China - Railway Project

Document of The World Bank FOR OFFICIAL USE ONLY .Report No. P-3748-CHA REPORT AND RECONMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$220.0 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A RAILWAY PROJECT March 7, 1984 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency - Renminbi (RMB) 1 Yuan (Y) = US$0.50 1 Yuan = 100 fen (as of March 1984) FISCAL YEAR (FY) January 1 to December 31 WEIGHTS AND MEASURES m = meter (= 3.281 feet) km = kilometer (= 0.621 mile) tkm = ton-kilometer (= 0.621 ton-mile) pkm = passenger-kilometer (= 0.621 passenger-mile) CTK = Converted ton-km, traffic unit (1 pass-km = 1 ton-km) mt = million tons PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CIF = Cost, insurance and freight MR = Ministry of Railways NMP = Net material product PBC = People's Bank of China PCBC = People's Construction Bank of China RRAs = Regional Administrations SAA = State Audit Agency SFYP = Sixth Five-Year Plan  FOR OFFICIAL USE ONLY CHINA RAILWAY PROJECT Loan and Project Summary Borrower: People's Republic of China Amount: $220.0 million including capitalized front-end fee Terms: 20 years, including 5 years of grace, at standard variable interest rate. Project Description: As part of China's regional rail development program, the project would help remove some existing capacity con- straints of the railway network, particularly in linking the mines of Shanxi province to major industrial centers and ports in Eastern China. The infrastructure features of the project would cover two railway lines (Xinxiang to Yanzhou and Datong to Taiyuan) and would include: laying of single and double track; construction of a bridge, connections to other lines and yards, and additional crossing stations; lengthening of existing stations; line electrification; and other upgrading work. Through pro- vision of equipment, technical assistance and training, the project would also assist the Ministry of Railways in expanding and improving electric locomotive production. The project is expected to contribute to the Government's overall plan for increased energy supply to support economic development in China. All project components involve proven technology that has been in extended use in China or in other parts of the world; technological risks connected with the project are therefore small. In addition, MR has successfully comr pleted similar projects for a number of years and has competent expertise; risks from inadequate project imple- mentation and operation are therefore negligible. The con- straint placed on development by the tight energy situation guarantees that all efforts will be made by Government to increase production of coal as well as develop the trans- port capacity to distribute it where needed. The risk is therefore very low that the rate of return would fall below the overall estimated ERR of 19%. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Cost: Local Foreign Total --------$ million---------- Infrastructure subprojects: Xinxiang Connections 37.5 10.6 48.1 Xinxiang-Heze New Line 128.7 28.2 156.9 Yellow River Bridge 66.6 43.2 109.8 Heze-Yanzhou Upgrading 47.3 29.6 76.9 Yanzhou Connections 24.3 9.9 34.2 Datong-Taiyuan Upgrading 41.2 41.2 82.5 Datong-Taiyuan Electrification 38.1 44.2 82.3 Electric Locomotive Factory: Modernization 25.0 16.4 41.4 Technical Assistance and Training - 1.3 1.3 Base Cost 408.8 224.6 633.4 Physical contingencies 17.0 15.6 32.6 Price contingencies 16.0 10.2 26.2 Total Project Cost /1 441.8 250.4 692.2 Front-end Fee - 0.5 0.5 Charge on use of foreign exchange 100.4 - 100.4 Total 542.2 250.9 793.1 Financing Plan Government/MR 542.2 30.9 573.1 IBRD - 220.0 220.0 Estimated Disbursements: IBRD FY: 1985 1986 1987 - ------$million---- Annual 45 125 50 Cumulative 45 170 220 Rate of Return: 19% Staff Appraisal Report: No. 4560-CHA, dated March 7, 1984 /1 Import taxes and duties are not included in project costs, as the Government does not intend to charge such taxes and duties on imports attributable to this project.  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED IDA CREDIT AND AN IDA SPECIAL FUND CREDIT TO THE PEOPLE'S REPUBLIC OF CHINA FOR A RAILWAY PROJECT 1. I submit the following report and recommendation on a proposed loan to the People's Republic of China to help finance a Railway Project. The loan, for $220.0 million, would have a term of 20 years, including 5 years of grace, with standard variable interest. PART I - THE ECONOMY 2. An introductory economic report, entitled "China: Socialist Economic Development" (No. 3391-CHA), was distributed to the Executive Directors on June 1, 1981. A country economic memorandum, entitled "China: Recent Economic Trends and Policy Developments" (No. 4072-CHA), was distributed to the Executive Directors on March 31, 1983. Basic data on the economy are given in Annex 1. Background 3. Following a period of major institutional changes in the 1950s, including land reform and the eventual establishment of communes in rural areas and the extension of public ownership to cover almost all of the modern sector, development efforts in China have been directed toward the major objectives of industrialization and poverty reduction. Despite sharp oscil- lations in policy and political upheavals like the Great Leap Forward (1958-61) and the Cultural Revolution (1966-76), China has made substantial progress toward achieving its objectives. Industrial growth since 1949 has averaged more than 12% p.a. (compared with under 5% for agriculture); the current share of industry in GDP (around 44%) is similar to the average for middle-income developing countries; and the country now produces a far greater variety of industrial goods than most other developing countries. Per capita GNP (with adjustments for international comparability) grew at 2.5-3.0% p.a. in 1957-81, significantly above the average for other low-income developing countries. In terms of basic education, nutrition and health the Chinese population is much better off than its counterparts in other low-income developing countries. 4. However, China remains a very poor country, with a GNP per capita of only $300 in 1982 and about 200 million people or 20% of the population with unacceptably low incomes. The economy is also inefficient: past growth has come mainly from massive mobilization of resources. For a country that faces significant domestic resource constraints, inefficiency is a particularly serious problem.  - 2 - 5. To address these problems and ensure rapid growth and improvements in living standards, the Government initiated a program of reform and adjustment in 1979. Economic reform, aimed at improving the efficiency of the economic system, involves: (a) restoring and improving the quality of central planning and policy coordination; (b) devolving more decision-making authority to lower level units; (c) establishing more direct links between incomes and the performance of economic units and individuals; and (d) relying more on market mechanisms and economic instruments and less on administrative directives, to influence economic activity. Structural adjustment, aimed at speeding improvements in living standards, has involved readjusting the relative shares of consumption and investment in national income, some sectoral and subsectoral readjustments, and greater emphasis on foreign trade. In 1981, problems with inflation and large budgetary and current account deficits resulted in short-term stabilization temporarily receiving the highest priority, but by 1982 the Government was again pushing ahead rapidly with adjustment and reform. Economic Reform 6. Reforms have now affected all sectors of the economy and institu- tions from the central government down to rural households. A major govern- ment reorganization has strengthened the core planning and management agencies (especially the State Planning Commission and the State Economic Commission) and reduced the number of commissions, ministries and agencies under the State Council from 98 to 52. Reorganization within ministries also has occurred, while that of provincial and local governments is now under way. Economic management has been decentralized: provincial and local authorities have been given more autonomy in investment decision making and use of credit to finance investment has increased; provincial and local governments have been granted greater budgetary flexibility and more incentives to expand revenues and/or economize on expenditures; and ministries, new local trading companies and some enterprises now have authority to engage directly in foreign trade. 7. Reforms have been most far-reaching in rural areas, where introduc- tion of various types of the "production responsibility system" has given small groups and households more autonomy in production and investment decisions and linked incomes directly with output. By the end of 1982, 92% of production teams in China had implemented such a system; 78% had imple- mented a household responsibility system, whereby collective ownership of farm land and major equipment is maintained but plots of land are contracted out to individual households, which can retain whatever they produce beyond their obligations to the state and to the collective (which account for about one third of production). The number and types of rural markets have also increased. 8. Economic reform has not proceeded as far or as fast in urban areas, but significant systemic changes have occurred. Reforms in the management of state enterprises have aimed at improving incentives through profit retention schemes and more flexible payment and employment practices. There have also been experimental changes in the organization of state enterprises, a greater variety of marketing channels, some price flexibility and adjustment of  relative prices, and greater autonomy for state enterprises in production decisions. The scope for cooperative and individual economic activities has also been enlarged. 9. Many economic reforms, especially those in rural areas, have already had a positive impact on efficiency, while others will take longer to have a significant effect. There are also some emerging issues with economic reform that the Government will need to address. In rural areas, there is a potential conflict between enhanced economic incentives and equity in income distribution, continued provision of basic services, and mobilization of labor. In the state enterprise sector, many units are still inclined to overinvest and overproduce, since substantial decentralization of decision making and control over resources has not been accompanied by necessary reforms in the pricing system. More use is being made of the market, but information and transport systems are still weak, markets are fragmented and competition is limited. It has also been difficult to develop effective indirect fiscal and monetary policy instruments. Adjustment, Stabilization and Growth 10. During the past four years, the Government has followed a strategy of setting relatively modest targets while implementing economic and admin- istrative measures that contribute to adjustment and stabilization as well as to economic growth. The various measures have included: major increases in agricultural procurement prices; strict controls on many other prices; rationing and other administrative measures to improve efficiency of resource use; cutbacks in state capital construction investment; fiscal measures to limit the budget deficit; increases in interest rates; moderation of currency and credit expansion; and the introduction of an internal settlement rate for foreign exchange transactions and other measures to encourage exports and economize on imports. 