China - Poor Rural Communities Development Project

Report No. PID10708 Project Name China-POOR RURAL COMMUNITIES DEVELOPMENT... PROJECT Region East Asia and Pacific Region Sector Other Agriculture Project ID CNPE71094 Borrower(s) PEOPLE'S REPUBLIC OF CHINA Implementing Agency Address LEADING GROUP FOR POVERTY REDUCTION Address: No. 11 Nongzhanguan Nanli, Beijing, 100026, China Contact Person: Hongbin Gao Tel: 86-10-6419-3038 Fax: 86-10-6419-2468 Email:fcpmc@public2.bta.net.cn Environment Category B Date PID Prepared October 10, 2001 Projected Appraisal Date February 10, 2003 Projected Board Date July 8, 2003 1. Country and Sector Background BackgroundChina is widely recognized for its achievements in reducing absolute poverty since the adoption of a broad program of rural economic reforms beginning in 1978. Based on the government's austere rural poverty line (US$0.66/day of income), official estimates indicate that poverty declined from more than 30 percent of the rural population in 1978 to less than 4 percent by end-1999. The Chinese government has a strong commitment to poverty reduction, and the scale and funding of its poverty reduction program, and the sustained dramatic reduction of absolute poverty over the last twenty years of reform, are exemplary by any standards. Estimates based on an international poverty line (either US$1/day of income or consumption), which is somewhat less severe than China's official poverty line, do confirm the continuing remarkable decline in poverty incidence, but document greater numbers of poor in all years. Based on income criterion, i.e., US$1/day of income, the estimates show that about 11.2 percent (or 103 million people) of rural population remained in poverty by the end of 1999. Based on consumption criterion, i.e., US$1/day of consumption, the estimates record an even larger share of rural population--about 22 percent (or 200 million people)--remained in poverty. Main Sector IssuesEven with the great successes to date, however, there are some significant challenges facing the China's poverty alleviation campaign in the new century. These challenges are:(a) Searching for institutional innovations. In recent years, both the Government and civil society have increasingly recognized that the current poverty alleviation strategies and polices, to a great extent, are products of a central-planned economic system with the government at different levels as the main players. The important shortcomings of the existing strategies and polices are: (i) inadequate participation of the  poor, local organizations, and NGOs; (ii) inadequate well-functioning mechanisms which can be used to mobilize the resources through market channels and the civil society, and hence the resources of the poverty reduction system are basically drawn from the Government channel; (iii) insufficient financial monitoring and supervision of the use of poverty reduction funds. Given the weak fiscal situation in China's poor areas, it is not unusual that local governments divert a large share of poverty reduction funding to alternative uses; and (iv) nearly complete omission of central government poverty reduction funding for the those poor people (about half of the total poor) who reside outside the nationally-designated poor counties. It is still under debate what would be a practical, efficient, and equitable way to solve the issue. One suggestion is that the targeting system should be switched from the county-based to the township-based. In short, there are strong demands for institutional innovations from the both the sides of government and the civil society; (b) Solving serious shortages of basic education and health services. The educational, health and nutritional status of these remaining absolute poor is deplorable. As many as half of the boys in many of China's poorest villages and, particularly in some minority areas, nearly all of the girls do not attend school and will not achieve literacy. Infant mortality rates and maternal mortality ratios in very poor counties exceed 10 percent and 0.3 percent respectively (or at least 50 percent to 100 percent greater than the national average), and are greater yet in the poorest townships and villages. Incidence of several infectious and endemic diseases, including tuberculosis and iodine deficiency disorders, is concentrated in poor and remote areas. Roughly half of children in households at or below the absolute poverty line are at least mildly malnourished (stunted), and iron, vitamin A, and other micronutrient deficiencies remain a severe problem among the poor. As many as 90 percent of poor children suffer chronic worm infections. Available evidence suggests that the severity of the remaining poverty worsened somewhat during much of the 1990s; (c) Addressing the poverty of ethnic minorities and people with disabilities. Minority peoples and peoples with disabilities are known to represent a highly disproportionate share of the rural poor. Ethnic minority groups make up less than 9 percent of the total population, but are believed to account for about 40 percent of the remaining absolute poor, and often live in the deepest poverty. Minority autonomous counties also account for more than 40 percent of the nationally-designated poor counties. Minorities constitute such a large proportion of the remaining absolute poor because past programs have often NOT reached out to the most remote areas where the obstacles to poverty relief are greatest. Similarly, disabled people and households with disabled members represent a large and rising share of the poor. Based on the data from the China Disabled