China - Higher Education Reform Project

Document of The World Bank Report No. 19146-CHA PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN OF US$20.0 MILLION AND A PROPOSED CREDIT OF SDR 36.8 MILLION (US$50 MILLION) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A HIGHER EDUCATION REFORM PROJECT April 14, 1999 Human Development Sector Unit East Asia and Pacific Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective October 1998) Currency Unit = Renminbi (Y) Y i.00 = US$0.12 US$1 = Y8.30 FISCAL YEAR Januarv A - December 31 ABBREVIATIONS AND ACRONYMS AusAID Australian Agency for International Development CAS Country Assistance Strategy CERNET China Education and Research Net CIDA Canadian International Development Agency COSU Central Operations Services Unit DO Development Objective EASHD East Asia Sector Unit, Human Development (World Bank) EU European Union FILO Foreign Investment Loan Office FILO/MOE Foreign Investment Loan Office of Ministry of Education GDP Gross Domestic Product GOC Government of China HEAP Higher Education Advisory Panel H DNED Human Development Network, Education Sector (World Bank) IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ICR Implementation Completion Report IDA International Development Agency IDF Institutional Development Fund IP Implementation Progress LCB Local Competitive Bidding LCHSD Latin America & Caribbean Region, Human Sector Development (World Bank) LCC3C Latin American and Caribbean Countries, Department 3 (World Bank) MBDs Model Bidding Documents MEIAO Mechanical and Electrical Equipment (State Import and Export Office for) MIS Management Information System MOE Ministry of Education MOF Ministry of Finance MTR Mid-term Review NCB National Competitive Bidding NGOs Non-governmental Organizations OP/BP Operations Policy/Bank Policy PCR Project Completion Report P1O Project Implementation Office PIP Project Implementation Plan PMR Project Management Report RMC Resident Mission, China TOR Terms of Reference UNDP United Nations Development Program UNESCO United Nations Education, Scientific, and Cultural Organization Vice President Jean-Michel Severino Country Director Yukon Huang Sector Manager Alan Ruby Task Team Leader Hena Mukherjee  China Higher Education Reform Project CONTENTS Page A. Project Development Objective(s) ................................................................2 1. Project development objective and key performance indicators ........................................................ 2 B. Strategic Context ................................................................2 1. Sector-related CAS goal supported by the project ....................................2...........................2 2. Main sector issues and Government strategy ..................... ..........................................2 3. Sector issues to be addressed by the Project and strategic choices ..................................... ...............4 C. Project Description Summary ................................................................6 1. Project components ...............................................................6 2. Key policy and institutional reforms supported by the Project .......................................................... 7 3. Target population and benefits ................................................................7 4. Institutional and implementation arrangements ........................... .....................................8 D. Project Rationale ................................................................ 10 1. Project alternatives considered and reasons for rejection .............................................................. 10 2. Major related projects financed by the World Bank and/or development agencies ......................... 12 3. Lessons learned and reflected in proposed project design .............................................................. 14 4. Indications of borrower commitment and ownership .............................................................. 16 5. Value added of Bank support in this project ..................... ......................................... 17 E. Summary Project Analysis .............................................................. 18 1. Economic ............................................................... 18 2. Financial .............................................................. 18 3. Technical ............................................................... 18 4. Institutional .............................................................. 18 5. Social .............................................................. 19 6. Environmental ............................................................... 19 7. Participatory Approach .............................................................. 20 F. Sustainability and Risks .............................................................. 20 1. Sustainability .............................................................. 20 2. Critical Risks .............................................................. 21 G. Main Loan Conditions ............................................................... 21 H. Readiness for Implementation .............................................................. 