11. These economic and administrative measures, combined with systemic changes, have played an important role in the impressive performance of the Chinese economy in recent years. Gross agricultural and industrial output at constant prices grew by 7.3% per year between 1978 and 1982 - agriculture by 7.5% and industry by 7.2% (heavy industry by 3.4% and light industry by 11.8%). Net material product (NMP) at constant prices grew by an estimated 6.3% p.a. during the same period. Net investment has stagnated in real terms, while material consumption grew by over 9% p.a. between 1978 and 1982. The share of investment in NMP was reduced from 36% in 1978 to 29% in 1982. Domestic consumption of energy rose by less than 2% p.a. during 1978-82. 12. Structural adjustment and rapid overall economic growth, combined with a low population growth rate (1.3% p.a. between 1978 and 1982), have led to rapid increases in per capita incomes. In urban areas, real per capita incomes increased by 4.8% p.a. between 1978 and 1982; in rural areas the real increase in per capita incomes was about 12% p.a. While more prosperous areas and households may have benefitted the most and income differentials at a local level may have increased, many poor areas and households have also enjoyed substantial income improvements.  -4- 1:3. The high rate of investment in 1978 and the low returns to much of this investment made a cutback in the investment rate a priority for the adjustment program. But achieving such a cutback has proved difficult. Decentralization of investment decision making has permitted a rapid growth in investment financed from retained earnings or local resources. As a result, most of the cutbacks in investment have been in large centrally ffinanced projects (in 1981 even the priority sectors of energy and transportation were affected), though some of these were revived in 1982. 14. Government policy measures have helped restore domestic economic stability by lowering the rate of inflation from 6% in 1980 to 2.4% in 1981 and 2% in 1982, and by reducing the budget deficit (adjusted to eliminate financing items) from 7% of NIP in 1979 and 5% in 1980 to less than 2% in 1981 and 1982. The restoration of fiscal stability was achieved mainly by sharp cuts in expenditures on investment. Subsidies (mainly on daily living necessities) rose dramatically from about 7% of total expenditures in 1978 to 26% in 1982, when they were 9% of NMP. 15. China's external position has also changed greatly in recent years; the current account deficit of $2.4 billion in 1980 was converted into a $2.0 billion surplus in 1981 and an estimated $6 billion surplus in 1982, an improvement far greater than anticipated. The real growth of merchandise exports has been very impressive, averaging over 15% p.a. during 1978-82, mainly because of a rapid growth in manufactured exports. The growth rate has been declining steadily, however. Meanwhile the volume of imports declined in both 1981 and 1982, due in part to the lagged effect of contract cancellations and suspensions, but also to delays in equipment deliveries and to problems in obtaining high technology goods. A substantial increase in imports is expected in 1983 and 1984 as China expands its investment program and imports more machinery and equipment. 16. A major consequence of the Government's conservative balance of payments strategy has been reduced foreign borrowing. In 1980 and 1981 the Government cut back sharply on interbank borrowing and in 1981 and 1982 took advantage of the unexpectedly strong current account position to repay commercial bank and other loans. In 1981 China's debt service ratio was 7.8%, due in part to accelerated loan repayments. At the end of 1981 total reserves (excluding gold) were $5 billion; by the end of 1982 they had increased to o-ver $11 billion (equivalent to about seven months of 1982 imports). Medium-Term Prospects 17. During the remainder of the 1980s, the Government's efforts to improve living standards should be helped considerably by continuation of a relatively low population growth rate; by opportunities to make greater and more efficient use of foreign technology and capital; and by the possibilities foDr improving efficiency through economic reform. Rapid and equitable econ- omic development is constrained by a number of factors, however. There are serious shortages of skilled manpower (current enrollment in universities and technical and vocational schools is one quarter of the average rate for other  developing countries). With limited possibilities for expanding the culti- vated area and with cropping intensities and yields already quite high, the growth rate for agriculture is unlikely to average more than 3-4% p.a. during the 1980s. Energy availability will continue to constrain industrial growth, and there are capacity constraints in the transport and commercial sectors. Large investments will be required in energy and transport at a time when competing demands from other sectors, especially housing, are very great, domestic revenues have not been growing rapidly, and decentralization has weakened government control over investment. 18. In recognition of these difficulties, the Government's Sixth Five- Year Plan (SFYP) (published in December 1982 but covering the period January 1981 December 1985) emphasizes continuation of the program of "adjustment, reform, consolidation and improvement of the national economy." The plan period is essentially viewed as an interim period during which the foundation will be laid for more rapid economic development under subsequent plans. Modest targets are set for production and income growth (4% p.a. for gross agricultural and industrial output and for NMP), consumption is expected to grow faster than investment, prices will be kept basically stable, the budget deficit will be kept low, and a significant expansion in foreign trade is forecast, with imports growing more rapidly than exports. Priority will be given to measures improving efficiency rather than maximization of output, but the Government expects most production targets to be surpassed, as they have been in the first two years of the SFYP. 19. Reform implementation will be speeded up during the next three years. Rural reforms will be broadened and strengthened, with the production responsibility system extended to new spheres of activity, new types of orga- nization (including joint ventures between rural and urban units) encouraged, and the administrative functions of communes separated from their economic functions. In state-owned industry, taxation will replace profit remittance as the primary means of raising government revenue, industrial administration will be streamlined, and more inefficient enterprises will be closed down. The commercial system will be reformed and cooperative and individual commerce, particularly in rural areas, will be promoted. In investment planning, the Government is striving for more effective implementation of existing administrative regulations, but improving the structure and efficiency of investment will be a long and difficult process, dependent very much on progress on other aspects of reform. Measures to introduce formal economic analysis (including use of shadow prices) into investment decisions and to make producing units more economically and financially responsible for their decisions through appropriate pricing and incentive schemes are especially important. Price reform itself is recognized as being crucial, but in view of the complexities and magnitude of the changes required, the Government has decided that it cannot implement comprehensive price reform until after 1985. However, appropriate upward or downward adjustments in the most distorted prices are being made, and the prices of many minor commodities are being allowed to fluctuate according to market conditions. 20. During the remainder of the 1980s, China's development and moderni- zation programs are expected to result in rapid growth of imports of capital  - 6 - and intermediate goods. By the late 1980s, some imports of energy are also likely to be necessary before new domestic energy production capacity is established. China's temporary current account surpluses are expected to change quickly to moderate deficits. But the overall rate of import expan- sion, the size of the current account deficit, and the magnitude of foreign borrowing requirements are very sensitive to assumptions about economic trends and the effectiveness of government programs. For example, even a slight acceleration of economic growth without significant improvements in effi- ciency, especially energy efficiency, could result in large current account deficits and debt management difficulties by the end of the 1980s. In fact, a relatively high rate of economic growth of 6-7% p.a. during the rest of the 1980s (which is the growth rate used in the projections in Annex 1) will prDbably be feasible only if major improvements in energy efficiency continue. 21. China's access to concessionary capital to finance its development and modernization program is limited: apart from Bank Group funds, a signi- ficant amount of concessionary capital is likely to come only from Japan and a few other bilateral donors and will probably average only $500-600 million a year during the 1980s. If China is to maintain a reasonable growth rate and manageable debt service payments, it will need to obtain the necessary foreign capital at an average interest rate below the market rate. China also has a strong claim to concessionary lending because it is still one of the poorer countries in the world. 22. For China, as for many other developing countries, the 1980s will be a difficult decade. But looking further ahead, China's economic prospects appear favorable. By 1990, most new entrants into the labor force will have received some secondary education, and the skilled manpower deficit will have been reduced. Further progress will have been made in tapping China's large energy potential and in using it more efficiently. Continuation of recent manufactured export trends should generate additional foreign exchange, enabling the Government to use foreign capital more freely and be less concerned about its terms. If the country's immense wealth of human talent, effort and discipline can be combined with policies that increase the efficiency of resource use, China will be able to achieve continuing substantial increases in the living standards of its people. Whether this potential can be realized, however, will depend crucially on the success of the Government's program of reform and adjustment in the 1980s. PART II - BANK GROUP OPERATIONS IN CHINA 23. In view of the particular circumstances of China and the economic transition now under way, the Bank's relationship with China should have several broad objectives. Firstly, the Bank should offer China its consider- able development experience and institutional knowledge. Moreover, working with the Bank represents one means for China to re-establish its position in the world community after its lengthy isolation. Secondly, the Bank should assist China in removing the major constraints on development the shortages of energy, transport infrastructure, skilled manpower and modern technology.  - 7 - Even more important, the Bank should help the authorities to use these and other inputs more efficiently, by improving project analysis and investment control, as well as overall economic management and planning. Finally, the Bank should help the Government identify ways of reducing China's remaining poverty. Since the Government has been successful in meeting the basic needs of most of its people, these efforts should concentrate on the poorest rural areas. 24. Since China's change of representation in the Bank Group in May 1980, 12 projects involving lending of about $1,214 million have been approved. Three have been in education (University Development, Agricultural Education and Research and Polytechnic/TV University), three in energy (Daqing Oilfield Gaotaizi Reservoir Development, Zhongyuan-Wenliu Petroleum and Lubuge Hydroelectric), three in agriculture (North China Plain, Heilongjiang Land Reclamation and Rubber Development), one in transport (Three Ports), one in industry (Industrial Credit), and one in technical cooperation (Technical Cooperation Credit). Annex II contains a summary statement on these loans and credits as of September 30, 1983. Economic and Sector Work 25. The Bank's economic and sector work was initially designed to pro- vide a basis of knowledge on the development and functioning of the Chinese economy. This work resulted in completion of a nine-volume introductory economic report in June 1981. A follow-up country economic memorandum (Report No. 4072-CHA) analyzing developments over the past two years was distributed to the Executive Directors on March 31, 1983. In addition, the Bank has undertaken studies in several areas important for our understanding of the Chinese system, including rural finance and urban planning and management in Shanghai. 26. Other economic work is designed to assist China in its present effort to promote efficient use of investment resources, and more generally to introduce new methods of economic management and planning. As preparation for the Industrial Credit Project, an appraisal manual has been developed with Bank assistance by the new financial intermediary, the China Investment Bank. The Bank is now helping to develop a similar manual for the Agricultural Bank of China. A program of economic research on China's development problems, aimed at the application of advanced analytical tech- niques, has begun in collaboration with Chinese economic research insti- tutions in the areas of enterprise incentives and analysis of structural change. 27. Sector studies will help inter alia to identify and prepare future investments. Some have been included in Bank Group-financed projects, e.g., agricultural development in Shandong Province under the North China Plain Project, containerization under the Three Ports Project, and agricultural manpower and research under the Agricultural Education and Research Project. A health sector review is reporting on rural health care delivery systems and health manpower development.  -8- Near Term Lending 28. Work has begun on a range of projects, with emphasis on improved management and efficiency as well as on technical assistance and training. Several are in the key sectors of energy and transportation. In energy, the Bank's efforts will help to increase the supply of fuel and power. Future petroleum projects will, like the first three, emphasize the introduction of modern technology, staff training and studies. Other operations are likely to continue support for electric power and involve the development and management of large underground coal mines in Shanxi province. In transportation, work is proceeding on two railway projects and a second ports project to provide additional capacity at several major ports. 29. In view of China's shortages of manpower with higher or technical education, the Bank will continue its support of education through a second agricultural education project and another university development project. Support of agriculture would continue through projects to provide rural credit in two provinces with emphasis on improved project appraisal and institution- building, further assistance in agricultural research, and assistance in forestry. In industry, further loans will be made to the China Investment Bank mainly for modernization of light industries and export projects, and there will be projects for technical renovation and modernization in indus- tries such as fertilizers and machine tools. In health, a project will help improve rural health care services and medical education. Bank assistance is also planned for a water supply project. PART III - THE TRANSPORT SECTOR A. The Transport System 30.. Like other centrally planned economies, China's economy is very "transport intensive." With the same land area, US freight traffic is only four and a half times the freight traffic of China for a GNP nine times that of China. This intensity of transport is explained mainly by two factors: (a) the historical emphasis on heavy industry requiring movements of ores, steel and other products; and (b) the high level of energy consumption per unit of output in China's industry (energy use per unit of GDP is two and a half times that of other LDCs). 31. Investments. Over the period 1949-79, some Y 110 billion, or 17% of all new investment coming under the heading "State Capital Construction," went to transport. In comparison with other countries, transport investments appear somewhat on the low side. In the first two decades after liberation, the railways absorbed well over 50% of all new investments in the transport sector. Most railway investments went to construct new lines to the interior, while the northeast plains and coastal areas have 80% of the railway's freight traffic. As a result, major capacity constraints developed and are now par- ticularly evident in coal transport.  32. Because of the recent expansion of external trade, increasing emphasis has been given lately to the development of ports and ocean ship- ping. Many berths were constructed in the 1970s in China's 15 major ports. Investments in the shipping fleet have also been large, averaging about Y 500 million p.a. since 1976. By contrast, investments in inland waterways and roads over the past 30 years have been modest. Nevertheless, an average 25,000 km of road has been added to the network annually since liberation, much of it at rather low standards. 33. Traffic Trends. Domestic freight transported in 1981 reached 852 billion ton-km (t-km), a 12-fold increase since 1952, or an average annual rate of almost 9%, systematically higher than the growth of domestic pro-- duct. The relationship of freight growth to overall economic growth is, however, less than that experienced by some other low income LDCs, which reflects the development policy emphasis given to regional self-sufficiency rather than to interregional trade in foodstuffs and consumer goods. The modal split has moved toward a more balanced use of modes, but the railways still handle 67% of traffic versus 82% in 1952; this predominance is expected to continue for quite some time. 34. Passenger traffic reached 274 billion passenger-km (p-km) in 1982, an 11-fold increase since 1952 and an average annual growth rate above 8%. Since 1978, growth averaged 12% p.a., well above twice the overall rate of economic growth. This illustrates the potential demand for travel as income grows. It is likely that this growth would have been even higher if it had not been constrained by the limited capacity, particularly of the railways, to offer more passenger services. The modal split has shifted more rapidly than for freight toward the road mode, and the railways now handle less than 60% of the traffic versus over 80% in 1952. 35. Railways and Energy Transport. Coal provides over 70% of the energy consumed in China and as a result of economic reforms, production has increased rapidly from 550 million tons (mt) in 1977 to 666 mt in 1982. The recently released 1981-85 plan target is for 700 mt by 1985. The railways play a key role in the distribution of energy, mainly coal. In 1981 the railways trans- ported 412 mt of coal and this traffic accounted for 32% of the total t-km performed that year. However, transport bottlenecks developed in railways and to a lesser extent in ports. Despite lower total production in 1980 and 1981, a stockpile of over 10 mt has accumulated in Shanxi Province alone because of lack of rail capacity. Some of these stocks are being lost due to spontaneous combustion. Recent production statistics for 1982, up 7% from 1981, indicate that the situation has probably worsened recently. 36. Shanxi is endowed with one third of all coal reserves in China, and is also more accessible to consuming areas that other coal rich areas in the remote northeast or Inner Mongolia. In 1982, coal production in Shanxi reached 144 mt, 20% of the national total. Mine developments presently under way and planned are expected to bring production over 150 mt by 1985/86 and possibly near 200 mt in the early 1990s. This includes a mine that will 'be developed under a proposed Bank project. Railway capacity to move coal from Shanxi to industrial areas and ports on the east coast is presently limited to less than 90 mt p.a. The Ministry of Railways (MR) has launched a major  - 10 - :investment plan on seven routes to increase their capacity to over 150 mt p.a. by 1986. The proposed project is a direct contribution to the capacity increase of two of these seven lines. 37. Other Transport Modes. Port traffic grew rapidly in the 1976-81 period, reflecting the economic opening of China to foreign trade. Annual growth averaged 11.3%. Domestic coastal shipping and inland water transport also increased substantially. As a result, ports became congested despite commendable efforts to achieve high productivity. A major effort to modernize ports started in the early 1970s and continues with particular emphasis on container and bulk terminals, the latter mainly for coal. The Bank's first transport operation in China was the Three Ports Project (Loan 2207-CHA, 1982), which includes a coal berth at Huangpu. 38. The highway network comprised about 897,000 km in 1982, of which about 151,000 km were asphalted. Road pavement standards are low and the extent of the paved network is limited. Road maintenance, however, is well organized and currently absorbs much of the attention and resources of the provincial and other road authorities. Except for Western China, the highway network is still very much a system of feeder roads to the railways. Never- theless, motor traffic on the national highways since 1978 reportedly has grown at a very high overall annual average of 15%. 