The World Bank's assistance to China's transport sector

THE WORLD BANK OPERATIONS EVALUATION DEPARTMENT The World Bank's Assistance to China's Transport Sector Anthony Churchill and Cordula Thum Director-General, Operations Evaluation: Gregory K. Ingram Director: Ajay Chhibber Manager: R. Kyle Peters Task Manager: Gene Tidrick 2005 This paper is available upon request from OED. It was prepared in 2002 The World Bank as a background paper for the China Country Assistance Evaluation. Washington, D.C.  ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION The Operations Evaluation Department (OED) is an independent unit within the World Bank; it reports directly to the Bank's Board of Executive Directors. OED assesses what works, and what does not; how a borrower plans to run and maintain a project; and the lasting contribution of the Bank to a country's overall development. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank's work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings. OED Working Papers are an informal series to disseminate the findings of work in progress to encourage the exchange of ideas about development effectiveness through evaluation. The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Contact: Operations Evaluation Department Knowledge and Evaluation Capacity Development (OEDKE) e-mail: eline@worldbank.org Telephone: 202-458-4497 Facsimile: 202-522-3125 http:/www.worldbank.org/oed  Acronyms AAA Analytical and Advisory Services ADB Asian Development Bank APDB Asia Pacific Daily Brief BOT Build operate transfer BTTE Beijing-Tianjing-Tanggu Expressway CAS Country Assistance Strategy ERR Economic Rate of Return FY Fiscal Year GDP Gross Domestic Product GOC Government of China IBRD International Bank for Reconstruction and Development IDA International Development Agency IPO Initial Public Offering ITS Intelligent Transport System IWT Inland Waterways Transport IWW Inland Waterways MOC Ministry of Communications MOR Ministry of Railway NTHS National Trunk Highway System OED Operations Evaluation Department PCD Provincial Communication Department PID Project Information Document PMS Pavement Management System PPIAF Public Private Infrastructure Advisory Facility QAG Quality Assurance Group RDB Road Data Base RIS Railway Investment Study RMB Renminbi RMF Road Maintenance Fee S&P Standard & Poor's SDPC State Development and Planning Commission SOE State-owned Enterprise TA Technical Assistance TMIS Traffic Management Information System VPF Vehicle Purchase Fee WDP World Bank Discussion Paper WTO World Trade Organization   Table of Contents Preface........................................................................................................................................i 1. Transport Sector Performance and Policy Challenges........................................................1 China's Ambitious Infrastructure Capacity Expansion Plan.........................................2 Highway and Road Network..........................................................................................2 Railways Network..........................................................................................................3 Inland Waterways Network ...........................................................................................3 Cross-Cutting Issues in China's Infrastructure Sector ........................................................4 Infrastructure Financing and Private Sector Participation ............................................4 Equity Financing ...........................................................................................................4 Debt Financing..............................................................................................................5 BOT in China's Infrastructure ......................................................................................5 The Sector's Administrative Framework ......................................................................6 Transport Services.........................................................................................................6 2. Relevance of Bank Assistance Strategy..............................................................................7 Transport Sector Strategy...................................................................................................7 Cross-cutting Issues in the Transport Sector Strategy..................................................8 Highway Finance ..........................................................................................................8 Intermodal Coordination...............................................................................................8 Transport Services.........................................................................................................9 Additional Analytical and Advisory Activities (AAA) in the Transport Sector.................9 Value-Added Through ESW ...............................................................................................9 3. Assessment of the Transport Lending Program: Efficiency and Efficacy .......................10 Overview of the Program ..................................................................................................10 Efficacy and Efficiency of Bank-Supported Transport Project: OED and QAG Ratings12 The Roads Sector...............................................................................................................14 Building Sector Institutions : Road Safety Issues ......................................................15 New Directions............................................................................................................16 Improving Construction Quality .................................................................................16 New Directions............................................................................................................17 Enhancing Accessibility to Remote and Low Income Areas......................................17 Sustaining Road Maintenance.....................................................................................18 New Directions............................................................................................................18 Highway Financing .....................................................................................................19 New Directions............................................................................................................20 The Railways Sector..........................................................................................................20 Next Steps....................................................................................................................22 The Reform Path .........................................................................................................23 The Ports and Inland Waterways Sector ...........................................................................24 Future Directions.........................................................................................................25 Urban Transport Development..........................................................................................25 Future Directions.........................................................................................................26   Preface This paper is one of the background papers prepared as an input to the China Country Assistance Evaluation. Findings are based on a review of project appraisal and completion reports, sector reports, and a number of other documents produced by the Borrower, the Bank, OED, and research papers. Bank staff were interviewed at headquarters. Their valuable assistance is gratefully acknowledged.   1 1. Transport Sector Performance and Policy Challenges 1.1 China's economic development since the opening of its economy in the late 1970s has resulted in an eight percent average annual rate of economic growth. Key facets of this growth are rapidly increasing domestic and foreign trade as well as increasing personal mobility and consumption of energy. 1.2 These in turn, have caused the demand for transport to surge. Supply capacity, however, is constrained and this is now recognized as one of the most serious bottlenecks to future economic growth and efficiency. Since the early 1980s, transport demand has grown much faster than capacity and the ability of the system to deal with it. This has led to increasing bottlenecks and delays, an enormous backlog of deferred investments. Compared to other countries, road and rail network density in China is still very low, particularly when measured on an area basis (further, see 1.9). 1.3 The transport sector's lack of capacity has been somewhat compensated for by the very high utilization of infrastructure and vehicles. Five long-term trends are evident in the demand for transport: 1) freight transport will grow more slowly than the economy (the share in rail freight tends to shrink but absolute economic growth continues); 2) passenger transport will grow more quickly than the economy; 3) the infrastructure and assets needed to satisfy a given level of transport demand will increase as users demand higher-quality service; 4) the share of rail will fall, but the absolute output will continue to grow; 5) demand for multi- modal transport services will grow faster than for single-mode services. 1.4 The deficiencies of the Chinese road and highway system have in particular created a bottleneck in China's economic development. Some estimates suggest that China's highways will only grow at an annual rate of 2.5 percent over the next decade, while the number of vehicles in China grew at a rate that peaked in the early 1990's at 18 percent and is now about 6 percent. China's real GDP growth is predicted to be approximately 8 percent over the next ten years. The current highway capacity is seriously insufficient, with more than half the nation's highways exceeding designed traffic capacity limits, a problem which also hinders foreign investment in other sectors. Until China radically increases its highway capacity, the business confidence fostered by a stable infrastructure and economic growth in general, will continue to suffer. 1.5 Like other centrally planned economies, China's transport system exhibits high freight intensity, measured in ton-km dollar of output, and a low personal mobility in its population. It is sometimes suggested that the unusual size of China and the location of its raw materials explains much of the transport intensity of the economy relative to other continental economies. The most common explanation for the high degree of transport intensity in China (in combination with energy intensity) is the relative importance of the heavy "smoke stack" industries in the industrial sector: