Bank. The Bank also reviewed technical standards for forest trails and guard/storage sheds to be constructed under the project and an assurance was obtained at negotiations that all these facilities would be established in accordance with guidelines acceptable to the Bank The project design emphasizes the use of improved genetic materials and improved nursery management practices. The total project requirement of 800 million seedlings would be grown by existing nurseries operated by the government, collective forest farms, or specialized households under contract with state forest fanns or county project management offices. All seedlings would conform to detailed growth standards for each species, including collar diameter, seedling height, and root system configuration. All nurseries would follow improved practices with respect to bedding, sowing, fertilizing, pruning, transplanting, lifting, sampling, culling, and grading techniques. Assurances were obtained at negotiations that (a) all project seedlings would conform to standards acceptable to the Bank; (b) all project nurseries would operate in accordance with guidelines acceptable to the Bank; and (c) PMC would furnish to the Bank for review by December 31 of each year an evaluation report for the current year and an annual work plan for the next calendar yearfor the planting stock development and nursery management program. 4. Institutional: Project management arrangements are reviewed in Section C.4. PMC and the provincial forestry departments have demonstrated excellent institutional capacity in the management of four previous Bank forestry projects over the past decade, reflecting effective governance mechanisms, extremely competent and committed staff, and well developed rules and procedures for management and supervision of project activities (PMC has been regularly cited in Country Implementation Reviews as one of the most effective implementing agencies in China and has been asked to train government staff in other ministries on the management of Bank projects). However, grassroots forestry staff at the county and township levels, particularly in poor, remote areas, are less educated and less familiar with Bank operating procedures, and, consequently will need significant training to support the implementation of afforestation activities. The project includes a comprehensive training and extension program for project staff and farmers, including preparation of new extension materials, local and overseas training courses, study tours, demonstration plantations, technical assistance, and equipment for grassroots extension stations. An assurance was obtained at negotiations that all training and study tours would be carried out in accordance with an annual program acceptable to the Bank 5. Social: Since poverty reduction is a key project objective, the design of the project has paid particular attention to the following social issues.  Page 15 * First, project activities have been targeted to poor townships in poor counties, using national and provincial poverty data. While the participation of higher income households in an administrative village is necessary for demonstration purposes and fairness considerations, the project design has ensured that the large majority of project benefits accrue directly to households below the poverty line. * Second, the selection of project sites, activities, and beneficiaries have been based on detailed social assessment and community participation, as described in Section E.7. * Third, the project design has incorporated a wide range of forestry investments to ensure that (a) poor households receive a diversified income stream over the short, medium, and long term, and (b) production risk is spread across a number of different activities. The integration of these different activities will take place not merely at the county and township levels (i.e. one township invests in timber while another invests in bamboo) but at the lowest level possible (i.e. each administrative village invests in different activities), so that the benefits of shorter-term income generation are widely shared among all the project areas and beneficiaries, and production/marketing risks are minimized. * Fourth, the project design has ensured that the selection of activities and sites would not result in any inadvertent deterioration in household income or living standards, particularly in the short-term. To this end, close attention has been paid to the current land-use patterns on wasteland proposed for afforestation and no sites have been selected that are presently used for minimum food consumption requirements, livestock grazing, or other essential economic activities of poor households. * Fifth, the project includes a comprehensive sample survey of project beneficiaries (conducted at the start, mid-term, and close of the project) to ensure systematic monitoring of the socio-economic impact of project activities on poor households. 6. Environmental assessment: Environmental Category [ ] A [X] B []C The project would generate significant environmental benefits, including increased forest cover, preservation of biodiversity, and reduced soil erosion, flooding and river sedimentation. However, the project could support some activities with potentially adverse social and environmental impacts: earthworks such as site preparation, forest trails, small blocks of monoculture, and limited pesticide use in the afforestation components; and some limited effluent disposal in the TVE development component. For the afforestation components, the Government carried out a comprehensive assessment of environmental impacts, mitigation measures, management issues, and monitoring requirements during project preparation. Based on this assessment, the Government prepared a detailed environmental management plan (EMP) to strengthen safeguards against problems from insect and disease outbreaks, soil erosion and fertility loss, fire, and ecological degradation. The EMP draws heavily on the EMP prepared in 1994 during the preparation of FRDPP, the implementation experience of environmental management in NAP and FRDPP, and the results of the research report on environmental monitoring issues completed under FRDPP in May 1997. Since the proposed project would focus more on fragile ecological sites and on horticultural production than NAP and FRDPP, the EMP has been expanded to address environmental management issues related to higher elevations, shallower soils, steeper slopes, and fruit and nut production. The Bank reviewed and approved the EMP and related implementation arrangements during appraisal. An assurance was obtained at negotiations that all project activities would be carried out in accordance with an EMP acceptable to the Bank. For the TVE developiment component, individual EAs would be prepared for all sub-projects, carried out in accordance with OD 4.00. These EAs would identify environmental impacts, mitigation measures,  Page 16 environmental management issues, and environmental monitoring requirements for each sub-project. They would pay particular attention to effluent disposal and existing land-use issues in order to check if the development of new enterprises involves any land acquisition. All EAs would be reviewed and approved by the Environmental Protection Bureau at the relevant level, in line with existing Chinese regulations. In the unlikely event that any involuntary resettlement is involved, the sub-project would support the preparation and implementation of a resettlement plan acceptable to the Bank, based on procedures and principles acceptable to the Bank. 7. Participatory approach: While previous World Bank forestry projects in China were designed in a fairly "top-down" manner, the proposed project has involved extensive social assessment and community participation in order to ensure effective targeting of poor households, the appropriate design of project activities, and strong incentives for farmers performnance. The project has followed a "community forestry assessment" (CFA) technique piloted in China by the Chinese Academy of Forestry and the forestry departments of Yunnan and Sichuan, with technical support from the Ford Foundation, Regional Community Forestry Training Center in Bangkok, and the Community Forestry Department of FAO. The project CFA work included the following steps: collection and evaluation of baseline socio-economic data for the selection of project areas; interviews with local leaders and farm households to assess household preferences for species, identify potential beneficiaries, and develop a menu of project activities; interviews with grassroots research and extension staff and experienced farmers to finalize the afforestation models and technical design of planting sites; and group meetings to reach agreement on organization and production arrangements, including the structure of the afforestation entity,- nature of land tenure arrangements, allocation of roles and responsibilities, distribution of benefits, and content of project contracts. The project design provides for the continued participation of communities in monitoring and evaluation during the project implementation period, through the rural household survey program reviewed in Section C.4. Stakeholder Groups Preparation Implementation Operation Primary beneficiaries/community groups CON CON CON Intermediary NGOs COL IS IS Academic institutions COL COL COL Local government COL COL COL Other donors IS IS IS F: Sustainability and Risks 1. Sustainability: Institutional sustainability is addressed through a comprehensive program of technical assistance, training, and study tours to strengthen existing capacity and ensure development of long-term management skills in PMOs, extension institutions, and beneficiaries. Financial sustainability is addressed through an appropriate cost recovery program based on project taxes and charges. Project beneficiaries will be responsible for full repayment of the loan and credit, from income generated by non-project on-farm activities in the early years of the project and then through the sale of project production in the later years. The level of budgetary support required after the implementation phase is extremely small and would account for less than one percent of the annual budgetary allocations of provincial forestry departments. Environmental sustainability is addressed through the introduction of detailed environmental protection and monitoring guidelines for the afforestation components, which are designed to strengthen safeguards against problems from insect and disease outbreaks, soil erosion and fertility loss, fire, and ecological degradation.  Page 17 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Risk Risk Risk Minimization Measure Rating Output prices for project production M Project will support a high degree of diversification of would not be maintained in real terms species and end-products in order to minimize losses during the life of the project from price fluctuations Institutional capacity would not be N Project will provide training to strengthen PMC and sufficient to manage project activities PMO management capacity Farmers would not have sufficient M Project will provide labor payments for afforestation, incentives for sustainable management which can be used for income generating activities to of forestry crops meet immediate income requirements Farmers would not have adequate M Project will provide for marketing studies and access to marketing information and development of marketing infrastructure prior to facilities harvesting of project production Insufficient rainfall in planting season N Project will emphasize use of containerized planting stock in areas prone to erratic rainfall Key inputs would not be available and N Project will provide extensive training program for used correctly (improved seedlings, farmers on silvicultural techniques fertilizers, pesticides, equipment) Pest, pathogen, or fire outbreaks N Project will include detailed guidelines related to forest health in EMP, a comprehensive forest health monitoring program, and provision of pesticides as necessary Counterpart funding not provided on M Failure to provide timely funds would result in the time exclusion of the county, prefecture, or provincial government from continued involvement in the roect Overall Risk Rating N Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 3. Possible Controversial Aspects: None G: Main Loan Conditions 1. Effectiveness Conditions: Execution of Implementation Arrangements acceptable to the Bank between every project province and the Ministry of Finance. 