39. Transport Issues and Objectives in the 1980s. The Sixth Five-Year P!Lan 1981-85 (SFYP) approved in December 1982, includes Y 27.5 billion (16.2% of the total) earmarked for transport sector investments. The railways would get 63% of this amount. The plan document does not directly mention issues in the transport sector, but a number of other recent publications give a fairly consistent picture of some key problems. The most important sectoral issues at this time are: (a) the capacity constraints both for freight and passenger movements; (b) the appropriate economic role of the various modes and in par- ticular the modal allocation of short distance traffic; (c) the management of the transport system including policy, planning, coordination and pricing; (d) the choice of technologies for infrastructure as well as vehicles; and (e) the training and development of staff in all the above matters. B. The Railways Subsector 40. Long-term Bank Objectives. The Bank's long-term objective is to assist MR in introducing such changes in policies, institutions, infrastruc- ture, motive power and rolling stock, terminals, and operations that are necessary, for the railway to meet, in a cost effective manner, the increasing demand for railway transport generated by growth in the economy. The vehicle for this dialogue in the longer term would be railway sector lending opera- tions focusing on specific issues, such as relieving regional transport infrastructure bottlenecks, modernizing motive power technology, improving manufacture and maintenance of motive power and rolling stock, improving terminal handling operations and modernizing education and training. The proposed project is a first step in the introduction of such sector lending operations, and would involve the removal of important bottlenecks for trans- porting coal from the Shanxi coal fields to the coast, as well as some initial activities involving costing, manpower planning, education and technology.  - 11 - 41. Organization, Management and Staff. The railways of China are the major carrier in the modern transport sector and have their own Ministry. Operations are largely in the hands of 18 regional administrations (RRAs). Each administration, headed by a General Manager, is made up of eight depart- ments and three or more operating subadministrations. Altogether MR employs 2.7 million people, of whom 1.6 million are involved in the transportation function. The others are engaged in industry (MR operates 68 factories pro- ducing locomotives, rolling stock, etc.), capital construction (new railway track, bridges, electrification, workshops, housing, etc.), education and other activities. 42. Education and Training. This is a very important function of MR which operates over 2,000 schools with 100,000 teachers and staff. At the top of the system are 10 universities of which seven are technical, two medical and the last a teachers' college. Most universities now also have graduate programs. There are also eight research institutes. For high school graduates who cannot enter university, MR operates over 60 Intermediate Technical Schools with two-year programs and Technical Workers Schools to train locomotive drivers and other trade workers. In addition, MR operates middle and primary schools with enrollment exceeding one million. Outside this formal education system, MR has 20 Staff Training Colleges for in-service training. The problems encountered by MR are similar to those of others dealing with education in China. Programs need modification to reflect the technological changes which are accompanying for example, the gradual switch from steam to diesel and electric traction, with emphasis on management and on economic and financial analysis. Most teaching materials now in use were written in the 50s and 60s and need upgrading. Also, education and training are too narrowly specialized and MR wishes to move to more comprehensive training to increase the flexibility of future staff assignments. A second railway project now under preparation may include an education and training component to address some of these issues. 43. Railway Facilities. The railway system in China has more than doubled in size since 1949 from 22,000 route-km to about 50,000 km of which 8,300 km were double or multiple track and some 1,700 km electrified at the end of 1981. Further double tracking and electrification are in progress. 44. The locomotive fleet consists of about 10,000 units, 75% of which are steam, 22% diesel, and 3% electric. Demand for electric locomotives will increase rapidly to some 120 locomotives per year by 1985-86. This project includes urgently needed equipment to increase production capacity from 40 locos p.a. to 120 locos p.a. A second project now under preparation will focus on improving locomotive technology with the assistance of an inter- national panel of specialized consultants. In 1979, the freight car fleet numbered 259,000. In recent years, rolling stock acquisitions have generally kept pace with traffic growth except in 1981, reflecting the overall economic slowdown experienced during that year. Passenger coach acquisition has increased over the last few years, following the rapidly rising demand for passenger travel. It is, however, still below MR's estimated need of at least 1,200 coaches p.a.  - 12 - 45. Traffic and Operations. China has the third largest freight railway system in the world after the USSR and the USA. Freight traffic has grown from about 100 million tons in 1950 to over 1 billion tons in 1981 while ton-km grew from 39.4 billion to 570.2 billion or at an average rate of 9% p.a. Recently, freight traffic has grown less rapidly, averaging about 5.7% p.a. since 1977. Ten commodities: coal, timber, iron and steel products, construction materials, petroleum, grain, non-metallic ores, fertilizer, metallic ores and cement (in that order) account for about 75% of the ton-km. Average transport distance has increased continuously from 395 km in 1950 to 544 km in 1981. The global freight traffic forecast included in the SFYP is for 666 billion ton-km in 1985, a 3.0% p.a. growth over 1980. The strong 1982 growth more than compensated for the 1981 stagnation making the combined two-year growth 8%, somewhat ahead of the forecast. Passenger traffic has grown from about 150 million passengers in 1950 to 950 million in 1981, while p-km grew from 21.2 billion to 147 billion or at an average rate of 6.5% p.a. Passenger traffic exploded since 1978, increasing 44% in four years and putting heavy demand on the existing equipment as well as on line capacity. The growth of passenger traffic is exceeding forecasts and it is clear that passenger traffic will continue to be determined more by the capacity provided by the railways than by the market's demand. 46. Operations are efficient and show a high level of track and equipment utilization. Traffic density is the second highest in the world after the USSR. It averages 11.9 million net t-km per route-km for freignt and 3.1 million p-km per route-km for passengers. Freight car turnaround time (at 3.0 days) is extremely low and it is difficult to see further savings here. The number of freight cars per train has remained relatively constant at around 35 cars. This is largely a consequence of the length of passing loops which are 650 m for 75% of the stations and 850 m for the rest. A number of station lengthening programs is under way to allow operation of longer trains in the future. 47. Planning and Investments. Coordination of railway investment planning is the responsibility of the Planning and Statistics Bureau at the Ministry's headquarters. The emphasis of the SFYP is to increase the coal carrying capacity from western provinces to the east coast. A secondary objective is to relieve capacity constraints on lines of the eastern seaboard and in particular to develop more passenger transport facilities. Railway investments have fluctuated considerably over the past 30 years, somewhat in tune with general economic development. After a rapid buildup in the 1950s, investments fell off considerably in the early 1960s. They gradually increased again to reach their highest levels during the Fourth Five-Year Plan (1971-75), averaging almost Y 3.5 billion p.a. In recent years, they have fallen off again, particularly in 1981 when MR was allocated less than Y 1.5 billion for investments, as a consequence of economic retrenchment and reformulation of Government economic policies. 48. The Ministry of Railways has four general design institutes which are adequately staffed with competent staff. Over the years, these institutes have designed a large number of civil work projects, such as new tracks, track doubling, tunnels, buildings, small and medium-size bridges. The designs are well adapted to labor-intensive construction methods which are adequate in  - 13 - China. In addition, there are two other institutes specialized in both design and construction of electrification and major bridges, respectively. The Electrification Institute has prepared all electrification projects to date (about 1,600 km) on the basis of technology widely used in developed countries, i.e. 25 KV-50 Hz. The Major Bridge Institute has designed and executed a number of very large projects including the Nanjing Bridge (14 km including approaches, with a double railway track on the lower deck and a six- lane highway on the upper deck) and seven other large bridges over the Yangtze River. All these projects are of a high technical standard. 49. The Ministry of Railways has five construction bureaus in charge of track and general civil works, a factory construction bureau and a tunnel construction bureau, all of which have experienced, skilled and management staff (unskilled labor is recruited locally for each project). The construction quality is good. The projects have generally been completed on or ahead of time, and cost overruns are the exception. 50. Tariffs and Costs. Rates and fares were not changed between 1967 and December 1, 1983, when freight tariffs were revised. This revision con- sisted mainly of: the doubling of the minimum distance charged, from 50 to 100 km; and a 23% rate increase covering 75% of freight, including bulk commodities like coal, cement, oil, and fertilizer. The current average freight haul of about 550 km corresponds to an average net receipt (after sales tax) of Fen 1.43 per ton-km, which compares favorably with the average operating cost of about Fen 0.94 per ton-km, leaving a wide profit margin of 52% above operating costs. For passengers, the average distance traveled is 156 km, and the average gross revenue per passenger km is Fen 1.46 as compared to the estimated average cost of Fen 1.08, i.e. a profit margin of 35% above operating costs. Consequently, railway operations are highly profitable. 51. There is a substantial amount of costing data available at administration and subadministration levels, but little of these are developed at MR level, where "gross" costing is the rule. The Ministry of Railways acknowledges that the findings of their comprehensive costing studies carried out some 15 to 20 years ago (and on the basis of which the still prevailing tariff structure was fixed) are outdated. Under the proposed project, MR will carry out a comprehensive railway costing study (para. 58). 52. Budget, Accounting and Audit. The Ministry of Railways' financial procedures are recorded in a comprehensive "Manual on Railway Finances". The annual recurrent budget is prepared at subadministration and administration levels and ultimately finalized at the MR level. The annual capital budget is prepared at the MR level within the global allocation of resources earmarked by the State Planning Commission. Since 1983, MR is to pay to the State (a) sales tax set at 15% of gross operating revenue; (b) income tax set at 55% of net profits; and (c) the share of after tax profits it is not allowed to retain. The same system applies to the Zhuzhou factory, but the sales tax rate has been set at 5.3%. The State uses part of the proceeds of the tax to finance railways and factory investments. 