China - Country partnership strategy : Country assistance strategy completion report - IEG review

IEG F o r Official Use Only CASCR Review Independent Evaluation Group May 15,2006 36418 1. CAS Data Country: CHINA CAS Year: FY03 I CAS Period: FY03 - FY05 CASCR Review Period: FY03 - FY05 I Date of this review: May 15,2006 2. Executive Summary - Progress towards the main objectives of the FYO3-05 CAS improving the business environment and accelerating China’s transition to a market economy, addressing the needs of the poorer and disadvantaged people and lagging regions, and facilitating an environmentally sustainable development process - was mixed, yet substantive in a number of key areas, and the outcome of the Bank‘s assistance program in terms of progress towards the main objectives of the CAS is rated satisfactory. Bank performance in terms of the support to China is rated as satisfactory. Important achievementswere high quality analysis and capacity building related to China’s WTO accession and its impact on poverty, contribution to greater government focus on poverty, capital market development, greater government awareness of resource scarcity and environmental management, greater openness and transparency in project management, and the drafting of the Rural Land Contracting Law. Despite these achievements, several crucial challenges persist: better public sector management, improved service delivery by public utilities, adequate poverty targeting, managing the interaction among different tiers of government, improving health outcomes, and achieving environmentally sustainable growth. China’s porffolio - the Bank’s largest - exhibited excellent implementationduring the CAS period with 90% of projects rated as satisfactory. Despite having to respond to the unanticipated SARS epidemic in 2004, the program was largely delivered as planned, The relevance and quality of AAA and responsivenessto demand from the authorities in the form of just-in-time reports was high. The CASCR notes that “the Bank’s impact arises through demonstrating innovative models for addressing specific development problems that are subsequently scaled up...or through influencing policy and institutional reform measures in ..MA”. However, IEG notes that the ability to scale up is limited by policies and institutions - in particular by intergovernmentalfinance and loan repayment arrangements. IEG agrees with the main lessons of the CASCR, in particular the need to further simplify and streamline Bank processes, actively work with other development partners to enhance Bank engagement in poverty reduction, social sectors, and the environment, and refine the process by which successful innovations and ideas are scaled up. While IEG concurs that results should be assessed more effectively through the introduction of a set of intermediate indicators (in addition to overall outcomes), these indicators should be tied to the Banks instruments and thus complement an assessment of overall results. IEG recommends that a more systematic approach be put in place to assess the utility of AAA and more deliberate attempts be made to extract lessons from demonstration projects in order to further understand the determinants of success before scaling up. In addition, to the extent that data weaknesses preclude a timely and precise assessment i f progress, it would be useful to establish how such information might be collected in the future.  IEG F o r Official Use Only CASCR Review independent Evaluation Group The direction and focus of the FYO3-05 CAS was influenced by two main factors. First, the CAS coincided with a more difficult phase of China’s reforms as the country moved from liberalization to more complex structural reforms and institution building. Second, this CAS was the first since China ceased borrowing on concessional terms from IDA, switching entirely to IBRD, The CAS benefited from several background papers prepared for IEG’s Country Assistance Evaluation (CAE) as well as in-country consultations carried out in . preparation for the CAE which was discussed by CODE on March 29,2004. l The overarching objective of the FYO3-05 CAS was to support China in making two historic transitions: (a) from a rural, agricultural society to an urban, industrial society, and (b) from a centrally-plannedeconomy to a more globally integrated market-based economy and to do it on a sustainable basis (CAS, para. 51). More specifically, three ”pillars” were to be supported: (i) improve the business environment and help accelerate China’s transition to a market economy; (ii) address the needs of the poorer and disadvantaged people and lagging regions; and (iii) facilitate an environmentally sustainable development process. There were fifteen associated sub-objectives. The CAS pillars were relevant and consistent with the Government’s Tenth Five-Year Plan (2001-2005) and the guidance from the 16th Party Congress held in November 2002. They were also appropriate to China’s transition and attendant development challenges. Investment lending during the CAS period focused more heavily than before on poorer inland provinces and on poverty andlor . environmental goals. The CAS objectives were to be accomplished through a large program of IBRD investment lending and analytical work, WBI training and workshops, and complemented by IFC investments. Given the relatively small financial contribution of IBRD (less than 0.2% of investment) lending operations were intended to be catalytic and demonstrate innovative or good practice approaches and options. The CAS also placed great emphasis on the Banks role as a “Knowledge Bank. Annex Tables 1 and 2 link Bank instruments to the CAS objectives and compare planned commitments with actual deliveries. While the CAS objectives were appropriate, the targeted outcomes were not always realistic. As the CASCR points out (p. 4) the associated progress benchmark indicators (135 in all) were excessively detailed and inadequately prioritized; it was unrealistic to expect that the Bank would be able to significantly influence many of them at a national level given the modest size of its lending program (less than 0.2% of total investment) and AAA relative to the needs of the country. Intermediate benchmarks that linked more directly to the Banks interventions were not consistently identified for all sub-objectives. Overview of CAS Implementation: o Lending. The CAS projected 30 core lending operations. The magnitude of lending was largely delivered as planned. According to the CASCR, Bank lending to China during FYO3-05 was about $3.39 billion delivered through 24 investment projects, four GEF projects, one PCF project and one (unplanned) emergency project delivered in response to the Severe Acute Respiratory Syndrome (SARS) epidemic. Bank lending was slightly below the low end of the CAS’S projected range ($3.6 billion) but the CASCR attributes this in part to the use of Government unit cost estimates that were often higher than actual costs, leading to cost savings. The lending program in FY05 deviated significantly, however, from the plan in terms of specific projects. Only three of nine planned regular projects were delivered; five were postponed and one was dropped. The overall impact on the magnitude of lending flows was not significant as an additional six (unplanned) projects were delivered (Annex Table 1). The IBRD portfolio is characterized by a high degree of investment lending (80%) and an emphasis on infrastructure, 2  IEG For Official Use Only CASCR Review IndependentEvaluation Group o Non-lending: AAA. The Bank delivered the bulk of its planned AAA activities and in a timely fashion (Annex Table 2). Thirty-seven out of 38 planned written products were delivered or are ongoing across all three of the CAS pillars. The lone exception -the planned Public Expenditure ReviewKFAA - was dropped as it would have duplicated analysis carried out by the ADB. Sixty-one of 64 planned technical assistance activities were carried out (two were dropped and one was delayed). Several un-programmeddeliveries of AAA occurred, reflecting in part "rapid response"activities conducted at the request of the authorities. For example, eight policy notes were prepared on a range of financial, public sector management, human development and environmental issues. In addition, several seminars and conferences to promote learning and better disseminate international experience were carried out during the CAS review period. China constituted WBl's largest country program during the CAS period, averaging 70 learning events a year. o A 2005 QAG review of China's AAA found it satisfactory (and highly satisfactory for strategic relevance). At the same time, the QAG review identified weaknesses in Chinese language dissemination (and hence actual reach to Chinese nationals), monitoring the AAA program, costs of collaborative research, and increasing the attention to implementation of AAA findings relative to production. The share of resources allocated to China's ESW during the CAS period - $19.6 million representing 24% a year - was below the Bank-wide average of 34% and that of countries such as India and Indonesia; but in absolute terms the allocation was comparable. The QAG