China - Fourth Technical Cooperation Project (TCOP IV)

Report No. PID4091 Project Name China-Fourth Technical Cooperation (@) Project Region East Asia and Pacific Sector Technical Assistance Project ID CNPE42299 Borrower People's Republic of China Responsible Agency Ministry of Finance Mr. Zhang Wenhe, Deputy Chief Technical Assistance Division International Department Tel. No. 86-10-6-855-1115 Fax No. 86-10-6-855-1125 Date this PID Updated October 14, 1998 Appraisal Date December 1998 Tentative Board Date June 1999 Tentative Project Financing Plan: US$ IBRD 10.0 m. IDA 15.0 m. GOC 6.0 m. Total 31.0 m. Country and Sector Background 1. Since 1980, the fundamental objective of the Bank's country assistance strategy in China has been to provide analytical and material support to the country's economic reform and modernization process. The Bank's international perspective has made important contributions to the design and implementation of China's development efforts, which have helped progressively to integrate the country's economy with the rest of the world. In this context, and complementing lending and economic and sector work, technical assistance has been an increasingly important element of the Bank's assistance to the country. 2. Initially, the Bank's technical assistance effort focused on transfer of technology, mainly through preinvestment, project preparation and training activities. In the second half of the 1980s, the technical assistance focus was broadened and deepened to include institutional development and policy advice in China's key economic management and sectoral agencies. With the acceleration of reform after 1992 and particularly since March 1998, demand increased for technical assistance for policy advice, institutional development support, and preinvestment support. Focused, 'free-standing' sector-specific technical assistance projects, particularly in the environmental, financial and fiscal sectors, have also been sought. 3. Since 1983, the Government of China (GOC) has effectively implemented four technical assistance projects of a general (non-sectoral) nature. These  have supported project preparation, planning studies, institutional development, training and economic and policy reform efforts. The Government has requested the proposed project to help meet its continuing need for technical assistance in these areas, as well as increase its capacities in areas not previously addressed in the earlier projects. Need for Technical Assistance 4. The large number of projects (both Bank- and non-Bank-financed) currently under implementation in China (Bank-financed projects alone account for over 100 projects), together with the large annual lending program (about 15 projects), place a heavy and increasing burden of implementation management responsibility on the central and provincial governments. To alleviate these pressures, the Ministry of Finance (MOF) would like to strengthen the capabilities and capacities of counterpart agencies in the provincial governments, as well as some of the larger local project implementation agencies, to enable them to assume greater responsibility for project implementation management at the provincial and local levels. Technical assistance is needed to support this capacity-building effort. 5. The major changes that have taken place in China since the early 1980s have permeated every area and sector of the economy. Over the past decade, central government agencies responsible for economic policy analysis and formulation and implementation of economic, financial, and industrial reforms have made huge progress in managing these changes. However, the nature and pace of change in recent years has been such that further strengthening of these institutions remains a high governmental priority, and technical assistance to support the further development of these institutions continues to be needed. 6. The Government's ambitious reform programs over the past 15 years have generated a great demand for economic and sector analytical work and research to support these programs, and this demand continues. The Bank's economic and sector work and its ongoing dialogue with the Government -- for example, in the areas of state-owned enterprise reform, pension reform, and macroeconomic policy -- have further contributed to increasing the demand. Technical assistance is needed to build on this work, and enhance the process of economic development. 7. China has benefited considerably from previous technical assistance projects that have provided funds to support the preparation of projects to be financed by the Bank. The benefits of effective project preparation are often realized downstream, during project implementation. Project preparation is costly, however, particularly for energy and transportation projects. Despite the availability of other sources of finance for project preparation activities, the need for continued support and technical assistance in this area continues. Project Objectives 8. The primary purpose of the proposed Project is to provide continued support to the GOC in its overall economic reform and modernization effort. More specifically, project objectives are to: (a) increase and strengthen the capacity of Provincial Finance Bureaus and local project implementing agencies to manage and implement investment projects; (b) strengthen institutions - 2-  involved in the Government's economic development program; (c) support the development and implementation of the Government's reform programs and policies; and (d) support the preparation of projects to be financed by the Bank. Project Scope and Design 9. In line with the above objectives, the project would comprise two main components: (a) an institutional development and reform support component (about $6 million IDA), which would finance: (i) activities designed to strengthen the capability and capacities of selected Provincial Finance Bureau (PFBs) , as well as key local project implementation agencies (PIAs), for managing the preparation and implementation of investment (including Bank-financed) projects; (ii) activities to strengthen the capabilities and capacities of institutions involved in China's economic reform and development efforts; (iii) economic and sector analytical, research, and development work in selected key areas of the Government's reform program. (b) a project preparation component (notionally $10 million IBRD, $9 million IDA), which would finance feasibility studies, procurement documentation, training and related activities associated with the preparation of projects in the Bank's three-year lending program. 