China - Economic Reform Implementation Project

Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 34573-CN PROJECTAPPRAISALDOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OF US$20MILLIONEQUIVALENT TO THE PEOPLE'SREPUBLICOF CHINA FORAN ECONOMICREFORMIMPLEMENTATIONPROJECT March 10, 2006 PovertyReductionandEconomicManagementUnit East Asia andthe PacificRegion This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization.  CURRENCY EQUIVALENTS (Exchange RateEffective December 20,2005) Currency Unit = CNY (YUAN) CNY 1 = US$O.12386 U S $ l = CNY 8.0736 FISCAL YEAR July 1 - June30 ABBREVIATIONSAND ACRONYMS CAS Country Assistance Strategy ' CNAO China National Audit Office CPC Communist Party of China CQS Selection Basedon Consultants' Qualifications D A DesignatedAccount DFID Department for International Developmentof the Government of United Kingdom FMS Financial Management Specialist GDP Gross DomesticProduct GOC Governmentof China IAEC InvestmentAppraisal and Evaluation Center IBRD International Bank for ReconstructionandDevelopment IDA International DevelopmentAssociation ISDS IntegratedSafeguard Data Sheet M&E Monitoring andEvaluation MOF Ministry of Finance MOLR Ministry of Landand Natural Resources MOLSS Ministry of Labor and Social Security NDRC National Developmentand ReformCommission NGO Non-governmentalOrganization NSECB NorthernShaanxi Energy andChemical Industry Base OECD Organization for Economic Cooperationand Development OED OperationsEvaluation Department PCN Project Concept Note PMO Project Management Office PSU Public Service Unit QCBS Quality and Cost BasedSelection SEAC State Ethnic Affairs Commission SMO SubprojectManagement Office SOE Statement of Expenses sss Single Source Selection TA Technical Assistance TCC Technical CooperationCredit TOR Terms of Reference Vice President: Jeffrey S. Gutman (Acting) - Country Director: DavidR.Dollar Sector Director: HomiKharas Task Team Leader: Chunlin Zhang  CHINA ECONOMIC REFORMIMPLEMENTATIONPROJECT CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE .................................................................. 5 1. Country and sector issues.................................................................................................... 5 2. Rationale for Bank involvement ......................................................................................... 6 3. Higher level objectives to which the project contributes .................................................... 6 B. PROJECTDESCRIPTION ................................................................................................. 7 1. Lending instrument ............................................................................................................. 7 2. Program objective and Phases............................................................................................. 7 3. Project development objective and key indicators .............................................................. 7 4. Project components ............................................................................................................. 8 5. Lessons learned and reflected in the project design............................................................ 9 6. Alternatives considered and reasons for rejection............................................................. 10 C IMPLEMENTATION . ......................................................................................................... 11 1. Partnershiparrangements.................................................................................................. 11 2. Institutional and implementationarrangements ................................................................ 11 3. Monitoring and evaluation of outcomes/results ................................................................ 14 4. Sustainability ..................................................................................................................... 15 5. Critical risks and possible controversial aspects............................................................... 15 6. Loan conditions and covenants ......................................................................................... 16 D APPRAISALSUMMARY . .................................................................................................. 16 1. Economic and financial analyses ...................................................................................... 16 2. Technical ........................................................................................................................... 16 3. Fiduciary............................................................................................................................ 17 4. Social................................................................................................................................. 17 5. Environment...................................................................................................................... 17 6. Safeguard policies ............................................................................................................. 17  7. Policy Exceptions andReadiness...................................................................................... 17 Annex 1:Country and Sector or ProgramBackground ......................................................... 18 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................21 Annex 3: Results Framework and Monitoring ......................................................................... 22 Annex 4: Detailed Project Description ...................................................................................... 31 Annex 5: Project Costs................................................................................................................ 38 Annex 6: Implementation Arrangements ................................................................................. 39 Annex 7: FinancialManagement and DisbursementArrangements ..................................... 42 Annex 8: Procurement Arrangements ...................................................................................... 47 Annex 9: Economic and FinancialAnalysis .............................................................................. 52 Annex 10: Safeguard Policy Issues ............................................................................................ 53 Annex 11:Project Preparation and Supervision ...................................................................... 54 Annex 12: Documents inthe Project File .................................................................................. 55 Annex 13: Statement of Loans and Credits .............................................................................. 56 Annex 14: Country at a Glance .................................................................................................. 61 Annex 15: Map # IBRD33387 ................................................................................................... 63  CHINA CHINA ECONOMIC REFORMIMPLEMENTATIONPROJECT PROJECTAPPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASPR Date: March 15,2006 TeamLeader: Chunlin Zhang CountryDirector: DavidR. Dollar Sectors: Central government administration Sector Managermirector: Homi Kharas (70%);Sub-nationalgovernment administration (30%) Themes: Macroeconomic management (P);Other economic management(S) ProjectID: PO85124 Environmentalscreeningcategory: Not Required LendingInstrument: Technical Assistance Loan For Loans/Credits/Others: RECONSTRUCTIONAND DEVELOPMENT UK:DEPT.FOR INTERNATIONAL 10.00 0.00 10.00 Tntal: 40.00 0.00 40.00 ~ Borrower: Ministry of Finance (MOF) Sanlihe, XichengDistrict Beijing China 100820 Tel: 86-10-6855-3166Fax: 86-10-6855-1125 fy.liu@mof.gov.cn I Responsible Agency:  Project implementation period: Start February 1, 2006 End: June 30, 2011 Expected effectiveness date: June 30,2006 Expectedclosing date: December 31, 2011 Does the project depart from the CAS incontent or other significant respects? Ref. PAD A.3 [ ]Yes [XINO Does the project require any exceptions from Bank policies? Ref. PAD 0.7 [ ]Yes [XINO Have these been approved by Bank management? [XIYes [ ]No I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated "substantial" or "high"? Ref. PAD C.5 [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? Ref. PAD D.7 [XIYes [ ]No Project development objective Ref. PAD B.2, TechnicalAnnex 3 The project development objective i s to assist the Government of China in implementing its economic reform and development agenda. The project would meet this objective by strengthening institutional capacity at the national and sub-national levels to carry out such reform agenda. The project would result in the adoption and use of sound reform and development strategies, policies and implementationplans through a series of technical assistance subprojects tailored to address specific challenges through institutional capacity building. Project description [one-sentence summary of each component] Ref. PAD B.3.a, Technical Annex 4 The project consists of subprojects to implement selected areas of China's economic reform and development agenda, including reducing poverty, inequality and social exclusion, improving public and market institutions, managing resource scarcity and environmental challenges, financing sustained and efficient growth, integrating China into the world economy, and promoting achievement by China of the MillenniumDevelopment Goals. The project would finance consulting services, workshops, training, study tours and other capacity building activities, and goods. Which safeguard policies are triggered, if any? Ref. PAD 0.6, TechnicalAnnex 10 Significant, non-standard conditions, if any, for: Ref. PAD C.7 Boardpresentation: None Loadcredit effectiveness: None Covenants applicable to project implementation: None  A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues Over the past quarter-century, economic reforms have sustained China's remarkable economic growth and exceptional achievement in poverty reduction. B y the US$l consumption per day standard, the number of poor declined by over 400 million during 1981-2001. Past success notwithstanding, China still faces enormous challenges in its endeavor to build a Xiaokang (reasonably well-off) society in the first two decades of the 21Stcentury. In particular, China i s still the home to 135 million people living under $1 per day. The forthcoming Country Partnership Strategy (CPS) describes China's main challenges as three-fold: how to keep growth going; how to keep growth sustainable; and how to make growth more equal. Institutional issues are at the core of each of these challenges. Growth will have to increasingly rely on productivity increases rather than capital accumulation, and better institutions inside and outside government are the key for that to happen. Environmental sustainability of China's growth will require a sustained effort of policy innovation and implementation to reduce the high resource intensity of the economy. And building the institutions that reduce inequality will be the key to further poverty reduction. China's poverty remains mainly a problem of its rural population, particularly those living in western and central regions. Rural-urban and regional disparities together are responsible for 37% of the overall inequality. The prospect of poverty reduction i s also threatened by inadequate public service delivery. Public concerns about the increasing difficulties for the poor to access to basic education and medical care are on the rise, whereas higher returns to human capital of the poor are one of the key factors inpoverty reduction. The Government of China (GOC) is well aware of the challenges and has committed itself to an agenda of reform and development in the Decision on Issuesfor Perfecting the Socialist Market Economic System, adopted by the Central Committee of the Communist Party of China (CPC) in October, 2003. The agenda centers at the notion of "scientific development", which aims at "human-centered", "coordinated, balanced and sustainable" development. Reform and development policies will focus on the following (known as "five balances"): (i)rural development, (ii) reduction of regional disparity, (iii)public service delivery and social sector development, (iv) harmony of people and nature in development, and (v) coordination between domestic development and opening-up. The 1lth Five Year Plan (2006-201 l),be reviewed and to adopted by the National People's Congress (the parliament) in March 2006, i s expected to outline an action plan for the coming five years. The October 2005 "Proposal" for the plan issued by the CPC has set guidelines. Successful implementation of this agenda depends critically on the institutional development and reform of the government, which requires technical assistance. With adequate technical assistance, China may achieve higher degree of soundness of reform and development strategies, policies and implementation plans that i s needed in addressing the challenges it faces on various fronts. 'Expected ~~ to go to the Board in March, 2006. An Operations Committee upstream review was completed in November. 5  2. Rationale for Bank involvement The proposed project supports the implementation of GOC's reform and development agenda. It aims to significantly increase the adoption and use of sound reform and development strategies, policies and implementation plans in China through a series of technical assistance subprojects tailored to address specific challenges through institutional capacity building of the government at national and sub-national levels with a focus on learning of new knowledge and replication and scaling up. The rationale for Bank's involvement lies in that it i s well positioned to assist China in the implementation of its reform and development strategy. Firstly, the rich pool of global knowledge of the Bank in reform and development can add significant value to China's reform process to the extent that such knowledge i s required to develop needed technical solutions and institutional capacities. Secondly, the continuous and active involvement of the Bank in China's reform and development since the early 1980s enables it to understand and respond to China's needs in an effective and timely manner. This project i s the fifth in a series of "technical cooperation credit (TCC)" projects, the first of which was approved in 1983. Over the past two decades, this series of projects has been valued and welcomed by the client, particularly for its broad coverage and strong capacity of responding rapidly to client's needs. The third of the series, Reform, Institutional Support and Pre-investment Project (P003592), was closed at the endof 2003 and rated as satisfactory by OED.The fourth (P042299) is approaching its close date and currently rated as satisfactory. The GOC, through its Ministry of Finance (MOF), has demonstrated its strong ownership of this project and increased demand for knowledge transfer of the Bank through this project. This i s partly because that this project will be the first TCC project funded by IBRD loan with a co-financier's participation. It also reflects the substantial enhancement of the knowledge stock of the Chinese policy makers since the design of TCC4. 3. Higher level objectives to which the project contributes As an umbrella project with a potentially diverse set of subprojects, this project supports all the objectives of the upcoming CPS at varying degrees. In order of relevance, it contributes the following higher level objectives. Reducing poverty, inequality and social exclusion. While China has dramatically reduced poverty since 1980, pockets of extreme poverty remain. In addition, inequality has risen substantially, eroding investment in human capital, retarding human development outcomes, and hampering the prospects for pro-poor growth. For millions of poor people, improved human capital formation and better use of such capital are critically important. This project, through its support to implementation of the GOC's reform and development agenda in this area, contributes to the Bank's objective of supporting China's effort to reduce poverty while achieving the five balances. Improving public and market institutions. Institutions matter for well functioning of both the government and the market. This project represents part of the Bank's efforts in improving public and market institutions, which generally seek to help the GOC to complete the transition to a market economy, through redefining the role of government vis-;-vis the private sector and the market; strengthening incentives in government departments, public service units, state 6  owned enterprises and other public agencies; making government expenditures more equitable, efficient, and transparent. Managing resource scarcity and environmental challenges. The GOC i s increasingly concerned about patterns of resource allocation and management that are unsustainable, involving inefficiencies that further deplete supply, erode resource quality, or otherwise generate negative externalities. The Bank's objective is to help China to manage its resource scarcity and environmental challenges. This project contributes to this objective through strengthening institutional capacities of the government inthis area at both national and subnational levels. Financing sustained and eficient growth. In the financial sector, the Bank aims to help China's financial services industry to meet the demand for commercially-priced financial services as efficiently as possible, where efficiency includes ensuring the long-run financial stability of service providers in a fair and competitive financial marketplace. Over time, the Bank expects to see non-commercial lending practices eliminated, except where there i s a socially-compelling need for concessionary lending. This project contributes to this objective through institutional capacity building of relevant government departments, state owned financial institutions and agencies at both the national and subnational levels. Integrating China into the world economy. In support of China's efforts to balance domestic and international development, the Bank will help the GOC to participate more fully in multilateral economic institutions, support and share experiences with other developing countries, and reduce barriers to inward and outward trade and investment. This project will be part of the Bank's efforts inthis area. B. PROJECTDESCRIPTION 1. Lendinginstrument The lendinginstrument i s aTechnical Assistance loan. 2. Program objective and Phases Not Applicable. 3. Project development objective and key indicators The project development objective i s to assist the GOC in implementing its reform and development agenda by significantly increasing the adoption and use of sound reform and development strategies, policies and implementation plans through a series of technical assistance subprojects tailored to address specific challenges through institutional capacity buildingat the national and sub-national levels. This agenda has been spelled out inthe Decision on Issuesfor Perfecting the Socialist Market Economic System in 2003 and the Proposal for 11th Five Year Plan in 2005. The Project consists of the carrying out of Subprojects to implement selected areas of the Borrower's economic reform and development agenda including reducing poverty, inequality and social exclusion, improving public and market institutions, managing resource scarcity and environmental challenges, financing sustained and efficient growth, integrating China into the world economy, and promoting achievement by China of the Millennium Development Goals. It will 7  directly or indirectly benefit people in rural areas and less developed regions, as well as those whose well-being depends on delivery of social services and protection of land and natural resources. Key indicators o f the overall project performance are evidence of (i)high adoption and use of sound reform and development strategies, policies developed under the project; (ii) high level of effectiveness in the implementation of reform and development strategies and policies growing out of the project; (iii) improved soundness of reform and development strategies emerging from the project. Each sub-project will involve specific development objectives in the context of the specific reform and development programs i t supports, as well as its indicators of performance with varying measurability depending on the nature of activities supported. Subprojects will be designed so as to replicate and scale up any successful innovation in institutions andpolicies. 4. Project components This is an umbrella project that may comprise 50-100 subprojects over a period of five years. It finances the cost of (i)consulting services, (ii) workshops, training, study tour and other capacity building activities, and (iii) equipments related to these activities. While the first batch of minor subprojects i s under preparation, others will be identified and implemented over the whole project implementation period. Following are the primary themes of the first batch of subprojects that are under preparation. (See Annex 4 for details). Reforming the civil service andpublicfinance This involves three subprojects. Two of them support the MOF in building a database to collect and process data of all personnel of government offices and public service units (PSUs) funded by the central government budget and a study on models of management of state assets in government departments and PSUs. Both support the ongoing implementation of budget reform. Another subproject supports the formulation of regulation and training to implement the Government Procurement Law by the MOF. Zmproving service delivery and socialprotection This group includes six subprojects. The first supports the Henan Provincial Health Bureau to develop a set of standards for quality control and a plan for implementing the standards and carrying out quality assessment of AIDS treatment. The second assist the Ministry of Labor and Social Security to improve China's work injury protection system. The third i s a study on the coordination and impact assessment