review of AAA concluded that the size of the program was "about right". Given the importance of the Bank's AAA program in the country dialogue, the Bank needs to address explicitly the implications of the institution spending proportionately less on knowledge services in China relative to comparators and the Bank-wide average. A September 2005 Client Survey indicated that Bank knowledge was viewed by respondents as the Bank's most important contribution (55% ranked this first or second). At the same time 50% of respondents identified "failure to adapt global knowledge to local conditions" as one of the Bank's greatest weaknesses. This latter finding is consistent with the finding in IEG's 2004 China CAE of FY98-02 indicating that Chinese counterparts stated that the Bank was slow to adjust to their growing knowledge and sophistication and sometime provided generic advice. o IFC. The IFC's evaluation unit (IEG-IFC) reviewed the relevant sections of the CASCR. The CASCR adequately captures and discusses the role of the IFC during the CAS period. Two issues, however, merit more elaboration. The first is the CASCRs explanation for the relatively higher exposure of the IFC in the form of equity investments in China, which is about 48% of the IFC's exposure. According to IEG-IFC, the main underlying reasons for this higher exposure is that almost half of IFC's exposure in China is in the financial sector, practically all in the form of equity because: (a) almost all (except one or two) financial sector projects of IFC supported a (partial) privatizationof the financial institution, which required IFC to purchase equity shares; (b) local businesses, including local financial institutions, are not allowed to borrow foreign loans (only joint ventures with foreign investors can borrow from abroad); and (c) these privatized financial institutions needed equity to meet minimum capital adequacy standards, and did not need loans because they have a large deposit base which was adequate for making loans. Second, the statement in the CASCR that "IFC created best practice models among smaller private banks.." is overstated as IEG-IFC notes that the IFC has invested in only one truly private bank, the rest were partially privatized banks with the government still directly or indirectly the single largest shareholder although a less than 50% owner. Part of IFC's role as equity investor was to improve corporate governance and financial (risk) management in these financial institutions, and to encourage them to provide more SME lending, but the success of this role is still to be fully realized. IFC has self-evaluated four projects in China during the CAS period. IEG has independently validated these evaluations and finds that three of the four projects had development outcomes rated mostly successful or better, while two achieved satisfactory investment outcomes for IFC. All four projects were originally approved in 1998-99, o MIGA. MIGAs evaluation unit reviewed the relevant sections of the CASCR. Between 1993 and the end of 2005, MIGA has issued 41 guarantees in support of 26 projects in China for a maximum aggregate liability of 3  IEG For Official Use Only CASCR Review Independent Evaluation Group US$379.1 million, These projects were concentrated in the infrastructureand manufacturing sectors. As of February 2006, there were six projects in MIGA's portfolio in China with active guarantee contracts. To date, IEG-MIGA has evaluated four randomly selected mature projects during FYO4-05. Three of the evaluated projects were in infrastructure and one in manufacturing;the sample composition reflects the current concentration of MlGA porlfolio in infrastructure. Evaluation found that all of the projects were strategically relevant and consistent with WBG strategy and priorities in China. In some of the projects MlGA guarantee played a useful role, including providing mediation in resolving potential disputes between the investor and the government in three infrastructure projects. Business performance results and development impact of the projects were mixed. In the three infrastructure projects, the lower than expected result was related to pricing issues and regulatory changes during implementation. In the case of the manufacturing project, the market for the product changed, which the investor did not anticipate, Three of the four projects did not fully meet the environmental safeguards at the time of evaluation. MIGA's TA activities in China have not yet been evaluated. o Portfolio outcomes. The China porlfolio - the Bank's largest - performed extremely well over the review period. By share of total commitments, the 70 completed and evaluated projects during the CAS period achieved an average outcome rating of 90%, significantly higher than the East Asia and Bank-wide averages of 80% and 78% respectively (Annex Table 3). Only 2% of the portfolio was at risk during the CAS period - again significantly better than the Bank-wide average of 16.4%. Despite this impressive portfolio performance, the CASCR notes that the average project implementation period of 5 years for operations in China exceeds the Bank average of 3.6 years. The IEG CAE on China also found during consultations that officials expressed concerns about the high cost of doing business with the Bank (due in part to rigorous safeguard provisions) and slow project preparation times. These concerns persist; nearly half of all respondents to the 2005 Client Survey indicated that the greatest obstacle to the Bank's role in China's future development was the "number and complexity of the procedures involved in obtaining Bank financing". o Safeguards and fiduciary issues. The CASCR notes that given the heavy focus on infrastructure in the China portfolio, an exceptionally high percentage of projects (80% by commitment versus 8% for the rest of the Bank) fall into safeguards Category A. o Exogenous shocks. The 2004 SARS epidemic was a major unanticipated event. The Bank responded quickly and effectively with an FY04 emergency loan. While respondingto SARS led to the extension of several existing projects (thereby increasing their age), it did not adversely affect portfolio outcomes. According to the CASCR (p. 30) the Banks emergency response to SARS was financed from cost-savings realized under six completed IDA projects. Overview of Achievement by Objective: : I) IMPROVING THE BUSINESS ENVIRONMENT AND ACCELERATING CHINA'S TRANSITION TO A MARKET ECONOMY >onsiderable progress was achieved under this objective due to China's accession to the WTO, financial and capital narket reforms and the introduction of key economic laws that helped to improve the business environment. Much emains to be done however in strengthening the banking sector, making business regulation and licensing less :umbersome, strengthening corporate governance, improving accountability of public service and overall governance, md improving the efficiency and sustainability of infrastructure service delivery. The overall outcome under this pillar is ated satisfacfoty. a) Strengthening macroeconomic management. Achieved. A CEM, Development Policy Review, economiclsocial 4  IEG F o r Official U s e Only CASCR Review Independent Evaluation Group monitoring briefs and policy notes prepared at the request of the government (on public reform, macroeconomic management, domestic debt risks and fiscal sustainability)contributed to this sub-objective. China maintained a low inflation rate (I-8%year-on-year) during the CAS period, and good revenue performance reduced the fiscal deficit to 1.7% of GDP in 2004. At the beginning of the CAS period, the banking system was marked by excess liquidity and rapid credit growth resulting from accelerating investment in some sectors. During 2004, the Peoples‘ Bank of China tightened monetary policy and reduced broad money growth (from 19.5% to 14%) and loan growth (from 21% to 12.5%). Bank technical assistance contributed to building fiscal management capacity in Ministries at the national level but was less successful in strengthening the framework for inter-governmentalfinance (due to the political power of provinces) and in strengthening the capacity for managing fiscal risks. Contingent liabilities arising from NPLs of state- owned banks, improperly recorded local-level debt and unfunded pension obligations could potentially adversely affect the fiscal position (IMF Staff Report, July 2005). According to the CASCR, the Bank contributed to the development of a system for monitoring short-term capital flows, an important step in managing any future opening of the capital account. More generally, both the CASCR and the IMF 2005 staff review note that the poor statistical database in China continues to pose a potential risk to robustly assessing macro-stability risks. (b) Promoting China’s integration into the global economy. Achieved. The key AAA inputs were WBI technical assistance on WTO issues, analytical work by DEC (post-WTO regulatory challenges and services liberalization) and operational staff on the impact of WTO accession on China, particularly its impact on the poor. Bank AAA also focused on legislative commitments related to China’s WTO accession and on factor and product market