Persons' Federation (CDPF), disabled account for about one quarter of all rural poor. In poor areas, disability correlates with absolute poverty through a vicious circle: family labor shortages due to disability increase the odds of falling into poverty, and the inadequacy of effective public health measures and medical care in poor areas increases the chances of becoming disable;(d) Improving productivity of mountain agriculture. The majority of China's remaining absolute poor are believed to reside in mountainous areas generally with low rainfall and limited carrying capacity. In Yunnan, for example, the provincial government selected 506 key townships for poverty reduction programs beginning in 1995. Almost all of these poor townships are distributed in high mountain ranges, in steeply-sloped - 2 -  mountains, and in minority and border areas. About 86 percent of Yunnan's remaining poor in 1996 reportedly resided in these 506 poor townships. Achieving even subsistence levels of agricultural production in many of mountainous areas is a difficult challenge. Existing single-sector strategies of mountainous area development, e.g., strategies executed by the Ministry of Agriculture (MOA), Ministry of Water Resources (MOWR), and State Forestry Administration (SFA), have tended to underestimate the integrated nature of the problems, including resource constraints, market risks, watershed management costs and long-term population trends, and the opportunities (such as technology development) facing mountainous areas. Given the weaknesses of the existing single-sector approach, there remains a need to integrate individual sector strategies into a more comprehensive multisectoral approach to promote economic development of mountain areas. Based on the experience of the 8-7 plan, investment priorities should be given to the areas such as improving labor use efficiency, animal husbandry, land improvement, crop technology, tree and cash crops, and watershed management; and(e) Changing the mentality on promoting rural industrial development. In the early of 1990s, poor county governments have used a large portion of their available poverty reduction funding to support the growth of county and township run enterprises. In 1992 and 1993, for example, about half of all poverty reduction subsidized loans were lent to industrial enterprises. Unfortunately, it is evident that many of the rural enterprises supported in the past with poverty reduction funding have also been loss-making firms, often with minimal or not poverty reduction impact. While number of such firms is not known, it appears that poverty reduction program funding for poor county TVE development may have even led to a net decline in revenues in some poor counties. Performance of the rural enterprise component of both Southwest and Qinba projects is also unsatisfactory. The government recently recognized the shortcomings of providing direct financial support and hence decided to severely curtail poverty reduction funding for poor county TVE development. However, it is not entirely clear what would an appropriate role for the local governments to play in promoting rural industrial development. The Government's StrategyReducing the rural poverty still remains one of the highest priorities of the Government. A national poverty alleviation conference, which was held in May 2001, approved the Government's new strategy, "The Guidelines of China's Poverty Alleviation: 2001-2010", with the following focuses:(a) Adjustments of the Government's functions in the poverty reduction activities. Because of the significant changes in social and economic dimensions happened in the past two decades in China's society, the Government clearly recognized the needs to adjust its functions in the poverty reduction campaign. Private sectors, NGOs, the poor, and the civil society will be mobilized and encouraged to participate in poverty reduction activities. Moreover, the poor areas are encouraged to mobilize resources, by employing market mechanisms, from coastal developed provinces;(b) A more refined targeting method. Comparing with the old targeting system, more factors will be taken into consideration in selecting counties to receive central government funding. For example, officials will review a county's infrastructure, as well as the financial health of its government. Provincial governments will be required to submit their nominations for assistance to the central government by the of year-end and the central government will then decide how many counties are eligible for the assistance form the poverty alleviation fund. Moreover, the central government decided to set aside about 30 percent of - 3 -  state funding for those poor townships and villages that are not on the nationally-designated list;(c) Western and central area priority. Priority of the new poverty reduction strategy will be given to the western and central areas where the low-income poor concentrate. The poverty reduction programs in these priority areas need to take advantage of opportunities from the implementation of Great Western Development Plan. To reduce the fiscal burden of the local governments in poor areas, the central government is considering to bear the full responsibility of supplying counterpart funding for all poverty projects; (d) Target population. The lowest-income group will be the primary target of the new poverty reduction strategy, particularly people in ethnic minority areas and remote areas. This group includes the destitute people who are still inadequately fed and clothed after the year 2000, marginal poor population who