China - Freshwater Fisheries Project

Domusm ao The World Bank FOR OFFICL4AL USE ONLY Report No. 5976-CHA STAFF APPRAISAL REPORT CHINA FRESHWATER FISHERIES PROJWECT April 7, 1986 Projects Department East Asia and Pacific Regional Office 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 EOUIVALENTS Currency Unit - Yuan (Y) U'S$1.00 - Y 3.00 Y 1.00 US$0.33 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) - 0.62 miles 1 hectare (ha) - 2.47 acres 1 mu - 0.067 ha 1 ton (t) - 1,000 kg - 2,205 pounds 1 kg - 2.2 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ABC - Agricultural Bank of China BAP - Bureau of Aquatic Products BFA - Bureau of Fisheries Administration BOF - Bureau of Finance CPO - County Project Office FDC - Fisheries Development Corporation FPO - Fisheries Project Office GAIC - General Administration of Industry and Commerce ICB - International Competitive Bidding ILS - International and Local Shopping MAAF - Ministry of Agriculture, Animal Husbandry and Fisheries MACHIMPEX - China Machinery Import and Export Corporation MPO - Municipal Project Office PCC - Project Coordinating Committee RCC - Rural Credit Cooperative  FOR OMCUAL USE ONLY FRESHWATER FISHERIES PROJECT Credit and Project Summary Borrower: People's Republic of China Credit Amount: SDR 52 million (US$60 million equivalent) Credit Terws: Standard Relending Terms: 20 years, including 5 years of grace, at 4.5% p.a. interest, and foreign exchange risk to be borne by the project cities. Proi ect Description: In support of the Government's program to triple production of freshwater fish by the year 2000, the proposed project would expand and develop intensive pond culture in the vicinity of eight major urban centers. It would introduce into each project area an integrated fisheries production, extensior. and marketing system operating on a fully commercial basis. Overall, the project would improve 6,100 ha of existing ponds and establish 11,100 ha of new ponds on land unsuitable for crop production. It would provide equipment, vehicles, and support facilities, including 14 feed mills, four cold storage plants, four overwintering facilities, a hatchery, a vaccine factory, and seven trade centers. The project would strengthen fisheries research and extension services through the provision of teclmical assistance and training and the construction and/or equipping of eight technical service centers. The technical assistance and training component would also be used to upgrade the qualifications of project staff to implement the proposed project and further fisheries development activities. At full development the project would produce annually about 85,000 tons of freshwater fish and 75,000 tons of fish feed and would provide an additional 7,100 full-timie jobs in rural areas surrounding the cities. The project faces no significant technical or management risks. This document has a estricted distribution and may be used by recipients only in the performance of their offcial dutie. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Cost: Local Foreign Total - - - - - - (US$ m) - - - - - - - Pond Construction 86.0 20.8 106.8 Support Facilities 12.0 5.7 17.7 Vehicles & Cons. Equipment 1.5 16.9 18.4 Production Mat. & Equipment 5.4 2.2 7.6 Training & Tech. Assistance 0.3 0.5 0.8 Base Cost 105.2 46.1 151.3 Physical Contingencies 9.4 3.9 13.3 Price Contingencies 23.1 10.0 33.1 Total Project Cost /a 137.7 60.0 19/.7 Financing Plan: Local Foreign Total - - - - - - (US$ m) - - - _ IDA 0.0 60.0 60.0 Provincial Governments 7.6 - 7.6 Municipal Governments 63.8 - 63.8 County/District Governments 24.4 - 24.4 Townships 41.9 - 41.9 Total 137.7 60.0 197.7 Estimated Disbursement: Bank/IDA FY 1987 1988 1989 1990 1991 Annual 3.0 15.0 18.0 15.0 9.0 Cumulative 3.0 18.0 36.0 51.0 60.0 Rate of Return: 28% /a The project is exempt from taxes and duties.  FRESHWATER FISHERIES PROJECT STAFF APPRAISAL REPORT Table of Contents Page I. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Introduction . . . . . . . . . . . . . . . . . . . . . . .1 The Agricultural Sector . . . . . . . . . . . . . . . . . .1 The Fisheries Subsector . . . . . . . . . . . . . . . . . .2 Sectoral Objectives and Bank Operations . . . . . . . . . .5 Project Formulatic- and Rationale . . . . . . . . . . . . .6 II. PROJECT AREAS. . . . . . . . . . . . . . . . . . . . . . . . . .8 Location . . . . . . . . . . . . . . . . . . . . . . . . .8 Climate . . . . . . . . . . . . . . . . . . . . . . . . . .8 Soils . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Water Resources . . . . . . . . . . . . . . . . . . . . . .9 Infrastructure and Support Services . . . . . . . . . . . .9 III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . 12 Project Description . . . . . . . . . . . . . . . . . . . 12 Pond Developmen . . . . . . . . . . . . . . . . . . . . 12 Support Facilities. . . . . . . . . . . . . . . . . . . . 15 Construction Equipment and Vehicles . . . . . . . . . . . 16 Production Equipment and Materials . . . . . . . . . . . 17 Training and Technical Assistance . . . . . . . . . . . . 17 Status of Preparation . . . . . . . . . . . . . . . . . . 17 Implementation Schedule . . . . . . . . . . . . . . . . . 18 Cost Estimate . . . . . . . . . . . . . . . . . . . . . 