53. The Ministry of Railways' accounting procedures are generally satis- factory. The Ministry of Railways is using a double-entry accounting system  - 14 - on an accrual basis; the dual recording concept is applied although the debit- credit technique has been replaced by an "increase-decrease" system. The most unusual feature of both MR and the Zhuzhou factory is the dual system of depreciation, which comprises a basic provision of 3% and an additional "provision for major repairs" which grew from 1% in 1979 to 3.5% (2.5% for the Zhuzhou Factory) in 1982. The handling of this provision as a component of depreciation is debatable since maintenance should normally be charged to working expenses. This dual system is based on the cumulated historic gross value of depreciable fixed assets instead of taking into account the actual economic life of depreciable items. This handling of depreciation distorts the true earning position of MR and the Zhuzhou factory. There are other shortcomings in financial procedures like the lack of long-term financial planning and insufficient use of data processing. 54. Audit. The Ministry of Railways has a "Financial Checking Division" which performs internal auditing; it also checks the correlation of revenue and expenditure with planned allocations. The People's Bank of China (PBC) is MR's paying and collecting agent and keeps a close record of MR's budgetary allocations including their subsequent adjustments. The People's Bank of China's inspectors regularly check the use of funds by MR. The People's Construction Bank of China (PCBC) fulfills a similar role for investment funds. The Ministry of Railways produces an annual report which is sent for review to the Ministry of Finance within five months after the close of the fiscal year. The Ministry of Finance issues a Certificate of Approval. The above-described control system is satisfactory for project implementation. PART IV - THE PROJECT 55. In July 1982, the Government requested Bank assistance in financing urgently needed rail investments necessary to transport the increasing coal production. The proposed project was prepared by the Government and Bank staff; it was appraised in March/April 1983. A Staff Appraisal Report (No. 4560-CHA, dated March 7, 1984) is being distributed separately. Supple- mentary project data are given in Annex III of this report. Negotiations were held in Washington on February 13-17, 1984 with a Government delegation led by Mr. Luo Qing, Deputy Director, External Finance Department, Ministry of Finance. 56. Objectives. This project would make a direct contribution to the Government's overall plan for increasing the supply of energy which is urgently needed to support economic development in China. It would also provide assistance to MR for expanding and improving electric locomotive production and for long-term design upgrading in electric locomotive technology, which could eventually be implemented in a subsequent project. Capacity wise it would help remove some of the existing constraints of the railway network to move coal between the mines of Shanxi Province and major industrial centers and ports in eastern China. This work forms part of a regional plan of construction and upgrading on seven different lines and three ports and is expected to be completed by 1986.  - 15 - 57. Description. The project consists of priority infrastructure investments on two lines and provision of equipment, technical assistance and training for improving electric locomotive production as follows: (a) Xinxiang to Yanzhou Line (305 km). A new line, between Xinxiang and Heze in Henan and Shandong Provinces, will close the gap between the coal production areas of southern Shanxi and the line presently being built between Yanzhou and the new east coast port of Shijiusuo (both are under construction with Japanese financial assistance and completion is expected by the end of 1985). The existing line between Heze and Yanzhou will be upgraded. (b) Datong-Taiyuan Line (355 km). This line is located in Shanxi Province and links Datong, the largest mining center in northern Shanxi, with Taiyuan, the provincial capital, also a major mining and industrial center. To increase its capacity, this line will be double-tracked on 127 km and electrified. All (34) existing stations will be lengthened from 650 m to 850 m and four new stations will be added. (c) Electric locomotives: Manufacture and Technical Assistance. There is a need to eliminate short-term production constraints and to improve the quality of locomotives at the Zhuzhou electric locomo- tive factory. This project would therefore include provision of: (i) equipment (machine tools, etc.) needed to increase and ipmrove production of electric locomotives of the present design (Shaoshan Types I and III) to meet the forecast of 120 locomotives per year in 1986 and thereafter; and (ii) technical assistance and training in areas of: - general mechanical and electrical technology and practices; - use and maintenance of the more advanced equipment referred to in (i) above; and - specialized technology and management practices. 58. Costing Study. To update and improve its costing system, MR will undertake a costing study. The aim of the study will be to improve the existing costing methodology and thereafter install a costing system that will improve railway operations and management. This study will be performed in separate phases over several years (ending December 31, 1989), since some adjustments are generally necessary after an initial period of implementa- tion. It will be carried out by a team to be organized by MR and staffed by representatives of MR administrations, subadministrations, and institutes or universities. After completion of each stage, reports will be prepared and submitted to the Bank for an exchange of views with the study team and MR (draft Loan Agreement, Section 4.05 and the letter supplemental thereto).  - 16 - 59. Execution. Civil works, track laying and installation of electrifi- cation equipment (substations, catenary, signalling and telecommunications) will be executed under the management and supervision of two construction bureaus, the Electrification Bureau and the Major Bridge Btureau, of the Ministry of Railways (paras. 48 and 49), using local labor mobilized by provincial authorities. This is a common procedure that works well in China. Completion of construction/upgrading of the rail network would be by end 1986, with electrification of the Datong-Taiyuan line by end 1987. The Zhuzhou Factory modernization plan would be substantially completed by 1986, with the last machine tools installed in 1987. 60. Costs and Financing. Estimated project costs are based on final engineering for infrastructure works, updated to March 1984 prices. Physical contingencies of 5% are included for infrastructure works, which is adequate, given the conservative quantity estimates used. Annual price contingencies were applied to local and foreign costs as follows: 7.5% in 1984, 7% in 1985, anid 6% in 1986 and 1987. The estimated project cost, including contingencies, the charge on the use of foreign exchange under Government's internal settle- ment rate system, and the capitalized front-end fee of US$0.5 million is about US$793 million, of which about US$251 million is the estimated foreign exchange component. The Government has requested a loan of US$220 million which would cover about 88% of the estimated total foreign exchange costs. The proposed Bank loan would finance selected materials and equipment for infrastructure works, equipment for the locomotive factory, technical assis- tance and training. The Ministry of Railways will finance other materials, equipment and construction costs. 61. Financial Performance. With very favorable working and operating ratios, MR has consistently earned substantial profits averaging well above US$1 billion per annum equivalent over the past eight years. Similarly, the return on average net fixed assets in use was 5.7% in 1981, or 8.4% after adjustments for some special features of MR's accounting procedures. These indicators, however, do need to be treated with some caution, since the understanding of Chinese accounts is still incomplete. In particular, asset revaluation does not seem to have been undertaken very systematically (partly because the inflation of costs has historically been very low - probably less than 1%. p.a. 1952-1980). Nevertheless, there is little doubt that the financial position is a very healthy one compared to almost any other among the world's railways. 62. This satisfactory position is likely to continue with little risk of deterioration in the medium term. Applying similar adjustments to reflect western accounting conventions, a forecast of MR's income accounts was made. The results of the exercise show that MR would, over 1983-87: (a) maintain a good earnings position with working and operating ratios estimated respec- tively at about 33% and 54% in 1987; (b) improve the return on net assets in use to over 10% by 1987; and (c) experience pre-tax profits rising to over Y 4 billion per annum (more than US$2 billion equivalent) by the mid-1980s. One of the important factors is the increase in freight tariffs just made (para. 50 above); retained profits (after taxation and additional remittance of income to the State) are expected to increase from about Y 600 million in 1983 to Y 850 million in 1984. Thereafter, MR should be able to maintain a  - 17 - level of retained profit of between Y 800 and Y 850 million, while remitting profits and taxes to the State that would easily finance its investment requirements and debt service. Agreement was reached at negotiations that MR would consult with the Bank (a) semi-annually on project financing and disbursements; and (b) annually on railway finances and financial performance and procedures. The consultations would be based on the updated data concerning the railways' operations and finances as published in various forms on a periodical basis (draft Loan Agreement, Section 4.04 and the letter supplemental thereto). 63. Implementation of the project is also expected to be beneficial in financial terms, although for want of adequate traffic cost and revenue data relating to particular sections of line, the impact can only be quantified for the Zhuzhou factory, the rate of return of which is expected to grow from 26% in 1982 to 31% in 1986. During this same period, net fixed assets will more than double and the net worth of the factory increase by 94%. 64. Audit. At negotiations an assurance was obtained that audited statements covering: (a) Profits and Cost and Fund Balance Statements covering the subadministrations concerned with the project and the Zhuzhou factory; and (b) an extract from the Improvement and Construction Fund Statement identify- ing project financing and expenditure would be furnished to the Bank no later than 6 months after the close of the fiscal year (draft Loan Agreement, Section 4.02). Initially, the Ministry of Finance will issue Audit Reports in accordance with methods and procedures acceptable to the Bank until the New State Audit Agency (SAA) is in a position to issue acceptable audit reports. 65. Project Completion Report. Agreement was reached during negotia- tions that MR will prepare a Project Completion Report covering both the infrastructure and factory components of the project. This report should be submitted to the Bank no later than six months after the loan closing date (draft Loan Agreement, Section 3.04). 