China - Guangdong Agricultural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9554CHA STAFF APPRAISAL REPORT CHINA GUANGDONG AGRICULTURAL DEVELOPMENT PROJECT OCTOBER 16, 1991 Agriculture Operations Division Country Department III Asia 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 EQUIVALENT (As of August 15, 1991) Currency Unit - Yuan (Y) US$1.00 Y5.22 Y 1.00 US$0.19 WEIGHTS AND MEASURES 1 mnter (m) - 3.28 feet (ft) 1 kilometer (km) - 0.62 miles 1 hectare (ha) - 15 mu 1 ton (t) - 1,000 kg 2,205 pounds 1 kilogram (kg) 2.2 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ABC - Agricultural Bank of China BA - Bureau of Agriculture BAP - Bureau of Aquatic Products BFM - Bureau .of Fisheries Management BOF - Bureau of Finance CAAS - Chinese Academy of Agricultural Sciences DCA - Development Credit Agreement DFM - Division of Fisheries Management EA - Environmental Assessment EPB - Environmental Protection Bureau FDC - Fruit Development Company FMP - Fishery Management Plan GVAO - Gross Value of Agricultural Output ICB - International Competitive Bidding IDRI - Industrial Crops Research Institute LCB - Local Competitive Bidding LG - Leading Group MOF - Ministry of Finance NEPA - National Environmental Protection Agency PCBC - People's Construction Bank of China PCR - Project Completion Report PMO - Project Management Office PO - Project Office RCC - Rural Credit Cooperatives SOE - Statement of Expenditure SCSFRI - South China Seas Fishery Research Institute SEZ - Special Economic Zone FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY CIHINA GQUANGDONG AGRICULTURAL-DEVELOPMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: People's Republic of China Beneficiary: Guangdong Province Amount: SDR 121.7 million (US$162 million equivalent) Terms: Standard, with 35 years maturity On-Lending Terms: From the Government to Guangdong Province: terms and conditions satisfactory to IDA, with repayment over 15 years, including five years of grace, with interest at 6% per annum. On-lending rates to final beneficiaries would be no less than Agricultural Bank of China charges for subloans for similar purposes with similar maturities. Guangdong Province would bear the foreign exchange risk. Obiectives and DescriRtion: The project would increase fish production in the 100-250 m depths of the South China Sea, thus relieving pressure on near-coastal resources; develop coastal mud flats and low-lying land for aquac-Iture; increase production of fruits on sloping land; bring new land into agricultural production and improve river flow conditions in the Pearl River delta; and provide modern agroindustrial facilities for handling and processing. It would include: provision of 86 fishing vessels; construction of about 4,000 ha of ponds and 11,000 cares for aquaculture; improvement of 10,700 ha and establishment of 3,300 ha of orchards on uncultivated hilly lands; land reclamation works for improvement and expansion of 6,500 ha of sugarcane; establishment of agroprocessing facilities to utilize locally available raw materials; and a poverty alleviation package comprising studies, infrastructure and development loans for households and village groups in a recognized poverty area. Benefits: At full development, incremental benefits totalling US$102 million would be generated from production of 87,600 t of fruit, 75,350 t of aquatic products, 550,000 t of sugarcane and 47,800 t of intercropped vegetables, and agroindustrial output (US$13 million). The project has an overall economic rate of return of 28a. About 72,000 households would directly benefit from project activities, and about 645,000 people in the limestone mountain area would benefit either directly or indirectly, through improved infrastructure. Risks: The project faces no unusual technical or organizational risks. Project management would be strengthened under the project and the main components have a long history of cultivations and operation, and farmers and fishermen already have experience and basic This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - knowledge. Risks are being minimized by phasing of investments, provision of tech.nical assistance, and, in the marine fisheries component, by implementation of resource surveys and development of a fisheries management plan. Estimated Costs Local Foreign Total - . . . (US$ million) - - - Marine Fisheries 5.6 44.7 50.3 Aquaculture 49.0 12.2 61.2 Agriculture 77.0 32.0 109.0 Agroindustry 16.0 15.3 31.3 Poverty Alleviation 19.2 0.3 19.5 Base Cost 166.8 104.5 271.3 Physical Contingencies 9.5 5.3 14.8 Price Contingencies 11.2 6,5 12.7 Total Project Cost i87.5 116.3 303.8 /a The project is exempt from taxes and duties. Financing Plan; Local Foreign Total - - - - (US$ million) - - - - Provincial, Municipal and County Governments 12.0 0.0 12.0 Enterprises and Farmers 53.2 0.0 53.2 Domestic Banks 76.6 0.0 76.6 IDA 45.7 116.3 162.0 Total 187.5 116.3 303.8 Note: Figures may not add exactly due to rounding. Estimated IDA Disbursements 1992 1993 1994 1995 1996 1997 1998 1999 - -- -__- -- - Annual 15.0 20.0 30.0 35.0 35.0 20.0 5.0 2.0 Cumulative 15.0 35.0 65.0 100.0 135.0 155.0 160.0 162.0 Economic Rate of Return: 28%  - iii - GUANGDONG AGRICULTURAL DEVELOPMENT PROJECT Table of Contents Page No. I. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . .1 A. Introduction . . . . . . . . . . . . . . . . . . . . . .1 B. The Agricultural Sector . . . . . . . . . . . . . . . .1 C. The Fisheries Subsector . . . . . . . . . . . . . . . .2 D. The Fruit Subsector . . . . . . . . . . . . . . . . . .3 E. Sectoral Objectives and Bank Lending . . . . . . . . . .3 F. Guangdong Province . . . . . . . . . . . . . . . . . . .5 G. Project Formulation and Rationale . . . . . . . . . . .7 II. THE PROJECT AREAS . . . . . . . . . . . . . . . . . . 7 . .7 A. Location . . . . . . . . . . . . . . . . . . . . . . . .7 B. Climate . . . . . . . . . . . . . . . . . . . . . . . .8 C. The Pearl River Delta . . . . . . . . . . . . . . . . .8 D. Topography and Soils . . . . . . . . . . . . . . . . . .9 E. Present Agricultural Development . . . . . . . . . . . .10 F. Present Fisheries Development . . . . . . . . . . . . .11 G. The Poverty Area . . . . . . . . . . . . . . . . . . . .13 H. Institutional Credit . . . . . . . . . . . . . . . . . .13 I. Transportation . . . . . . . . . . . . . . . . . . . . .14 III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . .14 A. Project Objectives and Relation to Sector . . . . . . .14 B. Project Description . . . . . . . . . . . . . . . . . .14 C. Detailed Features . . . . . . . . . . . . . . . . . . .15 D. Status of Project Preparation . . . . . . . . . . . . .26 E. Implementation Schedule . . . . . . . . . . . . . . . .26 F. Cost Estimates . . . . . . . . . . . . . . . . . . . . .26 G. Financing . . . . . . . . . . . . . . . . . . . . . . .27 H. Procurement . . . . . . . . . . . . . . . . . . . . . .27 I. Disbursements . . . . . . . . . . . . . . . . . . . . .29 J. Accounts and Audits . . . . . . . . . . . . . . . . . .30 K. Environmental Impact . . . . . . . . . . . . . . . . . .30 This report is based on FAO/CP preparation reports (April 1989 and May 1990) and the findings of a preappraisal mission in June 1990 comprising: N. Hill, H. Kim (IDA) and H. Blaxall, C. CampLell, L.C. Chen, C.L. Cheong, C. Cronberg, J. Talbot and G. Breekveldt (Consultants)i a technical review mission in October 1990 comprising N. Hill, B. Kim (IDA), G. Breekveldt, C. Cronberg, C. Jones and L.L. Low (Consultants)t and an appraisal mission in January 1991 comprising: N. Hill, H. Kim, J. Stemp (IDA) and L.C. Chen, C.L. Cheong, C. Cronberg and C. Jones (Consultants). Peer reviewers comprised S. Loayza (AGRPS), G. van Santen (EMTAG), Y. Choi (ASTAG), H. Eisa (AGRPS), and B. Albinson (ASTAO). The Task Manager is N. Hill, the AS3AG DivisLon Chief is J. Goldberg, and the Department Director is Sh&hid Javed Burki.  - iv - IV. ORGANIZATION AND MANAGEMENT . . . . . . . . . . . . . . . . .31 A. Project Organization . . . . . . . . . . . . . . . . .31 B. Leading Groups and Project Offices . . . . . . . . . . .31 C. Implementation and Management of Production. . . . . . .32 D. Financial Management . . . . . . . . . . . . . . . . . .35 E. Execution of Project Works . . . . . . . . . . . . . . .36 F. Project Launch Workshop . . . . . . . . . . . . . . .36 G. Monitoring, Evaluation and F.-.porting . . . . . . . . . .36 V. PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . .37 A. Fisheries . . . . . . . . . . . . . . . . . . . . . . .38 B. Agriculture . . . . . . . . . . . . . . . . . . . . . .39 C. Agroindustry . . . . . . . . . . . . . . . . . . . . . .40 VI. MARKETS AND PRICES . . . . . . . . . . . . . . . . . . . . .41 A. Market Prospects . . . . . . . . . . . . . . . . . . . .41 B. Marketing Channels . . . . . . . . . . . . . . . . . . .43 C. Prices . . . . . . . . . . . . . . . . . . . . . . . . .44 VII. BENEFITS. JUSTIFICATION AND RISKS . . . . . . . . . . . . .45 A. Benefits . . . . . . . . . . . . . . . . . . . . . . . .45 B. Employment . . . . . . . . . . . . . . . . . . . . . .45 C. Financial and Economic Analyses . . . . . . . . . . . .46 D. Project Risks . . . . . . . . . . . . . . . . . . . . .46 VIII. AGREEMENTS TO BE REACHED AND RECOMMENDATION . . . . . . . .47 TEXT TABLES 2.1 Project Activities . . . . . . . . . . . . . . . . . . 8 3.1 Design Characteristics of Fishing Vessels . . . . . . 15 3.2 Distribution of Aquaculture Subprojects . . . . . . . 18 3.3 Distribution of Agriculture Subprojects . . . . . . . 21 3.4 Project Cost Summary . . . . . . . . . . . . . . . . . 27 3.5 Procurement Profile . . . . . . . . . . . . . . . . . 28 5.1 Annual Primary Production at Full Development . . . . 37 ANNEXES 1. Basic Data Provincial and Project Area Statistics - Agriculture . . . .50 Provincial and Project Area Statistics - Marine Fisheries .51 Fruit Production in Guangdong Province and Project Areas . .52 Aquatic Products Production (1979-1989). . . . . . . . . . .53 List of Project Locations. . . . . . . . . . . . . . . . . .54 2. Marine Resources and Management Main Species and Catches from Marine Fisheries . . . . . . .56 Number of Fishing Vessels and Production (1979-1989) . . . .57 Vessel Retirement Plan . . . . . . i . . . . . . . . . . . 58 Appraisal of Potential Yields for Fishery Resources . . . .59 Electronic Communication, Navigation and Fishing Aids . . .62 Proposed Fisheries Management Plan . . . . . . . . . . . . .65  3. Description of Agroindustries . . . . . . . . . . . . . . .68 4 Project Cost Summary and Expenditure Schedule . . . . . . .71 5. Procurement Procurement Arrangements by Component . . . . . . . . . . .74 Summary of Contracts . . . . . . . . . . . . . . . . . . . .76 Procurement Schedule . . . . . . . . . . . . . . . . . . . .77 6. Disbursement Schedule . . . . . . . . . . . . . . . . . . 