have temporarily left poverty trap, but may fall into poverty again, and the relatively poor whose income is at the bottom of the entire society. In addition, poverty reduction of disabled people has been explicitly listed as an integral part of the overall poverty reduction plan; (e) Grassroots and project-based approach and emphasizing sustainable social and economic development. The Government will stick to the principle of reducing poverty through development projects which directly reach the grassroots level (daocun daohu). Poverty reduction must be effectively integrated with environment protection, biological conservation, and human resources development (e.g., strengthening basic and technical education, and to improving basic health service) in order to realize sustainable social and economic development in poor areas;(f) Cropping and livestock priority. Cropping and livestock production, which are regarded as efficient and reliable ways of increasing income level of the poor and improving basic production and living conditions, will be priority activities supported by the new poverty reduction program. Accordingly, extension of practical technologies and better marketing services will be strengthened; and(g) More cautious on directly supporting rural enterprises development. Local governments are required to be more cautious on promoting rural enterprise development directly. Instead, the importance of creating and improving market channels for agricultural products of the poor areas has been highlighted. For example, given that the cropping and livestock activities have been listed as priority, the new strategy encourages large- and medium-scale agro-processing enterprises, which have better marketing channels, to use poor areas as their bases of raw materials. 2. Objectives The development objective of the project is to improve livelihoods security and achieve sustained participation of the poorest rural people in selected counties of the four target provinces. 3. Rationale for Bank's Involvement The major value added from the Bank's support are (a) through Southwest and Qinba projects, the World Bank has demonstrated effective formulation of mutlisectoral, integrated projects to effectively address poverty in the most difficult environments in China; (b) the Bank's assistance often leverages additional domestic and international resources for the poor areas. The Bank's involvement would also promote the poor counties to potential investors under the East-West Cooperation Program; (c) technical knowledge transferred during project preparation such as introducing market tests to justify project outputs, developing and testing - 4 -  transparent targeting mechanisms, application of social assessments, environmental procedures, training project staff in project cost and benefit estimates and analysis methodologies, and introducing participatory approach; and, finally, (d) the Bank's involvement will improve the project design features. 4. Description A. Participatory ApproachIt has been agreed that participation will be a key feature of project design, implementation, monitoring and impact assessment. It is noted that, in current poor rural China, a top-down poverty alleviation strategy is widely adopted, and neither government officials nor poor people themselves have much experience of participatory approaches. This is most clearly seen in the current practice of producing Village Development Plans (VDP) which reflect decisions made in higher levels of a hierarchical government structure. At present, VDPs are not adequately flexible, do not necessarily reflect the needs of primary stakeholders, and lack local ownership. To ensure that the proposed project will fulfill the principles of being flexible, responsive and innovative, it is imperative to introduce participatory approaches to local authorities. The objectives of introducing the participatory approach are that the poor should not only be able to influence the design and implementation of the project but, by the end of the project, should also be able to exert influence over local decision-making. Introducing a participatory approach would include the following activities: providing training to project staff and local officials, including village leaders, about participatory approaches; identifying the participatory techniques most appropriate for the various stages of the project cycle and for different stakeholders; and to develop and test a training system in participatory techniques that could be adopted by the project; implementing various participatory monitoring and evaluation tools, assessing their effectiveness in ensuring the participation of the most disadvantaged population within the communities and developing guidelines in the application of such tools; and assisting the poor communities in completing village development plans and in reviewing and adjusting such plans through a participatory approach.B. Project Components:Component I: Sustainable Mountain Agriculture Development. The component will support agricultural development for communities living in remote mountainous environments. The implementation of the component will stick to two principles: targeting and reaching all poor households and environmental protection.Sustainable mountain agriculture will include the following activities: improving village land use through (i) intensification of use on households' more fertile plots while protecting or rehabilitating tree and grass cover, and (ii) ensuring full participation of village communities in decision-making and identifying appropriate technology; providing