22 I. Compliance with Bank Policies .............................................................. 22 Appendix A Criteria for Selection of Project Institutions .......................................... ..................... 23 Appendix B Project Universities and Partner Institutions .............................................................. 24  Tables ....................................................Page Table 1. Completed World Bank Projects with IP and DO Ratings ............................................... 13 Table 2. China: Support from Development Agencies ............................................... 14 Annexes Annex I Project Design Summary .................................................. 26 Appendix 1.1: Project Performance Indicators for UPs .................................................. 28 Appendix 1.2: Project Performance Indicatbrs for PU Laboratories .................................................. 29 Appendix 1.3: Project Performance Indicators for PIs ................................................... 30 Appendix 1.4: Project Performance Indicators for NTA .................................................. 31 Annex 2 Detailed Project Description ................................................... 32 Annex 3 Estimated Project Costs .................................................. 44 Annex 4 Economic and Financial Analysis .................................................. 45 Annex 5 Financial Summary .................................................. 61 Annex 6 Procurement and Disbursement Arrangements .................................................. 62 Table A: Project Costs by Procurement Arrangements ................................................... 64 Table B: Thresholds for Procurement Methods and Prior Review ................................................... 65 Table C: Allocation of Loan and Credits Proceeds .................................................. 66 Annex 7 Evaluation of Project Financial Management System ................................................... 67 Annex 8 Organizational Chart .................................................. 69 Annex 9 Documents in the Project File .................................................. 70 Annex 10 Project Processing Budget and Schedule ................................................... 71 Annex 11 Status of Bank Group Operations in China .................................................. 72 Annex 12 Country at a glance .................................................. 75 Annex 13 Summary Education Profile: China ................................................... 77 Map IDA/IBRD No.  CHINA Higher Education Reform Project Project Appraisal Document East Asia and Pacific Region Education Sector Unit Date: February 15, 1999 Task Team Leader: Hena Mukherjee Country Manager/Director: Yukon Huang Sector Manager: Alan Ruby Project ID: 46051 Sector: Education Program Objective Category: EA Lending Instrument: Sector Investment Loan (IDA-IBRD blend) Program of Targeted Intervention: [ ] Yes [x] No Project Financing Data [x] Loan [xl Credit [ Guarantee [] Other [Specify] For Loans/Credits/Others: mount (US$M/SDR M): IBRD Loan US$20 million/Credit US$50 million equivalent Proposed items: [ ] Multicurrency [x] Single currency, specify, US Dollar [x] Standard Variable [ ] Fixed [x] LIBOR-based IBRD Loan IDA Credit Grace period (years): 5 10 Years to Maturity: 20 35 Commitment fee: 0.5% Contractual rate: 0.75% Service charge: -- 0.75% Front-end Fee: 1.0% Financing plan (US$M): Source Local Foreign Total Government Participating institutions 34.0 0.0 34.0 IBRD 11.3 8.7 20.0 IDA 12.4 37.6 50.0 Total 57.7 46.3 104.0 Borrower: People's Republic of China Responsible agency(ies): Ministry of Education Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003 2004 Annual 1.0 30.0 30.0 5.0 3.0 1.0 Cumulative 1.0 31.0 61.0 66.0 69.0 70.0 Project implementation period: Five years Expected effectiveness date: September 1999 Expected closing date: July 2005  2 A: Project Development Objective 1. Project development objectives and key performance indicators: Project Development Objective. The principal objective of the Project is to improve the quality and relevance of undergraduate basic science and engineering programs through integrated reform activities in curriculum and teaching methodology. While project investments would be made primarily at first and second year levels, they would provide the impetus for embedding reforms across all four years of undergraduate science and engineering programs. The Project would focus on reforms in curriculum and teaching methodology, and by strengthening planning and management at institutional and central, Ministry of Education (MOE) levels, would improve capacity to implement reforms in teaching and learning. The reforms would assist the Chinese government in implementing much needed changes at the first and second year undergraduate basic science and engineering levels with the aim of keeping abreast with the accelerating speed of knowledge generation and technology development. Project reforms would be consistent with national efforts to speed up transformation from a planned economy to a market economy and, if successful, provide important and closely-monitored models of