79 7. Responsibility for Proiect Design and Implementation . . . .80 8. Farm Models and Operating Costs Farm Models . . . . . . . . . . . . . . . . . . . . . . . .84 Operating costs of Vessels . . . . . . . . . . . . . . . . .86 Operation Assumptions . . . . . . . . . . . . . . . . . . .87 Distribution of Income . . . . . . . . . . . . . . . . . . .88 9. Financial and Economic Analysis Summary of Financial and Economic Analysis . . . . . . . . .89 Selected Conversion Factors . . . . . . . . . . . . 90 Farm Gate Prices of Selected Projet Outputs and Inputs .91 Historical Farm Gate Prices of Project Inputs and Outputs in Guangdong . . . . . . . . . . . . . . . . . . . 92 Average Prices of Major Imports and Exports . . . . . . . . 93 10. Monitoring and Supervision Key Monitoring Indicators .... . ..... . . . . . . 94 Supervision Plan . . . . . . . . . . . . . . . . . . . . . 95 11. Selected Docume=nts and Data Available in the Proiect File. .97 FIGURES Figure 1 - Details of Modaomen Zhuhai Reclamation Project . 98 Figure 2 - Details of Jiaomen (Panyu) Reclamation Project . 99 CHARTS Chart 1 - Marine Fisheries . . . . . . . . . . . . . . . 100 Chart 2 - Implementation Schedule . . . . . . . . . . . . . 101 MAP IBRD - 22925 - South China Sea Fishing Area IBRD - 22926 - Project Components  CHIN GUANGDONG AGRICULTURAL DEVELOEMENT PROJECT I. BACKGROUND A. Introduction 1.1 The Government of China has requested International Development Association assistance in financing an agricultural development project in Guangdong Province. The main objectives of the project are to exploit marine resources in the South China Sea, utilize coastal lands, and accelerate and diversify agricultural development in hilly inland areas and on reclaimed land in the Pearl River delta. The proposed project has components for marine fisheries, aquaculture, agriculture, agroindustry and poverty alleviation. IDA and the Government identified the project in 1988. The Guangdong Provincial Government prepared the project, with assistance of Food and Agriculture Organization/Cooperative Program (FAO/CP) missions in March 1989 and February 1990. An IDA preappraisal mission visited the project areas in June 1990 and appraisal took place in January 1991. B. The Agricultural Sector 1.2 Agriculture in China, including crops, livestock, forestry and fisheries, provides sustenance to over 1.1 billion people; it is an important source of income for some 190 million farm families and accounts for about 30% of the country's GDP. Only about 137 million ha of China's land area of 960 million ha are arable. Farming systems are intensive with heavy inputs of labor, chemical and organic fertilizers, small machinery and water. Nearly half of the cropped area is irrigated. Food grains occupy about 70% of the crop land and account for about one-third of total agricultural output. This inten3ive system of production has allowed China to meet the basic food requirements of its population, about 22% of the world's total, and to produce an increasingly sophisticated mix o' cash and commercial crops, from less than 11% of the world's arable land. 1.3 China's decade-long rural reform program has revitalized the agricultural sector through improved work incentives, decentralized decision- making, better exploitation of comparative advantages, decontrolled agricultural markets and prices, and technological modernization. The program has resulted in impressive growth of income and production and a remarkable diversification in family diets. The gross value of agricultural output (GVAO) increased by 83% in real terms during the period of 1978-1988, at an average annual rate of 5%, substantially more than that of the previous 25 years of 3%. While significant growth has been achieved, the Government's central concern in recent years has been stagnating grain production, which had peaked at 407 million t in 1984. Production thereafter ranged between 391-402 million t for four years, reaching a new peak in 1989 with 408 million t. Extremely good weather in 1990 resulted in another all time high of 435 million t. 1.4 Recent government strategies to icierease grain production include diverse measures such as increasing state investment in agriculture, mainLy in irrigation expansion and rehabilitation, and introducing partial reforms :in grain procurement, distribution, price and subsidies. Local governments in particular have placed high priority on investments in uplands, natural pasture, and water  - 2 - surfaces for expanding produreion and productivity of non-staple food and commercial crops to meet growing demand for these commodities and increase local entity profits and farmer incomos. C. The Fisheries Subsector 1.5 China is the world's largest ploducer of freshwater fish and the third largest fishing nation after the *.S.S.R. and Japan. The sector, including culture and capture production from marine and freshwater sources, accounted for 5.3% of GVAO in 1989. Total aquatic production (inxvluding fish, shrimp, shellfish and seaweed produced in Chinese waters and harvested by Chinese vessels in other waters through joint ventures with other countries) increased from 5.3 million t in 1983 to 11.5 million t in 1989, an increase of 117%. The structure of production was freshwater culture (36%), freshwater capture (6%), riarine capture (44%) and marine culture (14%). Production data show a defi.ite trend: increasing proportions of total production ca. be attributed to both freshwater and marine culture and decreasing proportions to capture fisheries. The country has become the world's largest producer of cultured shrimp, producing 32% of world output. Between 1980 