reforms. As of 2005, all tariff reductions required under WTO commitments had been largely implemented and required quotas. The unweighted average nominal tariff fell to 10%. China’s country-led accession has proceeded more rapidly than services liberalization or domestic structural reforms. Export growth remained strong, averaging over 30% during the CAS period, higher than the average for East Asia or other middle-incomecountries. (c) Reforming the financial sector. Partially achieved. A corporate bond market study, policy notes on state commercial bank restructuring and development of institutional investors, and capacity building and TA through WBI interventions on NBFls and infrastructure finance were included in the planned activities. Several unplanned analytical pieces were additionally carried out at the request of the authorities covering capital market development, improving the risk management of securities firms, corporate governance of rural commercial banks, the framework for lending to SMEs and addressing systemic risks and financial stability. Over the CAS period, China liberalized interest rates and reformed the government bond market (key reforms that the Bank had long advocated in its policy dialogue). A bank regulatory authority was established (CBRC), thereby improving bank supervision. According to the CASCR, under the eadership of the Peoples’ Bank of China four SCBs (accountingfor 60% of total banking assets) were recapitalized and ?estructured.Bank AAA supported these reforms with policy and operational recommendations. Bank assistance was ess effective in promoting reform in rural finance and rural areas remain underserved. In addition, much remains to be jone to reform corporate bond markets and to strengthen the balance sheets, internal control systems and credit risk nanagement of banks. FC investments in the financial sector were important in catalyzing private (and foreign) entry into sectors previously jominated by SOEs (e.g. funds management, insurance, investment banks) potentially enhancing governance and iccelerating the transfer of technology and management practices. In addition, IFC created new institutions (bonds narkets, markets for distressed assets, and credit information agencies) to deepen the financial sector. The CASCR iotes that the IFC was the first international agency to issue a Renminbi (“Panda”) bond. d) Promoting private sector development and enterprise reforms. Partially achieved. The CAS outlined the ollowing priorities under this sub-objective: i) lmproving the business climate for private sector activity: A significant achievement towards improving the business $mate was the preparation of more than 50 major economic laws necessary for a functioning market economy (e.g. inti-monopoly, bankruptcy, contract, company, partnership, SME) and which also enabled China to integrate into the ilobal trading system. This legal work, which was supported by an ongoing Bank-financed Economic Law Reform 5  IEG For Official Use Only CASCR Review Independent Evaluation Group project, was greatly facilitated by exposure to international experience and expertise and also profited from public participation through the institutional development component. While investment climate surveys increased awareness of constraints at the local level, business registration and licensing, as well as land-use approvals remain cumbersome. China ranked 91s' (out of 155 countries) on the overall ease of doing business in the Doing Business 2006 report - below all other East Asian IBRD comparators. Despite the enactment of an e-commerce law (and supplemental reforms) which took effect in April 2005 (a benchmark), e-commerce remains constrained by the regulatory and legal framework (consumer privacy protection, missing credit rating agencies and so on). MIGAs joint marketing, cross-training and outward investment initiatives with Sinosure (China's export credit agency) built capacity. MlGA interventions further contributed to improving the business environment through its technical assistance to the Ministry of Commerce on drafting of the national Guidelines for Investment Promotion in 2005 and with some provinces (e.9. Sichuan) on investment promotion. (ii) Corporate restructuring, ownership diversification and industrial reorganization: This sub-objective had seven progress benchmarks but limited Bank instruments to address it during the CAS period. The single loan (an ongoing Shenyang Industrial Reform Project) was limited in scope and geographical coverage and did not generate the intended outcomes. The ICR review attributes the unsatisfactory outcome to weak corporate governance, inadequate enforcement of the rule of law, weak financial sector regulation, and inflexible factor markets. The CASCR alludes to aarlier Bank assistance (not specified) that laid the foundation for change on this issue. The authorities made progress 3n 4 of the 7 benchmarks; specifically, a more comprehensive policy on mergers and acquisitions has been introduced, larder budget constraints are being imposed on enterprises, SOEs are being further separated from government :ontrol and the number of loss-making SOEs fell from 69% to 48% of the total between 1998 and 2004. The Chinese suthorities were less successful in ensuring that asset management companies restricted their acquisition of new m e t s and a significant number of SOEs continue to run social programs (health, education, health insurance, and lousing). :iii) Strengthening corporate governance: To support China's objectives in this area, the CAS looked to ongoing projects or accounting, enterprise and economic law reform as well as WBI distance training on corporate governance and an -YO3 study on the same issue. Overall, progress on corporate governance has been mixed and slow, Companies with some foreign ownership exhibit better corporate governance compared to those that are fully state-owned. Two of the hree benchmarks are only slowly beginning to be met. As the CASCR notes, the appointment and utilization of board :ommittees such as audit and compensation is rare among wholly state-owned firms and only emerging. The CASCR nakes it clear that while the authorities have started to introduce accounting standards, the pace has been slower than anticipated. e) Improving public sector management and delivery of services. Partially achieved. The CAS called for an mproved regulatoryAncentiveenvironment for good governance as a prerequisite for improved public sector nanagement. Bank instruments to support this sub-objective included ongoing projects for Fiscal TA, Accounting ieform and Economic Law Reform, a Country Procurement Assessment Report, and WBI training for government rocurement specialists and on financial management. Greater transparency has been introduced into government ~rocurement (through the enactment of the Government Procurement Law) and government auditing systems. For !xample, the CASCR indicates that an annual audit report is now presented to Parliament. The legal profession and Jdicial system was strengthened through the Economic Law Reform project. Overall, ten of twenty-five intermediate )enchmarkswere largely achieved, eleven partially achieved, and four were not achieved. Despite these achievements in intermediate objectives, overall WBI governance indicators (government effectiveness and the control of corruption) leteriorated in China between 1998 and 2004, The sub-objective of sfrengfhenedmanagement of cities was supported Trough six urban and transport investment projects and several pieces of AAA. While individual Bank interventions iften achieved project-specific goals, overall impact country-wide has been limited, The CAS also called for trengfhenedperformance of public utilities in delivering infrastructure services, identifying nineteen benchmarks. ccording to the CASCR, while Bank assistance influenced sector wide reform in energy and railroads, its impact in ,ads, transport services, and urban utilities was constrained by decentralized oversight mechanisms in those sectors 6  IEG For Official Use Only CASCR Review Independent Evaluation Group and the fact that the Bank was not involved in sector-wide analysis. Little progress was made in systematically strengthening accountability in the delivery of public services at different levels of government. (11) ADDRESSING THE NEEDS OF THE POORER AND DISADVANTAGEDPEOPLE AND LAGGING REGIONS In addressing the needs of poorer and disadvantaged people, Bank assistance partially achieved its objectives. It contributed to improved access to universal primary education and strengthened the pension system and labor market institutions. Health outcomes and efforts to strengthen transport links in lagging regions were less favorable, and inadequate information was presented to assess whether employment and agricultural productivity had increased sufficiently to help the target population. Bank assistance contributed to the policy and research discussion on poverty, but operationally, poverty funds remain poorly targeted with leakage of over 50 percent. IEG rates the overall outcome under this pillar as moderately satisfactory. (a) Increasingemployment and productivity off and on the farm. Partially