of employment policies and social security policies proposed by the Ministry of Finance. Social security of urban and rural "vulnerable groups" i s the subject of the fourth proposal by Jiangxi province, where 5 million people fall in these groups. The subproject proposed by Gansu Provincial Finance Bureau focuses on training of unemployed women and development of a model that i s replicable in other provinces. The sixth pilots a mechanism in poor and remote rural areas to open local schools to communities and adults for communication and learning activities. Improving management of land and natural resources Three proposed subprojects fall in this group. The first supports a study of the Ministry of Land and Resources with regard to rural collective built-up land management to protect farmers' rights 8  and interests, promote rational land use, and improve farmers' living and working conditions. The second supports sustainable development of Hengshui Lake wetland of Hebei province by assisting the municipal government in formulating a strategy and a model of management. The third supports Hainan provincial authorities in testing a model of coordination between ecological protection and economic development inone township of poor farmers. Building public and market institutions There are four subprojects in this group. The first supports China's State Council Leading Group Office of Poverty Alleviation and Development and MOF in piloting a program to test a model of Community Development Fundon poverty alleviation to be governed by the community with full participation of poor farmers. The second supports government's capacity in promoting the development of ethnic minority regions by supporting studies on the special characteristics of ethnic minorities and ethnic minority areas to design community-driven poverty reduction scheme.2The third provides support to National Development and Reform Commission in a study on community development policies in urban China. The four supports capacity building of China Eximbank, one of the three policy banks in China. Improving regional and sectoral development strategy Four subprojects aim to improve regional and sectoral development strategy. The first i s a comprehensive study on development strategy of Qinghai province, one of the poorest provinces in western China. The second is a study on sustainable development strategy of energy and chemical industrial base in Shaanxi province. The third supports the transformation of local economy of Panzhihua city of Sichuan province, which i s heavily relying on steel industry and natural resources. The fourth will assist Guangxi Region to formulate a strategy in managing three seaports. 5. Lessons learned and reflected inthe project design This project i s the fifth of the series of TCC projects. An Implementation Completion Report (Report No: 29564) and an OED evaluation report3summarized lessons learnt in TCC3, which lasted 10 years. Additional lessons are learnt from ongoing TCC4 and other TA projects inrecent years in China. Monitoring and evaluation. Technical assistance projects such as the proposed one are often characterized by low degree of "measurability" of the quality o f outputs and overall performance. Lessons learnt in this regard are reflected in the project design through arrangements of strengthening monitoring and evaluation. First, the Project Management Office (PMO) of the M O F has developed its Guidelines for Subproject Proposals to ensure that adequate information i s provided by applicants. Second, specific approaches of monitoring and evaluation have been designed in view of varying nature of the outputs of the subprojects. Third, both the MOF and the World Bank are committed to invest more inmonitoring and evaluation. The overwhelming majority of direct beneficiaries of the subproject proposed is ethnic minority group. The principles of OP 4.10, such as informed consultation, participation, cultural respect, which are consistent with GOC's own policies, have been incorporated inthe design of the proposed subproject. 3http://wblnl023.worldbank.org/oed/oeddoclib.nsf/DocUNIDViewForJavaSearc~81BB3644CDB4154F85256EEEO 0lBE67B?opendocument 9  Value added of the World Bank. Given the financial circumstances of the central government and many local governments in China, the Bank principally adds value in lending projects through its technical expertise that i s embedded in projects. Adequate investment of the Bank in subproject supervision i s therefore critical to the projects' success. This i s reflected in the design of project management, which aims at mobilizing sectoral expertise of the Bank to participate in supervision. The Decision Meeting has agreed that this project would require a supervision budgethigher than previous TCC projects and other stand alone TA projects. Organizational change of the government. The government reorganization at all levels starting in 1998 had caused delay of some subprojects of TCC3. Change of key officials in Implementation Agencies of subprojects of the Enterprise Reform Project was also a factor that contributed to its failure. While another round of similar reorganization i s unlikely in the coming years, the design of this project has reduced the size and life span of subprojects, which may help mitigate this kindof risks. Staff turnover. Implementation of TCC3 suffered from frequent staff turnover of task management teams of both the Bank and MOF. This i s an issue that i s difficult to address in project design, but adequate management attention will be paid inimplementation. 