2. Other: (a) All afforestation sites would be established in accordance with afforestation models acceptable to the Bank; all afforestation activities (including land tenure arrangements, production arrangements, and project implementation and cooperation arrangements involving afforestation entities) would be carried out in  Page 18 accordance with guidelines acceptable to the Bank; and provincial PMOs would complete the review of all technical design plans for afforestation sites in accordance with guidelines acceptable to the Bank by June 30, 1999. (b) All project seedlings would conform to standards set out in the Planting Material Development Plan prepared by SFA dated March 1998; all project nurseries would operate in accordance with the Nursery Management Guidelines prepared by SFA dated March 1998; and PMC would furnish to the Bank for review by December 31 of each year an evaluation report for the current year and an annual work plan for the next calendar year for the planting stock development and nursery management program. (c) All PMOs at the national, provincial, and county levels would be established and maintained in forestry agencies, with staffing, functions, and responsibilities acceptable to the Bank; and an annual work and financing plan for the project for the next calendar year would be furnished to the Bank for review by December 31 of each year. (d) All forest trails and guard/storage sheds would be established in accordance with technical design criteria acceptable to the Bank. (e) All training and study tours would be carried out in accordance with the Training and Extension Plan prepared by SFA dated March 1998. (f) All project activities would be carried out in accordance with the Environmental Management Plan prepared by SFA dated March 1998. (g) Each county PMO would prepare a study on the specific marketing arrangements for project production based on terms of reference acceptable to the Bank by December 31, 2002, and PMC would prepare and furnish to the Bank for its review a summary report of these marketing studies by March 31, 2003. (h) Sub-loans under the TVE Development Component would be made in accordance with the following guidelines: (i) sub-borrowers shall: be a legal entity classified as a township enterprise under the 1996 Township Enterprise Law; be permitted to borrow funds under its own charter, with independent management, separate financial statements and accounts subject to auditing by an independent auditor; contribute at least 25% of the total estimated cost of the sub-project in the form of equity; and be creditworthy, with a sound financial structure and financial performance; (ii) sub-projects shall: be located within project counties; hire at least one-half of the non- managerial, full-time work force from households below the national poverty line; generate a financial rate of return of at least 12 percent; be technically feasible on the basis of a feasibility study conducted in accordance with guidelines acceptable to the Bank; be environmentally sustainable on the basis of an environmental assessment conducted in accordance with guidelines acceptable to the Bank; be labor intensive, with an average total investment cost per worker of $3,000 or less and a total estimated cost not more than $400,000; and, in the unlikely event that any involuntary resettlement is involved, support the preparation and implementation of a resettlement plan acceptable to the Bank, based on procedures and principles acceptable to the Bank. (iii) sub-loan arrangements shall be as follows: a sub-loan shall not exceed 50% of the total estimated cost of a sub-project; and the first sub-loan proposed to be made in each project province shall be subject to Bank approval, in an application form acceptable to the Bank. (i) Sub-loans for marketing infrastructure under the Technical Support Services Component would be made  Page 19 in accordance with the following guidelines. Sub-projects would be located within project counties and would market project horticultural production; be financially viable and technically feasible, on the basis of a feasibility study conducted in accordance with guidelines acceptable to the Association; have a total estimated cost of nol: more than $100,000 per investment; have been identified as priority investments in the county level marketing studies to be prepared under the project; and, in the unlikely event that any involuntary resettlernent is involved, support the preparation and implementation of a resettlement plan acceptable to the Bank, based on procedures and principles acceptable to the Bank. A sub-loan would not exceed 50% of the total estimated cost of a sub-project; and the sub-borrowers would be creditworthy and contribute at least 25% of the total estimated cost of the sub-project in the form of equity. Bank approval of the summary report on project marketing arrangements (see "g" above) would be a condition of disbursement for these sub-loans. (j) Bank funds would be on-lent as follows: (i) MOF would on-lend to each of the project provinces the Interim Fund Credit with a maturity period of 17 years, including a grace period of five years (with the option of two additional years of grace upon payment of an additional interest charge), and the IBRD Loan with a maturity period of 16 years, including a grace period of seven years, with all other tenns and conditions as received from the Bank; and (ii) the project provinces would ensure implementation of the following on-lending terms and conditions for the final project beneficiaries: For afforestation activities: same terms and conditions as received by the provinces, with an additional exchange rate risk fee of two percent per annum for any loan or credit funds onlent in the Borrower's currency, and an additional interest rate risk fee of one percent per annum for any loan funds onlent at a fixed interest rate; interest would be capitalized during the grace period. For enterprise and marketing sub-loans: same terms and conditions as provided by the Agricultural Development Bank of China in project areas for similar activities. (k) Consolidated accounts would be maintained for all components for annual auditing by independent auditors acceptable to Bank, and the consolidated project accounts together with the auditor's report would be submitted to the Bank within six months of the close of each financial year. (1) Adequate policies and procedures would be maintained to monitor and evaluate project implementation and achievement of objectives on an ongoing basis, in accordance with indicators satisfactory to the Bank; progress reports would be furnished to the Bank for review by September 1 and March 1 of each year, beginning with September 1, 1998; a mid-term report on the progress of and prospects for implementation would be furnished to the Bank by June 30, 2001, and a mid-term review would be conducted by August 31, 2001; a survey of plantation growth would be completed by September 30, 2005 and a report summarizing the results of the survey would be furnished to the Bank for review by December 31, 2005; and a rural household survey program would be conducted in accordance with guidelines acceptable to the Bank, with summary reports furnished to the Bank for review of the baseline results by June 30, 1999, mid-term results by June 30, 2001, and project closing results by December 31, 2005. H. Readiness for Implementation [X] The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [ ] Not applicable. [ ] The procurement documents for the first year's activities are complete and ready for the start of project implementation.  Page 20 [X] The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [X] The following items are lacking and are discussed under loan conditions (Section G): project implementation arrangements; technical design plans for afforestation sites established after the first year; and feasibility studies for TVE and marketing sub-projects. I. Compliance with Bank Policies X] This project complies with all applicable Bank policies, including OD 4.36 regarding Bank Group involvement in the forestry sector. The project objectives fit into the overall sectoral objectives spelled out in the OD to reduce deforestation, enhance the environmental contribution of forests, promote afforestation, and encourage economic development. The policy framework in China satisfies the required conditions for government commitment for sustainable management and conservation-oriented forestry set out in the OD. As noted in Section C.2, the areas of weakness in the regulatory framework, such as restrictions on pricing and international trade, are being addressed under on-going NLS work by the Bank and other donors. [ ] [The following exceptions to Bank policies are recommended for approval: The project complies with all other applicable Bank policies.] Task Team Leader: Richard Scobey, EASRD Sector Manager: Geoffrey Fox, EASRD  Page 21 Annex 1 Forestry Development in Poor Areas Project Project Design Summary Narrative Summary Key Performance Indicators' Monitoring and Critical Assumptions and Risks Supervision CAS Objective: Reduction of poverty in rural Incidence of poverty decreased PAO data Stable political transition and areas from 40% in 1996 in project maintenance of overall reform counties to 35% at mid-term, program 20% at closing, and 5% at full impact No large external shocks that would affect terms of trade, Reforestation of denuded upland Rate of forest coverage SFA data current account balance, or areas increased in project counties foreign exchange rates from 45% in 1996 to 47% at closing and 50% at full impact Government maintains commitment and budgetary allocations to poverty reduction Project Development Objectives: Develop forest resources in poor Per capita income of project PMC data, No change in existing policy areas of central and western beneficiaries increased by 30% based on framework for sustainable China on a sustainable and at mid-term, 60% at closing, and household forestry use, particularly with participatory basis to support 100% at full impact surveys harvesting and land tenure poverty reduction, forestry development, and improved Project generates 3 million m3 PMC data, Demand for wood products environmental management of standing timber by closing based on semi- continues to grow at least 8% per and 54 million m3 by full annual PMO year impact; and RMB 857 mnillion progress reports of horticultural production by Existing supply and distribution closing and RMB 2.3 billion by system is sufficient to absorb full impact; and RMB 26 additional production million in gross TVE output value by mid-term and RMB 88 rmillion by closing. Project Outputs 1. Timber and economic tree crop 270,000 ha established by mnid- PMC data, Output prices for project plantations established term and 540,000 ha established based on semi- production will be maintained in by closing, with 85% classified annual PMO real terms during the life of the as Grade I. progress reports project 2. Provision of technical support 0.4 billion Class I seedlings PMC data, Institutional capacity is sufficient services is improved produced and 1.5 million farmer based on semi- to manage project activities training times by mid-term, and annual PMO 0.8 billion Class I seedlings progress reports Farmers will have sufficient produced and 3 million farmer incentives for sustainable Baseline and targeted values should be shown, with the latter divided into values expected at mid-term, end of project and full impact.  