China -Technology Development

 ICRR 11534 Report Number : ICRR11534 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 09/29/2003 PROJ ID : P003600 Appraisal Actual Project Name : Cn-technology Project Costs 402 365.3 Development US$M ) (US$M) Country : China Loan/ Loan US$M ) 200 /Credit (US$M) 196.8 Sector (s): Board: ED - Other industry Cofinancing 196 168.6 (67%), General information US$M ) (US$M) and communications sector (15%), General energy sector (15%), Central government administration (3%) L/C Number : L3847 Board Approval 95 FY ) (FY) Partners involved : Closing Date 06/30/2001 12/31/2002 Prepared by : Reviewed by : Group Manager : Group : Elliott Hurwitz Gene Tidrick Alain A. Barbu OEDST 2. Project Objectives and Components a. Objectives The project objective was to support the Government ’s continuing reforms in technology policy and institutions so as to promote the development and/or adoption of clean, productivity -enhancing technologies in China ’s industries. The project was designed to accelerate diffusion and adaptation of technologies through deepening of technology markets and through institutional initiatives . The ERCs were intended to be market -oriented, self-sufficient independent limited liability companies (LLCs). b. Components ERCs Restructure China’s large R&D establishment into market -responsive (1) Engineering Research Centers (ERCs): corporations. ERCs had the objective of adapting, developing, and diffusing technologies, in particular those that have positive environmental impacts . It was intended that the ERCs be supported at their creation by equity and loan finance from the Government, but then be subject to market forces, with no government subsidization . (2) Strengthening the National Institute of Metrology (NIM) PCs ): Upgrade measurement NIM ) and Productivity Centers (PCs) and test equipment to improve standards; training and consulting services to upgrade measurement standards and quality control. Assist PCs in dissemination of productivity -enhancing innovations. c. Comments on Project Cost, Financing and Dates Bank funds were generally used to import advanced equipment and industrial technologies, while local funds were used to construct or refurbish facilities . It should be noted that Component 1, Engineering Research Centers, accounted for around 97% of project funding, and Component 2, Strengthen NIM and PCs, accounted for 3%. 3. Achievement of Relevant Objectives: (1) Engineering Research Centers (ERCs):ERCs Achievement was unsatisfactory : Of 47 ERCs supported under the project, 21 became LLCs, 8 became Stock Limited Corporations (SLCs), 8 became SOEs, and 10 were absorbed as R&D centers of other organizations (mostly SOEs). ERCs transferred around 600 research results, implemented 26,500 technology transfer contracts, and established 60 subsidiaries, including joint ventures (2) Strengthening the National Institute of Metrology (NIM) PCs ): Achievement was NIM ) and Productivity Centers (PCs) satisfactory : The NIM upgraded its facilities equipment and instrumentation, and improved its standards of measurement and other technical norms Assistance was provided to PCs in the dissemination of new technologies by establishing and improving databases and websites for standardization and quality control . 4. Significant Outcomes/Impacts: Significant outputs included substantial training provided to ERC staff  NIM capabilities in measurement, calibration, and testing were substantially improved . PCs established websites and databases to improve the provision of services to companies, especially SMEs PCs conducted training courses for 7,500 individuals 5. Significant Shortcomings (including non-compliance with safeguard policies): There is insufficient evidence that the project accelerated the diffusion of technology, improved the productivity of industrial firms, or enhanced firms' environmental performance The ICR states that little or no evidence is available regarding project achievements with respect to key monitoring and evaluation criteria specified in the SAR : ERC profitability, FRR, and ERR; foreign partnerships formed; success of diffusion activities; productivity growth and better environmental performance among industrial users of ERC services . Fewer ERCs became LLCs than had been envisioned (it was an explicit project commitment that all participating ERCs would develop a plan to become LLCs within 5 years of approval, i.e., February 2000, and would be required to implement that plan under their sub -loan agreement). It is unclear whether conversion to SOEs or to units within SOEs meets the project objectives . There is a statement but no evidence that ERCs included in the project are self -supporting and no longer receiving government subsidies --an explicit project goal The ERRs of participating ERCs were either not reported (44 out of 47) or lower than envisioned (1.5% to 4% vs. 12% in the SAR) Project procurement arrangements were cumbersome, and delayed the project by around 18 months. The (government) Project Office (PO) was initially understaffed (which deficiency was later remedied ). Through most of project implementation the Golden China Corporation (GCC), the project financial agent, did not utilize available training and TA resources, which hindered procurement Some ERCs, instead of transferring technologies, began mass production of new products that embodied technologies which the ERC had developed . While this practice tended to undermine achievement of project goals, the extent to which it took place is not known . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Unsatisfactory The institutional changes accomplished fell short of what was envisioned (see section 5) As detailed in section 5, there is insufficient evidence that the project accelerated the development and /or adoption of clean, productivity-enhancing technologies in China’s industries. For those ERCs included in the project, there is no evidence of their profitability or viability, or that they are not receiving subsides. Institutional Dev .: Modest Modest Sustainability : Likely Likely Bank Performance : Satisfactory Unsatisfactory The Bank did not maintain sufficient focus on the development impact of the project: --There is insufficient evidence that key project objectives were achieved . While the Bank requested information on performance indicators as specified in the SAR--which were, in effect, measures of development impact--the government and ERCs did not provide these data, and the Bank acquiesced. As the ICR states: "Progress reports...focused mostly on procurement activities. Repeated attempts by the Bank to have PO/GCC give more comprehensive report on achievement of project objectives....remained unanswered."  --As noted in section 3, 29 of the 47 ERCs were converted to LLCs or SLCs, while the other 18 were not. While the government committed to develop and implement a conversion plan for each ERC as part of its sub-loan agreement, there is no evidence that the Bank acted to insist on the conversion of the remaining 18 ERCs. --An explicit project goal was that ERCs should be financially self-supporting and no longer receiving government subsidies . However, there is insufficient evidence that this is now the case, or that the Bank acted to foster the self-sufficiency of ERCs. Insufficient Bank supervision resources exacerbated procurement delays and hindered technical progress during part of the project . PSRs during the last 2 years of implementation do not accurately reflect the status of project progress toward meeting development objectives: "The conversion of ERCs to LLCs or other corporate entities continues to move forward, and the establishment of technology companies under a business structure and under market conditions is visible....the broad objective of the project is being achieved..." (PSRs 12/00 to 12/02) Borrower Perf .: Satisfactory Unsatisfactory The government was reluctant to direct the ERCs to comply with project requirements. This reluctance was partially responsible for shortfalls in the transformation of research entities to self-sustaining corporations (section 3), as well as in the largely unsuccessful effort to introduce business management concepts to the ERCs. The government and the ERCs did not provide data in accordance with the SAR performance indicators, despite repeated requests from the Bank over a period of 3 years. This lack of information hindered understanding of the extent to which project objectives were being achieved. During the first part of the project, the PO was understaffed. Throughout implementation, the GCC, which was responsible for disbursement, collection, and repayment of Bank funds, did not utilize available funding to bolster its capacity to carry out its responsibilities. The failure of GCC to implement a database in a timely  manner substantially contributed to project delays. The project management structure was unwieldy and hindered procurement. Quality of ICR : Unsatisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: The Bank should focus on a project's development impact and ensure that it is achieving satisfactory progress in this regard. If management is not satisfied that this is the case, then restructuring or cancellation should be strongly considered. 8. Assessment Recommended? Yes No Why? It would be useful to assess project impact as a guide to future projects in this area . A PPAR could also determine whether the basic project concept of converting state -owned research facilities into for -profit institutions was valid, or whether a different concept would have made more sense . A cluster audit with other projects in the industrial sector could also be useful, as the China CAE found that around 50% of the unsatisfactory projects in the country were in that sector . 9. Comments on Quality of ICR: The ICR is unsatisfactory : 1. It makes numerous assertions of project achievement which are not substantiated by evidence, e .g., "...the transformation of university laboratories and research institutes into market -oriented technology development corporations was very successful ." (p.3) "The business transformation of many research institutes involved many environmental activities, including the improvement in industrial waste treatment, paper industrial control technology, clean coal combustion technology, urban waste treatment technology, etc . Many of these institutes were able to acquire patents for these technological breakthroughs and contributed greatly to the industrial application of these patented technologies." (p.4) "Technology invented at research institutes used to languish in the laboratories, the project has helped speed up its transfer to industry (sic)." (p. 6) 2. The ICR does not provide details of sub -loans to ERCs: interest rates, term, repayment experience . The ICR also does not provide information as to whether ERCs provided plans for conversion to LLCs, and whether they implemented those plans as they were required to do under their sub -loan agreements (SAR paras. 4.7 and 8.1). 3. Given the project shortcomings, many of which are acknowledged, the ICR project ratings are too optimistic .