change for China's vast higher education sub-sector. Competitive selection processes, a new concept in the area of centrally-organized curriculum development in China, would be introduced in one sub-component. The 28 project universities themselves have each identified at least one weak- performing partner university (although one project university has four), disadvantaged by scarce financial and human resources or by location in a poor area, and have jointly developed collaborative programs to be undertaken under the Project. The total number of partner institutions would be at least 31. These partner institutions are integral to the Project design and content. They would extend the Project's impact substantially and help to reduce existing professional and technical disparities between universities. Key Performance Indicators (see Annex 1): Key performance indicators have been developed for the purposes of (1) monitoring anticipated Project outputs during the project period and their impact on project beneficiaries; and (2) continuous monitoring of quality during and beyond the project period. These indicators have been discussed with and found acceptable by MOE, Project universities and the Bank. Four prototype tables to be used by Project Institutions and MOE to monitor progress of activities are appended to Annex 1. These are to be used by Project Universities (Appendices 1.1, 1.2 and 1.3) and MOE (Appendix 1.4). Project institutions have provided planned targets for the years 1999, 2002, and 2004 for the purpose of guiding and monitoring implementation. These target figures are available in the Project Files. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the Project: CAS document No. R98-107 Date of CAS discussions: May 6, 1998 China's economy is one of the fastest growing in the world. The CAS (China: Country Assistance Stratregy Progress Report: R98-107 dated May 6, 1998) recommends that an area which needs to be addressed is increased training in those skills necessary to accelerate China's entry into the 21st century's information-based economy (page 5. para. 22). The Project directly responds to the CAS recommendation. The proposed reforms to be implemented through the Project have been designed to ensure that university training in science and engineering results in a better fit with the rapid technology-based changes in the economy and labor market. 2. Main sector issues and Government strategy: Background. The first wave of higher education reform came in the 1950s when the Chinese govermment introduced a higher education system geared to train students to meet the manpower needs of government and the society at large. Destroyed by the Cultural Revolution (1966-76), China's higher education system was rebuilt only in the late 1970s as one element of a strategy to modernize the country. Much external assistance at the time was in piecemeal,  3 rehabilitative mode. The 1978-94 period witnessed a remarkable proliferation of public, regular higher education institutions -- from 598 in 1978 to 1,080 in 1994. Enrollment numbers grew from 0.86 million in 1978 to 2.8 million in 1994. The total enrollment for full-time and adult education degree programs was almost 6 million in 1998. Full- time students in undergraduate and short-cycle courses grew at an annual rate of 7.7 percent. Graduate enrol;ment rose from zero to 0.13 million by 1994. The higher education participation rate for regular students and adult education stream students at just about 7 percent of gross enrollment, however, is low when compared to other East Asian economies. For example, the higher education participation rate is 10 percent in Indonesia, 19 percent in Thailand, 20 percent in Hong Kong, 39 percent in Taiwan (China), and 51 percent in the Republic of Korea. This may have serious implications for the sustainability of economic growth and long-term social development in China. In relation to the pressures of a growing market economy, the higher education sub-sector as a whole faces some problems which may obstruct its further reform and development. Public spending on higher education grew by an annual average of 9.7 percent between 1978 and 1994. Public spending on higher education increased from 20 percent of total public expenditure on education in 1978, peaking at 29 percent in 1984, then declined to around 17 percent between 1989 and 1992, climbing to around 19 percent in 1994. Given the enrollment ratio of 7%, public spending on higher education is at the high end by international comparison: for example, Indonesia, Malaysia, Thailand, Korea and Japan spent 11-17 percent of public expenditure. China's rapid growth with an annual average GDP rate of 8 percent in real termns between 1978 and 1997 has presented major challenges to the nation's higher education system. Since 1978, the Chinese Government has placed emphasis on the rapid expansion and improvement of higher education to help improve the quality of education and training to assist the country's economic and social development. In 1985, the Government adopted the document Decision on Education Reform (CPC, 1985) that, inter alia, aimed at providing the mix of skills required in a rapidly developing society, to improve efficiency, quality