Page 22 training times by closing management of long-tenn forest crops 1,500 sheds constructed by mid- PMC data, term, and 3,000 sheds based on semi- Farmners have adequate access to constructed and RMB 40 annual PMO marketing information and million invested in marketing by progress reports infrastructure closing 3. Forestry TVEs are established PMC data 60 TVEs and 8,000 jobs created by closing, with > 70% of workforce below poverty line Project Components 1. Forestry Establishment Implementation in line with PMC data, Adequate rainfall in planting A. Preparation of detailed targets specified in annual work based on semi- season silvicultural models plan and financing plan annual PMO B. Selection of project progress reports Key inputs are available and used beneficiaries and sites correctly (improved seedlings, C. Preparation of detailed design fertilizers, pesticides, construction maps for sites materials, equipment) D. Establishment of plantations, including site preparation, No pest, pathogen, or fire planting, and tending outbreaks 2. Technical Support Services Counterpart funding is provided A. Preparation and execution of Implementation in line with PMC data, on time improved planting material targets specified in annual work based on semi- development program plan and financing plan annual PMO B. Establishment and improved progress reports management of existing nurseries C. Preparation and execution of training classes, study tours, and demonstration plantations D. Institutional strengthening of grassroots extension units E. Construction of forest trails, irrigation facilities, and storage sheds F. Completion of marketing studies and identification of marketing infrastructure sub- projects G. Provision of marketing sub- loans to selected sub-projects, and execution of sub-projects H. Implementation of monitoring and evaluation plan, including surveys of plantations and households 3. TVE Development Implementation in line with PMC data,  Page 23 A. Preparation of detailed targets specified in annual work based on semi- feasibility studies and EAs plan and financing plan annual PMO B. Provision of sub-loans to progress reports eligible sub-projects C. Execution of civil works and procurement of equipment and materials for establishment and restructuring of TVEs 4. Project Management Implementation in line with PMC data, A. Establishment of leading targets specified in annual work based on semi- groups and project management plan and financing plan annual PMO offices at national, provincial, and progress reports county levels B. Establishment of Seedling Production Coordination Groups, Research and Extension Support Panels, and Environmental Protection Groups at national and provincial levels C. Execution of on-lending agreements, project implementation agreements, and afforestation entity contracts D. Preparation of annual work and financing plans E. Manage project MIS, procurement, financial management, accounting, auditing F. Supervision of project activities  Page 24 Annex 2 Forestry Development in Poor Areas Project Project Description A. Timber Plantation Component - US$121.8 million This component would finance the establishment of about 315,000 hectares of plantations, primarily for construction timber and secondarily for pulpwood and pit props, on mountainous wasteland in twelve provinces, as the third phase of the improved silvicultural management program initiated under NAP. Conifer species would account for about 75 percent of the total planting area (primarily Chinese fir, masson pine, slash and loblolly pine, and larch), and broadleaf species would account for about 25 percent (primarily poplar and eucalyptus). Details about the silvicultural management, end-products, and marketing arrangements for each species are given in the project files. The main afforestation entities would be individual households, groups of households, shareholding cooperative forest farms, and village/township collective forest farmns, accounting for 19%, 36%, 33%, and 12% of the total planting area, respectively. Targeting criteria for the selection of beneficiaries and organizational arrangements for the production groups are given in Section C.4. Species, planting sites, and provinces have been selected on the basis. of guidelines agreed with the Bank during project preparation, as follows. The species were selected on the basis of farmer preferences, growth potential, climatic and ecological suitability to specific site conditions, technical experience and acceptance in China, environmental objectives, and product marketability. The sites were selected on the basis of soil fertility, rainfall, temperature, erosion hazard, access to end-use markets, and the poverty status of the local population. The provinces were selected on the basis of poverty incidence, land availability, institutional capacity, financing capacity, and local supply and demand conditions. All project sites have been identified and detailed technical design plans have already been prepared for 35 percent of the plantations. All plantations would be established in accordance with detailed afforestation models for each species agreed with the Bank, which cover technical silvicultural prescriptions, growth targets, establishment costs, and financial and economic rates of return. These models draw on the implementation experience of NAP and FRDPP, and incorporate several changes to traditional silvicultural management in China that are expected to improve yields and reduce costs. These include lower planting densities in order to promote shorter production cycles, faster income generation, and agricultural intercropping; revised fertilizer application rates that reflect the specific nutrient requirements of the poorer sites; less intensive site preparation, smaller planting holes, and reduction in tending times, in order to decrease labor requirements and minimize environmental damage on steep sites; and greater reliance on clonal planting stock and other improved planting materials in order to promote faster tree growth. The component would finance the following costs of plantation establishment: (a) all labor requirements for site preparation and planting in the first year and tending in the first to third years; (b) materials and equipment, including seedlings, fertilizer, and pesticides; and (c) indirect costs related to survey and design, project and environmental management, and MIS. Plantation establishment costs in China are among the lowest in the world as a result of the reliance on labor-intensive technologies and low wage rates. They average around 3,500 yuan per ha, ranging from 2,600 yuan for black locust to 4,100 yuan for Chinese fir. Plantation establishment would be phased over four years, with 20 percent completed in the first year, 30 percent in each of the second and third years, and 20 percent in the fourth year.  Page 25 B. Economic Forest (Crops Component - US$135.2 million This component would establish about 230,000 ha of economic forest crops, including 110,000 ha of new and rehabilitated bamboo (moso, bush, and wicker bamboo), for a total cost of $48.2 million, and 120,000 ha of fruit, nut, and medicinal trees (including chestnut, walnut, ginkgo, eucommia, apricot, jujube, apple, pear, and tung oil), for a total cost of $87.0 million, on mountainous wasteland in twelve provinces. These activities would be designed to meet the shorter-term income and consumption requirements of poor households prior to the thinning and harvesting of the timber plantation investments. The main afforestation entities would be individual households, groups of households, and shareholding cooperative forest farms, accounting for 64%, 26%, 10% of the total planting area, respectively. Varieties and planting sites have been selected on the basis of guidelines agreed with the Bank during project preparation, as follows. The varieties were selected on the basis of farmer preference, market demand, climatic and ecological suitability to specific site conditions, and technical experience and acceptance in China. The sites were selected on the basis of soil fertility, rainfall, temperature, erosion hazard, access to end-use markets, and the poverty status of the local population. All planting sites have been identified and detailed technical design plans have already been prepared for 35 percent of the tree crop areas. All tree crops would be established in accordance with detailed horticultural models for each variety agreed with the Bank, which cover technical silvicultural prescriptions, growth targets, establishment costs, and financial and economic rates of return. These models draw on best practices from national and provincial research institutes and the implementation experience of on-going World Bank horticulture projects in China. The design of the component includes significant diversification of varieties at the county and township levels in order to minimize economic and biological risks, particularly in view of the over-supply problems experienced by earlier Bank horticultural projects in China that developed large-scale plantings of only one or two varieties. Two steps have been taken to strengthen market analysis in the design and implementation of the project. First, provincial design institutes completed detailed market studies at the provincial level during project preparation for every horticultural crop proposed for a large establishment area in the project (generally in excess of 1,500 ha at the provincial level), which addressed: the level of past, current and expected future production; the structure of past, current and expected future demand; current price trends and expected price movements in the future; and the structure of the wholesale and retail marketing system. Second, each county PMO would prepare a report by December 31, 2002 on the specific marketing arrangements for project production, prior to the actual harvesting and marketing of project output. This report would cover: where would project production be sold (on the tree, roadside, township market, etc.); what handling, storage, and transportation facilities would be required; how adequate is the current marketing infrastructure; what additional investment is needed under the project? The recommendations of these reports would form the basis for the selection of marketing infrastructure investments to be financed under the Rural Infrastructure Sub-Component of the Technical Support Services Component, reviewed below. The project would finance the following costs: (a) all labor requirements for site preparation and planting in the first year (and tending in the first to third years); (b) materials and equipment, including seeds and seedlings (and related containers and potting media), organic and chemical fertilizer, pesticides, and simple agricultural tools; (c) indirect costs related to survey and design at the start of the project, and project and environmental management, and MIS during implementation. Establishment costs range from about 3,500 yuan per ha for hazelnuts, bamboo rehabilitation, and tung oil tree rehabilitation, to 6,000 yuan per ha for new bamboo, jujube, and apricot, to as high as 9,000 yuan per ha for gingko, tea, and anise. Tree crop establishment would be phased over four years, with 20 percent completed in the first year, 30 percent in each of the second and third years, and 20 percent in the fourth year.  Page 26 C. Technical Support Services Component - US$81.5 million This component would strengthen technical support programs for project afforestation activities in four areas: planting stock development, training and extension, rural infrastructure, and monitoring and evaluation. 1. Planting Stock Development Program - US$43.1 million This sub-component would raise the quality of planting materials through introduction of improved genetic materials and nursery management technologies, and support the production of the 800 million seedlings required under the project. All imported seeds would be procured through the General Administration of State Forest Farms, Tree Seeds, and Seedlings in SFA, and all project seeds would be subject to extremely rigorous provenance criteria. Seeds for Chinese fir, masson pine, larch, poplar, and some of the broadleaf species would be locally harvested from clonal seed orchards, seed stands, or areas of selected provenance. Seeds for slash pine, loblolly pine, and several eucalypts would be imported. The total project seedling requirement would be grown by existing nurseries operated by state forest farms, collective forest farms, or specialized households under contract with forest farms or county project management offices. Every participating county would have one central nursery and several smaller nurseries located near planting sites, in order to minimize transport distance and handling of seedlings prior to planting. No large, mechanized nurseries would be used under the project, as their cost and quality performance have generally been poor in other afforestation schemes in China. While most nurseries have adequate infrastructure and working capital, many require new equipment and vehicles. Three types of seedlings would be produced: bare-root, containerized (including both seed and clonal materials), and clonal (including grafting), accounting for 67 percent, 12 percent, and 21 percent, respectively, of all plantings. All seedlings would conform to detailed growth standards for each species, including collar diameter, seedling height, and root system configuration. To simplify disbursement and accounting procedures, the project would not directly finance the incremental operating costs of the nurseries but would instead finance the "nursery-gate" production cost of the final seedlings ($42.2 