18 Financing . . . . . . . . . . . . . . . . . . . . . . . . 19 Procurement . . . . . . . . . . . . . . . . . . . . . . . 19 Disbursements . . . . . . . . . . . . . . . . . . . . . 20 Accounts and Audits. . . . . . . . . . . . . . . . . . 22 Environmiental Effects . . . . . . . . . . . . . . . . . . 22 This report is based on the findings of a pceappraisal mission to China in May 1985 ar.d an appraisal mission in September 1985. Members of the preappraisal mission were Mss. N.K. Hill, P. Harrell (IDA), Messrs. C.L. Chen and T. Cowley (Consultants). The appraisal mission comprised Ms. N.K. Hill, Kr. R. Deshpande, Ms. P. Harrell (IDA), Messrs. C.L. Chen and C. Cronberg (Consultants). f1  - ii - IV. ORGANIZATION AND MANAGEMET . . . . . . . . . . . . . . . . . .23 Project Organization and Implementation . . . . . . . . . .23 Financial Management . . . . . . . . . . . . . . . . . . .26 Execution of Project Works . . . . . . . . . . . . . . . .27 Monitoring, Evaluation and Reporting . . . . . . . . . . .28 V. PRODUCTION. MARKETING AND PRICES . . . . . . . . . . . . . . . .29 Present Production Practices . . . . . . . . . . . . . . .29 Future Production Practices . . . . . . . . . . . . . . . .31 Yields and Production . . . . . . . . . . . . . . . . . . .32 Marketing and Prices. . . . . . . . . . . . . . . . . . . .33 VI. BENEFITS. JUSTIFICATION AND RISKS . . . . . . . . . . . . . . .35 General . . . . . . . . . . . . . . . . . . . . . . . . .35 'inployment and Incomes . . . . . . . . . . . . . . . . . .35 Financial and Economic Evaluation . . . . . . . . . . . . .35 Risks . . . . . . . . . . . . . . . . . . . . . . . . . . .38 VII. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . . 40 TABLES IN THE TEXT 3.1 Distribution of Project Works . . . . . . . . . . . . . 3.2 Summary of Project Costs. . . . . . . . . . . 3.3 Procurement Arrangements . . . . . . . . . . . . . . . . 5.1 Main Species of Fish Cultivated . . . . . . . . . . . . 5.2 Pond Area, Yield and Production. . . . . . . . . . . . . 5.3 Fish Prices. . . . . . . . . . . . . . . . . . . . . . 6.1 Economic Rates of Return For Fish Ponds . . . . . . . . 6.2 Economic Rates of Return For Support Facilities . . . . ANNEXES 1. Background Data Project Locations Project Area Statistics  - iii - Project Cost Summary by City Project Expenditure Schedule Estimated Disbursement Schedule Major Materials and Equipment Cost Estimate and Phasing of Technical Assistance Cost Estimate - Chengdu 3. Financial and Economic Evaluation Financial Returns to New Fish Farm, Beijing Financial Returns to Improved Fish Farm, Beijing Operating Costs of Production and Nursery Ponds at Full Development Fish Stocking and Price Structure Financial Returns to Feed Kill (Pellet System), Nanchang Financial Returns to Feed Mill (Extruder System), Nanchang Financial Returns to Cold Storage Plant with Ice Manufacturing, Nanchang Principal Input and Output Prices and Conversion Factors Key Data on Per Capita Incomes, Fish Consumption and Prices 4. Guidelines for FDC Operations 5. Implementation Schedule 6. Selected Documents and Data Available in the Proiect File LIST OF CHARTS 1. Organizational Structure of NAAF 2. Organization for Project Implementation 3. Channels for Use and Recovery of IDA Credit MAP IBRD 19410R - Project Locations  CHINA FRESHWATER FISHERIES PROJECT I. BACKGROUND Introduction 1.01 The Government of China has requested Bank Group assistance in financing a freshwater fisheries development project as part of a program to triple production by the year 2000. The proposed project would expand and develop intensive pond culture in the vicinity of eight major urban centers. It would introduce into each project area an integrated fisheries production, extension and marketing system operating on a Zully commercial basis. Overall, the project would establish 11,100 ha of new fish ponds and improve 6,100 ha of existing ponds. It would provide equipment, vehicles, and support facilities, including 14 feed mills, four cold storage plants, four overwintering facilities, a hatchery, a vaccine factory and seven trade centers. The project would strengthen fisheries research and extension services through the provision of technical assistance and training and the constructior; and/or equipping of eight technical service centers. The technical assistance and training component would also be used to upgrade the qualifications oI project staff to implement the proposed project and to carry out further fisheries development. Project activities in support of freshwater culture fisheries in che environs of the eight cities would help augment farmers' incomes, increase per capita consumption of fish, and provide a model of fish pond design, management, and commercial operations that could be replicated in other parts of China. The Agricultural Sector 1.02 Agriculture in China, including crops. livestock, forestry and fisheries, provides sustenance to over one billion people, is the source of income for some 190 million farm families, and accounts for about 30% of the country's GDP. Only about 100 million ha of China's land area of 960 million ha are arable. Farming systems are intensive, with large inputs of labor, chemical and organic fertilizer and water. Nearly half of the arable land is irrigated. Foodgrains occupy about 80% of the cropland and account for about 55% of total agricultural output. This intensive system of food production allows China to meet the basic food requirements of its population (about 22% of the world's total) from less than 8% of the world's arable land. Agricultural production is carried out largely on household-managed farms within a framework of collective or state ownership of land and major fixed assets. Since 1979, the gross value of agricultural output has growr. at an average annual rate of about 7%, or more than twice the rate achieved over the prev"ious two decades. Output of foodgrains increased by about 3.8% annually over the last decade, reaching a record of 407 million tons in 1984 despite declines in crooped area and area sown with grains.  - 2 - 1.03 Demand for agricultural products is expected to increase steadily over the next two decades in response to increasing per capita income and moderate population growth. If consumption patterns in China follow those observed in other countries, higher incomes will bring about a substantial restructuring of consumption involving a marked reduction in direct per capita consumption of grain and a corresponding increase in the intake of meat, eggs, fish, milk, fruits, sugar and vegetables. To meet these expected changes in demand, the Government has posed ambitious production targets for the year 2000, including a doubling of fisheries production primarily through large-scale expansion of freshwater ponds. Success in achieving planned targets will depend on introducing new technology, strengthening extension programs, and providing price and other incentives to producers. The Fisheries Subsector 1.04 China's fisheries subsector, including culture and capture production from marine and freshwater sources, accounts for about 1% of the gross value of agricultural output. Total fisheries production, essentially all of which is consumed domestically, increased from an annual average of 4.2 million tons in 1974 to 6.2 million tons in 1984, an increase of 47%. This increase was due mainly to the rapid growth of freshwater fisheries which over the same period more than doubled from one to 2.3 million tons while production of marine fisheries rose only 18% from 3.3 to 3.9 million tons. Despite the overall, steady expansion of fisheries output--China now ranks third in the world in total production--the corresponding growth in China's population has kept the annual per capita consumption of fish at a constant 5 kg which is less than one-third of the world average and low by comparison to many other developing countries, e.g., Bangladesh (8 kg) and the Philippines (35 kg). 1.05 Capture Fisheries. The Chinese expect little change to the year 2000 in the annual output of capture fisheries, both marine and freshwater. The mA ine fish catch, which takes place primarily in vaters within the continental shelf, is being exploited to the fullest already and there is some evidence of overfishing in coastal areas. Very little fishing takes place beyond the continental shelf; key constraints here are a lack of funds and technical know-how and unattractive financial returns associated with high fuel costs and the uncertainty of the catch. Output from freshwater capture fisheries is expected to decline somewhat over the next decade and a half as a result of overfishing and worsening pollution problems. 1.06 Culture Fisheries. China has some 5 million ha (75 million mu) of freshwater bodies and 1.3 million ha (20 million mu) of coastal waters which are suitable for aquaculture, of which about three million ha (60%) and 170,000 ha (13%), respectively, are at present being used. The freshwater bodies comprise river channels and the shallow parts of lakes, reservoirs, and ponds. In addition, there  - 3 - are some 600,000 ha of low-lying land, unsuitable for agricultural crop production and presently little utilized, which can be converted into fish ponds. The existence of extensive unutilized areas suitable for culture fisheries and the fact that significant increases in yields may be realized through application of new technology and management methods have led the Government to project a tripling of freshwater fisheries production by the year 2000. 1.07 Freshwater Culture Systems. Freshwater fish culture in China is practiced as a primary occupation on collectives and state-owned farms and as a secondary or sideline activity in backyard fish ponds and paddy fields. The key characteristics of these various systems are, first, integration of fish farming with other agricultural activities, namely livestock and crop production, and, second, the practice of culturing various compatible species, mainly carp, within a single pond environment. Within the carp family, the grass, silver, bighead, and common carp are the predominant species stocked. Since grass carp is a highly preferred fish commanding a market price generally about twice that of the other carp, stocking ratios emphasize grass carp wherever the required nutrients--grass and aquatic weeds--are available. In recent years tilapia has become an increasingly popular addition to carp polyculture because the fish grows rapidly, adapts well, and is readily marketable. However, since the tilapia is a warm water fish, its spread to the temperate and colder parts of China depends on the ability of the Chinese to devise cost-effective methods te keep the fish fry and fingerlings alive during the winter months. 