achieved. The CAS objective of expanded of-farm job creation was met or exceeded at the project level, though the overall national impact was modest. With respect to higher agriculturalproducfivity, according to the CASCR, Bank-financed pastoral projects contributed to the introduction of improved livestock varieties, while the New Agriculture Technology Project is piloting publiclprivate partnerships for research and extension services. But no evidence is presented to support a larger scale introduction of higher value crops, aquatic products and grains. Through an IDF that supported the drafting of key provisions to a Rural Land Contracting Law, the Bank contributed to strengthening land property rights. Bank AAA on China's Land Policy Reform provided a roadmap that identifies major land policy reform challenges and makes recommendationson land acquisition, banking, property taxation and markets. (b) Strengthening transport links within and to lagging regions. Partially achieved. The Bank supported the first sub-objective of developing road networks through several lending operations (for example, 2nd Shaanxi Provincial Highway, 2nd Henan Provincial Highway). This assistance was effective in expanding the road network, often meeting physical targets, and linking some provincial capitals to ports (for example, Fuzhou to Xiamen);but Bank assistance was less effective in strengthening linkages within lagging regions or scaling up the Bank's interventions. The CASCR attributes the relative lack of progress to the absence of a single government authority responsible to coordinate all transport modes. The Banks assistance was less effective in improving logistics services (the second sub-objective). The IBRD-financed Container Transport Project had limited success in promoting container penetration in the inland provinces because alternative sources of finance were available. More generally, trade logistics involve more than trucking (e.g. customs) and Bank assistance has not been sought in these other areas, :c) Developing human resources. Partially achieved. In education, the CAS aimed to support the Government x-iorities to (i) expand access to quality basic education; (io decentralize education planning and budgeting; and (iii) .eorient education and training. In health, the CAS called for protecting health services and improving health outcomes. 3ank instruments towards these objectives on the lending side consisted largely of ongoing projects in education and iealth with only one new project planned during the CAS period - Basic Education in Western Areas (FY03). This iaucity of lending instruments to support the CAS objectives reflected the difficulties inherent in China's graduation rom IDA to IBRD and the government's decision to limit IBRD borrowing for the social sectors in poorer provinces with imited repayment capacity. The single loan above was made possible through a partnership with DFID, whereby DFID jrant funds blended with IBRD financing to reduce the effective interest rate. Several policy notes and formal ESW :omplemented the Banks lending assistance (Annex Table 2). 4s far as results, in education, the Bank-financed Fourth Basic Education and Basic Education in Western Areas 'rojects as well as the government's own programs expanded access to quality basic education in the context of the )reject. The attainment of universal primary education was accelerated (in some cases by two years) in 115 of 117 :ounties and the authorities reported an increase in the primary school enrollment rate from 92 to 98% (ICR Review). Student learning outcomes improved. Specifically, the proportion of students passing the 6th and 9th grade exams rose iignificantly (from 82% to 93% in mathematics and 78% to 88% in Chinese) as did the share of teachers who were 7  IEG For Official Use Only CASCR Review Independent Evaluation Group “qualified” (from 78% to 94%). However, the three benchmarks associated with decentralizing education planning and budgeting were not met. This is an important area to improve education (and health) outcomes. A 2006 OECD report on China’s social sectors identifies reforms in the relations between central and regional governments in taxation, expenditure and accountability as critical. The benchmarks associated with re-orienting education and training were only partially met. A previously approved Higher Education Reform Project and AAA in the area of vocational education contributed towards the two benchmarks associated with higher tertiary enrollment levels, increased availability of high- skill training programs, and improved tertiary curricula and teacher training. In addition, according to the CASCR, the IFC supported the sub-objective through investments in distance medical education across China and in institutions providing specialized training. In health, the CASCR does not present any evidence to suggest that the overall objective ofprotecting health services and improving health outcomes with a special focus on rural areas was attained, None of the seven benchmark indicators established in the FY03 CAS can be said with certainty to have been attained. In part, as the CASCR notes, this reflects the fact that these indicators were often broad national indicators for which the Bank’s modest interventions would have difficulty influencing. (d) Strengthening social protection. Partially achieved. The CAS outlined three ambitious related sub-objectives: developing a countrywide strategy for social protection, reforming the pension system, and developing functioning labor markets and capacity for managing labor dislocation. Bank assistance towards this CAS sub-objective utilized lending, AAA and WBI learning activities. While a country-wide strategy for social protection is not yet in place, substantial progress was made on the other two sub-objectives. In pensions, joint GOC-Bank AAA analysis and a pilot project (in Liaoning Province) helped improve financial management and organizational effectiveness in the pension system. According to the CASCR, Bank assistance helped develop an analytical tool housed in the Ministry of Finance that is used to assess pension reform options to different levels of government in China. In labormarkets, Bank assistance (through, for example, the Labor Market Development Project) helped to improve the capacity of employment services, improved labor market information and identified options to strengthen the unemployment insurance program. Government programs and women’s organizations helped establish demand-driven retraining courses and provide skills development and entrepreneurialtraining for unemployed and laid-off workers, especially women. (e) Improving targeted poverty reduction programs. Partially achieved. Previously approved poverty reduction projects, the Poor Rural Communities Project and AAA work on poverty targeting, poverty mapping and on monitoring indicators for social spending were planned to support this objective. The CAS benchmarks of further reducing the numbers of people in absolute poverty and reducing leakage of poverty funds to the non-poor were only partially met, On the one hand, a continued decline in absolute poverty occurred; but the CASCR notes that poverty reduction funds remain poorly targeted and that relatively limited funding reaches poor households directly as most funding is absorbed at village or county level projects (p.14). As detailed in the CASCR, the Banks work on poverty reduction has played an important role in policy and research discussions and is recognized by the authorities. In October 2004, the Government of China chose the Bank Group as the first recipient of the country’s Poverty EradicationAward for international agencies. Following the 2004 Shanghai Conference, WBI helped establish a poverty research and training center that is a source of knowledge on China’s experience, While not a focus of this objective, according to the CASCR, at the request of various Chinese agencies, Bank assistance is helping to disseminate China’s experience to other countries, especially in Africa. (111) FACILITATINGAN ENVIRONMENTALLY SUSTAINABLE DEVELOPMENT PROCESS During the CAS period, an Environmental Assessment Law was passed, China ratified an important internal environment agreement and individual Bank-financed projects modeled good approaches. Despite these achievements, the CASCR notes that natural resource scarcity and environmental challenges continued to mount during the CAS period. Therefore outcome under this pillar is rated moderately satisfactory. (a) Strengthening the effectiveness of environmental institutions. Partially achieved. Through the ongoing Environmental Technical Assistance Project, a large program of AAA, and several WBI learning events, the Bank helped to strengthen China’s environmentallegal and regulatory framework, including inter alia the enactment of the 8  IEG For Official Use Only CASCR Review independent Evaluation Group Environmental Assessment Law in 2003. Associated regulations, procedures and guidelines identified as benchmarks are currently being developed, Less progress was made in improvingpollution monitoring and enforcement despite a significant share of Bank lending (75%) going towards