million), which would be added into the schedule of unit costs for afforestation (Category 2 of the disbursement schedule). In addition to this cost, the sub-component would finance the purchase of seeds, equipment, and materials ($0.9 million) 2. Training and Extension Program - US$8.0 million This sub-component would disseminate key research findings and technical silvicultural guidelines to project staff (at the national, provincial, county, and township levels) and to project beneficiaries. The project would primarily use the existing forestry and agriculture extension networks at the county and township levels, under the supervision and coordination of the Extension Advisory Panels that were established under NAP and FRDPP, and would follow many of the extension messages and techniques developed under NAP and FRDPP. There are three important changes, however. First, a larger share of project funds would be allocated to training and extension (T&E), since most of the project households are poorly educated and unfamiliar with improved silvicultural practices, horticulture requires more T&E than timber production, and the township extension stations in project areas are relatively poorly equipped. Second, local training courses would be organized around "functional topics" targeted to farmers needs (i.e. site preparation, pruning, pest control) and not around the key research results of the NAP/FRDPP research program. Third, since the extension system is not well developed in many of the remote project areas, the project would also develop "non-state" extension channels, such as farmers growers associations and local technical experts at the village level. The sub-component would support: (a) preparation of new training and extension materials for different audiences (i.e. detailed Technical Manuals for provincial and county staff, more practical Technical Fact Sheets for township staff, and very simple Farmer Extension Notes for direct use by farmers), for a total cost  Page 27 of $0.3 million; (b) procurement of motorcycles and other basic equipment for grassroots extension offices, for a total of $0.8 million; (c) development and implementation of domestic training programs for project staff and farmers, for a total of $5.4 million; (d) overseas training and study tours for project staff to review the implementation of similar forestry poverty reduction efforts in other countries, for a total of $0.9 million; (e) establishment of demonstration plantations, for a total of $0.5 million; and (f) international consultancy services in a variety of technical areas, for $0.1 million. A detailed training and extension plan was agreed during project preparation that covers key topics, messages, providers, target audiences, and timing of the different activities, which is available in the project files. The main domestic training courses would include: (a) 3,400 person times for provincial staff, primarily in the areas of project management, supervision and monitoring, social assessment and community participation, and finEmcial management; (b) 26,000 person times for county staff, primarily in_project management, silvicultural management, environmental management, improved nursery management, planting material development, training and extension techniques, and community participation; (c) 60,000 person times for township staff, primarily in silvicultural management, and training and extension; and (d) 3 million person times for project farmers in silvicultural management, particularly site preparation, seedling handling, tending, fertilizer usage, forest health monitoring and control, pruning, thinning, harvesting, marketing, and post-harvest handling. 3. Rural Infrastructure Program - $29.5 million This sub-component would support the infrastructure requirements for afforestation, including (a) the construction of forest trails ($8.6 million), limited irrigation facilities for some economic tree crops ($2.7 million), and small guard/storage sheds ($12.7 million) by local communities, and (b) the provision of small sub-loans for post-harvest treatment and marketing of horticultural crops ($5.5 million) to local marketing groups. The following technical design criteria were agreed for the first three construction activities: trails would be dirt paths no wider than one meter, generally constructed along the contour; irrigation facilities would include construction of small ponds and storage tanks, with low-lift pumping and gravity-fed piped water systems; sheds would be no larger than 60 square meters, constructed of brick and concrete in line with local standards for similar construction. To simplify disbursement and accounting procedures, disbursements for these three activities would be based on an agreed schedule of unit costs; the schedule for the first year of the project was agreed during appraisal, and thereafter it would be revised yearly on the basis of actual cost experience recorded in audited statements of expenditure and monitored by supervision missions. The marketing sub-component would provide sub-loans on commercial terms to finance the procurement of small-scale equipment and facilities for the grading, packing, cold storage, and transportation of project horticultural production. It is designed to strengthen the marketing infrastructure at the village and township levels, where the markceting links are the weakest, and promote the development of a competitive, multi- channel marketing system that allows local commnunities to capture the economic benefits of faster and higher quality delivery of production to county and provincial markets. The sub-component would be implemented in the last two years of the project, when the economic tree plantations begin fruiting and county PMOs have completed an analysis of project marketing requirements. The following implementation arrangements were agreed to ensure effective selection of sub-projects and sound financial management of sub-loans. Sub-projects would: (a) be financially viable, and commercially and technically feasible, on the basis of a feasibility study conducted in accordance with guidelines acceptable to the Bank; (b) be identified as priority investments for strengthening grassroots marketing infrastructure in the marketing studies to be prepared by the county PMOs, under the project; (c) have a total investment cost of less than $100,000; (d) include an equity contribution from the sub-borrower equivalent to at least 25% of the total estimated cost of the sub-project; (e) in the unlikely event that any involuntary  Page 28 resettlement is involved, support the preparation and implementation of a resettlement plan acceptable to the Bank, based on procedures and principles acceptable to the Bank; and (f) be appraised by the county PMO and approved by the provincial PMO, under the supervision of PMC. Sub-loans would: (a) finance no more than 50 percent of the total investment cost of each investment; (b) be made on terms and conditions similar to Agricultural Development Bank loans in project areas for similar investments; and (c) be administered by the country finance bureau, under the supervision of the provincial finance department. PMC would prepare and furnish to the Bank by March 31, 2003, a report summarizing marketing issues and arrangements for project horticultural production, including a list of proposed sub-borrowers and sub- projects, based on the individual marketing reports to be prepared by the county PMOs. Bank acceptance of this summary report would be a condition of disbursement for the marketing sub-loans. 4. Monitoring and Evaluation Program - $0.8 million This sub-component would support the implementation of a comprehensive monitoring and evaluation framework designed to: (a) ensure effective participation of local communities in the design and implementation of project activities, and (b) monitor project performance and achievement of project objectives. It includes: (a) the collection of baseline socio-economic data on project beneficiaries and areas under the community forestry assessment program reviewed in Section E.7 ($600,000); (b) implementation of a sample survey of project households at the project mid-term and closing, in order to collect the socio- economic data necessary to evaluate the achievement of the poverty reduction objective of the project, and identify problems and lessons learned to improve implementation ($100,000); (c) implementation of a survey of plantation growth at the end of the project to collect the technical data necessary to evaluate the achievement of the production objective of the project ($75,000); and (d) preparation of the annual key performance indicators table to facilitate effective monitoring and evaluation during implementation ($25,000). All of these activities would be funded by counterpart funding, except $25,000 of Bank funding would be used for technical assistance in the design and management of the household survey program. D. TVE Development Component - US$25.5 million This component would provide sub-loans to support the development and expansion of small-scale, labor- intensive, commercially-oriented township and village enterprises (TVEs) in the forestry sector. Typical investments would include pine resin extraction, bamboo processing, wicker works, edible forest product processing, particleboard manufacturing, parquet and veneer production, and marketing and post-harvest facilities (such as grading, packing, cold storage, and transportation). This component is designed to generate employment for unskilled surplus labor, allow local communities to capture the economic benefits of added-value to local production, and deepen local markets for production in project areas. Sub-loans would finance a portion of civil works construction; domestic and foreign procurement of machinery, equipment, and consultant services; and the incremental working capital required for commencement or expansion of operations financed by the sub-loan. Sub-projects would be appraised by the provincial PMO, and reviewed and approved by the PMC, based on procedures summarized below. Sub-loans would be administered by the country finance bureau, under the supervision of the provincial finance department, based on termns and conditions summarized below. Since the amount of sub-loans in any one province would be small (about 6 sub-loans amounting to about $1.5 million over four years), it would not be efficient or cost-effective to use a rural credit financial intermediary for on-lending. In order to ensure that the selection and design of enterprises remains consistent with the overall project objective of poverty reduction, the following eligibility criteria have been agreed: (a) investments would be labor intensive and not capital-intensive, with an average total investment cost per worker of $3,000 or less and a total investment cost of $400,000 or less per enterprise; (b) investments would have strong backward linkages to poor households: they would be located within project counties and close to project production areas, would process forest products produced under the project, and would hire at least one-half of the non-  Page 29 managerial, full-time work force from households below the national poverty line; (c) investments would be financially profitable, with a financial rate of return of at least 12 percent; (d) investments would comply with national environmental, health, and safety regulations and the provisions of the new Township Enterprise Law; (e) and, in the unlikely event that any involuntary resettlement is involved, support the preparation and implementation of a resettlement plan acceptable to the Bank, based on procedures and principles acceptable to the Bank; (f) investments would be based on sustainable use of forest resources; and (g) all enterprises would be TVEs with a demonstrated commitment to enterprise reform: they would be legal entities, be permitted to borrow funds under their charters, be managed on an independent basis, and have separate financial statements and accounts subject to auditing by an independent auditor and following the new accounting standards introduced in 1993. No state-owned enterprises at the county level or above and no government departments at the county level or above would qualify for investment under the project, although they could participate as minority shareholders in TVE enterprises. In order to ensure the sound commercial operation of sub-projects, the following financial arrangements have been agreed: (a) World Bank sub-loans would finance no more than 50 percent of total investment costs for a sub-project; (b) the enterprise would provide at least 25 percent of total investment costs in the form of equity; and (c) World Bank sub-loans would be on-lent to the sub-project on terms and conditions similar to the Agricultural Development Bank loans in project areas.  