assistance and training to households to develop farmer-to-farmer services. Opportunities identified in ethnic minority areas relate to the activities such as tree nursery growers, pig breeders, village blacksmiths, grain millers, tea drying facilities, and masonry;extension of applied research and technical assistance; and improving food security for the poorest villages and households. This activity will require more than basic farmland construction. Component II: Basic Rural Infrastructure Construction. The continuing lack of basic rural infrastructure and environmental degradation in the proposed project area make living conditions harsh and arduous. Sub-projects of this component include roads, paths, electrification, soil conservation, - 5 -  small-scale water resource system (for both drinking and irrigation purposes) and other infrastructure. Adequate community participation is imperative in the process of sub-project selection, construction, and maintenance to ensure the sub-projects reflect the need and priority of local residents. For example, given that a substantial proportion of project villages would be located in karst environments and other areas vulnerable to water shortages, small-scale water resource system would be a key element of village infrastructure construction, which would include activities such as clearly identifying community needs, customs and habits, particularly those of ethnic minorities; reviewing and refining proposed designs to ensure technical quality and responsiveness to conditions in the villages; constructing the system; and providing training in the management and maintenance.Component III: Basic Education. Despite notable achievements at the national level, primary schooling and vocational education in the proposed project areas are still marked by poor attendance and very low on-time graduation rate. There is a clear strong demand for basic education services. The component would address the challenges of: a) high levels of adult illiteracy; b) low access to primary education by poorer and more vulnerable children, particularly girls and disabled children; c) inadequate skills and capabilities of many teachers; d) the low educational attainment of many children of minority groups due to their inability to understand the language of instruction; and e) poor infrastructure, much of which is in need of repair. The basic education component will include the following activities: providing training for primary school teacher; focusing on vocational education for both school pupils and adults; innovative methods to reduce the costs of education for poor and vulnerable children should be developed, such as the use of revolving book funds; developing bilingual education system in both major minority languages and Chinese; and promoting the integration of disabled children into the education system.Component IV: Basic Health. One of the greatest challenges to be faced by the proposed project will be to improve the health status of the target population. In proposed project area, there is excessive morbidity and mortality in many communities. For instance, in some communities infant mortality is particularly high while, in others, malaria is a significant problem. Health services in the administrative villages are of low standard (and nonexistent in most natural villages). Although there is usually a health post in the administrative villages, most have virtually no equipment or medicines, and the wages of village medical workers are very low. The cost of health care and transport difficulties also mean that poor ill people are often unable to access the higher levels of the health service (e.g., township and above). The basic health component will develop a strategy focusing on impacting on health outcomes. This would mean that health work would not just be concerned with the provision of health services but would take a more integrated approach to health improvement. As priorities, the component will consider focusing on impacting on infant mortality, maternal mortality and prominent diseases - such as malaria - in specific counties and regions.Component V: Local Capacity Building Program with A Focus on Village Leader Training. Village leaders are one part of the group of key figures in the China's current rural governance system. They are responsible for many policies and activities including running the local tax system, resolving disputes, launching entrepreneurial duties, ensuring fulfillment of the state grain procurement quota, determining land reallocation, allocating and monitoring poverty reduction funds, and - 6 -  designing village development plans. The proposed project, as a grass roots and multisectoral poverty reduction project, will certainly interface with village leaders, and there is no doubt that village leaders can play a key role in changing the way polices and project activities are implemented. However, it is widely observed that village leaders lack the skills necessary for them to play a more effective role in village development. A preliminary plan of the local capacity building component is to train village leaders in the skills that they need for their everyday duties and to teach them the skills that will become more useful in the governance system that can be expected to develop as China modernizes. Some of the possible areas of training include public management, participatory methods, accounting, project management, dispute resolution, infrastructure construction skills (such as basic knowledge of road construction and terracing), and courses teaching the content and nature of China's