6. Alternatives considered and reasons for rejection The value of the TCC series of projects, the first of which started in 1983, to the clients lies very much in its capability to adapt to changing demand in a timely manner. As umbrella projects, they have been able to respond to demand for small-sized technical assistance that arose promptly at some point of time during implementation and were not foreseen at the time of project preparation. In addition, it took relatively shorter time and lower cost to prepare and approve a subproject. Given the existence of this kind of demands and the justification for positive response of the Bank, one conceivable alternative could be a set of stand-alone small- sized technical assistance projects, each focusing on a specific area. However, this i s not a feasible option when the number of subprojects becomes large.4 Increasing the threshold for size of subproject might make the problem less severe by reducing the number of subprojects, but would in the meantime result in loss of the inherent value of the TCC series of the projects. The past success of this series of projects, esp. TCC3 and TCC4, reinforces the rationale for rejecting this a1ternative. The demand to be met by TCC5 could also be met by trust funds or funding of the GOC. The trust fund alternative has been incorporated in the design of this project. B y a co-financing arrangement of a Trust Fund contributed by Department for International Development (DFID) of the Government of United Kingdom, this project represents a twice larger scale of assistance than would have been the case with the grant only. Similarly, counterpart funding of the GOC will cover `/4 of the total cost of this project. An alternative of pure GOC funding would amount to a decline of the GOC's request for technical assistance and a withdrawal from this area by the Bank, which i s notjustified within the current CAS and upcoming CPS frameworks. There were 34 subprojects under Part A of TCC3 and 36 under Part A of TCC4. The strengthened accountability, cost control and risk management in this project are expected to lead to even smaller size of average subproject. 10  C. IMPLEMENTATION 1. Partnershiparrangements Central to the design of this project i s a partnership of the Bank with two other parties, DFID and MOF. DFID has confirmed its intention in contributing to this project a grant in the amount of GBP5.83 million (equivalent to US$10.2 million at the exchange rate of 1.75 as of March 7, 2006) over five years. It i s expected that the DFID Grant will be approved by not later than May 31, 2006. A co-financing framework with the following key elements will be established: 0 A Trust Fundwill be created in the Bank. DFID'spayments to the trust fund will be twice per UK financial year, every April and October. 0 Funding from IBRD loan and DFID Trust Fund will be managed in two separate special accounts by the MOF. The project financial report will treat TCC5 as a whole with no separate report on DFID'sfunds. 0 Subprojects will be grouped according to repayment terms set up between Subproject ImplementationAgencies (SIAs) and the MOF, which will fall into four categories. A. Subprojects implementedby the Borrower's central government departments and agencies funded from the Borrower's Annual Budgets with no obligation to repay the principal of the proceeds of the Loan (financed solely by the Bank loan). B. Subprojects implemented by the Borrower's central government departments and agencies, and local government departments with no obligation to repay the principal of the proceeds of the DFID Grant (financed solely by the DFID grant). C. Subprojects implementedby the Borrower's local government departments and agencies with the obligation to repay the principal of the proceeds of the Loan representing 50% of the total Subproject costs excluding counterpart funding, and with no obligation to repay the principal of the proceeds of the DFID Grant representing the balance of the total Subproject costs excluding counterpart funding (financed jointly by the Bank loan andDFID grant on a 50/50 percentage share). D. All other subprojects to be implemented by the Borrower's central government departments and agencies that are not funded from the Borrower's Annual Budgets, and local government departments with the obligation to repay the principal of the proceeds of the Loan (financed solely b y the Bank loan). . 0 Subprojects of different categories will be treated separately in disbursement and auditing. 0 GOC's counterpart funding will be mostly in-kind (e.g., staff time of counterpart team, use of premises for training, etc.). 2. Institutionalandimplementationarrangements Project Management Ofice. As in previous TCC projects, the MOF, through a Project Management Office already set up in its International Department, will implement the project. Responsibility of overall coordination and management of project implementation i s vested in the Technical Assistance Division, International Department of MOF. The PMO i s led by Ms. 11  LiuFangyu, Chief of the Technical Assistance Division of International Department, and staffed with 3 full time staff, with Ms.Sun Lin as Project Coordinator. Subproject Zmplementation Agency. Under the overall supervision of the MOF, subprojects will be managed by SIAs. The PMO will requireeach SIA to set up, as condition for participating under the project, and thereafter maintain until the completion of the relevant subproject or subprojects, a Subproject Management Office (SMO) headed by a qualified officer