environmental investments in the urban sector. (b) Improving air quality, Not achieved. This sub-objective was to be supported through three GEF projects, four studies and ongoing projects on gas, the environment and renewable energy. Five of nine intermediate objectives were achieved or substantially achieved, three were partially achieved, and one was not achieved. At the policy and institutional level, however, the Bank lacked a framework for continuous dialogue. The CASCR notes that while Bank interventions in local hydro projects in poor counties demonstrated sustainable financing and project implementation, the overall strategic objective was not met as air pollution worsened over the CAS period. (c) Managing water resources. Partially achieved, The CAS called for improved management and conservation of water resources in agricultural and rural areas, and improved urban water quality and management. Bank assistance towards this objective was to be delivered through several ongoing and new urban and rural water projects and to build on the previously completed water strategy, as well as environmental sector and urban wastewater management studies. Intermediate project objectives were largely met. A water quota system was established, as was an innovative approach to water savings. On urban water quality, while urban sewage treatment rose over the CASCR period, it fell short of the benchmark. Some progress was made on the other two benchmarks. (d) Managing land and natural resources. Partially achieved. To support the authorities' management of land and natural resources Bank assistance focused on several ongoing watershed rehabilitation projects and four new GEF projects. In addition, the Bank was to participate in several high level working groupslpartnerships (forestlgrasslands, forest certification and dryland management) and undertake three pieces of ESW. The CAS highlighted two sub- Dbjectives, With respect to the first one, preventing further degradation of land, soil and water resources, the Sustainable Forestry Development Project (FY02) and FDPA helped build capacity for improved natural forest and nature reserves management through a participatory process (overall 5,000 staff in six countries and about 1.1 million farmers have participated in the training). According to the CASCR, progress was also made in reducing erosion, desei mcroachment and land degradation (six natural forests of 206,000 hectares and 13 nature reserves consisting of 1.09 nillion hectares). With respect to the second sub-objective of promoting large-scale reforestation, Bank assistance *esultedin increased forest and forage crop areas and according to the CASCR, by 2005 over 736,000 hectares of 'orest had been planted. This achievement was however, modest in the national context and there was less progress n increasing commercial forest areas and protective forest cover along critical wastelands. :e) Protecting global environmental concerns. Partially achieved. The CAS called for the use of several (primarily) ZEF projects towards this objective, Three benchmarks marked the key sub-objectives. According to the CASCR, all nterim performance targets have been met towards reducing ozone depleting substances (ODs) consumption and xoducfion by 2010. In terms of results, less was achieved with respect to conserving biodiversityof global significance, 3nd reducing greenhouse gases, desertification and land degradation, and fulfilling responsibilities under the =Onvention on Biological Diversity, While the number and acreage of natural reserves have increased, the CASCR lotes that the biodiversity conservation impact has been diluted by their management, existing legislation, capacity and inancial resources. The GEF Climate Change Program in China helped pass the Renewable Energy Law, which ihould in theory encourage energy efficient investments, Yet greenhouse emissions rose over the CAS period in line vith China's increasing demand for oil and coal as sources of energy. Bank technical assistance helped to develop ules and procedures for China's participation in Clean Development Mechanism (CDM) and the first three CDM ransactions are being piloted with Bank-managed PCF funds. China made some progress towards phasing out )ersistent organic pollutants (POPs) with the support of Bank AAA. The most significant achievements were Bank- iupported demonstration projects and China's 2004 ratification of the Stockholm Convention for the phase out of POPS. 9  IEG F o r Official Use Only CASCR Review Independent Evaluation Group Achievement of CAS Objectives Objectives Explanation I Comments Considerable progress was achieved under this objective due to China’s WTO accession, financial and capital market reforms and the introduction of key economic laws. Much remains to Improving the business be done however in strengthening the environment and accelerating banking sector, making business Not rated Satisfactory regulation and licensing less China’s transition to a market economy. cumbersome, strengthening corporate governance, improving accountability of public service and overall governance, and improving the efficiency and sustainability of infrastructure service deliverv. Health outcomes and efforts to strengthen transport links in lagging regions were unfavorable, and inadequate information was presented to judge whether employment and Addressing the needs of the Moderately agricultural productivity had increased Poorer and Disadvantaged Not rated satisfactory sufficiently to help the target People and Lagging Regions. population. Bank assistance contributed to the policy and research discussion on poverty, but operationally, poverty funds remain poorly targeted. Individual bank projects modeled good Facilitating an Environmentally approaches but natural resource Moderately Sustainable Development Not rated scarcity and environmental challenges satisfactory Process continued to mount during the CAS period. I Comments on Bank Performance: o Relevance of Bank strategy and infervenfions. The Banks strategy was relevant, aligning itself with the evolving development challenges facing China and recognizing the transition in the country’s relationship with the Bank. But the strategy was only partly successful because the Bank has not yet fully persuaded the government of the need to make some important policy changes. While the portfolio generally supported the main objectives, in some cases (for example health and education) the switch to IBRD lending meant the Bank did not have the instruments to significantly influence outcomes. As noted in the discussion of CAS implementation above, the Bank’s AAA was of high quality and flexible enough to adapt to several unprogrammed requests. The Bank made full use of instruments from across the World Bank Group towards the CAS objectives. o Donor coordination. The CASCR notes the useful role played by donors in leveraging the Banks 10  IEG For Official Use Only CASCR Review Independent Evaluation Group assistance program. For example, DFlD co-financing helped reduce the effective interest rate for a health sector loan and made possible the Banks intervention in this area - one that the Chinese authorities were reluctant to borrow from the Bank for. Despite this example, it appears the Bank could have been more pro-active in working with other donors in other sectors, particularly those in which the Bank had no lending to facilitate a policy dialogue with the authorities. o Safeguard and fiduciary issues. During the CAS period, environmental and social safeguards were implemented satisfactorily. AAA contributed to understanding and improvementson safeguard issues (Support for passage of China's National Land Law, IDF grant to Ministry of Land and Resources, improvements in environmental assessment, publication of a social assessment manual). Despite these contributions, the Bank was less successful in streamlining internal processes to simplify its safeguards policies and the high transactions costs remain an area of client dissatisfaction as highlighted in the 2004 CAE and illustrated in the 2005 Client Survey. A majority of respondents in the Client Survey felt the Banks greatest weakness was that it was "too bureaucratic in its operational policies".According to the CASCR, the Chinese have also complained about the incompatibility between China's domestic systems and some of the Banks safeguards procedures. Given existing capacity in China, the need for Bank independence, and the reputational risk to the Bank, the CAE noted that devolution of responsibility for safeguards to China was premature. The country team (appropriately) envisages limited opportunity for "country systems" experimentation on safeguards policies in the short run. 4. Overall IEG Assessment ~~ Outcome: E a t i sfactory Bank Performance: I Satisfactory accelerating China's transition to a market economy, addressing the needs of the poorer and disadvantaged people and lagging regions, and facilitating an environmentally sustainable development process - is rated as satisfactoly. Bank performance is rated as satisfactory. The CASCR states that "the Banks assistance to China was satisfactory or better". Important achievements were high quality analysis