66. Procurement and Disbursement. Procurement of selected materials and equipment for infrastructure works and equipment for the locomotive factory (totalling about $217 million) will be subject to international competitive bidding (ICB) in accordance with Bank guidelines for procurement. Small items of equipment, mainly hand tools and measuring aids, worth less than US$100,000 per contract and totalling not more than US$1.0 million, will be purchased on the basis of quotations from at least three suppliers in accordance with pro- cedures acceptable to the Bank. Procurement under ICB will be divided into about 30 packages, ranging in value from US$300,000 to US$40 million. In bid evaluation, Chinese manufacturers will be allowed a preferential margin of 15% of the CIF cost of competing imports, or the relevant prevailing level of customs duties, whichever is lower. For items not financed by the Bank, Government procurement procedures, which are acceptable to the Bank, will apply. 67. Disbursements would be made as follows: (a) 100% of the CIF cost of imported equipment and materials;  - 18 - (b) 100% of the ex-factory cost of locally manufactured equipment and materials; (c) 100% of the cost of technical assistance and overseas training. Domestic transport from port or factory would not be eligible for Bank financing. Any savings under the loan would be cancelled unless otherwise agreed with the Bank. To facilitate disbursements against the cost of overseas training, a revolving fund would be established with an initial deposit of US$200,000 equivalent to about three months of expected expenditures. A disbursement schedule is given in the Loan and Project Summary. Disbursements are based on the assumption that the proposed loan would become effective by June 1984. 68. Benefits. The project would make a direct contribution to the Government's overall plan of increasing the supply of energy necessary for the sustained development of China. The project is part of an urgently needed rail developme-nt program to move coal from Shanxi to east coast ports and cities. The net value added of coal production generated by the overall energy and transport development plan is the main benefit of the project. Coal being the main source of energy in China, the benefits of the project would accrue widely throughout the economy. The project would also contribute to the improvement and expansion of electric locomotive production in China. 69. Xinxiang-Yanzhou Line. The existing line from Yanzhou to Heze is presently a branch line with traffic in the order of 3 mt p.a. near Yanzhou dropping to about 1 mt p.a. near Heze. The project line upgrading plus con- nection to Xinxiang will have a capacity of about 22 mt p.a. The benefits are in terms of value added to coal which will be using the line. Included in the cost streams are the required investments in (a) coal mines, estimated on the basis of information from the proposed Bank coal development project, (b) the proposed project, (c) the new rail line between Yanzhou and Shijiusuo, and (d) the new port of Shijiusuo. The latter two items are presently under con- struction with assistance from Japan. The economic rate of return of the entire set of investments above, which includes the proposed project, is 17% with a 25 year period for benefits. While the life of the mine, rail and port investments is much longer than 25 years, benefits beyond the 25th year would increase the rate of return only marginally. 70. Datong-Taiyuan Line. Present traffic on the line ranges from 8 to 10 mt p.a. near Datong and Taiyuan to 5 mt p.a. through the central and more mountainous section. In addition to freight, there are some 10-12 passenger trains per day on the line, and the northern and southern sections are virtu- ally at capacity with their single track steam operation (7 to 10 mt p.a.). Major mining development projects are about to start along the line, and by the mid-1990s, traffic is expected to exceed 30 mt p.a. on the northern section, reach 19 mt p.a. on the southern section and some 12 mt p.a. through the mountains. Costs and benefits are similar to those of the Xinxiang-Yanzhou line above, and the economic rate of return is estimated at 19% over a 25-year period for benefits. The alternative of providing the necessary capacity increase with diesel rather than electric traction has been considered and rejected as more costly. Also the lines at both ends of the proposed project  - 19 - are already electrified, so operationally it also makes sense to have the middle section under the same type of traction. 71. Zhuzhou Locomotive Factory. This proposed component would assist the factory in increasing its output to meet the overall demand for electric locomotives which will be needed by the proposed project as well as other electrification projects presently under construction. The proposed factory modernization will have the following benefits: (a) reduced production cost of locomotives; (b) savings in the cost of locomotives (which otherwise would have to be imported); and (c) reduction in repair and maintenance costs of locomotives. The benefits in the first full year of operation are estimated at almost twice the investment costs. This is because the project is a marginal investment in a factory which is already established. The return of the project is thus very high. 72. Overall Evaluation and Risks. Overall economic evaluation shows that implementation of all project components is well justified and should proceed without delay. The average economic rate of return (ERR) of the three project components above accounting for over 99% of total project costs is estimated at 19%. All project components involve proven technology that has been in extended use in China or in other parts of the world; technological risks connected with the project are therefore small. In addition, MR has successfully completed similar projects for a number of years and has compe- tent expertise; risks from inadequate project implementation and operation are therefore negligible. The constraint placed on development by the tight energy situation guarantees that all efforts will be made by the Government to increase production of coal as well as develop the transport capacity to dis- tribute it where needed. The risk is therefore very low that the rate of return would fall below the estimate above. PART V - LEGAL INSTRUMENTS AND AUTHORITY 73. The draft Loan Agreement between the People's Republic of China and the Bank and the Report of the Committee provided for in Article III, Section 4 (iii), of the Articles of Agreement of the Bank are being distri- buted to the Executive Directors separately. 74. Special conditions of the project are listed in Section III of Annex III. Special conditions of effectiveness are the approval by China's State Council of the Loan Agreement and the establishment of the Revolving Fund. 75. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 20 - PART VI - RECOMMENDATION 76. I recommend that the Executive Directors approve the proposed loan. A.W. Clausen President Attachments March 7, 1984 Washington, D.C. i  - 21 - ANNEX I Page I of 6 CHINA, PEOPLE-S REP. OF - SOCIAL INDICATORS DATA SHEET CHINA, PEOPLE'S REP. OF* REFERENCE GROUPS (WEIGHTED AVERACES) /a MOST (MOST RECENT ESTIMATE) /b /b , RECENT L OW INCOME MIDDLE INCOME 1960' 197rib ESTD4ATN- ASTA & PACIFIC ASIA 6 PACIFIC AREA (TSAM SQ. M) TOTAL 9561.0 9561.0 9561.0 AGRICLLTURAL 3176.3 3213.0 3182.9 GNP PER CAPITA (UsS) 40.0/c 90.0 300.0 276.7 1028.6 END= CDNOWPION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 340.0 427.0 618.0 398.4 792.8 POPILATION AND VIETD'STATTSTICS** POPULATION,MID-YEAR (THOUSANDS) 683400.0 838900.0 991300.0 URBAN POPULATION (% OF TOTAL) 18.4/d .. 20.6 21.5 32.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILL) 1197.7 STATIONARY POPULATION (MILL) 1434.6 YEAR STATIONARY POP. REACHED 2040 POPULATION DENSITY PER SQ. 1C. 71.5 87.7 102.5 161.7 260.7 PER SQ. KOM. AGRI. LAND 215.2 261.1 307.8 363.1 1696.5 POPULATION AGE STRUCTURE (%) 0-14 YRS 38.9 37.7 32.2 36.6 39.4 15-64 YRS 56.3 57.2 62.4 59.2 57.2 65 AND ABOVE 4.8 5.1 5.4 4.2 3.3 POPULATION GROWTH RATE (%) TOTAL 1.7 2.1 1.5 1.9 2.3 URBAN .. .. .. 4.0 3.9 CRUDE BIRTH RATE (PER THOUS) 38.9/e 34.1 20.9 29.3 31.3 CRUDE DEATH RATE (PER THOUS) 23.77e 9.8 7.8 10.9 9.6 GROSS REPRODUCTION RATE 2.8Te 2.6 1.4 2.0 2.0 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUS) .. .. USERS (% OF MARRIED WOMEN) .. .. 74.0/f 48.1 46.6 FOOD AND NUTRITION INDEX OP FOOD PROD. PER CAPITA (1969-71-100) .. 100.0 117.0 111.4 125.2 PER CAPITA SUPPLY OF CALORIES (% OF REQUIREMENTS) 78.8/e 88.7 107.0 98.1 114.2 PROTEINS (GRAMS PER DAY) 49.47w 53.0 65.0 56.7 5J.9 OF WHICH ANIMAL AND PULSE .. 12.7 15.0 13.9 14.1 CHILD (AGES 1-4) DEATH RATE** 26.1/e 10.7 7.2 12.2 7.6 HEALTH LIFE EXPECT. AT BIRTH (YEARS)** 40.5/ 57.9 67.2 59.6 60.2 INFANT MORT. RATE (PER TNOUS)** 165.O0/ 90.0 71.0 96.6 68.1 ACCESS TO SAFE WATER (%POP) TOTAL .. .. .. 32.9 37.1 URBAN .. .. .. 70.8 54.8 RURAL .. .. .. 22.2 26.4 ACCESS TO EXCRETA DISPOSAL (7 OF POPULATION) TOTAL .. .. .. 18.1 41.4 URBAN .. .. .. 72.7 47.5 RURAL .. .. .. 4.7 33.4 - POPULATION PER PHYSICLN 8330.0/h 3800.0/h 1920.0/h 3506.0 7771.9 POP. PER NURSING PERSON 4020.0 2840.0 1890.0 4797.9 2462.6 POP. PER HOSPITAL BED TOTAL 1040.0 760.0 490.0 1100.6 1047.2 URBAN 210.0 .. 160.0 298.4 651.1 RURAL 10140.0 .. 1010.0 5941.6 2591.9 ADMISSIONS PER HOSPITAL BED .. .. .. .. 27.0 BOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. .. 5.2 URBAN .. .. 4.2 RURAL .. .. 5.5 AVERAGE NO. OF PERSONS/ROOM TOTAL .. .. URBAN .. .. RURAL .. .. ACCESS TO ELECT. (X OF DWELLINGS) TOTAL .. . URBAN .. .. RURAL .. .. .. .. ______ - ---- - ____ ___________________ ------------  - 22 - ANNEX I Page 2 of 6 CHINA. PCOPLtS REP. OF - SOCIAL INDICATORS DATA SHEET CHIA, PEOPLCS REP. OF REFERENCE GROUPS (WEIGHTED AVERAGES) /L MOST (MOST RECENT ESTIMATE) /b /b lb RECENT lb LOW INCOME MIDDLE INCQtE 1960- 1970- EST2tAT15 ASIA & PACIFIC ASIA * PACIFIC EDUCATIO'*** ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL t09.0 110.0 117.0 96.1 101.2 MALE .. .. 126.0 107.8 106.0 FEMALE .. .. 106.0 82.9 97.5 SECONDARY: TOTAL 21.0 23.0 34.0 30.2 44.9 ALE .. .. 40.0 37.3 50.0 FEMALE .. .. 27.0 22.2 44.6 VOCATIONAL (2 OF SECONDARY) .. .. 2.2 2.3 18.5 PUPIL-TEACHER RATIO PRIYARY .. .. 26.0 34.6 32.7 SECONDARY .. .. 17.0 18.4 23.4 ADULT LITERACY RATE (2) 43.0/d .. 69.0/i 53.5 72.9 cotsnN1EoU PASSENGER CARS/THO(tSAND POP .. .. .. 1.6 9.7 RADIO RECEIVERS/THOUSAND POP .. .. 150.6 96.8 113.7 TV RECEIVERS/THOUSAND POP .. .. 15.8 9.9 50.1 NEWSPAPER ("DAILY GENERAL INTEREST-) CIRCULATION PER THOUSAPD POPIILATION .. .. .. 16.4 54.0 CINEMA ANNUAL ATTENDANCE/CAPITA .. .. .. 3.6 3.4 LADM PONC*** TOTAL LABOR FORCE (THOOS) 319589.0/. 377495.0 463348.0 FEMALE (PERCENT) 38.3 38.0 37.2 33.3 33.6 AGRICULTURE (PERCENT) .. .. 68.9 69.0 50.9 INDUSTRY (PERCENT) .. .. 18.7 15.8 19.2 PARTICIPATION RATE (PERCENT) TOTAL 46.8/1 45.0 46.7 42.5 38.6 KALE 55.9Th 54.5 57.0 54.4 50.7 FEMALE 37.07e 35.0 35.9 29.8 26.6 ECONOMIC DEPENDENCY RATIO 0.9LI 1.0 0.8 1.0 1.1 I11O. DISTIBUTZON PERCENT OF PRIVATE INCCOE RECEIVED BY NIGHEST 52 OF HOUSEHOLDS .. .. 12.5/k 16.5 22.2 HIGNEST 20 OF HOUSEHOLDS .. .. 39.37k 43.5 48.0 LOWEST 202 OF HOUSEHOLDS .. .. 6.87N 6.9 6.4 LOWEST 40% OF HOUSEHOLDS .. .. IS.47k 17.5 15.5 GlRTT TAT CdtOUlS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 133.9 194.5 RURAL .. .. .. 111.6 155.0 ESTIMATED RELATIVE POVERTY INCCIE LEVEL (USS PER CAPITA) UR8AN .. .. .. .. 178.0 RDRAL .. .. .. .. 164.8 ESTIMATED POP. BELOW ABSOLUTE POVERTY INCO}E LEVEL (2) URBAN .. .. .. 43.8 24.4 RURAL .. .. .. 