1.08 The Government is encouraging expansion of both paddy field and backyard fish farming as a means to increase fish consumption in rural areas. Paddy field culture, a traditional sideline occupation among Chinese farmers, relies on th't natural nutrients in the water to sustain the fish whose excreta, in turn, improve soil fertility thus increasing rice yields. It is estimated that currently about 600,000 ha of rice fields are being used for fish breeding. Yields from this practice are no more than 0.8 tons/ha. In the backyard fish ponds, an increasingly popular sideline, the fish are likewise fed mainly on the pond's natural flora and fauna with the farmer only occasionally applying a manure or fertilizer supplement. In addition to this occasional feeding, pond management ideally involves periodic pond cleaning and treating and maintenance of dikes. However, since backyard farming, like paddy-field farming, is undertaken mainly to supply the farmer's own household or neighborhood with fish, labor input and investment are relatively low with the result that fish yields are also a low 0.8 tons/ha. 1.09 The bulk of China's freshwater fisheries output is produced by collective and state-owned fish farms which have fish as the main crop. Fish farming is practiced on ponds, lakes, and reservoirs. Ponds account for about one-third of the total three million ha presently cultivated and 75% of total output. Management of the traditional system of integrated polyculture practiced on small ponds has been developed to a high standard in many parts of China with  -4- careful attention paid to efficient use and recycling of available resources. In recent years, the Chinese have introduced mechanical devices such as aerators which have had a positive effect on yields. introduction of contract fish farming by specialized households under the production responsibility system has also contributed to a marked increase in yields. Some farms in the lover reaches of the Yangtze and Pearl Rivers currently report yields as high as 7.5 tons/ha and recent figures for the north (Heilongjiang Province) indicate yields of up to 4.5 tons/ha. Such yields are uncommon, however. Due to a lack of standardization in design and management practices, wide variation in yields exists with the average about 0.9 tons/ha in the north and 2.5 tons/ha in the south. In short, though the introduction of household aquaculture has acted as a spur to increased yields and production, further subsector growth of the magnitude presently envisaged by the Government will require, in addition, broad dissemination of known technologies, ensuring market-oriented prices, and strengthening the role of commercially-operated supply and marketing services. 1.10 Fisheries OrLanizations. At the central level, the primary responsibility for the fisheries subsector rests with two bureaus vithin the Ministry of Agriculture, Animal Husbandry and Fisheries (MAAF) (Chart 1)--the Bureau of Aquatic Products (BAP) and the Bureau of Fisheries Administration (BFA). The BAP is responsible for a broad range of fisheries development activities. Major functions include overall planning and policy formulation, allocation of funds to national fisheries organizations, coordination of fisheries research, monitoring of fisheries development at the provincial level, and coordination of technical assistance. The BFA is charged with the specific task of administering -mAine fisheries regulations, including regulations for fishing port operations and maritime communications and safety. In addition to the two Bureaus, HAAF has set up special agencies to handle marketing and investments in fisheries. The Aquatic Products Supply and Sales Corporation advises the Government on fish prices, distribution of fish and supplies, and investments in local fish farms, usually experimental farms or farms in marginal areas. 1.11 Most provincial governments have fisheries agencies--either a separate bureau, a part of a combined agriculture, animAl husbandry and fisheries bureau, or a unit within the water resources bureau--which are administratively responsible to the provincial government and receive technical guidance from MAAF's BAP. A similar structure of agencies exists at the municipal and county (or district) levels. During the past year, municipal and county governments have begun to establish autonomous fisheries corporations, many of them converted from large, well-established companies which have long operated as subsidized units under a local fisheries agency. This move is part of a broader effort within government to disengage enterprise management and operations from the government's administrative/regulatory activities thus encouraging growth of enterprises which are independent, profit-oriented and economically efficient. The new corporations are service companies designed to provide on a commercial basis a comprehensive range of  - 5 - support services to fish producers including feed and fingerling supply, cold storage, transport, equipment procurement, and extension, marketing, construction and