and 1989, shrimp production has grown by an average rate of 79% per year (from 2,600 t to 190,000 t) after a breakthrough in hatchery technology in the early 1980s and subsequent rapid expansion of cultivated area. The product has become an important foreign exchange earner and in 1988, China became the largest exporter of shrimp to the United States and Japan. A snecific objective of government in the 1980s was to expand annual fisheries production to 11 million t by the year 2000; when the likelihood of achieving this level by 1990 became apparent, the target was revised upwards to 18 million t. 1.6 At the national level, the Ministry of Agriculture has two bureaus concerned with fisheries--the Bureau of Aquatic Products (BAP) and the Bureau of Fisheries Management (BFM). Whereas the activities of the former are targeted toward increasing fisheries production, the latter concentrates on conservation of the resources. The BFM and its thrce regional branches (Yellow Sea and Bohai, East China Sea, and South China Sea) are responsible for supervision of the execution of fishery regulations; management of fishery resources, fishing boats, ports, and telecommunications, and protection of the fishery environment. In the provinices, corresponding offices of fisheries management have been established within the BAP. 1.7 Prior to 1980, the marine fisheries subsector in the country expanded rapidly without planning and enforcement of regulatory measures. Fishermen were urged to catch as much fish as possible without regard to population and size of various species. The Government introduced fishing vessels haphazardly and uncontrolled fishing activity was encouraged in order to increase production. However, due to lack of advanced technology and the inability to raise funds, the initial investments were directed to the construction of small and medium-sized boats which resulted in the introduction of a large number to the coastal and near-offshore areas along the entire coastline. 1.8 The Government decided in the mid-1980s to take measures to protect the resources and rationalize fishing effort. The Fishery Law, which was puL. into effect in June 1986, controls the growth of the coastal fishing fleet and trawler operations through a licensing system and establishment of fishing zones. The law strengthened the management scheme by establishing provincial and county level responsibility for allocating and enforcing the Central Government's limits on vessels, nets, fishing gear and production, in addition to adopting measures  - 3 - to multiply fishery resources. Overall management policy includes encouraging research and resource assessment, strict enforcement of the licensing system, inspection of fishing vessels before they e.re put into operation, collection of fishery resource and protection fees, protection of spawning and breeding areas, protection of fry, limits on production, etc. Open and closed seasons are adopted for shrimp trawling, and fishing is prohibited in spawning and nursery grounds. The fishing areas are divided into coastal zones (depth <40 m), offshore area (40 to 80 m depth) and deep-sea zone (80 to 200 m depth). D. The Fruit Subsector 1,9 Fruit production area and output have shown annual increases of approximately 11%, with land devoted to fruits now occupying 5.4 million ha--24% of the total land used for industrial crops'. Productiov has increased from 6.6 million t in 1978 to 18.3 million t in 1989. This rapid expansion is due to the major economic reforms which improved produce,: incentives through the production responsibility system, decontrol of fruit marketing and prices, and encouragement of regional specialization based on agro-ecological conditions. The policies have aimed to both improve small farmers' incomes and living standards and to provide consumers with a more varied and higher quality diet. Market prices for fruit rose in the 1980s at an annual average rate of 10%, considerably faster than the inflation rate, indicating that growing demand was not being met at prevailing prices. Major fruit producing areas are in Shandong, Sichuan, Guangdong and Liaoning provinces. About 25% of the area planted to fruit is occupied by apples, 25% by citrus, 14% by bananas, and the remaining 36% by pears, plums, longan, litchi, grapes and others. Chinese litchi production of 160,000 t accounts for 80% of world production, but only 1% of domestic fruit production. The major producing areas are in Guangdong (77,000 t) and Guangxi (22,000 t). Litchi is in high demand but production is small due to the limited ecological zone where it can be grown. Total pomelo area in China is about 16,000 ha of which 8,000 ha is located in Guangdong. The other major pomelo producing provinces are Guangxi and Sichuan. In 1989, China's total pomelo production was about 26,000 t, of which 14,000 t was from Guangdong. When the existing orchards reach full development, the production of pomelo is expected to reach about 200,000 t. E. gectoral Objectives and Bank Lending 1.10 The Government's long-term objectives for the agricultural sector are to increase food production to meet the requirements created by population and income growth, and raise incomes and employment opportunities in rural areas. Given China's shortage of arable land (0.1 ha per capita), development planners have focussed on the need to increase the productivity of presently cropped areas and to develop efficiently the few remaining areas of unutilized land. Per capita and