51.7 41.1 NOT AVAILABLE NOT APPLICABLE N O T E S /a The group averages for each indicator are poputatlon-wigbted arithmetic means. Coverage of countries a.otr the indicators depends on availability of data and Is not uniform. /b Unless otherwise noted, Data for 1960- refer to any year between 1959 and 1961; -Data for 1970- between 1969 and 197t; and data for "Most Recent Eatiute" between 1979 and 1981. tc Interpolated 1957-62 data; /d 1964; /e 1955-65 averae; /f Percentage of women of reproductive age; LI 1955-64 average; /h Senior doctor of western ndlelne; /1 1982; 7i 1957; /k Distribution of people ranked by households per capita income. * All population and vital statistics are Bank estimates vhich differ froe Chinese official statistice. *** Formal education only; non-formt enrolltmnt is substantial. * Definition and coverage differ from those of Chinese official statistics.  - 23 - ANNEX I Page 3 of 6 DEFINITIONfS OF SOCIAL INDIICATIOR otes..: Although if,. dote .r drast fromnure generally judged the most authoritative end relibhlo, It should als he noted tho1tOhoy say not hoitrato.l comparble heosn of the look of stssdaodietd defin1ittun .ed ounepte used by diffarent ontotesin Lnolletting the data. Tto dot ore, -oenbles, oseful to desortho orders of magottde, indiotot trends, and ohreoteirie cernaio ejnr difetenoec eteen ronoetris.. The reforeo group. err (I) the -in oouooy groop of the sobjoco --ooy asd (2) a ocuory grop no oesa ihe nrgojom thou the ....onry groop ofth sajet o-try (enopt for "Mtigh tte'Oil fpooteren grouP Acere "Middle trou- North Melti. sed Midd-le atb tooe oau o togrncocloa af-fjetties), In the referenoc group doto the -vroge Or. ppulation neightd a-ithent!oLasfreahidctrne hr iy hunjtt ofI the ,h-ouutties in gerhoe dco fe- uhet indicator. Sioot the toverega of -utries . he.eioto..epnd.n the u-ilabltyo dutu ndti c fo,oaion must ho exerised In reluting a-rges of onec inditon- to anoher. These -vagS. are only useful in coparIng nhe valu of iueldi-ta-or a t o -mg the o..untry ted MEL1 (then-ad sq.Im.l Puuou o _ Phyicin Pnpltloo, divided by unebee of ornoticteg -1 Toe su rfntx aren onmrising teed area ae d inlandetrl 1960, prysiLan ui iAtu sdical irhool at tnntvrsity level 1970 ned 1980 dano. PonieptNoosIng Person - Ppolation dinided by nabho of protticing . toton-Enloeu f agrtucoro are ond temporarily or persaucoy sol ted female grodnete nurse .. J.-ltaione practical tose sd or crops,% -psaarn. schtneki'toho gardous or to"iu felice; 1960, nur.lIg a..cllfarce- 1990 an 1910 dots. Potultn Optsl Sod t.tntl. urban. ued rued1 - Pnpolatton (total, urhon, and rural) .dicdd by their -npectIve nune of hoepitn1 hede -fII GM? pee o-pit. estiates t .torret kht prtcns, nvalahle to poblic and pricace gennea1 utd eiledheta n at by em envrst- "tied as -Ird Seek doles (1919-8I hosts); reheitiatiur cetr . oupitals are estebItbhnte pemc- tly staffed 1960. 1970. end 1981 date. hytIeastoephyilota. tabliho..rce prcotdiog principally octodiu1 onc ac o iclded R...orI hospiti,,hecr nld healt and 4r ENER~laGY toLteSrTioR Pf0 CAPITA - Anosi apparen.t coesaption of cnerical cIcs ere t o pvomnotly stffed byupyiiu(bun by a medioul pelmry nergy7 1... an ltntc rolc natural gas ned bydr-, nocc- atttn,or idrife, oto.) chith offer to-pontct oor-dation and nod eothormal. ecteittty) to kilogram of cot_ qlvlotper capita; pr-ode a litattd range of scd icct futilities. For nttiatloal pnvponc 1960, 1970. sd 1i90 data. ochon hoepitiul inclode WltOs printipnl/geerxl hoaplnnla. xod meatl hoepit ina,localior mnI h.epitotle and sedical od maternity te. nirra POPUILATION MID VITAL STATISTICS ip.cta.I hed op tula ate inoloded only oed-r total. Totl pgnletiej-9I1t-!s-rth-tmxda) - a uf Joly 1; 196t. 1970, end 1901 Adinson pe opiu' e - 'tona noahe of dmicsiono tc or disoh.oges dIs. t.f b.t ..1p..i. tra bhaptla. diviMded By the cob-r of bdn. differec dstoite -of-oho aea may -tet up-billiy of data oiu amon enuteis; 160,1970. aed 1901 data. crGe 01c ofgl 16.uhod (pars... per tounbldl) - tntial urho,endI enrolI Poeslotine Pr.Jettln - one d onost cf ur group of iodvt-_l An chor liig urtr Peeltn o er30 Crecot popoltino projettione are hea.d on 1980 ned thnrmi cl.Abadc rlde a rmy no he inloded in inI.l peeoI.eb geadse n their anotalty and fertility the h.uebldfo nitlticlpras rates. Pruetion prmters tn- mootality rte.tccompriseo be rrg u of of p-soe pe rom -total uhn. und -nto -rcegenoahe leeds tacmig Of -pcanya bieththhloeal cr -taary'e Per of pernoax pe roI all oter, an cral co_opLed oa-re,ioal -pit.x Inat leveI, cod fcma)e lite enpetec-y abialicieg at 77.5 dwellings, to-peci-vly. Irollinga toclde no-pornooct stroctort and yeses The paramters f_f ferility ecte also hove three lcvels _nccupied psttn. uns=ing detlie in f-etiltty a...rding to intome leve aud Post faily hcArt n_ ciiti rtetofdnion -IOctatl. orbu.anrul- plannng pefoemre. ach ountry Is the. assigned nI of nhte ns Convetional1 dne1ig i lcriiyi iig qoorlesa aret oobo .ix of scriolty andfetility treeds fot peojttine pupssf toto1, uthan, and rural d-ecliogero-paci-ly. Staiiua pronplotilxn- T.n ttainnao popuixino. there is an gruth stat thetbrirt Iseqa to the death rate, aod nlc the g EDUOlIlN einnueeee contant Ibis is sohicd uIpl a.fter fertility rates djtdfroieoation detlien noth relc -1i ee of noit nat rnptndot re rae, h.e. Frimary achool - toalml and femile -ir... tmini, nar anod fenale cobgeertla tf snrpla..e itself e-cly. The cistionary enoleto l e t the prfsnoy l-o us percntges of rexp-cti- poPoLatlocolc anetisatd ye the heal of nhe paj.eoted oherster- prinory nohool-ago popotaticon; normaly ino.lodeo ohildtoo aged 6-11 mute_ of the pouato in the year 2000, sod the rate of denies f yearn hut adjtd for diffterenc Lengths of primary ed taion; foe fertility rate to replacena lev..1.toutries aith o-i-er1ed nd tciin .novrlen an y encd 100 poeneci Tsa aistioeay pee.lanio in reachbd - Tie year nf.e ettner:nne noe pupils r xv, Onionr abco tho officia nohol ag.. popelanian sins iOu ho reached. tecandar~Z.y achol - total. aae and fnnalr - Copotedanahbv-;o.....dary P. er pu I.,theIe leosiy edrtorqiea xe oryaso pprnved prisaty isrcio -MItd-yaxe population pot sqre kilneet-r (100 hctures) of prvdngYrt oainl ctrher trann ntotcn Picaarc 1960, 1970. end 1980 data. popin voal n '12 to 17 years ot oge;corceuyovde-entcar Pee -o he1atiilurl ad C-CoPuted an ahoy for- rcocrl.lad generally' anl.ded only; 1960. 91a 1 190dt.tctin...l enrollent (p-r.eci of neoundocy) - Vocatinto loetiloti.ov Poenlati-AC.x t' toe e 9ior (eten Ch-ibldren (0-14 years). vorkieg-age (1)- itelde neoboica, IuitL' or ocher progr-o oblch oporat ind.epan- 64 years) and reire (?65 yvaea xnd over) u oecnau f mid-yea ently or un deporoseo t'ntoof notdxry i-iacito n.. ppltn;16,1970, and 1981 data. Popil-tia..ihrrnti--rioy . xd neccdacy - Intel etudente enrolled in Popeatio ireib ats(peroet) - total - A.nnl grnih rates of total mid- peiaaey and....od-ry lovls dIvIded youbhrc of te...htra In the on peer puesletio fun 1950-60, 1960-70, and 1970-831. roxpording lvel.. fponlafloo teneb Meta (ecran) - arhan -Aonua groan -rat of orhon Adult ltercy rate (percent - Mr.Otrai adocn (able c road and e1rgo) ppelalitoen for 1900-60, 19064-70, and 970-01. u preniag of tota ndolt pcpnltict aged 15 yearn and c.rtr Cred Birc gat (pe tho-od) - A-cna lIve births par thousand nf mid- ynrppinu;1960, 1970, and 1901 data..COOooftPrIIn Crue= SnnhTIIono._ (ee th`ooecdl 9-IAeol deetba poe thouaaod of mid-yea-as o Core (por tho.....d p.polotion) - yoet-g- crs comprise ent- popoL.istn; 1960, 1971, and 193 data, cuts nctlog lee,liar~ qigho peranun; encIudee naboluoc, honrannou.d Gross. I... dnotto Be to-Avrge -b-he of danghters a Willo hear in ailinory ohcIc h.r __Ime reprodutive purled if nhe,neine pocont. ug-.P.if it Radio Otcren(prthuad Rpolati-ne)- All typen of.rocinar for radio fertility raes uual f i-y-a avrges ending in 1960 '1070, and brcdcnsintngenerul pbli e th ad of popo1Latlc;e=oodesno 1981. license.d re-ivere Le oiuteles sad In yeari. h.Aev regisrotio of radio Pamily Placing - Aetnette.. tona (,thousands) - euA-1 on-h- of ctreptore sets nac in efecrt; deta fo .r cooo yearn fy no he coparable nioe est of'. hit-taroi dai _sadrupree of nationaI family pIlauig cocaroeebo1oehed onig prageam. If ctL-ere(perith-sud population) -TI rxroivert fnr btcadcst in Pamily Plauinao - Onee (eroe o f married wee -ifPhe-ro ge of ..r-ied geeo pbi per thvvnard popoluto;; nloe .nolioecsed .TVf. iovere ems f oild-esrog ge (5-4 Ocrsl nbc one birfbcotrnl dovioce oc -ccotrien ood ivyna ohrc roico o fItof a i efet. al -arid ease Or eae age grcap. iooppo CrcOoic(t rth...c porolatin) - tho- tin octr.ge FOOl 601 fAlluITlun circolot Icc ct ~~"daily ger-n ntoen~t c_-eoryt", definod a periodical lo.den. of Food Prodnion. pe CopIt, (1696-71-Ill) - Indon of Par capitobi.te dorotod prlc...ily tc -rocding goern,l -..n. In iacc..aldered .-0If PctWh Ll food t_suItles, preocntionoclode. need aId to ho "doily0 if 10 oppears at least foot timste feed en- se nadrperhss xmdta en-`, peiarygnnds (e.g. Ciem _tnal .oedatce per Contre rer Yer- esd c thnbhr it sugoeoec instead nf sogsel elo ar edible andnoaioties (e.g. ticets nn1d during Ithe your, inclodlog di.heIesi to driv-in cicemm and coffan andte 1ae nodd). ftgregate ptndunttns of each cnoutry is mobIle units. hosedn --mel veag prdoce price uIghts; 1961-65, 1970, nod 1981 Bee uncit aeelyofturs (prgnt af teoiomea -Compotd from Total lao nc thousands) - Erousically artben Pereen.. Inoldig armed esBy sqaivalen a t fudsplcael i onutty Per caPita per focs n=vplnyed hoc.. encldig honasivee, todeun, etc., cveing day .4. balal sappilse camprt d- eacu Predneetto, imparts Ieen poruIlatOo of all ages. lefiotlan. in varica -noctric am nor anpen, end bang In stock, Met sapp1iu cenlude anmx feed, cods, ospoenhi; 1960, 1970 and 1901 doto.. qeotitia used Is fend pranes.iag. and lose. J. d1ribteihata. !jAn!0n1,t):- Pamel lao forc as percentgef total Iebo forc. msqsirsmnet retmae by FPOb.hosd us physinisgiol ends f- or-ara ~ ~ rJ tntl - blhr-ocei arng,forestry, bunting and _activty end helh toesidarig enviro tneo ssmpe-rnr, body eights. * aiog as. .perceetag of total labor fnrro;16,1970 and 1901 date age aed sa dianribuios of popelatia, nd allowing 10 Feeas ... cafe.t Inutry_(perrn - lahe f rr In mining, ronusirtiun, manifocttiag at heenbeid lave; 1961-65, 1q70 and 1980 data, an ostricity, eat.et nd gas us pervetage of nttl labor foote; 1961, Per acit. seplh of protein(are s dy) - rucein content of per capitx 1970 ocdL1901 data. cceapl ofY fun pe a. t soppy of food Le dafined es above.Paticirto fae(pren)-totl. ale, und fesalt - Partioipotiona t Be~~~Rqair ten 8cr all ernotrien emblished by OUSDA provide for minimo at.tliyateaatooeputed ax total I u adfeels labor force a ailsmnc of 60ge of total prtoein pot day sod 10 gas- of animal and percentages of itol., saean l popultion cf all gs r-ep-tnively; palm penao, of hbib 10 goas sh-Id he ttimaI protein. Thes 1960, 1970, and 19131 data. Th.ese are hted on ILO's participation este stndro e lowe then tho of 75 gtes nf it-l pro-en and . g,m reflerting oge-_e ar:totuv of th population, and long time trend. A of "aima Protsin en a. s aergro the arld proposed by PAP In the fee estimates ae from rational no-. Third World Pond genvy; 196-65f 1970 ed198 data .2Cnuei Bepend.n.y nun - Beth of poplatio nuder 15 and 65 sod ove co Pr uneito rninsri from animal and ola- Protein supply of food the total labor forc. dole rmaimalsn pulse In gram par day; 1961-65, 1q70 and 1977 Child eee 161 onth ga elen thousad.) - Annua dseobs pee thousan in PeocsofriaeIncm (boil In cost nod bin) - Rt..oired by riohoet 5 age gnep 16 ye rsisobiles M. i ag grop; for most de epiapret4roet2 percent, poorest 20 porcoot, and poorest 40 portet of teatries data dapiad ire life tables; 1960, 1970 sod 1981I date. Onuanh.1da. OfAlli f~~~~~~~~~~~~~~~~~~~OVERTY TARGET iGROUPS "UR feeonstv n Birh (mal -kearae n.nberof yera of Lifereang -iSOllOiiflet re very appronimat menr of poverty levels, and atbirt;161 913ad1L ae sh:e. IIoldb he ntspte td Lth con-idarble . oan. Infest Ilernite mte (cr thuos-Md A-kel deaths ofi inat under onun feioe bsu1 PovertylbIn lan (1011 Per caitlb .