and capacity building related to China's WTO accession and its impact on poverty, contribution to greater government focus on poverty, capital market development, greater government awareness of resource scarcity and environmental challenges and management, greater openness and transparency in project management and drafting of the Rural Land Contracting Law. Despite these achievements, a number of challenges persist: public sector management, service delivery by public utilities, adequate poverty targeting, interaction between different tiers of government, improving health outcomes, and achieving environmentally sustainable growth. Scaling up the Banks advice and projects from demonstration to a national stage has been hampered by the following factors: decentralizationand the dynamics between different tiers of government in China, the limitations placed by the *equirementthat repayment of IBRD loans be done by ultimate beneficiaries, evolving Government policy framework in some sectors and inability by the Bank to operate sector-wide in some sectors. Nonetheless, the Bank proved agile in ssponding to the transition from IDA to IBRD lending in part by being responsive to demand. EGs CAE noted that two factors - intergovernmental finance and loan repayments -- limit social spending and investment n poor provinces and bias incentives against investments in public goods and projects with environmental and other xternalities, Some progress has been made: there are increased transfers for compulsory education in rural areas lCASCR, p.1I), a national Medical Assistance program has been started to provide assistance to poor households (p. 12), he government has started to increase the equalization grant to poor provinces (p. 24), and the government has recently 11  IEG For Official Use Only CASCR Review Independent Evaluation Group expressed a willingness to blend resources for the central budget with IBRD resources (CASCR, box on p, 13). But overall progress in implementing the kinds of reforms advocated in the 2002 Provincial Public Expenditure Review have not gone very far (p. 24) and this limits progress on reduction of poverty and inequality or on improvements in the environment. 5Assessment of CAS Completion Report In spite of the fact that the FYO3-05 CAS was not results-based, the CASCR attempts to track Bank interventions and link them with outcomes. The CASCR is commendably candid about the weaknesses of the CAS performance monitoring framework. In particular, the CAS did not adequately distinguish between intermediate benchmarks and long-term outcomes. Nor did it prioritize its benchmarks or clearly explain their rationale and linkage to Bank activities and inputs. Few quantitative indicators were established, even in cases where it should have been possible. Given the less than optimal benchmarking in the previous CAS and their sheer plethora (135 indicators), the country team chose to focus on the new planned Country Partnership Strategy (CPS) and the CASCR was organized accordingly. Consequently, the discussion of themes and results was not adequately aligned with the original CAS objectives. The CASCR did not track all indicators in the original CAS matrix (attached as Annex Table 9) and some progress indicators/benchmarksin the CASCR differ from those in the CAS matrix (for example, some of those related to the environment). A detailed matrix was provided to IEG and covers many of the benchmarks but within the CASCR, the discussion of results was uneven and outcomes associated with sub-objectives (and thus program performance) were not rated, Separating the CASCR discussion from the original objectives makes it more challenging to get a handle on overall CAS outcomes. Given the large AAA program, a summary discussion of its contribution to the CAS Dbjectives would have been useful. Equally useful would have been a discussion of how the Banks business model can evolve to make AAA more effective in the absence of bundled finance. The CASCR effectively presents the integrated assistance program across the World Bank Group. Its discussion of Bank assistance to China through IFC, IBRD, MlGA and WBI instruments is strong in this regard and would have been sxemplary if the underlying linkages between AAA and lending towards common objectives had been clearer. The CASCR correctly notes the difficulty inherent in assessing the Banks performance and impact in China citing the *elativelyshort CAS period, the size of China relative to the Banks portfolio, and the highly leveraged nature of Bank assistance. While its discussion of the AAA program often draws out its influence on policy and institutional reforms, its liscussion of the intended catalytic and “demonstration” impact of the lending program is not consistently or clearly articulated. It would have been useful to include an overview of which demonstrationlcatalyticlinnovativeprojects were nost effective and the determinants of that success. The CASCR notes that “the Bank’s impact arises through jemonstrating innovative models for addressing specific development problems that are subsequently scaled up., ,or hrough influencing policy and institutional reform measures in ...AAA”. However, there is a link between the two. The ability to scale up is limited by policies and institutions - in particular by intergovernmentalfinance and loan repayment arrangements. 12  IEG F o r Official Use Only CASCR Review Independent Evaluation Group 6. Findings and Lessons # This Review agrees with the main findings and lessons of the CASCR, especially the need to further simplify and streamline Bank processes, actively work with other development partners to enhance the Banks engagement in poverty reduction and social sectors and further refine the process by which successful innovations and ideas are scaled up. While IEG concurs with the need to assess results through the introduction of a set of intermediate indicators, these indicators should serve as a self-evaluation based on the Banks specific instruments, and thus complement an assessment of overall results. This Review draws the following additional lessons: The importance of a properly specified and parsimonioustwo-tier system of monitoring and evaluation. The CASCR discussion highlights the importance of identifying realistic intermediate indicators and establishing adequate benchmark indicators. Given the poor and lagging statistics and short CAS cycles it is important to be precise about which indicators will be used in the absence of first best. While outcome indicators related to the Bank and country objectives are important, it is critical to also include clear intermediate self-evaluation indicators or milestones based on the Bank‘s specific instruments, Both sets of indicators are necessary for monitoring and evaluation. Outcomes may not be measurable in the short-run or may be affected by exogenous shocks. But even in this case the Bank needs to be able to evaluate its own inputs and contributions. In the long-run, the Bank‘s impact must be judged by its impact on core development objectives such as poverty reduction. It is important to identify up-front which instruments (existing or Bank-supported) can be used to monitor progress. There is an important link between the “demonstration”effect (scaling up) and policylinstitutional reforms. In particular, the ability to scale up is limited by policies and institutions. To the extent that missing or untimely data constrains monitoring of progress, a consideration of how AAA can help in this area and what kind of specific arrangements would be needed to collect the relevant monitoring data is appropriate. Given the importance of AAA for the effectiveness of Bank assistance to China, it would be useful to develop a regular system of feedback on AAA (possibly extending the Client Survey) to inform the Banks decision making process and to provide a more concrete sense of value-added. Similarly, given the importance that innovation and demonstration effects are to the Bank’s objectives in its lending program, a more sophisticated way to capture their impact is needed. * imDortant Lessons from China’s develoDment exDerience for other countries are a Dotentially . benefit of the Bank‘s relationship with the cbuntry and could be explored in greater detail. 13  IEG Annexes CASCR Review Independent Evaluation Group Annex Table 1: Planned versus Actual Lending FY03.05 Annex Table 2: Analytical and Advisory Work, 2000-2005 Annex Table 3: IEG Project Ratings, Exit FY2000-2005 Annex Table 4: Portfolio Status Indicators by Year, 2000-2005 Annex Table 5: IBRD I IDA Net Disbursements and Charges, FY2000-2005 Annex Table 6: Total Net Disbursements of Official Development Assistance and Official Aid CYO2-04 Annex Table 7: Economic and Social Indicators for China and Comparator Countries 2000-2004 Annex Table 8: Millennium Development Goals Annex Table 9: CAS Program Matrix (FYO3-05) Annex Table I O : Acronyms 15  IEG Annexes CASCR Review Independent Evaluation Group - ible 1: China Planned versus Actual mnex PI Projects Nnding YO3-05 IBRD IBRD - alannec Actual CAS Plans (January 22,2003) status US ($MI US ($MI FY03 Regular Program: Third Xinjiang Highway 150.0 Delivered 150.0 Hubei Highway 250.0 Delivered; name changed to Hubei Xiaogan Xiangfan Hwy 250.0 Yi-Xing Pumped Storage 145.0 Delivered 145.0 rianjin Urban Development I 1 150.0 Delivered 150.0 Shanghai Urban Environment APL (Stage 1) 200.0 Delivered 200.0 Aaoning Urban Development 110.0 Postponed to FY06, name changed to Liaoning Medium Cities Urban Infra. Jianxi Integrated Agrkultural Development 100.0 Postponed to FY04 Zansu and Xinjiang Pastoral Development 66.0 Postponed to FY04 3asic Education in Western Areas 100.0 Postponed to FY04 Regular Program Subtofa, 1,271.0 Standby Program: Second Anhui Highway 250.0 Delivered 250.0 4cquaculture 10.0 Dropped in FY04 at the request of GoC Standby Program Subtota, 260.0 FY03 Delivered Program Total: 1,145.0 3ther Program. 