total value added in the crop subsector are to be raised primarily by increasing the yield and quality of food, feed, orchard, and industrial crops and also by increasing the volum if agroprocessing. Although investment in agriculture declined marked'ly during the initial reforms of 1Q80-85, it has since rebounded at all levels due to firm national and provincial commitment to increasing production. ' PIndustriaL* crops include fruit from orchards, cotton, oil-bearing crops, fibers, sugar cane, sugar beet, tobacco, silk and tea.  1.11 For fisheries development, the Government's objectives are to increase production for domest4.c consumption, provide additional income sources for fishermen and fish farme ., and gain foreign exchaage earnings from the export of hi'h value species. For aquaculture, the development strategy Aocusses on utilizing land unsuitable for crop cultivation and the additional water surfaces of reservoirs and shallow-sea areas. For capture fisheries, the strategy emphasizes the protection of coastal resources in the shallow sea areas and encouraging production in the depths >100 m. 1.12 For fruit development, the Government's objectives are to inerease production for domestic consumpcion and exports, and provide additional income for the rural population. The fruits produced under the project would be primarily consumed in the domestic market, but certain crops would have substantial export markets. Citrus is expected to be exported fresh to Hong Kong, Southeast Asia, Canada and Europe. Longan and litchi are expected to be exported in processed forms to southeast Asia and Europe. The fruit development strategy emphasizes establishment of new orchards with high-yielding varieties and disease-free seedlings on land unsuitable for grain cultivation. Citrus is now being plantec predominantly on low hills with slopes normally in the range of 10 - 300 and would be more profitable than grazing livestock--the only other alternative use for these sloping lands. 1.13 The Bank's strategy for lending to China's agricultural sector has supported government efforts to expand and diversify agricultural production through more efficient use of land, water, capital and labor resources and through the improvement of support services such as credit, research and agricultural education. Bank group lending to date has comprised 28 operations amounting to US$3.3 million and has covered a wide spectrum of geographi_ areas and subsectors, with overall focus on land development, irrigation and drainage (seven projects); upgrading agricultural support services, such as research, education, credit, and seed improvement (seven projects), strengthening specialized product subsectors, including rubber, forestry, fruit and fisheries (eight projects); and more recently, area development (six projects). In recent years, the Bank group has supported a series of provincial projects in which an area development approach has been applied. In these projects, the responsibility for preparation and implementation of the projects and repayment of project funds rests with provincial and lower level governments, thus supporting the increasing delegation of development planning and implementation. A major objective of several recent Bank projects has been to assist in the Government's ongoing reform process. The .ural Sector Adjusrmct Loan (Credit 1932-CHA/Credit 2182-CHA), which was approved in 1988, contributed to the articulation of the overall reform process. Several projects approved since 1989, namely National Afforestation (Credit 2145-CHA), Mid-Yangtze Agricultural Development (Credit 2172-CHA), Fourth Rural Credit (Loan 3265-CHA/Credit 2182- CHA), Henan Agricultural Development (Credit 2240-CHA) and Tarim Basin (Credit 2294-CHA), contain significant sub-sectoral reform elements. 1.14 Implementation of most ongoing Bank Group financed projects in the agriculture sector is on schedule. Disbursements for agricultural projects usually outpace those in other sectors. Notable features of all the projects are the high standard of project management, the enthusiastic participation of farmers and the effective collaboration of government authorities at all levels. The North China Plain Agriculture Project (Cr. 1261-CHA) demonstrated these feaf.ires and also achieved economic benefits (an ERR of 56%) that far exceeded those anticipated at appraisal. The second agricultural project in China, the  Heilongjiang Land Reclamatioa Project (Cr.1347-CHA), in only five years, succeeded in reclaiming 200,000 ha of bogs in an extremely difficult agriculturril region (near the Siberian border) for efficient production of wheat, corn and soybeans, while introducing modern large-scale mechanized land preparation and harvesting to China's northeast region. The main lessons cited in the PCR were the importance of a full-time management 3ystem for project implementation, careful preparation of bidding documents for heavy equipment and large farm machinery, with rigotous inspection and testing of equipment on receipt, and during its working life, regular maintenance witht adequate supplies of spare parts, service and repair facilities, trained operators and maintenance tec'.nicians. The ICB procurement of a large fleet of farm and construction equipment proved to be efficient in terms of price competitiveness and good quality, and the use of this equipment has proven to be highlv productive for -he large-scale land reclamation and cultivation under the constraints of a limitea