Page 30 Annex 3 Forestry Development in Poor Areas Project Estimated Project Costs Pro3ect Component Local | Foreign Total ----------------------US $million------------------ A. Timber Plantation 103.4 7.7 111.1 B. Economic Tree Crops 105.8 14.7 120.4 Fruits and Nuts 53.2 7.7 60.9 Bamboo 41.1 2.9 43.9 Other 11.5 4.1 15.6 C. Technical Support Services 67.8 7.1 74.9 Planting Stock Development 39.3 0.6 39.9 Training and Extension 5.2 2.2 7.4 Rural Infrastructure 22.6 4.3 26.8 Monitoring and Evaluation 0.7 0.1 0.8 D. TVE Development - 14.6 9.7 24.3 Total Baseline Cost 291.5 39.2 330.7 Physical Contingencies 1.6 2.3 3.9 Price Contingencies 26.0 3.4 29.3 Total Project Cost 319.1 44.9 364.0 Notes: Timber and economic tree crop plantation cost estimates are based on quantities derived from the agreed species models and average unit prices currently prevailing in project areas. Price contingencies for costs expressed in yuan are based on annual domestic inflation rates of 4.8 percent for 1998, 5.0 percent for 1999 and 5.5 percent for 2000-2005. Price contingencies for costs expressed in US dollars are based on annual international inflation rates of 2.5 percent for 1998, 3.1 percent for 1999, 2.9 percent for 2000, 2.8 percent for 2001, 2.7 percent for 2002, and 2.6 percent for 2003-2005. Physical contingencies are based on an average rate of 10 percent for goods.  Page 31 Annex 4 Forestry Development in Poor Areas Project Cost Benefit Analysis Summary Financial Financial Economic Economic Switching Value Species IRR NPV IRR NPV @ 12% (%) (Yuan) (%) (Yuan) Benefits Costs Timber Production 14.7 363,708,400 20.1 1,290,338,520 18.3 19.1 1 Masson Pine (14) 13.1 630 18.3 4,364 17.2 18.4 2 Masson Pine (16F) 13.4 767 18.6 4,417 17.4 18.6 3 MassonPine(16P) 14.6 1,647 19.1 5,585 18.1 19.1 4 Slash Pine (16) 15.3 2,254 19.5 6,329 18.5 19.5 5 Slash Pine (14) 15.2 1,976 19.9 6,090 18.7 19.6 6 Slash Pine (12) 14.8 1,537 20.2 5,619 18.7 19.8 7 Loblolly Pine (14) 15.5 2,222 20.2 6,423 18.9 19.8 8 Loblolly Pine (12) 14.8 1,748 19.2 5,668 18.2 19.2 9 Chinese Fir 16.0 3,286 20.5 8,295 19.2 20.2 10 Japanese Larch (16) 12.1 42 16.6 3,145 15.4 16.7 11 Chinese White Pop]lar 17.3 3,292 21.6 7,185 19.6 21.5 12 Populus Simonii 16.0 982 21.9 2,756 18.2 20.6 13 Italian Poplar 20.7 2,551 29.3 5,854 22.5 27.1 14 Eucalyptus 24.6 2,527 34.0 4,864 25.0 31.7 15 Black Locust 13.0 302 18.7 2,514 17.0 18.5 16 Broad-leaf Trees 12.1 72 16.2 2,565 15.0 16.2 Economic Tree Crops 24.2 1,736,838,500 27.9 2,402,270,790 22.8 26.0 1 Moso Bamboo - new 13.4 672 18.8 3,665 16.2 18.3 2 Moso Barnboo - relhab. 17.6 2,290 23.6 5,468 19.8 22.4 3 Arundinaria 32.2 10,909 32.5 10,019 24.2 29.3 4 Dendrocalamus 34.2 9,768 40.8 12,687 28.5 35.9 5 Walnut 21.1 7,551 26.6 14,013 22.8 25.7 6 Chestnut 24.1 11,711 26.3 14,358 22.2 24.9 7 Eucommia 15.6 2,182 19.4 5,006 17.1 18.8 8 Gingko 31.9 20,982 34.5 24,397 24.3 29.2 9 Jujube 19.1 4,420 24.9 8,768 19.8 23.1 10 Pear 32.2 20,451 33.4 20,712 25.2 30.0 11 Tea 21.9 8,003 25.0 11,365 19.2 22.5 12 Anise 31.3 24,004 33.8 30,942 25.8 30.5 13 Orange 33.6 32,411 35.7 35,705 28.2 33.1 14 Oil Tea- rehab. 23.9 7,495 28.4 11,382 23.7 26.7 15 Hazelnut - rehab. 26.0 2,586 34.6 4,212 23.7 30.5 16 Apricot 38.4 33,281 41.2 37,320 31.4 37.8 17 Tung Tree 18.6 1,883 25.0 3,849 19.1 22.7 18 Longan 33.6 19,362 36.3 21,628 27.0 32.2 TVE Development 28.7 212,129,200 37.9 413,307,760 12.2 13.7 1 Solid Wood Floor Eloard 28.7 5,115,611 44.4 11,488,164 14.4 16.6 2 Ply-Barnboo Formwork 27.7 2,813,968 42.2 6,694,993 9.7 11.1 3 Fine Wood Board 32.2 3,919,054 41.0 7,392,646 13.4 14.8 4 Rosin and Turpentine 19.5 2,090,634 32.2 7,335,396 7.9 8.4 5 Fruit Cold Storage 22.3 1,851,862 27.8 3,734,645 13.7 15.4 6 Wicker-work 32.4 2,425,869 26.4 1,811,950 12.2 13.7 Total Project 19.8 2,214,588,900 24.4 3,990,174,000 19.0 21.2  Page 32 Notes: Production The yield levels for species are summarized below and presented in detail in the silvicultural models contained in the project working papers. Species that are grown for construction timber (Chinese fir and slash pine) will typically be thinned twice, around years 10 and 14, prior to final harvest; the wood extracted during thinnings tends to be small in size and used primarily for building poles and fuelwood. The total production volume at the time of final harvest varies greatly by species, site quality, and management program. For example, Chinese fir grown for small- diameter timber in 20-year rotations will produce 164 m3/ha, while slash pine grown for medium-diameter timber in 22-year rotations will produce 248 m3/ha. About 90 percent of the final harvest constitutes standard timber, with the balance consisting of bark, branches, and unusable wood that is consumed as fuelwood. The total timber yield is further disaggregated into large dimension logs (above 20 cm in diameter), medium dimension logs (around 12-20 cm in diameter), small dimension logs (around 8-12 cm), and cull timber (below 8 cm in diameter). Species that are grown for pit props (masson pine, black locust, slash pine, and loblolly pine) will also typically be thinned twice, around years 10 and 14, prior to final harvest around year 20. Again, production volumes are low at the thinning and the total production amounts at final harvest will vary widely, ranging from 64 rn3/ha for black locust to 183.0 m3/ha for loblolly pine. Species that are grown for pulpwood (masson pine, slash pine, and larch) will generally be thinned once, in year 10, and harvested around year 18, with production amounts ranging from 106 m3/ha for larch to 142 m3/ha for slash pine. Eucalyptus and poplar, however, are grown in shorter rotations and are therefore not thinned; the former produces 77 m3/ha in a 7-year rotation and the latter 94 m3/ha in a 10-year rotation. Production levels for the main economic tree crops vary widely, as follows. Bamboo grown on higher productive sites primarily for timber will annually produce per ha 4.3 tons in years 7-10, 5.7 tons in years 11- 14, and 8.5 tons in years 15-20. . Bamboo grown on higher productive sites primarily for shoots will annually produce 1.5 kg in years 3-4, 4.0 kg in years 5-6, and 4.5 kg in years 7-20. Chinese chestnut will produce an annual average yield per ha of 0.4 tons in years 5-8, 2.0 tons in years 9-15, and 3.0 tons per year thereafter. Walnut will produce an annual average yield per ha of 0.4 tons in years 4-9, 1.9 tons in years 10- 15, and 3.0 tons per year thereafter. Apple will produce an annual average yield per ha of 2.6 tons in years 4- 5, 13 tons in years 6-7, 22.5 tons in years 8-15, and 30 tons per year thereafter. Orange will produce an annual average yield per ha of 1.5 tons in years 4-9, 22.5 tons in years 10-15, and 15 tons per year thereafter. Eucommia will produce 120 kg/ha of bark during the first peeling in year 10, 160 kg/ha during the second peeling in year 15, and 373 kg/ha during the final peeling in year 20. Markets At the national level, consumption of timber products currently exceeds sustainable yields in China, and, consequently, mature natural forests are being over-harvested at the rate of 500,000 hectares per year. The large consumption of timber primarily reflects three factors: the huge growth in rural and urban construction over the past decade, the increased demand for paper products as a result of rising incomes, and the steady demand for wood products by the mining and railway sectors. The recent Country Economic Memorandum (China 2020) projects continued strong growth in the economy over the next decade, which will lead to increased demand for timber, pulpwood, and other forest products. Gross domestic production is expected to grow per annum by 8.4 percent in 1996-2000, 6.9 percent in 2001-2010, and 5.5 percent in 2011-2020, fueled by an average annual increase in gross domestic investment of 5-7 percent. Consequently, the market prospects for project timber are favorable and there is very little risk that aggregate demand conditions would  Page 33 change significantly over the life of the project. However, it is likely that relative price movements among small and medium diameter timber, pulpwood, and pit props would lead to changes in the mix and composition of the final timber products produced under the project. All timber products are expected to be consumed within project provinces. The market prospects for project tree crop production are also favorable, for the following reasons. First, domestic demand for bamboo, fruit, nuts, and medicinal products is increasing as a result of increasing per capita incomes and increasing population. Fruit has one of the highest income elasticities of demand for food in China (2.0 for urban and 2.5 for rural consumers), followed by poultry, dairy products, and fish (all of which have elasticities greater than 1.5). Second, continued policy liberalization in the external trade regime has provided new opportunities and incentives for increased agricultural exports, particularly the. expansion of enterprises with trading rights and reduction in export controls. Third, since the project is producing a large range of tree crops across a widely dispersed geographic area, total incremental production of any one crop is extremely small and accounts for a fraction of total county and provincial production. Local demand within the project provinces is expected to absorb the majority of horticultural production, with a small portion exported to other parts of China or the East Asia region. Incremental fruit production under the project is extremely small, amounting to less than 2 percent of the total current production in the project provinces, and is expected to follow the general marketing trend for fruit in the area: 95 percent would be sold domestically for fresh fruit consumption, largely outside of project areas; 4 percent would be processed for juice and canned fruits; and 1 percent would be exported, mainly to Hong Kong, Macau, Canada, and Russia. Most nut production would be sold on the domestic market for processing, though a small share will be exported. Almost all ginkgo nuts would be sold on the domestic market for fresh consumption and processing. Ginkgo leaves and eucommia bark would be sold on the domestic market for medicinal compound extractions, which would in turn be sold in both domestic and export markets. The demand for bamboo remains extremely high, with the poles used as fiber for the growing pulpwood and plywood industries, as scaffolding in the construction sector, and as raw material for furniture, crafts, and other consumer goods; and the shoots are consumed fresh in local markets and canned for export to other parts of China and the world. Since several earlier Bank horticultural projects have experienced over-supply problems, close attention has been paid to integrating market analysis into the design and implementation of the project. As reviewed in Annex 2, provincial design institutes completed detailed market studies at the provincial level for every horticultural crop proposed for a large establishment area in the project; and each county PMO will prepare a report on the specific marketing arrangements for project production during implementation, prior to the actual harvesting and marketing of project output. Prices All project output would be sold in the free market, subject to no price controls or marketing controls. The pricing and marketing of horticultural production was largely deregulated in the early-1980's, during the first wave of rural reforms. Timber prices have increased dramatically since the mid-1990's, as a result of the phased elimination of fixed and "guidance" prices and other macroeconomic reformns. Domestic prices for medium diameter timber, and horticultural production, are generally in line with border price equivalents. As long as the Government maintains its current macroeconomic reform program, it is extremely unlikely that supply and demand conditions would lead to any significant change in prices from present levels. All inputs used in the project, such as fertilizer, seedlings, and agrochemicals, would be sold at free market prices. The input and output prices used in the project financial and economic analysis are summarized below and presented in detail in the project working papers. The financial prices of fertilizers, seeds, and vehicles are based on actual impoit prices from recent FRDPP procurement. The financial price of labor is a