engineering services. Once registered with the General Administration of Industry and Commerce (GAIC) or its local affiliates, the corporations are authorized to borrow bank funds, own assets, and enter into contracts and are obligated to account for their profits and losses and to pay taxes. At the production level, township goverDments are encouraging formation of commercial fish farms consisting on average of 75 households and 50 ha of ponds. Some of these farms are patterned after the old fisheries production brigades (now called villages); others are new aggregations of households which cut across village lines. Like the municipal and county corporations and other township enterprises, these commercial fish farms are GAIC-licensed accounting units which are authorized to borrow, own assets and enter into contracts. Farm management, appointed by the township, is responsible for keeping accounts and purchasing supplies for farmers, distributing profits, and handling tax payments to the township government. Sectoral Objectives and Bank O2erations 1.12 The policies of the Chinese Government since 1979 have greatly improved the environment for rapid agricultural growth. Under the production responsibility system, farmers have had more flexibility in determining what crops to grow, how much to produce and where to market their output. Major price adjustments in agriculture, including recently announced reforms to eliminate fixed prices and procurement quotas for most agricultural products, have provided financial incentives encouraging producers to expand output. Results have been dramatic: sector output has increased by over 7% per year over the past six years by comparison to an average of under 2.5% per year in the preceding twenty years. The challenges for China's agriculture in the future will be to maintain an adequate rate of growth and to accommodate an expected shift in consumption patterns as population and incomes rise and industry expands. In terms of the average Chinese diet, Chinese planners project a rapid increase in the demand for fruits, vegetables, meat, poultry, fish, and dairy products with a corresponding decrease in the share of direct grain consumption. To ensure that the composition of agricultural production adjusts to changing patterns of demand, incentives in the form of price advantages and improved services are being provided rural households specializing in production of specialty crops, fish farming and pig and poultry raising. 1.13 In the fisheries subsector, the Government aims to double overall output by the year 2000. The culture of freshwater fish is projected to increase nearly threefold or by 8% per year and to account for about three-fourths of the projected increase in total fisheries output. The Government is encouraging formation of both small- and medium-scale enterprises to produce and market fish products and is undertaking programs to strengthen a range of support services including research, extension, feed processing, and cold storage.  1.14 Lending in China's aquaculture subsector is part of the Bank's broader efforts to assist the Government in diversifying agricultural output to meet expected shifts in consumption and demand. While the proposed Freshwater Fisheries Project is the Bank's first full-scale involvement in the subsector, aquaculture components have figured importantly in other Bank-financod projects in agriculture which have had as their primazy focus strengthening agricultural support services, provision of credit, and area development. The First Agricultural Educarion and Research Project (Cr. 1297-CHA), the Second Agricultural Education P'oject (Ln. 2444/Cr. 1500-CHA), and the Second Agricultural Research Project (Cr. 1516-0-CHA) are providing scientific equipment, computers and technical assistance and training to expand and upgrade two of China's major fisheries colleges, Shanghai and Dalian, and two key fisheries research institutes, one in Beijing and one at Lake Tai. The ongoing Rural Credit I Project (Cr. 1462-CHA) and the recently-approved Rural Credit II Project (Cr. 1642-CHA) are financing investments in Guangxi, Fujian, and Hunan Provinces to construct and improve freshwater fish ponds managed by collectives, state-owned enterprises, and individual households. Expansion of freshwater pond culture is also being supported under the Pishihang-Chaohu Area Development Project (Ln. 2579/Cr. 1606-CHA) which is strengthening the capacity of about 140 nurseries to supply fry and fingerlings for new and existing ponds in central Anhui Province. In addition to the above-mentioned projects which include some assistance to aquaculture, Bank lending in agriculture is assisting water resources and land development in the North China Plain Project (Cr. 1261-CHA) and the Heilongjiang Land Reclamation Project (Ln. 2261/Cr. 1347-CHA), special products development in the Rubber Development Project (Cr. 141;.