growing period and harsh weather conditions. The PCR for the first of the rural credit project series with the Agricultural Bank of China (ABC), the Rural Credit: I Project (Cr.1462-CHA), indicates that the project was clearly successful in production, employment, and beneficiary impact terms, as well as in starting the commercialization process in ABC. Lessons learned include the paramount requirement for a competent and full-time project management organization (as in Heilongjiang); continuous Bank monitoring of effects of currency realignments on financial intermediary projects; flexibility in lending program allocations, technical (including environmental) assistance and guidelines for financial intermediaries; and coordinated and improved market information dissemination to assist provincial or local level producers to predict shorta . or gluts of major inputs and outputs. The PCR also called for more emnhasis on lending for post- harvest and marketing facilities, rather trLan focusing exclusively on productior activities. 1.15 The Bank has been involved in the agricultural development of Guangdong Province through the Rubber Development Project (Cr. 1417/SF 005-CHA) and through acting as executing agency for Guangdong Integrated Fresh Water Fish Farming Project financed by the International Fund for Agricultural Development (IFAD Cr. 195-CHA). The Rubber Development Project has been r.ompleted with some 50,000 ha of rubber and 14,000 ha of windbreaks planted on State Farms in Guangdong and Hainan. While planting activities were carried out successfully, the establishment and operation of the associated timber compiexes, in retrospect, was an overly ambitious undertaking; placing former agricultural managers in large-scale, technically sophisticated industrial complexes has resulted in prolonged start-up periods, low qurlity output and reduced profits. Thus, the present project has emphasized the role of management and the selection of technology appropriate to the availability of technical and managerial skills. IFAD's project, a relatively simple fish pond development project, is being carried out successfully; still, modifications in pond design have been introduced in the proposed project to expand the potential for development of aquaculture. F. Guangdong Province 1.16 Guangdong entered a period of rapid economic growth after the economic reforms commenced in 1978, with light industry providing the thrast. The establishment of three of China's four Special Economic Zones (SEZs) in the province (Shenzhen, Zhuhai and Shantou) and its proximity to the financial and trading center of Hong Kong has facilitated major foreign capital inflows and helped Guangdong displace Shanghai as China's leading exporter. The province has  - 6 - a population of about 60.3 million (1989), of whom 46 million (77% of total) are engaged in agriculture and fisheries. It is divided administratively into 19 municipalities and the city of Guangzhou, the provincial capital. In 1989, the provincial income was estimated at Y89.5 billion and average per capita income at just under Y1,500. Meanwhile, the provincial GVAO was Y54.9 billion with per capita rural incomes of Y955. Guangdong can be considered as the leading edge of what has been China's successful coastal development policy. 1.17 Rapid economic development has also been a characteristic of the rural sector, with rural incomes now averaging about 58% above the national average. However, the benefits of economic development have not been evenly spread through the province. In particular, farmers in the mountainous areas in the northeast continue to be poor and annual incomes for an estimated 10% of the rural population still remain around Y300, substantially below the provincial and national averages. 1.18 The total land area is about 212,000 km2, of which 33% is moun- tainous, 25% is hilly, 19% tableland and 23% is plain. The province's 2.53 million ha of farmland is intensively cropped--total cropped area in 1989 was 5.55 million ha. About 70% of the cropped land is planted with grains, mainly rice. Major cash crops grown include sugarcane, fruit, peanuts, hemp, tobacco, tea, rubber, coffee and sisal. Particularly important are sugarcane, which accounts for 5% of the province's total sown area (28% of the nation's total sugarcane areas) and fruit, which accounts for another 12%. The province has yet to fully utilize its available land resources; it is estimated that 670,000 ha of unutilized lands are yet to be developed, including 150,000 ha of hilly land with slopes of less than 25% (potentially suitable for growing tree crops). 1.19 In 1989, the province produced a total of 18 million t of grain, of which 16 million t was rice. Sugarcane production in 1989 was about 17 million t, accounting for about 35% of China's production. Guangdong ranks first in the nation in fruit production with 2.8 million t (17% of national fruit production), of which, 1.1 million t of citrus and 1.1 million t of bananas account for 43% and 56%, respectively, of China's total production. For other fruits, 14,000 t of pomelo, 27,000 t of longan and 77,000 t of litchi were produced which accounts for less than 0.5%, 1% and 3% of the Province's total fruit production. The total area planted to fruit in 1989 was about 639,000 ha. The major longan, pomelo and litchi producing areas are Guangdong, Guangxi and Sichuan provinces and Guangdong's production accounts for about a half of the nation's total output. 