weighted average of the various daily wage rates currently prevailing in project areas, which amounts to 15 yuan per  Page 34 day. The financial output prices are prevailing average roadside prices for timber (which incorporate the costs of logging and skidding) and average market prices for tree crop production (which incorporate the costs of harvesting and marketing). For economic analysis, the farmgate values of fertilizers were calculated on the basis of World Bank commodity price projections, with adjustment for transport and handling costs. The economic values of other inputs were considered equivalent to the financial prices, except for labor, where a shadow wage rate of 12 yuan per day was used since there is a surplus of agricultural workers with little alternative employment opportunity in project areas, leading to a marginal value product of labor below market wages. The economic output prices are actual border prices for comparable imported timber and horticultural products, adjusted for processing costs and inland transport as required. Methodological Assumptions The cost-benefit analysis is based on: (a) one rotation for all timber species, so that none of the costs and benefits of replanting a site have been considered; (b) a 25-year time period, which captures the full rotation of all timber species and the full maturity of all horticultural production; (c) complete production and harvesting costs, including the costs of extraction trails, logging, and skidding to the roadside for timber, and harvesting and distribution costs to local markets for horticultural production; and (d) complete investment costs, including physical contingencies. The rates of return for individual species include costs related to project supervision and management, environmental monitoring, and information management; but they do not reflect any costs related to the project's nursery program, training and extension program, or rural infrastructure program. However, the analysis of the components and the project as a whole includes all these costs. Cost-benefit analysis was performed for six indicative TVE sub-projects and their weighted averages were used to determine the cost-benefit analysis for the component as a whole. The economic analysis does not incorporate any valuation of indirect environmental benefits, such as reduced soil erosion, carbon sequestration, or enhanced biodiversity conservation.  Page 35 Annex 5 Forestry Development in Poor Areas Project Financial Summary ($ million) Implementation Period Operational Period Sources Year Year Year Year Year Year Year Total % of Total % of Years 1 2 3 4 5 6 7 Total 8-25 Total Project Costs Investment Costs 58.1 81.8 65.2 49.8 7.8 3.0 1.2 266.9 73 22.1 0 Recurrent Costs 6.2 17.0 25.2 25.6 16.0 5.9 1.2 97.0 27 27,669.7 100 Total 64.3 98.7 90.4 75.4 23.8 8.9 2.5 364.0 100 27,691.7 100 Financing Sources Bank 34.8 54.5 48.1 40.5 14.4 5.9 1.8 200.0 55 - - Provincial 9.9 14.8 14.1 11.7 3.2 1.0 0.2 54.8 15 553.8 2 Government Prefecture/County 7.9 11.8 11.3 9.3 2.5 0.8 0.2 43.7 12 1,384.6 5 Government Beneficiaries 11.8 17.7 16.9 13.9 3.8 1.2 0.2 65.5 18 25,753.3 93 Total 64.3 98.7 90.4 75.4 23.8 8.9 2.5 364.0 100 27,691.7 1  Page 36 Annex 6 Forestry Development in Poor Areas Project Procurement and Disbursement Arrangements Procurement Procurement methods (Table A) General All procurement of goods and works would be carried out in accordance with the Bank's "Guidelines for Procurement under IBRD Loans and IDA Credits," published in January 1995, and revised in January and September 1996, and September 1997. Model Bidding Documents, as agreed between MOF and the Bank, would be used for all international competitive bidding (ICB) and national competitive bidding (NCB) for works and goods. Where no model document exists, project procurement would be based on the relevant Bank Standard Document. A margin of preference equal to 15 percent of the c.i.f. price of imported goods or the actual customs duties and import taxes, whichever is less, would be allowed to domestic manufacturers bidding under ICB procedures. Civil Works Plantation establishment, amounting to 76 percent of total project costs, would not be suitable for competitive contract bidding, as the works are small, widely scattered, and scheduled according to the time of the year and availability of seedlings. This work would be executed by afforestation groups either on force account and through community participation, with the Bank's prior agreement, or through hiring of casual labor paid on a piece-work basis. The Bank reviewed these procedures during preparation and found them acceptable. The civil works related to construction under the TVE Development Component and the Rural Infrastructure Sub-Component of the Technical Support Services Component (small-scale irrigation facilities, sheds, trails, and marketing infrastructure) would be carried out primarily by project beneficiaries on force account or through community participation, with the Bank's prior agreement, in view of the small size of the civil works (on average less than $150,000 per investment) and their scattered and remote location in poor townships. Any larger works, above $150,000, would be procured on the basis of NCB. The aggregate amount of works procured on the basis of force account or community participation would not exceed $145 million. Goods Goods would be procured on the basis of ICB (for items or groups of items estimated to cost $250,000 or more), NCB (for items or groups of items estimated to cost less than $250,000 and more than $75,000), and international shopping (for items or groups of items estimated to cost $75,000 or less, and no more than $5.5 million in aggregate), with the following two exceptions: (a) pesticides would be procured on the basis of limited international bidding, since small quantities of specific agro-chemical formulations would be required that are manufactured and distributed by a handful of international suppliers; and (b) seeds would be procured through direct contracting, with the Bank's prior agreement, since their genetic suitability is the only criteria for choice. Three quotations from two different countries would be required for international shopping, which would include informnation about the description and quantity of the goods, and the expected  Page 37 delivery time and place. Consultant Services Consultant services would be procured on the basis of the Bank's "Guidelines for the Selection and Employment of Consultants by World Bank Borrowers," published in January 1997 and revised in September 1997. Consultant services would include a total of $486,000 for individual consultants, to support the preparation of extension materials ($319,000), the design and management of the household survey program ($27,000), and the technical implementation of the afforestation program ($140,000), who would be selected by the Ministry of Forestry on the basis of individual consultant selection procedures (Section 5 of the Guidelines); and $1.3 million for engineering firms, who would be selected by sub-borrowers to prepare feasibility studies for sub-projects under the TVE Development Component, based on consultants qualifications (Section 3.7 of the Guidelines). Consultant services related to the implementation of the community forestry assessment work ($0.6 million) and establishment of demonstration plantations ($0.5 million) would be financed by local counterpart funds. Other Services Overseas training and study tours ($0.9 million) would be procured in line with the training and extension plan agreed during appraisal and in accordance with guidelines reviewed and approved during appraisal. Domestic training ($5.4 million) would be financed by local counterpart funds. Prior review thresholds (Table B) Prior review of goods and works would cover: (a) all Bank-financed procurement of goods and works above the threshold of $250,000; and (b) the first contract for goods and for works to be awarded by each project province on the basis of NCB. This would cover about 85 percent of the total value of Bank-financed goods, and virtually none of the works, which are primarily procured through force account or community participation. All contracts for consultants' services above the threshold of $100,000 for engagement of firms and $50,000 for engagement of individuals would also be subject to prior review. This would cover about 20 percent of the total value of Bank-financed contracts. Overseas training and study tours would not be subject to prior review. This is considered appropriate in view of PMC staff's excellent management of procurement in the three previous projects and their participation in Bank sponsored courses on national and international procurement. Selective post review of awarded contracts below the threshold levels would be carried out on about 1 in 8 goods, works, and consultant contracts. Bank supervision missions would supervise compliance with agreed procurement procedures for civil works on force account and community participation, overseas training, and study tours. Disbursement Allocation of loan proceeds (Table C) and Use of statements of expenses (SOEs): Disbursements for afforestation would cover three items: plantation establishment, irrigation civil works, and guard/storage shed civil works. Plantation establishment would include: (a) all labor requirements for site clearing, preparation, planting, and tending; (b) seedlings; (c) constmction of forest trails; and (d) indirect costs related to survey and design, project and environmental management, and MIS. Irrigation civil works would include all labor, rnaterials, and survey and design costs, but no equipment. Guard/storage shed civil  Page 38 works would include all labor and materials costs. Disbursements for each of the three items would be based on an agreed schedule of unit costs. The schedule for the first year of the project was agreed during appraisal, and thereafter it would be revised yearly on the basis of actual cost experience recorded in audited statements of expenditure and monitored by supervision missions. Disbursements for afforestation would be made after county PMOs have inspected afforestation sites and certified that all work complied with the social, technical and environmental guidelines agreed with the Bank. Disbursements would be made against statements of expenditure (SOEs) for expenditures relating to: (a) afforestation, (b) sub-loans for TVEs and marketing; (c) overseas training and study tours, (d) contracts for goods and works not exceeding $250,000 equivalent (except for the first contract for goods and for works to be procured on the basis of NCB in each project province); and (e) contracts for individual consultants not exceeding $50,000 equivalent and for consultants' services with firms not exceeding $100,000 equivalent. The supporting documents for SOEs would be retained by the provincial project management offices, and the central project management office in PMC would retrieve them as required for on-site supervision by Bank staff and inspection by auditors, whose terms of reference for procurement audits would be acceptable to the Bank. In the case of contracts for goods and services above these thresholds, disbursements would be made against the full documentation with the contracts themselves and other supporting documents. Retroactive financing of up to $3 million would be provided against eligible expenditures made between July 1, 1997 and the date of signing of the loan and credit agreements, for survey and design work, seeds, seedlings, fertilizer, and site preparation for the first year of planting. Special account: In order to disburse the credit and loan proceeds efficiently, a special account would be opened by the Ministry of Finance in US dollars in a bank acceptable to the Bank with an authorized allocation of $13 nillion, equivalent to the credit and loan's financing of average expenditures for four months. Applications for replenishment of this account would be submitted monthly, or whenever the account is drawn down by 50 percent, whichever comes first. Disbursement Profile (Table D): The project disbursement schedule is consistent with the general disbursement profile for forestry investment loans in China.  