-CHA) and Forestry Development Project (Cr. 1605-CHA), and improvement of agricultural inputs in the Seeds Project (Cr. 1577-CHA). Future project possibilities include support for livestock development, agro-industries, and rehabilitation of the arid regions of Gansu and Xinjiang Provinces. The lending program will also continue to support repeater projects in areas judged to be of key importance in the shift from collective to household-managed farms. Project Formulation and Rationale 1.15 To help meet the expected shift in consumption patterns over the next two decades, the Government has given priority to expansion of fisheries output, now only 1% of the Gross Value of Agricultural Output (GVAO). Development of freshwater culture fisheries, particularly small pond culture, has been made a special target because of the limited prospects for increasing output from capture fisheries, the potential for significant yield increases from existing freshwater ponds, and the availability of unused or low-lying land suitable for conversion into fish ponds. While in certain limited areas, particularly in the south, integrated carp polyculture has been developed to a high technical standard with yields as high as 7.5 tons/ha reported, the vast majority of existing  - 7 - fish ponds in China produce yields of less than one ton per ha as a result of poorly designed pond layout, use of inappropriate breeds of fish or stocking rates, and poor feed management. To overcome these constraints to planned expansion of production, the Government has developed a program of increased investments in aquaculture development. The proposed project, which represents the initial phase of this program, would build 11,100 ha of new ponds and improve 6,100 ha of existing ponds. Attention would be given to a range of activities specific to development of freshwater fisheries, beginning with training new farmers, assuring the availability of inputs--fry, fingerlings, chemical fertilizers, fish feed concentrates--, strengthening extension services for guidance in adopting new technology, and providing disease control and assistance in marketing. The major rationale for Bank involvement in the proposed project would be to assist in putting into place this large-scale, comprehensive system of fisheries production, extension and marketing facilities; to enable the BAPs and fisheries development corporations (para. 1.11) to gain access to technologies available abroad in feed formulation, feed processing, cold storage and intensive monoculture systems; and to help the Government create comercial fisheries enterprises operating on principles of sound economic management. 1.16 Because of the inadequacy of transport and cold storage facilities, the Government has decided to establish large-scale fisheries operations in the suburban areas of major cities where there is a large guaranteed market for fresh fish. The Government, in consultation with Bank staff, selected for inclusion in the proposed project eight cities which have the available land, administrative infrastructure, and investment resources for fish farm development and where consumer demand is high and increasing. The major criterion in site selection for new ponds is that the land be low-lying, poorly drained, no more than marginally productive and have no other economically attractive use. An exchange of views between the Government and Bank staff and consultants, continuing since identtfication and preparation of the project, has led to improvements in the project's design and organizational arrangements. Standards for pond construction and stocking rates for fish have been developed and adjustments made in the size and location of feed mills. To assist in equipment procurement and other aspects of project preparation, the IDA-financed Technical Cooperation Credit (TCC) (Cr. 1412-CHA) will be used to finance two pre-project study tours abroad to inspect feed mill equipment and fish breeding operations. Modifications have been made in arrangements fnr cost recovery to accord with the Government's current emphasis on investment efficiency. These arrangements represent major progress in moving from grant to loan financing of capital investments.  -8- II. PROJECT AREAS location- 2.01 The project areas are located in the vicinity of eight major cities: Beijing, Chengdu, Chongqing, Hangzhou, Harbin, Nanchang, Shanghai, and Shenyang (IBRD MAP 19410). Represented among these cities are two municipalities with provincial status (Beijing, Shanghai), and the capitals of the provinces of Sichuan (Chengdu), Zhejiang (Hangzhou), Heilongjiang (Harbin), Jiangxi (Nanchang), and Liaoning (Shenyang). The other city, Chongqing, is one of China's major industrial centers and, like Harbin, has recently been given special economic status, entitling it to tax benefits and other incentives, as a stimulus to accelerated growth. Project sites would comprise 500 fish farms covering 17,200 ha located in 45 counties and districts which are generally within a 15-50 km radius of the city centers. (Annex 1) Project sites are typically located on low-productivity farm land or wasteland in low-lying areas. Most sites proposed for Shanghai and Hangzhou are located on land recently reclaimed from the expanding river deltas, about half of the Chengdu sites are on floodplain land along the several rivers traversing the city, and all Nanchang sites are on reclaimed land adjacent to Po-yang Lake. In the case of Beijing, Harbin, and Shenyang, project sites are generally on unproductive swampland. The exception in terms of topography is Chongqing where project fish farms would