rural policies.Component VI: Rural Enterprise Development Initiative. The experience of other World Bank supported poverty reduction projects show that there are two major factors which resulted in an unsatisfactory performance of the rural enterprise development component, these are (a) a serious lack of marketing information, human capital and management skills, and a weak transportation condition in most poor areas, and (b) flaws in the procedure of enterprise selection (that is, the county level project management office played the key role in selecting enterprises, and this often resulted in the selection of nonviable enterprises). Therefore, the proposed rural enterprise development component would explore a new strategy that shifts the focus from selecting and setting up new enterprises through direct project investments to providing more services and other assistance in order to foster a better development environment for enterprises.If agreement can be achieved, the rural enterprise development component would include the following three activities: establishing an intermediary organization (such as an NGOs or some type of company) which supplies basic services to both collective and private enterprises in the project area. The services supplied by the intermediary organization could include, but not be limited to, credit guarantees, consulting services for technical upgrading, management improvement, marketing, ownership transformation, and other capacity building activities. The list of the possible services could be developed on the basis of an assessment of enterprises' needs. avoiding direct support for enterprises through project investments. In the case that directly supporting enterprises development is required, the number of enterprises must be strictly limited and the central PMO and provincial PMOs must have the power to select enterprises. The component will identify and establish an appropriate procedure for the central and provincial PMOs to select enterprise; finally, supporting private microenterprise development and experiment with microleasing, particularly in remote ethnic minority areas where rural industry is currently very limited or does not exist. Component I: Sustainable Mountain Agriculture Development. Component II: Basic Rural Infrastructure Construction Component III: Basic Education Component IV: Basic Health Component V: Local Capacity Building Program with A Focus on Village Leader Training Component VI: Rural Enterprise Development Initiative - 7 -  5. Financing Total ( US$m) BORROWER Total Project Cost 6. Implementation At the central level, the Leading Group for Poverty Reduction and its Foreign Capital Project Management Center (FCPMC) would be the decision-making body for the project with full responsibility for coordinating the various government agencies involved in project preparation. At the provincial level, Project Leading Group (PLG) will be set up to (a) mobilize institutional, technical and financial resources and support for the preparation and implementation of the project; and (b) provide critical coordination and monitoring function. In addition, Project Management Offices (PMOs) will be established to ensure effective and timely implementation of the project. The complexity of the project requires that FCPMC and the provincial PMOs be greatly strengthened. An institutional development program to strengthen FCPMC and the provincial PMOs would be implemented as an integral part of the project. At the county level, PLGs and PMOs will also be set up. The several county-level technical bureaus directly involved in the project would, in close cooperation with the participating township governments and their offices at the administrative village level, play a key role in the day-to-day implementation of the project. At both the central and provincial levels, Technical Advisory Groups will be established to provide technical support for project implementation. As an important measure to ensure the project sustainability and local institutional capacity building, the project will establish the Township Project Working Stations (TPWS) and Village Project Execution Groups (VPEG) at the township- and village-level respectively. The TPWS and VPEG will be responsible for the day-to-day execution of the project in their corresponding area. In addition to members of the village committee and the All China Women's Federation (ACWF), VPEGs would also include at least one household representative. The project would provide the TPWS and VPEG with a yearly budget (amount to be determined) to allow project staff to carry out frequent follow-up activities for individual village development plans. 7. Sustainability Several factors are critical to project sustainability. First, a higher level of ownership of the planning and implementation process by the villages and villagers, and the degree to which the infrastructure provided becomes broadly owned, provides a sound basis for subsequent effective operation and maintenance. Second, the ability of government to provide continuing assistance to the poorest townships and villages is essential. Sustained improvement in community infrastructure and services will require higher levels of transfers to local governments than in the past. The project must understand and work within the financial capacity of local levels in order to sustain new infrastructure and improved services.Third, the townships and villages themselves must generate additional resources for the operation and maintenance of infrastructure and social services. Townships and villages have a tradition of annually contributing labor to the O&M of public assets, but their financial capacities are often very limited.Fourth, the skills and capacities of village leaders - men and women - to consult and manage a participatory process of project planning and implementation are limited. These will - 8 -  need to be strengthened and maintained. 