Page 39 Annex 6, Table Al: Project Costs by Procurement Arrangements (in US$million equivalent) Expenditure Category Procurement Method ICB NCB Other /a NBF /b Total /c 1. Works 1.1 290.0 291.1 (0.6) (143.5) (144.1) Plantation Establishment 278.0 278.0 (137.6) (137.6) Civil Works 1.1 12.0 13.1 (0.6) (6.0) (6.5) 2. Goods 39.3 8.6 14.4 62.3 (39.3) (4.7) (9.2) (53.3) Equipment 1.8 8.1 10.5 20.3 (1.8) (4.2) (5.3) (11.3) Vehicles 11.8 11.8 (11.8) (11.8) Silvicultural Inputs 25.7 0.5 4.0 30.2 (25.7) (0.5) (4.0) (30.2) 3. Services 4.1 6.5 10.6 (2.6) (0.0) (2.6) Training and Study Tours 0.9 5.4 6.2 (0.9) (0.0) (0.9) Consultant Services 3.2 1.1 4.4 (1.8) (0.0) (1.8) Total 39.3 9.7 308.5 6.5 364.0 (39.3) (5.3) (155.4) (0.0) (200.0) /a Other procurement methods include: force account and community participation for plantation establishment, some rural infrastructure civil works (trails, sheds, irrigation facilities, and marketing infrastructure); and some TVE civil works; direct contracting for seeds; limited international bidding for pesticides; international shopping for some equipment; and training and consultant services. /b NBF denotes non-Bank financing. /c Total cost includes contingencies. Note: Figures in parentheses represent the amounts to be financed by the Bank.  Page 40 Annex 6, Table A2: Consultant Selection Arrangements (in US$million equivalent) Selection Method /a Total Cost Consultant Services (including Expenditure Category contingencies) QCBS QBS SFB LCS CQ Other N.B.F. A. Firms 2.55 1.12 3.67 (1.28) (0.00) (1.28) B. Individuals 0.68 0.68 (0.49) 0.49) Total 2.55 0.68 1.12 4.35 (1.28) (0.49) (0.00) (1.77) \a QCBS = Quality- and Cost-Based Selection, QBS = Quality-based Selection, SFB = Selection under a Fixed Budget, LCS = Least-Cost Selection, CQ = Selection Based on Consultants' Qualifications, Other = Selection of individual consultants, Commercial Practices, etc. Figures in parenthesis are the amounts to be financed by the Bank.  Page 41 Annex 6, Table B: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value Procurement Contracts Subject to Category (Threshold) Method /a Prior Review _______ __ ($ thousands) ($ millions) 1. Works 0.6 <150 FA, CP 0.0 > 150 NCB 0.6 2. Goods 45.4 >250 ICB 39.3 < 250 > 75 (except seeds) NCB 2.5 <75 IS 0.0 NA DC 0.0 NA LIB 3.6 3. Services 0.3 >100 for firms, > 50 for CG 0.3 individualsI Total value of contracts subject to prior review: 46.3 /a FA = Force Account, CP = Community Participation, NCB = National Competitive Bidding, ICB = Intemational Competitive Bidding, IS = International Shopping, DC = Direct Contracting, CG = Consultant Guidelines Annex 6, Table C: Allocation of Loan Proceeds Expenditure Category Amount in Financing Percentage US$million (1) Goods 44.3 100% of foreign expenditures, 100% of local expenditures (ex-factory cost), and 75% of local expenditures for other items procured locally (2) Afforestation 138.9 50% (3) Consultants' services, and 1.3 100% training and study tours (4) TVE Sub-loans 12.8 100% of sub-loan amounts (5) Marketing Infrastructure 2.7 100% of sub-loan amounts Sub-Loans Total 200.0  Page 42 Annex 6, Table D: Estimated Disbursement Schedule IBRD Disbursement Disbursement Profile /a Fiscal Year/ Semestral Cumulative Cumulative Year/ Cumulative Semester ($ Million) (%) Semester (%) 1999 Year 1 First (July-Dec. 1998) 10.0 10.0 5 First 0 Second (Jan-June, 1999) 10.9 20.9 10 Second 30 2000 Year 2 First (July-Dec. 1999) 13.9 34.8 17 First 38 Second (Jan-June, 2000) 19.1 53.9 27 Second 46 2001 Year 3 First (July-Dec. 2000) 27.2 81.1 41 First 54 Second (Jan-June, 2001) 29.8 110.9 55 Second 66 2002 Year 4 First (July-Dec. 2001) 26.5 137.4 69 First 74 Second (Jan-June, 2002) 24.3 161.7 81 Second 82 2003 Year 5 First (July-Dec. 2002) 16.2 177.9 89 First 90 Second (Jan-June, 2003) 7.9 185.8 93 Second 94 2004 Year 6 First (July-Dec. 2003) 6.5 192.3 96 First 98 Second (Jan-June, 2004) 5.9 198.2 99 Second 100 2005 Year 7 First (July-Dec. 2004) 1.8 200.0 100 First 100 /a Disbursement profile for agricultural sector in China compiled by OPRPG, June 30, 1995. Completion date: January 1, 2005 Closing Date: January 1, 2006  Page 43 Annex 7 Forestry Development in Poor Areas Project Project Processing Budget and Schedule A. Project Budget (US$000) Planned Actual (At final PCD stage) Bank Budget 137 100 Trust Funds 375 375 TOTAL 512 475 B. Project Schedule Planned Actual (At final PCD stage) Time taken to prepare the project (months) CR to APR: 42 cw CR to APR: 56 cw APR to Board: 25 cw APR to Board: 13 cw Identification Mission 10/28/1996 10/28/1996 Appraisal Mission Departure 11/15/1997 02/21/1998 Negotiations 03/12/1998 04/06/1998 Board Presentation 05/12/1998 05/21/1998 Planned Date of Effectiveness 08/15/1998 09/01/1998 Prepared by: World Bank Loan Project Management Center in Ministry of Forestry, headed by Qu Shuye, Sun Shujin, and Jiang Xingyong, with support from Chinese Academy of Forestry; Academy of Forestry Inventory, Planning and Design; Forestry Economic Development and Research Center; General Administration of State Forest Farms, Tree Seeds and Seedlings Preparation assistance: Japanese PHRD Fund, Ford Foundation, Community Forestry Deparment of FAO, Regional Community Forestry Training Center in Bangkok Bank staff who worked on the project included: Name Specialty Richard Scobey Economist Susan Shen Ecologist Zhengxuan Zhu Institutional Development Norman Jones Forester Zhou Weiguo Project Costs Philip Daltrop/Niki DeWitt Legal Hyung Kim/Yi-Ling Liu Disbursement Saraswathi Sundaranm/Kathryn Cherrie Task Assistance Jim Douglas/Horst Wagner Reviewers Martin Ravaillion/Alan Piazza Reviewers Jim Harkness Reviewer (Ford Foundation)  Page 44 Annex 8 Forestry Development in Poor Areas Project Documents in the Project File A. Government Reports Related to Project 1. Project Implementation Plan, dated March 1998 2. Implementation Manual for Community Forestry Assessment, dated November 1997 3. Environmental Protection and Guidelines and Implementation Plan, dated March 1998 4. Afforestation Models and Benefit Analysis for Timber Forests, dated April 1997 and March 1998 5. Afforestation Models and Benefit Analysis for Economic Tree Crops, dated April 1997 and March 1998 6. Bamboo Grove Afforestation and Rehabilitation Model and Benefit Analysis, dated March 1997 and March 1998 7. Training and Extension Plan, dated March 198 8. Planting Material Development Plan (including Planting Stock Development Program, Guidelines for Nursery Management, Seedling Criteria for Major Planting Species, Listing of Sources of Planting Materials), dated March 1998 9. Monitoring and Evaluation Plan (including Key Indicators Table), dated March 1998 10. Sample TVE feasibility studies 11. Sample provincial marketing studies 12. Sample township community forestry assessments B. Bank Staff Assessments 1. Back-to-Office-Report of Identification Mission, dated November 1996 2. Project Concept Document, Peer Reviewer Comments, and Minutes of Review Meeting, dated January 1997 3. Back-to-Office Report of Preparation Mission, dated May 1997 4. Back-to-Office Report of Pre-Appraisal Mission, dated October 1997 5. Draft Project Appraisal Document, Peer Reviewer Comments, and Minutes of Review Meeting, dated February 1998 6. Back-to-Office Report of Appraisal Mission, dated March 1998 7. Appraisal Completion Note, dated March 1998 C. Consultant Reports Related to Project 1. Norman Jones reports on planting material development and silvicultural management 2. Cor Veer and Kadi Warner reports on commnunity forestry assessments 3. Claude Saint-Pierre reports on social assessment and poverty issues 4. Zhou Weiguo reports on project cost calculations, economic and financial analysis 5. John Wilkie and Jin Aixian reports on marketing 6. James French reports on training and extension 7. Liu Shouying reports on land tenure  Page 45 Annex 9 Forestry Development in Poor Areas Project Statement of World Bank Loans and Credits as of January 31, 1998 Orginal Anount in USS Milions Loan or Fiscal Project ID Credit No. Year Borrower Pupose IBRD IDA Canceled Undisbursed Nuiber of Closed Loanstcredits: 207 Active Loans CN-PE-40185 MBRD42370 1998 P'RC SHANDONG ENVIRONMENT 95.00 0.00 0.00 95.00 CN-PE-34081 IBRD42000 1997 F'RC XIAOLANGDI MULTI. 11 230.00 0.00 0.00 230.00 CN-PE-34081 IBRD42001 1997 P'RC XIAOLANGDI MULTI. l 200.00 0.00 0.00 191.84 CN-PE-3590 IBRD41870 1997 PRC QINBAMTS. POVTY RED 30.00 000 0.00 30.00 CN-PE-3590 IDAN0280 1997 E'RC QINBAMTS. POVTY RED 000 150.00 0.00 141.67 CN-PE-3635 IBRD4063A 1997 F'RC VOC. ED. REFORM PROJ 1000 0.00 0.00 10.00 CN-PE-3635 ID)A289S0 1997 PRC VOC. ED. REFORM PROI 0.00 20.00 000 16.67 CN-PE-3637 IDAN0270 1997 PRC NATL RUR WATER IQ 000 70.00 0.00 69.48 CN-PE-36405 1MRD41790 1997 PRC WANJIAZHAI WATER TRA 400.00 0.00 0.00 372.17 CN-PE-3643 EBRD40990 1997 PRC XINJIANG HIGHWAYS 11 300.00 000 0.00 268.81 CN-PE-3650 MBRD41720 1997 GOC TUOKErUO POWER/INNER 400.00 0.00 0.00 400.00 CN-PE-3654 MBRD41240 1997 PRC HUNAN/GUANG HWY2-NH2 400.00 0.00 0.00 400.00 CN-PE-36952 IDA29540 1997 PRC BASIC ED. TV 0.00 85.00 0.00 79.12 CN-PE-38988 MBRD41610 1997 PRC HEILONGlIANGADP 120.00 0.00 0.00 117.00 CN-PE944485 D3RD41970 1997 SHANGHAIWAIGAOQIAO 400.00 0.00 0.00 400.00 CN-PE-34618 1BRD3967A 1996 PRC LABOR MARKET DEV. 10.00 0.00 0.00 10.00 CN-PE-34618 IDA28000 1996 PRC LABOR MARKET DEV. 0.00 20.00 0.00 15.65 CN-PE-3507 D3RD3933A 1996 GOC ERTAN HYDRO n 177.68 0.00 000 51.64 CN-PE-3507 D3RD3933B 1996 GOC ERTAN HYDRO E 88.84 0.00 000 9.80 CN-PE-3563 MBRD40010 1996 PRC ANIMAL FEED 150.00 0.00 0.00 150.00 CN-PE-3569 MBRD39290 1996 P.R.C. SHANGHAI-ZFEIIANG HI 260.00 0.00 7.75 155.78 CN-PE-3589 IDA27940 1996 PRC DISEASE PREVENTION 0.00 100.00 0.00 81.01 CN-PE-3594 IDA28700 1996 PRC GANSU HEXI CORRIDOR 0.00 90.00 0.00 70.73 CN-PE-3594 IBRD40280 1996 PRC GANSU HEXI CORRIDOR 60.00 0.00 000 60.00 CN-PE-3599 MBRD40550 1996 YUNNAN YUNNAN ENVIRONMENT 125.00 0.00 000 125.00 PROV. GOV. CN-PE-3599 IDA28920 1996 YUNNAN YUNNAN ENVIRONMENT 0.00 25.00 0.00 16.59 PROV. GOV. CN-PE-3602 IDA27990 1996 PRC HUBEI URBAN ENV. PRO 0.00 25.00 0.00 15.38 CN-PE-3602 IBRD39660 1996 PRC HUBEI URBAN ENV. PRO 125.00 0.00 Q00 125.00 CN-PE-3638 IBRD40440 1996 PRC SEEDS SECTOR COMMER. 80.00 000 000 80.00 CN-PE-3638 IDA28860 1996 PRC SEEDS SECTOR COMMER. 0.00 20.00 0.00 10.08 CN-PE-3646 IBRD40450 1996 PRC CHONGQING IND POL CT 170.00 000 0.00 170.00 CN-PE-3648 EBRD39870 1996 SHANGHAI SECOND SHANGHAI SEWE 250.00 0.00 0.00 219.29 MUN. GOVT CN-PE-3649 IDA28340 1996 CHINA SHANXI POVERTY ALLEV 000 100.00 0.00 49.36 CN-PE-3652 IBRD39860 1996 PRC 2ND SHAANXI PROV HWY 210.00 0.00 0.00 183.98 CN-PE-36950 IDA28310 1996 PRC BASIC ED. POOR Im 000 100.00 0.00 43.29 CN-PE-40513 MBRD40270 1996 PRC 2NDHENANPROVHWY 210000 000 000 198.00 CN-PE-3493 1BRD39106 1995 PRC INLAND WATERWAYS 21000 000 000 155.82 CN-PE-3571 1BRD38976 1995 PRC RAILWAYS VII 400.00 000 0.00 392.00 CN-PE-3585 MBRD37880 1995 GOC SHENYANG IND. REFORM 175.00 000 0.00 129.12 CN-PE-3596 D3RD3874A 1995 PRC YANGTZE BASIN WATER 97.26 000 0.00 73.10 CN-PE-3596 IDA27100 1995 PRC YANGTZE BASIN WATER 000 110.00 0.00 9.48 CN-PE-3598 MBRD37810 1995 LIAONING ENVIRONMENT 110.00 000 0.00 79.53 CN-PE-3600 MBRD3847A 1995 PRC TECHNOLOGY DEVELOPME 194.99 000 0.00 181.87 CN-PE-3603 IBRD3773A 1995 PRC ENT. HOUSING SOC. SE 262.51 000 0.00 240.11 CN-PE-3603 IDA26420 1995 PRC ENT. HOUSING SOC. SE 0.00 75.00 0.00 6.22 CN-PE-36041 MBRD38736 1995 MOF FISCAL & TAX REF & 25.00 0.00 0.00 25.00 CN-PE-36041 EDA27090 1995 MOF FISCAL & TAX REF. & 0.00 25.00 0.00 17.79 CN-PE-3612 lBRD37870 1995 PRC XINJIANGHIGHWAYI 150.00 0.00 0.00 95.75 CN-PE-3634 IDA26550 1995 PRC MATERNAL CHLD HEALT 0.00 90.00 0.00 33.54 CN-PE-3636 IDA26510 1995 PRC BASIC EDUC IN POOR & 0.00 100.00 0.00 21.56 CN-PE-3639 MBRD39066 1995 PRC SOUTHWEST POV. REDUC 47.50 0.00 0.00 35.89 CN-PE-3639 IDA27440 1995 PRC SOUTHWEST POV. REDUC 0.00 200.00 0.00 105.95 CN-PE-3642 MBRD3846A 1995 PRC ZHEIJIANG POWER DEVT 154.15 0.00 0.00 125.34 CN-PE-3642 MBRD3846B 1995 PRC ZHEJIANG POWER DEVT 215.67 000 000 187.82 CN-PE-3647 IDA26540 1995 PRC ECONOMIC LAW REFORM 000 1000 Q00 6.03 CN-PE-36947 MBRD3848A 1995 GOC SICHUANTRANSMISSION 27000 0.00 0.00 209.73 CN-PE-37156 IDA27560 1995 PRC IODINE DEF. DISORDER 000 20.00 .00 11.40 CN-PE-37156 IBRD3914A 1995 P:RC IODINE DEF. DISORDER 7.00 0.00 0.00 7.00 CN-PE-3502 IDA25390 1994 MOH RUR HEALTH MANPOWER 0.00 110.00 0.00 44.89  Page 46 Original Amount in US$ Miliions Loan or Fhscal__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Project ID Credit No. Year Borrower Purpose IBRD IDA Canceled Undisbursed CN-PE-3504 IBRD37480 1994 PRC HEBEI/HENAN NATIONAL HWAYS 380.00 0.00 000 115.10 CN-PE-3540 IDA26160 1994 PRC LOESS PLATEAU 0.00 150.00 0.00 48.19 CN-PE-3557 IDA26230 1994 PRC FOREST RESOURCE DEV 0.00 200.00 0.00 102.31 CN-PE-3562 EBRD37270 1994 PRC XIAOLANGDI MULTIPURPOSE 460.00 0.00 0.00 30.91 CN-PE-3586 EBRD3711S 1994 PRC SHANGHAI ENVIRONMENT 160.00 0.00 000 83.93 CN-PE-3593 IDA25710 1994 PRC SONGLIAO PLAIN ADP 0.00 205.00 0.00 59.78 CN-PE-3595 IDA25630 1994 PRC RED SOISII DEVELOP 0.00 150.00 000 49.04 CN-PE-3609 IBRD3716A 1994 GOC SICHUAN GAS DEV & 175.45 0.00 0.00 161.52 CONSERVATION CN-PE-3622 DBRD3652S 1994 SHANGHAI SHANGHAI MTPII 150.00 0.00 0.00 10.39 MUNICIPAL GOVT CN-PE-3626 IBRD3681A 1994 GOC FUJIAN PROV HIGHWAY 80.33 0.00 0.00 65.32 CN-PE-3633 IBRD3687A 1994 PRC TELECOMMUNICATIONS 13Z76 0.00 0.00 101.49 CN-PE-3641 IBRD3718A 1994 PRC YANGZHOUTHERMALPOWER 248.16 0.00 0.00 94.85 CN-PE-3644 IDA26050 1994 PRC XIAOLANGDI RESETTLEMENT 0.00 110.00 0.00 44.33 CN-PE-3473 IDA24750 1993 P.R.C. ZHElIANGMULTICITIES 0.00 110.00 0.00 47.43 CN-PE-3509 IDA24570 1993 PRC CHANGCHUN WAT SUPP & 0.00 120.00 27.55 27.04 CN-PE-3512 IBRD3552S 1993 PRC SHANGHAIPORTREST. 