1.20 Total fisheries output in 1989 was 1.9 million t, of which 53% came from marine capture (making the province the highest producer in the nation), 38% from fresh water culture, 6% from marine culture and the remaining 3% from fresh water capture. The province, facing the Northern Continental Shelf of the South China Sea, has a coastline (including that of the Xisha, Zhongsha, Tongsha and Nansha Islands) of about 5,066 km; the continental shelf area along the coast is around 374,000 km2. Outside the shelf is the continental slope which extends to form the South China Sea Basin. In most of these areas, the sea bottom is flat and sandy, particularly suitable for trawling--and the waters are rich in nutrients supporting growth of fish, shellfish and marine algae. Of the 1,200 fish species living in the Northern Continental Shelf and around the coral reef islands, about 120 are economically important. With the introduction of economic reforms, the number of powered fishing vessels has increased rapidly since 1978; there are now more than 47,000 motorized vessels, but about 75% are  - 7 - equipped with less than 20 hp and are limited in range to nearby coastal waters at depths less than 100 m. 1.21 Guangdong's Eighth Five Year Plan (1991-95) reiterates continuation of reforms and opening to the outside world with emphasis on price reform, market development and industrial restructuring. The province aims to continue to position itself as a forerunner of export-oriented economy with little or no control on prices and the market mechanism. In addition to development of the Pearl River Delta area, additional efforts would be made to develop interior regions, particularly the mountainous areas where relative poverty is still prevalent. G. Proiect Formulation and Rationale 1.22 As part of the Government's efforts toward decenttralization, this project has been planned and would be implemented by the provincial, municipal and county governments. The proposed project is comprised of components which address several constraints to productivity in each subsector: replacement of outdated, limited range fishing vessels to increase volume of catches, while shifting fishing effort from the overexploited shallow coastal waters to the relatively underexploited deeper offshore areas; land reclamation with the multi- purposes of expanding agricultural area, improving navigation and increasing drainage capacity; fruit tree expansion and rehabilitation, taking advantage of the province's sub-tropical climate, to increase production, meanwhile utilizing hilly land with limited alternative use; introducing erosion control measures to reduce siltation in the delta's network of estuaries, and generating additional incomes for farmers in mountainous areas where per capita income has been below the provincial average. IDA's contribution, in addition to overall project design and finance, has been to establish the adequacy of offshore marine resources and to make recommendations for improvement of fishing vessel design and fishing gear, fishery resource management, environmental impact, seadike safety and international marketing strategies. II. THE PROJECT AREAS A. Location 2.1 The proposed project would be carried out in 13 municipalities, extending from the Leizhou Peninsula in the southern extremity of the province to Shantou near the Fujian border. Project locations are shown on IBRD Map 22926 and activities in the participating municipalities are summarized in Table 2.1. 2.2 Eight coastal cities, sprerd over a distance of 1,500 km, have been selected to participate in the marine fisheries component on the basis of the following criteria: proximity to good fishing grounds and markets, progressive attitude of fishermen's communities, and availability of service facilities and other essential infrastructure. These eight cities are the operating bases for 85% of the province's current register of motorized fishing vessels and accounted for 78% of total marine capture. Five of the same coastal cities and an additional inland city would be sites for the aquaculture component. The selected areas have generally satisfactory physical and biological conditions for raising marine, brackish and freshwater species, a long tradition in aquaculture production, and underemployed labor forces. The agricultural component would be located in three municipalities and Guangzhou City. All areas selected have  suitable climate, easy access to markets, and a tradition of cultivation of the respective crops--litchi, longan, pomelo or sugarcane. Most of the agroindustry components would be based in Shenzhen, a SEZ near Hong Kong which has become a major production and trading center for domestic and export goods, and in Guangzhou, near the production area. Qingyuan municipality has been identified as the focus of a poverty alleviation component because five of its counties, located in the limestone mountain area, have been designated as official poverty areas. Table 2.1 Project Activities Municipality Project Activities Coastal cities Huizhou Marine fisheries, cage culture Jiangmen Marine fisheries, brackish water ponds Maoming Marine fisheries, litchi, longan Shantou Marine fisheries, cage culture, freshwater ponds Shanwei Marine fisheries, shrimp, oysters Shenzhen Agroindustry Yangjiang Marine fisheries Zhanjiang Marine fisheries Zhuhai Marine fisheries, cage culture, brackish water ponds, sugar cane w/land reclamation, agroindustry Inland cities Guangzhou Sugar cane w/land reclamation, litchi, agroindustrv