2EF-Lake Dianchi Freshwater Biodiversity 1.2 Delivered 1.2 iestoration 2EF-Energy Conservation II 26.0 Delivered 26.0 Other Program Subtotal 27.2 Other Program Total: 21.2 - FY04 ?egularProgram: - rhejiang Urban Development 140.0 Delivered 133.0 nland Waterways IV 95.0 Delivered 91.o Wuhan Urban Transport 200.0 Delivered 200.0 dational Railway I1 200.0 Delivered; name changed to 2nd National Railways (Zhe-Gan 200.0 Line) iunan CitylRegional Development 150.0 'ostponed to FY05; name changed to Hunan Urban 3evelopment .ake Tai Water Quality 110.0 'ostponed to FY05, name changed to Tai Basin Urban Environment 'oor Rural Communities Development 100.0 'ostponed to FY05 rgricultural Technology 100.0 'ostponed to FY05 iner Mongolia Highway II 100.0 'ostponed to FY05 konomic Reform Implementation 30.0 'ostponed to FY06 Iistance Learning/Knowledge Dissemination 4.0 lropped in FY04, but supported by trust-fund activities Regular Program Subtotal 1,229.0 Ftandby Program: hangdon-Pearl River Delta Environment 150.0 leelivered 128.0 ;haanxi Highway 111 200.0 'ostponed to FY06 Standby Program Subtotal 350.0 ldditional DeliveredProjects ;ansu & Xinjiang Pastoral Development 66.3 lianxi Integrated Agric. Modern. 100.0 3asic Education in Western Areas 100.0 4ubei Shiman Highway 200.0 FY04 Delivered Program Total: 1,218.3 Ither Program: iEF-Hai Basin Integrated Water and 17.0 Ielivered 17.0 nvironment Other Program Subtotal; 17.0 Other Program Total: 17.0 17  IEG Annexes CASCR Review Independent EvaluationGroup Projects IBRD IBRD Planned Actual CAS Plans (January 22,2003) Status US ($MI US (SM) Regular Program: iubei Highway II 200.0 Delivered; advanced to FY04 .iuzhou (Guangxi) Environment 100.0 Delivered 100.0 Shanghai Urban Environment APL (Stage II) 200.0 Postponed to FY06 Zhongqing Small Cities Urbanization and 150.0 Delivered 180.0 fnvironment ienan Medium-Sized Cities 150.0 Postponed to FY06 as Standby Project Jpper Yangtze Watershed Rehabilitation 100.0 Postponed to FY06; name changed to ChangjianglPearl River Watershed Rehab ieilongjiang Diary Development 100.0 Postponed to FY06 k h o u Urban Transport 100.0 Postponed to FY06 ienan Highway IV 175.0 Dropped at request of GoC Regular Program subtotal, 1,275.0 Standby Programs: Jingbo Water Management 100.0 Delivered 130.0 iural VillagelCities Water Supply & Sanitation 50.0 Postponed to FY07 raiyuan Integrated Urban Development 150.0 Postponed to NO8 rrigated Agriculture Intensification 111 200.0 Postponed to NO6 iural Health 75.0 Postponed to FY07 Standby Program Subtotal. 575.0 Additional Delivered Projects: Tai Basin Urban Environment 61.O Renewable Energy Scale-up Program 87.0 Inner Mongolia Highway & Trade Corrid 100.0 Agricultural Technology Transfer 100.0 Poor Rural Communities Development 100.0 Hunan Urban Development 172.0 FY05 Delivered Program Total: 1,030.0 M e r Projects ;EF-Heat Reform and Building Energy 18.0 Delivered 18.0 Efficiency CF-Jinchen Coal Bed Methane Project 10.0 3elivered 10.0 Other Program Subtotal; 28.0 Other Program Subtotal 28.0 - Total (FYO3-05 Planned Regular Program): 3,775.0- Total (FYO3-05 Delivered Programs) 3,393.3 18  IEG Annexes CASCR Review independent EvaluationGroup Annex Table 2: Analytical and Advisory Work for China, 2000-2005 I I Proposed I Deliveredfo ClientN I Output Type I ReportNo. to 1Ith 5-year Plan and NortheastDevelopment 19  IEG Annexes CASCR Review Independent Evaluation Group Annex Table 2: Analytical and Advisory Work for China, 2000.2005 (continued) Proposed Delivered to Client N Output Type Report No. Fv 20 IEG Annexes CASCR Review Independent Evaluation Group 21  IEG Annexes CASCR Review Independent Evaluation Group Annex Table 2: Analytical and Advisory Work for China, 2000-2005 (continued) Proposed Delivered to Client N Output Type Report No. N Addressing the Environmental Effects of WTO Accession 2004 Valuation of Environmental Health Risks 2005 2005 * 1) Public Finance Refom and Macroeconomic Management 2) Management of Domestic Debt Risks and Fiscal Sustainability 3) lntegrated Financial Sector Reform 4) Reform of Social Protection Mechanisms 5) Rum/ Development: New Challenges in a New Landscape 6) Urban Development and Management: Patterns and Policies 7) Human Development to Achieve a Well-off Society and 8) Addressing the Environmental Effects of WO Accession Source: China Regional CASCR 2005, Business Warehouse,and Controller's Website as of 2/27/06 a) Cited in China CASCR but not in Business Warehouse and Controller's Website 22  IEG Annexes CASCR Review Independent Evaluation Group - innex Tz e 3: IEG Project Ratings for China, Exit FY2000-2005 Proj ID Total OED Outcome OED OED ID Impact Exii FY Evaluated Sustainability 2000 HebeUHenan National 358.4 Satisfactory Likely Substantial Guangdong Prov. Transport 240.0 Satisfactory Highly Likely Substantial Tianjin Ind. II 105.0 Unsatisfactory Likely Substantial Zhejiang Provincial Highway Project 213.6 Satisfactory Likely Substantial Educ Dev in Poor Prov 134.6 Satisfactory Likely Substantial Sichuan ADP 152.5 Satisfactory Highly Likely Substantial Effective Teaching 101.6 Satisfactory Likely Substantial Henan Prov. Transport 112.0 Satisfactory Likely Substantial Telecommunications 208.2 Moderately Satisfactory Likely Modest 2001 Inland Waterways 185.9 Satisfactory Likely Substantial Rural Health Manpower (Hlth4) 110.7 Moderately Satisfactory Non-Evaluable Modest Agric. Support Services 118.3 Satiifactory Likely substantial Xiaolangdi Multipurpose 459.8 Highly Satisfactory Likely Substantial Tianjin Urban Dev and Environment 99.5 Moderately Satisfactory Likely Substantial Railway VI 406.8 Satisfactory Likely Substantial S. Jiangsu Environment Protection 241.1 Moderately Unsatisfactory Likely Modest Xinjiang Highway Project 150.0 Satisfactory Highly Likely Substantial Shanghai MTP II 146.8 Satisfactory Likely Substantial Basic Educ in Poor and Minority Area II 97.3 Satisfactory Likely substantial Iodine Deficiency Disorders Control 17.3 Highly Satisfactory Highly Likely Substantial Hebei Earthquake Rehabilitation 29.0 Highly Satisfactory Highly Likely Substantial 2002 Nature Reserves Management Project 0.0 Satisfactory Likely Substantial Ertan II Hydroelectric Project 394.2 Moderately Satisfactory Likely Substantial Forest Resource Dev 193.6 Satisfactory Likely Modest 4nimal Feed 22.4 Satisfactory Likely High Shanghai-Zhejiang Hwy 183.0 Satisfactory Likely Substantial Songliao Plain ADP 209.9 Moderately Satisfactory Likely Modest raihu Basin Flood Control 204.3 Satisfactory Highly Likely Substantial rianhuangpingHydroelectric Project 277.1 Satisfactory Likely High nfectious Diseases (Hlth5) 133.2 Satisfactory Likely High Watemal Child Health (Hlth6) 86.5 Satisfactory Likely Substantial 3asic Ed. Poor 111 91.8 Satisfactory Likely Substantial r'angtze Flood Emergency Rehabilitation 79.0 Highly Satisfactory Highly Likely Substantial to03 Zhejiang Multicities Development 109.8 Satisfactory Likely Substantial jhenyang Ind. Reform 138.8 Unsatisfactory Unlikely Not rated Shanghai Environment 155.9 Satisfactory likely Substantil State Farms Commercial 59.4 Unsatisfactory Unlikely Not rated ied Soils II Area Dev. Project 152.1 Satisfactory Highly Likely Substantial rechnology Development 196.7 Unsatisfactory Likely Modest jichuan Gas Dev and Conservation 208.9 Satisfactory Highly Likely Substantial 'inancia1 Sector TA 64.9 Moderately Satisfactory Non-Evaluable Modest ;rain Distribution and Marketing Proj. 475.3 Satisfactory Highly Likely Substantial /oc. Ed. Reform Project 28.9 satisfactory Likely Substantial seeds Sector Commercialization 76.0 Moderately Satisfactory Likely Substantial 'angzhou Thermal Power 335.0 Satisfactory Highly Likely Substantial :hongqing Ind Pol Ct 3.9 Unsatisfactory Likely Modest !nd Shaanxi Prov Hwy 210.0 Satisfactory Likely Substantial %tal Technical Assistance Project 47.5 . . .