and equity, and to release resources required to develop and enhance education at lower levels. The reform document provides a policy framework supporting the revitalization of both curricular content and teaching. More recently, in order to speed up transformation nationwide from a planned economy to a market economy, the Guidelines of China's Educational Reform and Development (GOC, February 1993) called for reforms to (a) provide the required specialists for China's modernization and for establishment of a socialist market economy; (b) improve the social status, work and living conditions of teachers; and (c) build up 100 key universities and establish key courses of studies and specialized studies. Changes taking place are at two levels: primarily governmental policy and institutional practice. The major strategic approach is that of decentralization in institutional management and administration with the center expected to maintain managerial oversight at the macro level. Currently, the sub- sector's attention is focused on (c) above, referred to in local parlance as Project 211 (100 leading institutions to reach international competitive standards in the 21st century). This vision has recently been adjusted to the economic realities and would probably stop short at a much lower number of universities. Implications for selected universities are injections of capital funds, largely for infrastructure expansion and facilities upgrading, with some focus on post- graduate education programs. One of China's key development strategies has been to strengthen her scientific and technological capacity in research and application. The 35 percent increase of graduates at first-degree and post-graduate levels between 1990 and 1997 demonstrates the importance which Government planners and policy-makers place on this critical contribution to China's development. Therefore, a clear policy context for higher education reform exists. Within the context of ongoing reforms, the major issues confronting the sub-sector include the following: * The goal for public expenditure in the education sector is 4 percent of GDP. The current expenditure of 2%+ falls far short of the plan and is not expected to change much in the near future. This has serious implications for the implementation of reforms involving upgrading facilities such as equipment and libraries (purchase of foreign books and journals), introduction of major curriculum changes, and training of staff. * Striking curriculum changes initiated in the 1980s are reflected in the movement toward broad-based structures of knowledge and experimentation with course organization, delivery methods and the  4 development of print and electronic instructional materials. These changes have put considerable demands on faculty who lack the relevant knowledge and skills. * The Ministry of Education (MOE) has delegated financial responsibility to institutions. Cost recovery measures have been introduced (a national policy in 1995) and are being encouraged. Leading institutions in thriving economic areas are able to provide 40-50 percent of their revenue through self-generated income (largely through commissioned research, student fees, training and technological services), but this is not the case in most universities. Universities in poor regions and areas are unable to generate such revenues and consequently face considerable shortfalls in income. This is particularly true in science and technology- based disciplines which inherently require higher capital and recurrent costs. Without these investments, the quality and relevance problems of institutions are compounded as knowledge and skills in these areas change at an increasingly accelerated pace. * Poor institutions find it difficult to provide appropriate salary and non-salary incentives to attract and retain qualified academic staff. Present staff who are largely under-qualified are unable to meet reforn policy objectives. The situation is exacerbated by the fact that approximately 40 percent of existing senior staff would retire by the turn of the century (majority of these hired after the Cultural Revolution in the early '80s). The skewed age distribution of staff makes it imperative for universities to seek effective ways to upgrade and promote sufficient numbers of young scholars while maintaining the quality of the higher education system. In 1994 less than 2 percent of university teaching staff had Ph.D. This jeopardizes leadership in academic activities. With enrollments increasing in science and technology disciplines (37 percent of all enrollments in 1994 were in engineering), coupled with curriculum and teaching/learning reform policies, staff training and upgrading must assume a central role. * Large variation and disparities exist between the richer, well-performing institutions and poorer, hinterland universities: these pose serious impediments to the country's overall goals for social and economic growth. There are serious repercussions for the most disadvantaged groups which include the poor, rural, minority and, in many cases, females. i MOE and universities need to improve and practice contemporary methods of managing financial resources in order to harness and better utilize scarce resources.