be located in narrow valleys and ravines throughout the hilly districts surrounding the city. Climate 2.02 Project cities fall into two distinct climatic zones. The five cities on the lower and middle reaches of the Yangtze River--Chengdu, Chongqing. Hangzhou, Nanchang and Shanghai--are in a warm temperate zone where summer temperatures average 26 degrees C and winter frosts are rare. Water temperature in these city areas is typically above 15 degrees C for seven to nine months of the year providing a favorable environment for the breeding of the various carp species which form the basis of the Chinese polyculture system. Annual mean precipitation ranges from 980 mm (Chengdu) to 1541 mm (Nanchang). The three cities in the north and northeast, Beijing, Shenyang and Harbin, fall into the cold temperate zone. While summer temperatures range from an average of 19 degrees in Shenyang to 25 in Beijing, winters are severe with Beijing and Shenyang recording below zero temperatures for December through February and Harbin for November through March. The water temperature is above 15 degrees C for only four to six months a year. Moreover, ponds are covered with ice for three to five months a year which means a reduced oxygen supply and therefore a much shorter growing season for fish. Annual mean precipitation in these three cities is around 600 mm.  -9- Soils 2.03 Soils in the project areas range from heavy clays to both sandy and coarse alluvial deposits. In general, soil conditions pose no problems for the proposed fish pond development activities. In the case of three cities, modifications in design would be made to suit particular conditions. In Hangzhou and Shanghai, the combination of sandy soils and high winds experienced at the coastal sites would require slope protection to prevent embankment erosion. In Chengdu, where coarse alluvial deposits (largely gravel and boulders) characterize project sites, pond lining would be required to prevent seepage. Water Resources 2.04 The project areas have abundant water resources. Chongqing, at the southeast edge of the Sichuan Basin, is situated at the confluence of the Yangtze and Jialing Rivers while Chengdu, the capital of the province in the northwest corner of the Basin, is traversed by 15 rivers including the Min. Hangzhou, Shanghai and Nanchang are supplied with water from the network of rivers in the plains area along the middle and lower reaches of the Yangtze. Shenyang is located in the Pu River basin, Harbin is served by the Songhua River, and Beijing receives its water supply from six rivers and two major reservoirs. Existing irrigation systems in all project areas are extensive and well-developed. Project sites in Hangzhou, Chengdu, Nanchang and Shanghai would be supplied entirely with water drawn from these existing systems. In Beijing, Harbin and Shenyang, surface water would need to be supplemented with water from wells to maintain an adequate supply during the winter months when shortages occur. Many of the fish farms planned for Chongqing would also require supplementary water, in this case pumped from adjacent watersheds. All proposed sites are provided with appropriate flood protection structures. Coastal and flood plain sites are protected by dikes which have been built as part of regional flood protection systems. Water quality in all project areas is satisfactory for aquaculture development. Infrastructure and Support Services 2.06 TransDort and Power. All project sites are within reach of relatively well-developed road networks radiating from major cities. Except for some sites in Shenyang, all proposed farms are linked by rural roads to secondary and main roads providing access to. both town and city markets. Within farm boundaries, however, additional roads are needed to handle the increased volume of farm to market transport resulting from the project. Existing electrical transmission and distribution networks serve all project areas. Electric supply is generally reliable with outages experienced only once or twice a year. Some additional distribution lines would be required within project fish farms.  - 10 - 2.07 Education. Four national fisheries colleges--Shanghai, Dalian, Xiamen, and Zhanjiang--and one provincial college-- -Zhejiang Fisheries College--provide high level training in aquaculture for the country as a whole. Total enrollment in these institutions is about 3,500. At the secondary or polytechnic level, there are 13 schools nationwide specializing in fisheries with a total enrollment of 1,300. Five of the 13 are located in the project provinces. In addition, a number of agricultural schools--e.g., Southwest Agricultural College in Chongqing--have recently added aquaculture to the curriculum. While enrollments overall are small relative to the number of workers in the aquaculture subsector, opportunities for high level training are growing and the project cities are increasingly able to recruit well-trained people for positions in their fisheries agencies. 