10. Under the institutional development and reform support component, subproject proposals for capacity development of PFBs/PIAs would be prepared by Economic Affairs Divisions of PFBs or PIAs. Financing for this capacity development sub-component would cover consultant advisory services; training (in such areas as project management, risk management, financial analysis, cost-benefit analysis, procurement, contracts, and dispute settlement); local workshops and conferences; equipment and software (e.g. project management software); and limited project-related study tours. Initially, a pilot group would be determined on the basis of need and willingness to commit budget funds to service sub-loans from MOF. Subproject proposals would describe the institutional development measures in individual PFBs/PIAs needed to bring about the required capacity strengthening. 11. A major emphasis in this component will be staff training. As part of project appraisal, MOF will carry out an assessment of the training needs of PFBs and selected PIAs, and in conjunction with the Bank, identify participants for the pilot group. PFBs/PIAs not in the initial pilot group would be eligible to participate in the project at a later stage of implementation. Depending upon the nature of the PFB/PIA training required, training may be carried out locally within provinces, or nationally under the auspices of MOF. Training would be coordinated by a central institution utilizing a network of existing universities and training institutions throughout China. 12. Subproject proposals for institutional development support and for research and development studies related to the Government's reform program -3 -  would be prepared by line ministries, government agencies, academic institutions, and quasi-governmental institutions. Financing for the institutional development sub-component would typically cover consultant advisory services, studies, training, limited related study tours and small items of equipment. Financing for the reform support sub-component would cover consultant advisory services, research and studies, training, and possibly limited related study tours. 13. Under the project preparation component, subproject proposals would be prepared by PIAs for projects specifically identified in the Bank's three-year lending program. The component would finance only project preparation activities. These could include consultant advisory services; feasibility, design, engineering or environmental studies; training; small items of equipment and software; and limited study tours. Project Implementation 14. The MOF's International Department would be responsible for the overall management and coordination of the project. Both components would be implemented as a series of subprojects. Agencies would have full responsibility for implementing their particular subprojects, including meeting consultant recruitment, equipment procurement, record-keeping, accounting, and progress reporting requirements. MOF would establish appropriate monitoring systems to ensure agency responsiveness to project requirements, as well as maintain records for the project as a whole. 15. MOF would enter into implementation and financial agreements with each participating PFB, PIA, or central or other provincial agency. The implementation agreement would provide guidelines and requirements for subproject implementation. The financial agreements would set out the terms and conditions under which funds would be on-lent by MOF to the agency. Funds for all sub-components under the institutional development and reform support component would be on-lent by MOF to the participating agencies at close to IDA rates: a one percent interest rate, a five-year grace period, and a 10- year repayment period. Institutions lacking capacity for loan repayment may apply to MOF's Budget Department for repayment subsidies, enabling them to obtain funds under the project on a grant basis. Funds for the project preparation component would be onlent to participating agencies at a 'blend' interest rate of about three percent, with a five-year grace period and a one- year repayment period. 16. Training required by PFBs and PIAs may be provided locally (in-province), regionally, or centrally. For local or regional training, participating PFBs/PIAs would themselves coordinate the logistics of the training, but hire consultants from a centralized training institution or other sources for the design and delivery of the courses. For central training, courses would be designed and delivered by a centralized training institution, and participating PFBs/PIAs would pay this institution for this service. Payments would cover all of the institution's training-related costs. Project Benefits 17. The project's main benefits would be to strengthen, at the provincial level, the Government's capacity to manage preparation and implementation of projects; to strengthen key institutions involved in China's economic - 4 -  transition; to reinforce the Government's economic and sector reform efforts; and to finance the preparation of sound investment projects for Bank financing. 18. Sustainability under technical assistance projects is typically more difficult to assess than under projects in other sectors. The project preparation and supervision capabilities of PFBs and PIAs are likely to be utilized, given the large number and wide geographic dispersion of projects in the lending program and under supervision. The close involvement of researchers in a number of Chinese institutions in implementation of policy reform recommendations associated with the Bank's economic and sector work program is also expected to lead to sustainable long-term benefits. Program Objective Categories 19. The project would support economic management and private sector development. Poverty alleviation would not be a focus. Further, the project is proposed as Environmental Category C, requiring no environmental analysis. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending October 16, 1998. - 5 -