- Moderately Satisfactory Likely Substantial 23  IEG Annexes CASCR Review Independent Evaluation Group 2004 Disease Prevention (Hlth7) 91.o Satisfactory Likely Substantial Ref. Instland Preinv 48.2 Satisfactory Likely Substantial Liaoning Environment 100.3 Satisfactory Likely substantial Fujian Prov Hwy 121.4 Satisfactory Likely Substantial Zhejiang Power Devt 361.2 Satisfactory Highly Likely High Second Xinjiang Highway Project 240.0 Satisfactory Likely Substantial Xiaolangdi Resettlement 111.9 Satisfactory Highly Likely Substantial China Economic Law Reform -LEGEA 9.4 Satisfactory Likely Substantial Shanghai Sewerage 2 240.9 Satisfactory Highly Likely Substantial Shanxi Poverty Allev 90.9 Moderately Satisfactory Highly Likely Substantial Xiaolangdi Multi. II 309.5 Highly Satisfactory Highly Likely Substantial GEF- Efficient Industrial Boilers 0.0 Satisfactory Likely Substantial Sichuan Power Transmission Project 162.2 Satisfactory Likely Substantial Basic Ed. IV 82.7 Satisfactory Likely Substantial Heilongjiang ADP 120.0 Satisfactory Likely Substantial 7TH Raihvays 266.8 Moderately Unsatisfactory Likely Modest Qinba Mountains Reduction 176.8 Satisfactory Highly Likely Substantial Yunnan Envmt 100.4 Moderately Satisfactory Likely Modest Nat Hwy2Munan-Guangdong 395.6 Satisfactory Likely Substantial Nat Hwy3-Hubei 224.2 Satisfactory Highly Likely Substantial Second Henan Provincial Highway Project177.6 Satisfactory Likely Substantial Tarim Basin /I 146.7 Highly Satisfactory Highly Likely High Total Total Evaluated (SM) Outcome % Sat Sustainability lnst Dev Impact Evaluated (No) (No) % Likely (No) % Subst (No) China 11,404.40 70.0 90.0 97.1 82.9 EAP 22,959.85 239.0 79.7 77.5 56.5 Bankwide 109,661.27 1,571.O 77.6 75.4 51.O ;ource: WB usiness Warehouse Table 4.a.6 and 4.a.5 as of January 17, 2006. 24  IEG Annexes CASCR Review Independent Evaluation Group Annex Table 4: Portfolio Status Indicators by Year, 2000-2005 (in US$ m Country Fiscal year 2000 2001 2002 2003 I 2004 2005 China # Proj 109.0 104.0 98.0 89.0 83.0 80.C Net Comm Amt 18,896.3 17,123.3 15,537.9 13,954.1 12,297.7 11,200.8 # Proj At Risk 3.0 5.0 5.0 3.0 2s % At Risk 2.8 4.8 5.1 3.6 2.5 Comm At Risk 271.7 951.3 397.1 350.0 425.C % Commit at Risk 1.4 5.6 2.6 2.8 3.E Brazil # Proj 54.0 55.0 56.0 49.c Net Comm Amt 5711.4 5,536.9 6,200.1 4,880.4 4,074.7 4,948.4 # Proj At Risk 5.0 5.0 6.0 4.0 9.0 9.c % At Risk 9.3 9.1 10.7 7.4 18.8 18.4 Comm At Risk 799.0 776.0 675.4 363.4 685.8 626.7 % Commit at Risk 14.0 14,O 10.9 7-4 16.8 12.7 India # Proj 75.0 74.0 67.0 68.0 60.0 61.O Net Comm Amt 13,075.3 13,304.7 12,832.0 12,854.3 11,911 .I 12,638.7 # Proj At Risk 20.0 6.0 5.0 8.0 10.0 9.0 %At Risk 26.7 8.1 7.5 11.8 16.7 14.8 Comm At Risk 3,724.9 1,020.0 943.5 1,154.7 2,621.2 1,102.0 % Commit at Risk 28.5 7.7 7.4 8.7 Indonesia # Proj 61,O 51.0 45.0 29.0 Net Comm Amt 5,498.5 4,274.9 3311.5 2,995.6 2,602.3 2,574.2 # Proj At Risk 11.0 7.0 13.0 6.0 6.0 4.0 1 % At Risk 18.0 13.7 28.9 15.8 19.4 13.8 Comm At Risk 776.2 424.5 1,377.9 369.1 533.8 260.7 % Commit at Risk 14.1 9.9 39.2 12.3 20.5 10.1 Source: BW able 3a.4 as of January 11, 2005. 25  IEG Annexes CASCR Review Independent Evaluation Group Annex Table 5: China. IBRD I IDA Net Disbursements and Charges, FY2000-2005 (in US$ million) Gross Repayment Net interest Fees Net Transfer Fy Disbursement Amount Disbursement 2000 1,827.9 601.8 1,226.0 716.1 34.0 475.9 2001 1,820.3 715.8 1,104.6 782.3 33.0 289.2 2002 2,015.3 1,532.2 483.0 674.0 51.I -242.0 2003 1,780.1 2,844.9 -1,064.8 502.4 67.9 -1,635.1 2004 1,309.8 1,577.4 -267.5 323.7 36.8 -628.0 2005 1,191.6 1,023.8 167.8 324.9 17.9 -175.0 2006 586.8 510.8 76.1 230.4 10.1 -164.4 Report Total 10,531.8 8,806.6 1,725.2 3,553.8 250.8 -2,079.4 Source: Client connection as of January 18,2006 26  IEG Annexes CASCR Review Independent Evaluation Group "Source: Client Connection as of 3/3/06 27  IEG Annexes CASCR Review Independent Evaluation Group Literacy rate, adult total (% of people ages 15 and " ...... ...... " Source: DDP website as ofJanuary 11, 2006. * IMF Article IV 2004,2005 **China's Revenues includes grants 28  IEG Annexes CASCR Review Independent Evaluation Group Annex Table 8: Millennium Development Goals 1990 1994 1997 2000 2003 Goal 1: Eradicate extreme poverty and hunger Percentageshare of income or consumption held by poorest 20% 4.7 Population below $1 a day (%) 33.0 28.4 17.4 16.6 Population below minimum level of dietary energy consumption (%) 12.0 11.0 Poverty gap ratio at $1 a day (incidence x depth of poverty) 8.9 7.3 3.8 3.9 Poverty headcount, national (X of population) 4.6 Prevalence of underweight in children (under five years of age) 12.9 9.0 10.0 Goal 2 Achieve universal primary education Net primary enrollment ratio (% of relevant age group) 97.4 Primary completion rate, total (% of relevant age group) 105.1 98.4 99.9 104.2 98.0 Proportion of pupils starting grade 1who reach grade 5 86.0 100.0 Youth literacy rate (% ages 15-24) 98.9 Goal 3: Promote gender equality and empower women Proportion of seats held by women in national parliament (%) 21.o 21.o 22.0 22.0 Ratio of girls to boys in primary and secondary education (u) 87.0 98.9 98.4 Ratio of young literate females to males (% ages 15-24) 99.3 Share of women employed in the nonagriculturalsector (%) 37.7 38.1 38.8 39.1 39.5 Goal 4: Reduce child mortality Immunization, measles (% of children ages 12-23 months) 98.0 75.0 83.0 84.0 84.0 Infant mortality rate (per 1,000 live births) 38.0 37.0 32.0 30.0 Under 5 mortality rate (per 1,000) 49.0 46.0 40.0 37.0 Goal 5: Improve maternal health Births attended by skilled health staff (% of total) 66.8 97.0 Maternal mortality ratio (modeled estimate, per 100,000 live births) 56.0 Goal 6: Combat HWIAIDS, malaria, and other diseases Contraceptive prevalence rate (% of women ages 1549) 90.7 83.8 87.0 Incidence of tuberculosis (per 100,000 people) 116.5 111.9 108.6 105.4 102.3 Number of children orphaned by HIVlAlDS Prevalence of HIV, total (?hof population aged 1549) 0.1 0.1 Tuberculosis cases detected under DOTS (%) 14.9 32.2 30.6 42.9 Goal 7 Ensure environmental sustainability Access to an improved water source (% of population) 70.0 77.0 Access to improved sanitakn (% of population) 23.0 44.0 Access to secure tenure (% of population) C02 emissions (metric tons per capita) 2.1 2.5 2.7 2.2 Forest area (% of total land area) 15.6 17.5 GDP per unit of energy use (2000 PPP $ per kg oil equivalent) 2.1 2.9 3.5 4.2 4.6 Nationally protected areas (%of total land area) 7.8 Goal 8 Develop a global partnership for development Aid per capita (current US$) 1.8 2.6 1.7 1.4 1.o Debt setvice (% of exports) 11 8 8 5 3 Fixed line and mobile phone subscribers (per 1,000 people) 5.9 23.9 66.8 177.6 423.8 Internet users (per 1,000 people) 0.0 0.3 17.4 63.2 Personal computers (per 1,000 people) 0.4 1.7 6.0 15.9 27.6 Unemployment, youth female (% of female labor force ages 15-24) 1.2 1.1 unemployment, youth male (%of male labor force ages 15-24) 0.9 0.8 Unemployment, youth total (% of total labor force ages 15-24) 2.5 2.8 3.0 3.1 Other Fertility rate, total (births per woman) 2.1 1.9 1.9 GNI per capita, Atlas method (current US$) 320.0 450.0 710.0 840.0 1,100.0 GNI, Atlas method (current US$) (billions) 367.6 538.1 871.4 1,063.8 1,416.7 Gross capital formation (% of GDP) 34.7 41.2 38.2 36.3 44.3 Life expectancy at birth, total (years) 68.9 69.7 70.8 Literacy rate, adult total (“h of people ages 15 and above) 90.9 Population, total (millions) 1,135.2 1,191.8 1,230.1 1,262.6 1,288.4 Trade (% of GDP) 31.9 48.8 41.4 49.1 66.1 Source: World Development Indicators database, April 2005 29  0 m p * e x 5 a .- E -E + E 5 P * E 3 i5 P * .- 9 x + d 3 E 2 C E Q 2 + E z c 5 C Q + c 8 Q c E n .- + U U U a 2 + E e c n .- S 6 & a c E 4 z a .- * S S c E 5 5 E* .- c 3 E e C E n 2 + c z c 3 C a e c 8 a c C (1 .- c U U U 4 2 c c E c: .- (1 E E & Q z F % Q C 3 H e z a 6 c d z 9 .- c C C 5 iz h z c G .- c L % 3 E e C E n 2 c E E c: 3 C a e c 2 Q: c: c n .- c u u 4 2 c E E u n .- E if ., a = Ql F W Ql S f  00 8 m 8 El 4 .- C I '5 A P c1 2 j; H  0 d c 3 I B CI e r3 Lu H  B * e z a s 9 d w H  B c1 e j; E w H 5 5 .- L - + L 8 c U c s c a t! c5 - . . > 1 + d d E E I i 0 i + ! : i a + ! f a C L + .- (I (r (r < 2 + e z c n .- S t ir : a c t S S a *B E m P 6 3 d -z v) 8 t P SE m a 9 E M e e  a 3 2 + I n 2 ,E J . c 25 5 gz + e 3 erg a er; c C + o g .- u %! : u op 2 + I 2 t n C  IEG CASCR Review Independent Evaluation Group Annex Table I O : Acronyms AAA Analytical and Advisory Assistance ADB Asian Development Bank BW Business Warehouse (WB Database) CAE Country Assistance Evaluation CAS Country Assistance Strategy CASCR Country Assistance Strategy CBRC Chinese Banking Regulatory Authority CDM Clean Development Mechanism CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment CPS Country Partnership Strategy CY Calendar Year DAC Development Cooperation Directorate DDP Development Data Platform (WB Database) DEC Development Economics (Department) DFID Departmentfor International Development ESW Economic and Sector Work FDPA Forestry Development ProgramAssessment FY Fiscal Year GDP Gross Domestic Product GEF Global Environment Facility GOC Government of China IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IDF InstitutionalDevelopment Fund (Grant) IDA International DevelopmentAssistance IEG Independent Evaluation Group IFC International Finance Corporation IMF International Monetary Fund MIG Multilateral Investment Guarantee Agency NBFl Non-Bank Financial Intermediary NPL Non-Performing Loan ODA Official DevelopmentAssistance ODS Ozone Depleting Substances OECD Organization for Economic Cooperation and Development POP Persistent Organic Pollutant QAG Quality Assurance Group SARS Severe Acute Respiratory Syndrome SCB SME Small-Medium Enterprise SOE State-owned Enterprise TA Technical Assistance WB World Bank WBI World Bank Institute WTO World Trade Organization 51