-ora and18 r-exl - yrofaepethouneed lien birthe; 1960, 1970an 1901 dt.Absolict povertinoelvlsthtncm lne bolo eih al mIsimll AetsafSafe Wtier (peroest ofIeelto)-itl no,adrtl- nutritioIly adequate diot plus ce ca o-fond vqieaosin at mhar of paepin (total. arbax0 and runel) ~~~~ttb tescl aces to saf afodoble. wiespply (i_tlode tentod eufteeers or antreutod hot fatimtd BeaitPvrtyIcoeLee. IS$ per cpt)-raidma oentamiend etac each as thet from poctetd borpholes, aprings, and oalratv poeIy ncm lee is one-thirdcfaegeproia sanitnry well) us porteotag of their respative pop.ulaton. CoIn .Poeroo incLme of the .-tyce. Irhn 1-v1 is dottoed frun the e-1 ares ar a psAllo fontin or stndpont lo.ttd no mer then 200 setor oil nith nd3u- _at for higher coat of living in orhun ec f-n a horn my ho oasodsed at heing within r-aeable noes of thot EstimatedPoluin0mAbltsovryn atnl(pre)-oba heoae, Ia voca ere ecannbis et-n -nd imply thet the h0-1srfe or sod roraL - Porceot ofpopiotn(chn n url t re"bsl sember of the hsanbeld do -t hove no spnd a diproportioute part of po" the day to feteblug the family's set-erecds. rur.1 - gamber fpol os,nbe and raral) uevee bys-orta di.posal as p-rtetgs ut thele r-epottiv poputl-te f-reta disposalI may isolad the coileciot end diapena1, with or aitunt treatment of Oro.'l an d Sooio1 lAt Sivi. home erat end -at-et-r by cone-horse eytm or the na of pit iconoml 1yilysi and Projact In Beprtneet privies and .ieLar totllta.cy 1903  - 24 - ANNEX I Page 4 of 6 Population: 1,008 million (mid-1982) GNP per capita: US$300 (1982) CHINA - ECONOMIC INDICATORS Annual Growth (Z) at Constant Prices 1957-70 1970-77 1978 1979 1980 1981 1982 Production Gross Output Agriculture 2.2 3.4 9.0 8.6 3.9 6.6 11.0 Light industry 8.3 1.8 10.8 9.6 18.4 14.1 5.7 Heavy industry 11.6 9.3 15.6 7.7 1.4 -4.7 9.9 Net Material Product (NMP) 5.2 4.8 12.4 7.0 6.1 4.8 7.4 1957 1970 1977 1978 1979 1980 1981 1982 Prices Retail price index (1970-100) 92.2 100.0 102.7 103.3 105.4 111.7 114.4 116.6 NMP deflator (1970-100) 90.7 100.0 99.1 100.5 104.5 108.4 110.5 110.9 Exchange rate (Y/US$) 2.46 2.46 1.86 1.68 1.55 1.50 1.71 1.89 Amount Average Annual Growth 1982 Shares of GDP (Z) (Z) at Constant Prices National Accounts -(S billion) 1957 1979 1982 1985 1990 1957-70 1970-79 1979-82 1982-90 /a /a GDP 260.4 100.0 100.0 100.0 100.0 100.0 5.8 5.8 6.0 6.5 Agriculture 96.1 .. 32.5 36.9 32.4 27.9 1.6 3.2 5.8 3.2 Industry 105.4 .. 43.5 40.5 44.4 48.1 12.1 8.9 7.4 8.2 Other 58.9 .. 24.0 22.6 23.2 24.0 3.5 4.3 1.2 7.1 Consumption 181.6 76.4 68.4 69.7 73.8 76.7 2.7 5.4 5.7 7.4 Investment 73.2 23.2 32.5 28.1 27.5 25.0 9.8 6.8 2.3 4.8 Exports GNFS 24.9 3.7/b 6.0 9.6 8.7 8.1 1.6/b 8.0/b 14.1 3.2 Imports GNFS 20.0 3.5/b 6.8 7.7 10.0 9.8 2.37i 9.475 2.7 7.9 National savings 78.9 23.6/c 31.9 30.3 26.4 23.0 . As I of GDP Public Finance 1957 1979 1981 Current revenues (excluding foreign 28.7 27.4 22.6 borrowing) Current expenditures 16.1 17.7 14.6 Surplus (+) or deficit (-) +12.6 +9.7 +8.0 Capital expenditures 11.9 15.1 8.8 Foreign borrowing /d 0.7 0.9 1.6 Other Indicators 1957-79 1979-82 1982-85 1985-90 /a GDP growth rate (2) 5.4 6.0 5.7 7.0 GDP per capita growth rate (%) 3.5 4.6 4.4 5.8 Energy consumption growth rate (%) 8.3 .. LCOR 5.4 .. .. 3.8 Marginal savings rate 0.42 .. .. 0.16 Import elasticity 0.95 0.45 1.9 1.3 /a NMP basis. T7 Goods only. /c GUS. /d Gross.  -25 - ANNEX I Page 5 of 6 Population: 1,008 million (mid-1982) GNP per capita: US$300 (1982) CHINA - EXTERNAL TRADE Amount Annual Growth Rates (Z) (million US$ at (at constant 1980 2rices) Indicator current prices) Actual Prolected 1982 1979 1980 1981 1982 1983 1984 1985 1986 External Trade Merchandise exports 22,476 25.5 16.8 15.9 6.2 2.6 2.0 1.0 4.0 Energy 5,353 .. Other primary 5,110 .. .. .. .. . Manufactures 11,356 .. .. .. .. .. Other 657 .. .. .. .. .. Merchandise imports 17,830 21.7 16.7 -8,6 3.0 7.6 15.0 10.0 9.0 Food 4,003 .. .. .. .. .. Petroleum 0 .. .. .. 0 0 0 0 Machinery and equipment 3,405 .. .. .. .. .. Other 10,422 .. .. .. .. .. Prices Export price index (1978.100) .. 100.0 115.9 119.1 114.4 109.8 113.0 117.5 124.2 Import price index (1978-100) .. 100.0 116.6 121.9 103.9 103.0 107.5 112.4 118.6 Terms of trade index (1978-100) .. 100.0 99.4 97.7 110.1 106.6 105.1 104.5 104.7 Composition of Merchandise Trade (I) Average Annual Increase (x) (at current prices) (at constant prices) 1979 1980 1981 1982 1985 1990 1957-70 1970-79 1979-82 1982-85 1985-90 Exports 100.0 100.0 100.0 100.0 100.0 100.0 1.6 8.0 14.8 1.9 4.0 Energy 19.5 25.1 22.9 23.8 10.9 0 .. .. Other primary 34.1 28.4 24.1 22.8 24.2 23.8 .. .. Manufactures 46.4 46.5 47.8 50.5 59.5 70.9 .. .. Other 0 0 5.2 2.9 5.4 5.3 .. .. Imports 100.0 100.0 100.0 100.0 100.0 100.0 2.3 9.4 3.2 10.8 10.0 Food .. .. 19.6 22.5 20.0 16.8 .. .. Energy 0 0 0 0 0 8.2 .. 00 0 Machinery and 25.2 27.5 24.2 19.1 26.7 25.1 .. .. .. .. equipment .. .. .. Other .. .. 56.2 58.5 53.3 49.9 Share of Trade With Share of Trade With Share of Trade With Countries with Centrally Industrial Countries (x) Developing Countries (M) Planned Economies (x) /a Direction of Trade 1978 1981 1978 1981 1978 1981 Exports 37.3 45.9 51.6 50.2 11.1 3.9 Imports 73.3 76.8 17.5 18.7 9.2 4.5 /a Includes the Soviet Union, Eastern Europe, Cuba, North Korea and Mongolia.  -26 - ANNEX I Pagc~ 6 cf 6 Population: 1,008 million (aid-1982) GNP per capita: US$300 (1982) CHINA - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (millions US$ at current prices) Actual Projected Indicator 1979 1980 1981 1982 1983 1985 1990 estimate Balance of Payments Exports of goods and services 15,351 20,901 25,157 25,989 26,300 29,350 48,020 of which: Merchandise f.o.b. 13,658 18,492 22,027 22,476 22,150 24,420 39,330 Imports of goods and services 18,204 24,752 24,380 20,793 22,100 30,040 5X,470 of which: Merchandise f.o.b. 16,212 22,049 21,047 17,830 19,010 26,230 52,760 Net transfers 596 500 680 412 420 500 800 Current account balance -2,257 -3,351 1,457 5,608 4,620 -190 -10,650 Private direct investment - 57 265 359 400 500 1,500 MLT loans (net) 800 1,130 416 426 400 800 6,000 Official 350 446 479 557 600 Private 450 684 -63 -131 -200 Other capital 2,054 2,555 365 -102 -400 -600 1,000 Change in net reserves ("-" - increase) -597 -391 -2,503 -6,291 -5,020 -510 2,150 International reserves 7,274 7,665 10,168 16,459 21,479 of which: gold 5,120 5,120 5,120 5,120 5,120 Reserves as months imports 4.8 3.7 5.0 9.4 11.6 External Capital and Debt Gross disbursements .. Concessional loans .. .. DAC .. OPEC .. IDA Other .. Nonconcessional loans .. Official export credits .. IBRD . Other multilateral .. Private .. External debt Debt outstanding and disbursed .. 5,433 5,785 6,058 Official .. Private .. .. Undisbursed debt .. .. Debt service Total service payments .. .. .. Interest .. .. .. .. .. Payments as X exports GNFS .. .. 5.0 7.8/a 10.0/a Average interest rate on new loans (X) Average maturity of new loans (years) /a Including some early repayment of principal.  ANNEX II - 27 - STATUS OF BANK GROUP OPERATIONS IN THE PEOPLE'S REPUBLIC OF CHINA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of September 30, 1983) Loan or Credit ------- $ million ------ Number Year Borrower Purpose Bank IDA Undisbursed 2021 1981 People's Republic University 1167 of China Development 100.0 100.0 155.9 1261 1982 People's Republic N. China Plain of China Agriculture - 60.0 55.6 2207 1982 People's Republic Ports 124.0 - 124.0 of China 1297 1982 People's Republic Ag. Ed. and of China Research - 75.4 74.0 2226 1982 People's Republic Industrial 1313 of China Credit 40.6 30.0 70.6 2231 1983 People's Republic Daqing of China Petroleum 162.4 - 162.4 2252 1983 People's Republic Zhongyuan of China Petroleum 100.8 - 100.8 2261 1983 People's Republic Heilongjiang Land 1347 of China Reclamation 35.3 45.0 80.3 1411 1983/a People's Republic Polytechnic/TV of China University - 85.0 85.0 1412 1983/b People's Republic Technical of China Cooperation - 10.0 10.0 1417 1984/c People's Republic Rubber Development 100.0 100.0 of China 1984/d People's Republic Lubuge Hydro- of China electric 145.4 _ 145.4 Total 708.5 505.4 1,164.0 Total now held by Bank and IDA 708.5 505.4 Total undisbursed 708.5 455.5 B. STATEMENT OF IFC INVESTMENTS (as of September 30, 1983) None /a Credit signed on October 17, 1983, and became effective on January 30, 1984. /b Credit signed on October 17, 1983, and became effective on December 21, 1983 /c Signed on January 5, 1984, but not yet effective. /d Loan approved on February 21, 1984. Note: The status of the projects listed in Part A is described in a separate report on all Bank/IDA financial projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31.  - 28 - ANNEX III Page 1 CHINA FIRST RAILWAY PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken by the country to prepare the project: 18 months (b) The project was prepared by: The Government and Bank staff (c) First presentation to IBRD: July 1982 (d) First mission to consider project: July 1982 (e) Departure of appraisal mission: March 1983 (f) Completion of negotiations: February 1984 (g) Planned date of effectiveness: June 1984 Section II: Special Bank Implementation-Actions None. Section III: Special Conditions Effectiveness The Loan Agreement shall have been approved by the Borrower's State Council and the Revolving Fund shall have been established (para. 75). Other (a) Preparation by MR of a comprehensive railway traffic costing study (para. 58); (b) Consultations with the Bank on project expenditures and railway finances, financial performance and financial procedures (para. 62); (c) Submission of annual audit reports covering (i) MR sub-administration and administrations; (ii) the Zhuzhou locomotive factory; and (iii) project expenditures (para. 64).  IBRD 17096 1100 1200 \ ,~d Tn.O,nhnAPRIL 1983 CHINAH.10 ZhaQqIok-U FIRST RAILWAY PROJECT Toao, <AK PROJECT COMPONENTS 4'RAILWAYS ---.4Q0 EXISTING CONSTRUCTION BANK PROJECT -9,hond.. ____ ____ ____ ____ ____ ____ DOUBLE LINE - _ -_ ---- SINGLE LINE -- . . . . . . . . . . ELECTRIFICATION ...... UPGRADING S... RIVERS PROVINCIAL BOUNDARIES INTERNATIONAL BOUNDARIES .-,~ .i 0 SD lLW 180 200 KILOMETERSI hu 1 MILES 1 5 d 5 hjS- --I-~~~~~~~~~~~~~~~~~~~S- , H.bi,~~~~~~~~~~~~~~~~T Ji-h.,g~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~D<~jSo 35~~~~~~~~~~~~~~~~~ ji-.. a 35P-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. h L~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ioogn 1. ~~~~~~~~~~U . .R xi,- ~ ~~ ~ ~ ~~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5 0< 't 9 MONGOLIA~~~~~~~~~~'-3/ GOD fSd IA Ra,, pepare RE he BNd Bnks saB aOA,eEeR'Ide Pe cooanPoa 0 Re reade,nand ecoGeoeR 10,06 lISfOBI ua OIlS. 9006 Bank e,d 670 k,InOkOOOI BSgZh CkIN -n M. Xe/ Cl 17/ ftnd Ban an IRe k/.nt,na F-ac CnrIrfo.W an G-wm dy.oi\K> Mn.B leGal v."1 t60 any 16001y a n edrmnt SCOtP-tan 0-51C Rddndne BURMA TN 1100 1ODRa.610a, ____________________________________~~~-r