Meizhou Pomelo, longan Gingyuan Poverty alleviation Zhaoqing Freshwater fishponds B. Climate 2.3 The project areas are located between 20 and 250 N. latitude. The climate is tropical in coastal areas in the south becoming subtropical further inland to the north. Occasional cold waves are experienced in January or February with some mild frost. However, the average frost free period exceeds 300 days and many southern areas are completely frost free. Average daily temperatures range from about 160C in January to 330C in July. The province is subject to two monsoons,the southwest monsoon from April to October and the northeast monsoon from November to March. Annual rainfall averages between 1500- 1800 mm, with most of it occurring between April and September. Typhoons occur fairly regularly in the province and wind speeds can reach up to 37 m/sec. Typhoons can cause extensive damage, especially in coastal areas, with the storms generally weakening as they move inland. A more important risk for the inland areas is the occurrence of late or uneven rains and drought. C. The Pearl River Delta 2.4 Three rivers, the Xijiang, Beijiang and Dongjiang, drain the uplands of central Guangdong and converge to build up the alluvial plains of the Pearl River Delta. The delta is essentially a filled-in bay, which was itself the result of subsidence of recent occurrence. Isolated hills of ancient rocks, formerly islands in the bay, rise sharply out of the alluvium. At Sanshui, the Xijiang unites with the Beijiang and sends off a branch to the east to form the main channel of the delta, the Pearl River, while Xijiang itself swings toward the south to discharge into the sea at Modaomen. The lower course of the Pearl  -9 - River also runs southward entering the sea in a broad estuary. Between these two main channels lies the main deltaic plain, about 100 km long and 40 km wide, intersected by numerous interlaced waterways. The Dongjiang, which drains most of eastern Guangdong, forms a subordinate but large delta of its own on the eastern side of the Pearl River estuary. The delta is rich in surface water resources on account of the copious rainfall of the region (about 1,800 mm annually) and the large volume of annual runoff from the 430,000 km2 of drainage basin of the Xijiang, which rises on the high tablelands of Yunnan and Guizhou and traverses the length of Guangxi before reaching Guangdong. The annual runoff volume to the sea via the eight principal outlets at the delta amounts to 326 billion m3--these outlets are, from east to west, Humen, Jiaomen, Hongqimen, Hengmen, Modaomen, Jitimen, Hutiaomen, and Yanan. Discharges are high during the period April through September when the sea water is pushed out and the salinity near the coast is low (0 to 6 parts per thousand). At ebb tide, fresh water, discharged from upstream, is diverted from the numerous waterways for irrigation and domestic purposes. 2.5 Sedimentation, largely contributed by the Xijiang, has been a continuous process. Of the 83 million t of annual sediment load discharged into the sea by the Pearl River system, the Xijiang accounts for about 87%. The build-up of tidal lands at the estuaries is rapid. At Modaomen, the delta is extending at the rate of 120-150 m per year. The soils of the tidal flats are potentially fertile though a trifle saline; once protected from flooding and provided with drainage, they are immediately suitable for a variety of crops, notably sugar cane and rice, as well as for aquaculture. Sedimentation and extension of the foreland of the delta has caused blockages at the river outlets, siltation of river channels, obstruction to navigation, impedance to drainage of low-lying areas, and higher flood levels. Like other coastal areas of Guangdong, the delta is annually hit by typhoons which are most active from July through September. Storm surge, the piling-up of sea water that occurs during a typhoon, produces a hazardous condition. Damage to crops and property by sea floods caused by storm surges is a major concern in the development of the delta area, and thus IDA has carefully considered the safety of the seadikes in the proposed project areas. 2.6 Among the early reclamation activities was the construction in 1835 of an embankment between the outlets of Jiaomen and Hongqimen in coastal Panyu County. From 1835 to 1949, about 9,300 ha of tidal lands were reclaimed in Panyu. Reclamation also took place elsewhere in the delta and the coastal areas and continues today. Since the early 1980s, larger scale reclamation works have been undertaken, and recent activities include the reclamation of large tracts of tidal lands totalling 24,900 ha at the outlets of Jiaomen (13,300 ha), Modaomen (7,100 ha) and Yamen (3,400 ha), and two coastal locations (1,100 ha) in Zhuhai municipality. The reclamation at Jiaomen and Modaomen, two important estuaries of the Pearl River system, is being undertaken with technical guidance of the Pearl River Water Resources Commission, which has assisted in the planning and engineering design of the reclamation works. A major concern of the planning work has been and continues to be the location and alignment of the embankments enclosing the reclaimed tidal lands with a view to maintaining the outlets as efficient hydraulic channels. D. Topography and Soils 2.7 Fruit crops under the proposed project would be located in hilly and mcountainous terrain where they would be grown mainly on the lower hills on slopes  - 10 - up to about 30