2.08 Research. Centrally-funtded research in aquaculture is conducted by HAAF's Fisheries Science Research Institute in Beijing and its nine affiliated institutes, two of which are in Shanghai (the East China Sea Fisheries Institute and the Fisheries Machinery Institute) and one in Harbin (Heilongjiang Fisheries Research Institute). With the exception of Chengdu, each project city has its own fisheries research institute. Chengdu relies on support from the Sichuan provincial fisheries institute at Yipin. Some of the city institutes--Chongqing, Nanchang, Shenyang, and Harbin--are new operations with a staff of only 10-15 who are involved more in extension and demonstration work than in actual research. Others--Shanghai, Beijing, Hangzhou--are well-established centers with a staff of 150 and more conducting high quality research in such areas as breeding, disease prevention, and fish nutrition. In the interests of expanding freshwater pond production, the municipal institutes have given attention in recent years to strengthening work in fish nutrition and feed formulation. Under the current government policy of encouraging financial independence on the part of the research establishment, funding for new projects from budgetary sources has been reduced and research institutes are increasingly commercializing their research activities through contracts with enterprises and other agencies. 2.09 Extension. Fisheries extension services run by local BAPs are available in all project cities. Though the scope of services varies from city to city, most existing municipal and county stations are small-capacity units of 5-10 technicians each which provide technical advice and organize short-term training for area fish farmers. In 1984, the eight project areas trained from 200 (Nanchang) to 1,300 (Chengdu) farmers to the "well-trained farmer" or "farmer technician" level in short courses in basic production techniques, disease prevention, and management methods. Use of audiovisual equipment in extension work is limited as is the availability of scientific equipment for laboratory demonstrations. To provide training and services for the large numbers of new farmers involved in the program to expand fisheries production in the project areas, there is a need to establish additional, well-equipped extension facilities.  - 11 - 2.10 Rural Ceit. Production credit for fisheries is available in the project areas from the Agricultural Bank of China's (ABC) extensive network of branches at the municipal, county and township levels. In addition, at the county and township levels, collectively owned and managed rural credit cooperatives (RCCs) operate as part of the ABC network and play a major role in both deposit mobilization and provision of short-term credit for agriculture including fisheries. Recent economic reforms, particularly the shift in emphasis from grant to loan financing, have increased the role of the banking system in rural development. The ABC and RCCs are therefore expected to expand their operations to meet the growing demand for financial services including credit. Institutional development of ABC is being assisted by IDA through the ongoing First Rural Credit Project (Cr. 1462-CHA) and the recently-approved Second Rural Credit Project (Cr. 1642-CHA).  - 12 - III. THELPQJECT Project Descrintiotn 3.01 The principal objective of the proposed project is to assist the Government in developing freshwater fish culture in the vicinity of eight major urban centers. The project would expand the area under intensive fish cultivation by improving existing ponds and using land unsuitable for crops for now pond contruction, provide techniques and equipment for pond management, and strengthen the support facilities for production and marketing of fish. The project would contribute to increased production of freshwater fish and would serve as a model for the establishment of co_mercial scale fish farms in other parts of the country. The main features are: a) establishment of 11,100 ha of new ponds and improvement of 6,100 ha of existing ponds, including provision of water supply, drainage, power supply, farm roads and buildings, and where required, pond lining, flood protection, and slope protection; b) construction and equipping of support facilities, including 14 feed mills, four cold storage plants, six technical service centers, seven trade centers, 20 ha of tilapia overwintering facilities, a vaccine factory and a 25 ha running-water hatchery; c) provision of construction equipment and vehicles to fish farms and support facilities for production, extension and marketing; d) provision of production equipment and materials to fish farms; and e) a training and technical assistance program designed to upgrade the qualifications of project staff to implement the proposed project and to carry out further fisheries development in the eight cities. The distribution of project works among the cities is shown in Table 3.1. Pond DeveLopment 3.02 The project provides for construction of new ponds and improvement of existing ponds according to BAP's guidelines, withi modifications to fit the specific situation in different locations. These guidelines call for 0.66 ha rectangular shaped ponds, surrounded by 3 m high dikes with 2:1 side slopes and provided with proper filling and draining controls. Ponds of uniform size would be constructed in aggregations of 15-150 ha and organized as fish farms. Pond improvement, which generally involves deepening,  TI a.i 3j;0l t@1 i N H N I O I I N U I. M P i ' II I I IS8w