China - Enterprise Reform Project

Document of The World Bank Report No: 19300-CHA PROJECT APPRAISAL DOCUMENT ONA PROPOSED LEARNING AND INNOVATION CREDIT IN THE AMOUNT OF SDR 3.7 MILLION EQUIVALENT TO THE PEOPLE'S REPUBLIC OF CHINA FOR AN ENTERPRISE REFORM PROJECT June 28, 1999 Private Sector Development Unit East Asia and Pacific Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective mid-June 1999) Currency Name = Renminbi Currency Unit = Yuan (Y) Y 1.00= US$0.12 US$ 1.00 = Y 8.3 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank ASEM Asia Europe Meeting BOF Bureau of Finance CAS Country Assistance Strategy DIFD Department of International Trade and Development (United Kingdom) ETC Economic and Trade Commission IDA International Development Association IFC International Finance Corporation LME Large and Medium Enterprises LTCSH Light, Textile and Chemical State Enterprise Holding Company (Wuhan) MOF Ministry of Finance MOLSS Ministry of Labor and Social Security PBOC People's Bank of China PHRD Policy and Human Resources Development PID Project Information Document PIP Project Implementation Plan PMO Project Management Office PRC People's Republic of China PSD Private Sector Development SETC State Economic and Trade Commission SME Small and Medium Enterprise SOE State-Owned Enterprise TOR Tenns of Reference WBI World Bank Institute Vice President: Jean-Michel Severino Country Director: Yukon Huang Sector Manager: Hoon Mok Chung Task Team Leader: Klaus Lorch  CHINA Enterprise Reform Project CONTENTS A. Project Development Objective ............1........................................I 1. Project development objectives and key performance indicators ........................I B. Strategic Context .....................................................2 1. Sector-related CAS goal supported by the project ..............................................2 2. Main sector issues and Government strategy ............................................... 2 3. Learning and development issues to be addressed by the Credit ........................5 4. Learning and innovation expectations ...............................................6 C. Project Description Summary .....................................................8 1. Project outputs and components .....................................................8 2. Institutional and implementation arrangements ...................................................8 3. Monitoring and evaluation arrangements .................................................... 10 D. Project Rationale .................................................... 10 E. Project Analyses ................................................... 10 1. Economic analysis ................................................... 10 2. Institutional assessment ...........1........................................ 1 3. Social assessment ................................................... 12 4. Environmental assessment ................................................... 12 F. Risks .................................................... 12 1. Critical risks .................................................... 12 2. Possible controversial aspects .................................................... 14 G. Main Credit Conditions .................................................... 14 1. Effectiveness conditions .................................................... 14 2. Other .................................................... 14 H. Readiness for Implementation .................................................... 14 I. Compliance with Bank Policies .................................................... 15  Annexes Annex 1 Project Design Summary Annex 2 Detailed Project Description Annex 3 Estimated Project Costs Annex 4 Cost Effectiveness Analysis Summary (N/A) Annex 5 Financial Summary Annex 6 Procurement and Disbursement Arrangements Table A Project Costs by Procurement Arrangements Table A.1 Consultant Selection Arrangements Table B Thresholds for Procurement Methods and Prior Review Table B. 1 Procurement Plan Table C Allocation of Credit Proceeds Annex 7 Project Processing Budget and Schedule Annex 8 Documents in Project File Annex 9 Summary of Bank Group Operations Annex 10 Country at a Glance  China Enterprise Reform Project Project Appraisal Document East Asia and Pacific Regional Office Private Sector Development Unit Date: June 28, 1]999 Task Manager: Klaus Lorch Country Director: Yukon Huang Sector Manager: Hoon Mok Chung Project ID: PE-60270 Sector: Enterprise Sector Program Objective Category: PSD Lending Instrurnent: Learning and Innovation Credit Poverty Targeted Intervention: [] Yes [X] No Project Financing Data [] Loan [X] Credit For Loans/Credits/Others: Amount (US$m/SDRm): US$ 5.0 million equivalent/SDR 3.7 million equivalent Proposed terms: [X] Multicurrency [] Single currency, specify (SDR) Grace pe:riod (years): 10 [ Standard Variable [] Fixed [ LIBOR-based Years to maturity: 35 Commitment fee: 0.5% Service charge: 0.75% Front-end fee: - Financing plan (US$m): Source Local Foreign Total Government 0.82 0.10 0.92 Cofinanciers 0.33 1.89 2.22 IDA 0.90 4.10 5.00 Total 2.05 6.09 8.14 Borrower: People's Republic of China Guarantor: Not Applicable Responsible agencies: State Economic and Trade Commission (SETC); Municipalities of Changsha, Shenyang, Wuhan, and Wuhu Estimated disbursements (Bank FY/US$M): 1999 2000 2001 Annual 0.0 3.0 2.0 Cumulative 0.0 3.0 5.0 Project implementation period: July 1999 - December 2001 Expected effectiveness date: July 26, 1999 Expected closing date: June 30, 2002 OSD PAD Form: July 30, 1997  Page 1 A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): The objective of the Project is to learn from innovative methods for the reform of China's state-owned enterprise sector. The Project would thus help deepen enterprise reform in China, contributing to the Country Assistance Strategy objective of maintaining the momentum of structural reforms. The development objectives of this Learning and Innovation Project would be to identify and adapt potential improvements in enterprise reform methods to local circumstances, test their feasibility through pilot implementation, and make these lessons widely known among local and central policy-makers, leading to the replication of promising reform methods beyond the Project itself. These enterprise reform measures will address (i) corporate restructuring and transformation of large and medium state enterprises, (ii) management development, (iii) re-training and re-employment of laid-off state enterprise employees, and (iv) the development of private small and medium enterprises. The achievement of Project objectives would be indicated by the extent to which several enterprise reform measures under each of the above four Project components (i) - (iv) would have: * been proven successful in pilots; * led to refinements in municipal enterprise reform strategies and the strengthening of related institutional capacity in the participating cities; * provided information about pilot results also to national policy-makers; and * started leading to replication within and outside the four pilot municipalities, in part accompanied by legal/regulatory changes. T'he performance in terms of Project outputs would be measured through the extent to which enterprise reform measures under each of the four Project components have been: 3 customized to local circumstances;