8. Lessons learned from past operations in the country/sector The successful implementation of both the Southwest Poverty Reduction Project and Qinba Mountains Poverty Reduction Project has offered rich lessons for preparing the proposed project: (a) The projects' unique organizational and management structure can satisfy its above-average complexity and implementation requirements. The central government has already decided that poverty reduction model employed by both the Southwest and Qinba projects will be widespread adopted in other projects financed by the Government;(b) Strong commitments of the central and provincial governments to integrated poverty reduction are key to success of the projects. However, community participation, particularly in the stages of project implementation and supervision, should be strengthened to ensure better project sustainability; (c) Institutional and capacity building at local level, i.e., township- and village-level are key to sustainability of the projects. Hence, local level's institutional and capacity building should be treated as priority tasks;(d) The education and health sub-components and the rural infrastructure component are the activities that are most warmly received by the projects' primary beneficiaries; the agriculture component requires an enormous amount of preparatory work by county- and lower-level project staff; and project supervision and poverty monitoring are the most difficult tasks to complete, which has direct relation with the institutional construction and capacity building at local level; (e) There is a need for simplifying and introducing flexibility in the Bank's procurement procedures in view of the seasonal and scattered nature of many activities; and(f) It is important to explore new and innovative ways to support rural enterprise development, given the unsatisfactory performance of the enterprises component due to some serious constraints, such as lack of marketing information, human capital and management skills, a weak transportation condition in most poor areas, and flaws in the procedure of enterprise selection. The design of the proposed project has reflected the lessons learned from these projects. The overall project management structure follow the model of Southwest and Qinba projects. The project will continue the activities which are most welcomed by the project beneficiaries, i.e., the basic education, basic health, and basic rural infrastructure construction. Improve the participation from the poor, NGOs, private sectors, and other stakeholders of civil society throughout the whole project cycle will be one of themes of the proposed project. The project will put institutional and capacity building as one of major activities through explicitly list village leader training as one of sub-components. Regarding the rural enterprise development component, focus of the project will shift from selecting and setting up new enterprises through direct project investments to providing more services and other assistance in order to foster a better development environment for enterprises. 9. Program of Targeted Intervention (PTI) Y 10. Environment Aspects (including any public consultation) Issues : The overall objective and tentative design of the proposed project suggest that the net environmental impact of the project will be positive and that negative environmental effects will not be irreversible or long-term. The proposed project would bring environmental -9-  benefits, through a more efficient use of natural resources, such as land, water, and forest. Other positive impacts are expected through the farm production improvement and marketing component, which would address issues like soil erosion, soil mining, nutrient leaching, and promote environmentally sustainable agricultural production and marketing practices.Due to the proposed locations of the project, no impact is anticipated on natural habitats or any cultural properties. Limited and scattered land acquisition will be required for some rural infrastructure activities, but no physical relocation will be required. Government's and the Bank's policies on natural habitats, cultural properties, and involuntary resettlement apply.The most substantial negative environmental effects of the proposed project can be expected from a more intensive agriculture production which might involve higher use of fertilizer and pesticides and herbicides. The proposed project will put strong emphasis on mitigating these effects by introducing more efficient application techniques to farmers. There is some risk that road construction in remote areas could improve access to forest resources and increase deforestation. However, this possible impact should be largely offset by other infrastructure improvements which should make rural settlements more attractive, contribute to improved livelihoods, and reduce overall pressure on forests by shifting cultivators. 11. Contact Point: Task Manager Alan L. Piazza The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: (202) 458-4067 Fax: (202) 477-2733 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. This PID was processed by the InfoShop during the week ending October 19,2001 For a list of World Bank news releases on projects and reports, click here - 10 -