124.26 0.00 000 5.11 CN-PE-3518 IBRD3530S 1993 PRC GUANGDONG PROV. TRANSPORT 240.00 0.00 0.00 21.43 CN-PE-3526 IBRD3515A 1993 GOC SHUIKOU 11 43.86 0.00 0.00 18.40 CN-PE-3533 DBRD3572A 1993 PRC TIANJIN IND. 11 82.68 0.00 0.00 56.09 CN-PE-3559 IDA24620 1993 PRC AGRIC. SUPPORT SERVI 0.00 115.00 000 10.46 CN-PE-3561 IDA24110 1993 PRC SICHUAN ADP 0.00 147.00 0.00 22.67 CN-PE-3567 IDA24710 1993 PRC EFFECTIVE TEACHING SERVICES 0.00 100.00 0.00 48.39 CN-PE-3570 IBRD35810 1993 PRC RAILWAY VI 420.00 0.00 0.00 136.54 CN-PE-3580 IBRD35820 1993 PRC SOJIANGSU ENVIRON. PROTECT. 250.00 0.00 000 29.16 CN-PE-3581 IBRD35310 1993 PRC HENAN PROV. TRANSPORT 120.00 0.00 0.00 16.15 CN-PE-3592 IDA24470 1993 PRC REF. INSTL& PREINVEST(CRISP) 000 50.00 0.00 21.64 CN-PE-3597 IBRD3560A 1993 PRC TAIHU BASIN FLOOD CONTROL 88.65 0.00 0.00 64.71 CN-PE-3597 IDA24630 1993 PRC TAIHU BASIN FLOOD CONTROL 000 100.00 000 4.93 CN-PE-3616 IBRD3606A 1993 PRC TIANHUANGPING HYDRO 196.60 0.00 0.00 102.89 CN-PE-3623 IDA24230 1993 PRC FINANCIALSECTORT.A 0.00 60.00 0.00 35.57 CN-PE-3627 IBRD3624A 1993 PRC GRAIN DISTRIBUTION P 325.00 000 0.00 325.00 CN-PE-3627 IDA25180 1993 PRC GRAIN DISTRIBUTION P 000 165.00 0.00 59.76 CN-PE-3632 IDA25220 1993 ROC ENVIRONMENT TECH ASS 0.00 50.00 0.00 15.22 CN-PE-3486 IBRD3406A 1992 RAILWAYS V 33.73 000 0.00 29.05 CN-PE-3492 EBRD3412S 1992 GOC DAGUANGBA-HAINAN 28.88 0.00 0.00 283 CN-PE-3492 IDA23050 1992 GOC DAGUANGBA-HAINAN 0.00 37.00 0.00 .42 CN-PE-3503 IBRD3462A 1992 ZOUXIAN THERMAL POWE 26.78 0.00 0.00 14.02 CN-PE-3534 IBRD3471A 1992 PRC ZHElIANGPROVTRANSP 70.13 0.00 0.00 26.59 CN-PE-3544 IDA23390 1992 PRC EDUC DEV IN POOR PRO 0.00 130.00 0.00 4.07 CN-PE-3555 IDA2307D 1992 PRC GUANGDONG AG. DEVT. 0.00 162.00 0.00 11.71 CN-PE-3564 IBRD3415A 1992 BEUING BEIJING ENVIRONMENT 32.90 0.00 0.00 29.32 MUNICIPALIT y CN-PE-3564 IDA23120 1992 BEIJINGTY BEDING ENVIRONMENT 0.00 80.00 0.00 3.70 CN-PE-3565 IDA22960 1992 SHANGHAI METRO TRANS 0.00 60.00 000 3.76 CN-PE-3568 IDA23870 1992 R.O.C. TIANJIN URB DEV & EN 0.00 100.00 0.00 32.43 CN-PE-3587 IDA23360 1992 PRC RURAL WAT SUPP & SAN 0.00 110.00 000 1.80 CN-PE-3624 IDA23170 1992 MIN. OF NFECTIOUS DISEASES 0.00 129.60 000 54.86 PUBLHEALT H CN-PE-3478 IDA22100 1991 PRC KEY STUDIES DEVELOPM 0.00 131.20 0.00 .83 CN-PE-3560 IDA22420 1991 PRC HENAN AGRIC. DEVT. 0.00 110.00 0.00 3.23 CN-PE-3582 IBRD3337T 1991 PRC IRRIG. AGRIC. INTENS 45.05 0.00 0.00 2.37 CN-PE-3472 IBRD2968S 1988 PRC RAILWAY IV 171.30 0.00 0.00 2.04 Total 10,907.12 4,426.80 35.30 9,116.06 Active Loans Closed Loans Total Total Disbursed (IBRD and IDA): 6,154.89 12,595.50 18,750.39 of which has been repaid: 13.52 2,084.82 2,098.34 Toal now held by BRD and IDA: 15,285.09 10,154.73 25,439.82 Amournt sold 0.00 0.00 0.00 Of which repaid : 0.00 0.00 0.00 TotalUndisbursed : 9,116.06 2.06 9,118.12 Note: Disbursement data is updated at the end of the first week of the month.  Page 47 Statement of IFC's Committed and Disbursed Portfolio as of January 31, 1998 (In US$ Millions) Commifted Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1987/92t94 China Bicycles 8.50 3.39 0.00 0.00 8.50 3.39 0.00 0.00 1993 Shenzhen PCCP 3.76 .99 0.00 0.00 3.76 .99 0.00 0.00 1993 Yantai Cement 15.60 1.95 0.00 8.33 15.60 1.95 0.00 8.33 1994 China Walden N 0.00 6.00 0.00 0.00 0.00 3.53 0.00 0.00 1994 China Walden Mgt 0.00 .01 0.00 0.00 0.00 .01 0.00 0.00 1994 Dalian Glass 20.50 2.40 0.00 40.50 20.50 2.40 0.00 40.50 1994 Dynamric Fund 0.00 12.35 0.00 0.00 0.00 9.46 0.00 0.00 1994 Plant. Timber 10.00 1.00 0.00 20.00 10.00 1.00 0.00 20.00 1995 Dupont Suzhou 24.92 4.15 0.00 52.00 19.34 4.15 0.00 30.66 1995 Newbridge Inv. 0.00 10.00 0.00 0.00 0.00 6.70 0.00 0.00 1995 Suzhoau PVC 22.00 2.48 0.00 22.20 0.00 2.48 0.00 0.00 1996 Beijing Hormel 5.00 .50 0.00 5.50 4.64 .50 0.00 5.11 1996 Fauyoung Ports 0.00 4.98 0.00 0.00 0.00 4.98 0.00 0.00 1996 Jingyang 40.00 0.00 0.00 100.00 34.29 0.00 0.00 85.71 1996 Nanjing Kumho 16.00 3.81 0.00 45.50 13.63 3.81 0.00 38.75 1996 TianjinKumbo 11.17 0.00 0.00 33.00 0.00 0.00 0.00 0.00 1996 Weihai Weidongri 4.29 0.00 0.00 0.00 4.29 0.00 0.00 0.00 1997 Orient Finance 10.00 0.00 0.00 20.00 3.33 0.00 0.00 6.67 1997 FTP Lbshan 4.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 Rabobank PTPC 2.40 0.00 0.00 2.40 0.00 0.00 0.00 0.00 1998 Rabobank SHFC 2.75 0.00 0.00 2.75 0.00 0.00 0.00 0.00 Total Portfolio: 201.09 54.01 0.00 352.18 137.88 45.35 0.00 235.73 Approvals Pending Commitment Loan Eauitv Ouasi Partic 1996 CALTLX OCEAN 31.33 0.00 0.00 66.00 1998 CHENGXIN-IBCA 0.00 .36 0.00 0.00 1997 CHINEFARGE 12.80 0.00 0.00 20.00 1998 EURECA 0.00 3.00 0.00 0.00 1997 LIAOCHENGJIAMIN 18.00 0.00 0.00 18.00 1996 NANJING HUINING 4.00 0.00 0.00 0.00 1997 NINGBO 0.00 2.00 0.00 0.00 1997 NISSAN/DONGFENG 20.20 0.00 0.00 27.00 1997 PT? HOLDINGS 0.00 1.50 0.00 0.00 1997 PT? HUBEI 13.00 0.00 0.00 25.00 1998 PTP HtlBEI BLINC 0.00 0.00 0.00 1.50 1998 SCANALESHAN 6.10 1.35 000 0.00 1996 SHANIDONGSAND 17.00 0.00 0.00 25.00 1998 SHANGHAICOLINE 13.00 0.00 0.00 0.00 1997 SMC 14.00 0.00 0.00 14.00 1997 SUZHOU PVC ADD. 7.90 000 0.00 6.40 1996 TIANJIN 9.10 0.00 0.00 9.10 1996 XIAMEN XIAN 10.00 0.00 0.00 0.00 Total Pending Commitment: 176.43 8.21 0.00 212.00  Page 48 Annex 10 Forestry Development in Poor Areas Project China at a Glance 1129198 POVERTY and SOCIAL East Low- China Asia income Development diamond' Population mid-1996 (millions) 1,215.4 1,726 3,229 GNP per capita 1996 (US$) 750 890 S00 Life expectancy GNP 1996 (billions US$) 906.1 1,542 1,601 Average annual growth, 1990-96 Population (%) 1.1 1.3 1.7 GNP Gross Labor force (%) 1.1 1.3 17 per p<mary Most recent estImate (latestyearavailable since 1989) capita enrollment Poverty: headcount index (% of population) 9 . . Urban population (% of total population) 31 31 29 Life expectancy at birth (years) 70 68 63 Infant mortality (per 1,000 live births) 33 40 69 Access to sate water Child malnutrition (% of children.under5) 16 Access to safe water (% of population) 90 49 53 Illiteracy (% of population age 15+) 19 17 34 China Gross primary enrollment (% of school-age population) 118 117 105 Lwinc Male 119 120 112 Low-insome group Female 117 116 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1995 1996 Economic ratios' GDP (billions US$) 160.3 378.1 755.9 916.4 Gross domestic investmenVGDP 30.3 37.8 40.5 42.4 Openness of econom Exports of goods and services/GDP 5.2 9.9 21.0 18.5 Y Gross domestic savings/GDP 30.6 33.7 42.0 43.9 Gross national savings/GDP 30.6 34.0 40.5 43.1 Current account balance/GDP -0.2 -3.9 0.2 0.4 Interest payments/GDP .. 0.2 0.7 0.6 Savings Investment Total debtGDP .. 5.5 16.9 15.8 Total debt service/exports .. 8.4 9.9 9.8 Present value of debt/GDP .. .. .. 14.3 Present value of debt/exports .. ,, .. 72.3 Indebtedness 1975-85 1986-96 1995 1996 1997-06 (average annual growth) -China GOP 8.3 9.9 1 0.6 9.7 8.5 __ GNP per capita 7.5 8.4 7.9 8.8 7.6 Low-income group Exports of goods and services 17.2 13.4 9.6 7.4 8.6 STRUCTURE of the ECONOMY (% of GDP) 1975 1985 1995 1996 Growth rates of output and investment(%) Agriculture 32.0 28.4 20.6 20.0 25 Industry 42.8 43.1 48.4 48.9 20 Manufacturing 31.6 35.4 37.6 38.9 *o Services 25.2 28.5 31.1 31.1 s Private consumption 61.9 53.1 45.7 44.9 D1 92 93 94 95 96 General government consumption 7.6 13.2 12.2 11.2 GDI - DP Imports of goods and services 5.0 14.0 19.4 17.0 1975-85 1986-96 1995 1996 (average annual growth) Growth rates of exports and imports (%) Agriculture 5.4 4.3 5.0 5.1 40 Industry 10.4 13.5 14.1 12.3 Manutacturing 13.0 12.7 13.3 12.3 20 Services 9.8 8.9 7.9 7.9 Private consumption 8.2 8.6 6.3 3.3 0o , General government consumption 9.0 10.2 .. 11.4 91 92 93 94 95 96 Gross domestic investment 9.8 10.1 19.1 16.6 .20 Imports of goods and services 22.1 11.1 5.0 8.6 -Exports -Imports Gross national product 9.0 9.8 9.0 9.9 _ Note: 1996 data are preliminary estimates. Figures in italics are for years other than those specified. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.  Page 49 China PRICES and GOVERNMENT FINANCE 1975 1985 1995 1 996 Domestic prices Inflation (%) (% change) 30 Consumer prices .. 9.2 17.1 8.3 Implicit GDP deflator -0.9 10.1 13.1 6.1 2D Government finance nane (% of GDP) 0' Current revenue .. 25.5 11.2 11.4 91 92 93 94 95 93 Current budget balance .. 6.7 0.5 0.6 GDP del. CO'CPI Overall surplus/deficit *- -0.5 -1.7 -1.5 TRADE 1975 1985 1995 1996 (millions US$) Export and Import levels (mill. US$) Total exports (fob) .. 27,350 148,770 151,073 200,000 Food 3,803 9,954 10,232 Fuel ,, 7,132 5,335 5,929 190,000 Manufactures .. 13,522 127,283 129,141 Total imports (cif). 42,252 132,078 138,828 100,000ii r v V F F Food .. 1,881 9,126 7,866 Fuel and energy .. 172 5,127 6,877 50OD Capital goods 18,694 57,431 63,901 _,_co i i ___i _____ l _ i Export price index (1987=100) .. 92 133 132 90 91 92 93 94 95 96 Import prce index (1987=100) .. 78 132 131 0 Exports m Imports Termsof trade (1987=100) .. 118 101 100 BALANCE of PAYMENTS 1975 1985 1995 1998 (millions US$) Current account balance to GDP ratio (%) Exports of goods and services 7,828 28,163 147,240 153,740 4 Imports of goods and services 8,097 41,149 135,284 141,340 4 Resource balance -269 -12,986 11,956 12,400 Net income 0 932 -11,774 -10,370 Net cufrent transfers 0 171 1.400 1,580 Current account balance, 90 91 92 9 94 gs 96 before official capital transfers -269 -11,883 1,582 3,610 -2 Financing items (net) .. 9,443 20,887 28,030 Changes in net reserves .. 2,440 -22,469 -31,640 -4 Memo: Reserves induding gold (mill. US$) *- 16,853 80,312 111,690 Conversion rate (iocal'US$) 1.9 2.9 8.4 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1995 1996 (millions US$) Composition of total debt, 1996 (mill. US$) Total debt outstanding and disbursed .. 16,696 118,090 128,817 IBRD .. 498 7,209 7,616 A 8 IDA 431 7,038 7,79 G7 7616 7579 Total debt service .. 2,478 15,066 15,756 2501 IBRD 26 810 840 IDA 4 63 73 E Composition of net resource flows 21737 Official grants .. 117 328 248 Official creditors .. 1,117 7,902 4,359 Private creditors .. 2,867 5,013 6,454 Foreign direct investment .. 1,659 35,849 40,180 Portfolio equity *- 0 2,807 3,466 F 163977 World Bank program | Commitments *. 1,092 2,850 1,900 A - 1BRD E- Bilateral Disbursements .- 565 2,269 2,097 8 - ICA 0- Other multlateral F - Private Principal repayments . 0 364 364 C- IMF G- Short-temm Net flows .. 565 1,905 1,734 1 Interest payments .. 29 509 549 Net transfers .. 536 1,396 1,185 Development Economics 1/29/98 Note: The dollar estimates for China's GNP per capita, GNP and GDP are preliminary figures based on an on-going World Bank study of China's GDP. They were calculated to facilitate inter-country comparisons. Official statistics are used as the basis for all other economic analysis contained in this document.  IBRD 29501 71* 3Akmola 3 0 RUSSIAN '' FEDERATION j . (\ \s i <3 ,, KAZAKHSTAN . * > U,oonbaatar Hb j *_ > UiO6111b6]Ot6Dr t.~~~~~~~~~~~~~~~~~~~~~~~~~~' ~H6rbin UZBEKISTAN g.> YRGYZ jSrml \ .'t6.. 7UBLIC _{ -1\ / . . ' Sheroyong .S;) JAPAN TAJIKISTAN LIAON /' 5 /~~~~~~~~~~~~~~~~~~~~~~ DEM. PEOPLE'S H.hhot REP OF KOREA ./s. ._ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ei 9ing,idji Pyongy6an5.1 ^' *i 6' 6NJNt! YmnchLugiT hizzun REP OF KOREA tftrfgU:1/- HA 5iNXI in 7he- f,O du Thr,es. W-l denomo io- s ;;L-h-^ . i l f Sei Thld on Te.ifrm1-n hwo T , id -k G, 3d3- ~Los rZh-gooqig Toyoo hoeII:* ' - 6Nffif~~~~~~~~l; S ~~~ '~Sh.ngh.i SHANGHAI C s Lha-gd . 3Che n gd no NEPAL 7 wi i grHU t j;'p9(tOkqFI; N-nh.ngZHAN \ p ;t; X:: : ~Chqngq,n 'g CHINA i H;Nt i FORESTRY DEVELOPMENT IN FjANiyog' POOR AREAS PROJECT K-ing K~~~coo 09 ~~~~~TA4jWAN PROJECT AREAS G V AU N G O Df)-N ^ 3 PROVINCE CAPITALS t A XI gzoo NATIONAL CAPITALS HONoccicg ,ONG KONG 2z Lo {e \ .,. VIETNAM _ MACAO (PORT) . 00 . .0 300 . PROVINCE BOUNDARIES Ha .i H onoion 0 o(o cc 300 so5 INTERNATIONAL BOUNDARIES - L Hanoi 'o.r ) LAO PEOPLE'S~. THoikoc T A DEM. REP - PHILIPPINES .___THAILANDj__________^_________f_______________ THAILAND) f 1200 cr APRIL 1998