and assigned with staff in adequate numbers to design Subproject proposals and implement them as so approved by the Bank. Subproject selection procedure. Subprojects will be selected according to the following procedure: 1) Any department or agency of the central government and local governments at provincial or municipal (prefecture) levels can apply for subproject financing under the project by submitting to the PMO a draft concept (in both Chinese and English) and proposal (in Chinese) following the "Subproject Proposal Guidelines" issuedby the PMO. 2) The PMO shares with the Bank and DFID those concepts and proposals that pass through its screening. To provide general guidance and coaching on those that may need further refinement and work to meet the agreed selection criteria, the Bank and DFID jointly review concepts and proposals expected to be funded out of the DFID Grant, and the . Bank may ask DFID's comments on those expected to be financed out of the Loan proceeds. In doing so, the Bank and DFID act only in the role o f a peer reviewer by providing necessary advices to the PMO and SMOs, without assuming any role as part of the preparation team involving in drafting, preparing the concepts and proposals. This will not compromise the formal approval of the subproject by the World Bank in due course. 3) The PMO and the SMO concerned revise the proposal, if need be. The PMO organizes a Steering Committee, comprising the National Development and Reform Commission and relevant government departments, to review the final subproject proposal and, based on the review, approves it according to the agreed selection criteria. The PMO then forwards the approved proposal to the Bank to seek no-objection. 4) The Bank reviews the subproject proposal. Based on the review, the Bank issues a no- objection letter if it agrees that the proposal meets the agreed selection criteria, and informs the PMO of the reasons for rejecting any proposal, if that be the case. Subproject selection, evaluation and approval criteria. A Subproject shall be eligible for financing out of the proceeds of the Loan only if it meets the following criteria: 1) The Subproject shall support the overall development objective of the Project, shall has been prepared by a SIA in accordance with the "Guidelines for Subproject Proposal", satisfactory to the Bank, and shall meet the provisions of the World Bank Safeguard Policies, if applicable. 2) The Subproject proposal shall contain a detailed description of its objectives, activities and expected benefits, including its direct relation in assisting the Borrower's reform and development agenda, and the potential of replication and scaling up, in one or more of the following areas: reducing poverty, inequality and social exclusion, improving public and market institutions, managing resource scarcity and environmental challenges, financing 12  sustained and efficient growth, and integrating China into the world economy, and such other areas as the Borrower and the Bank shall so agree from time to time. Subprojects under Category B and C shall also be designed to focus primarily on reducing poverty, inequality and social exclusion and promoting achievement by China of the Millennium Development Goals (Le., eradicate extreme poverty and hunger; achieve universal primary education; promote gender equality and empower women; reduce child mortality; improve maternal health;, combat HIV/AIDS, malaria and other diseases; ensure environmental sustainability; and develop a Global Partnership for Development). 3) The Subproject outputs and activities shall be clearly defined in both form and substance, adequately designed to ensure the realization of Subproject objectives, and reasonably expected to have direct and significant impact on the implementation of reform and development agenda of the Borrower in sectors and regions in the areas described in paragraph (b) above. The impact shall be demonstrated through one or more of the following: (i)improved soundness of reform and development strategies; (ii)increased effectiveness of implementation of reform and development strategies; (iii)increased effectiveness of reform and development policies; (iv) innovative mechanisms that support the implementation of reform and development strategies and capacity building; (v) improved capacity of institutions and their staff involved in implementing reform and development strategy; (vi) new knowledge learnt and its replication and scaling up. 4) The Subproject proposal shall include: (i)demonstrated strong ownership and firm commitment to the implementation of the Subproject by the relevant SIA through the provisions of detailed organization, management, staffing and other resources required for the efficient and effective carrying out of the Sub-project; (b) Subproject costs, including a budget table, and an implementation action plan that provides the following information: (i) the proposed procurement plan for the Subproject, including proposed procurement procedures for goods and technical assistance, including a description of consultants assignments, estimated costs, selection methods, expected terms of reference, submission date and expected duration of the contracts; (ii) a detailed description of expenditure on staff training program and study tours; (iii) an estimate of the foreign and local costs of the different items of expenditures; (iv) a proposed financing plan and a proposed disbursement plan for the Subproject, including a detailed description of the expenditures proposed to be financed out of the proceeds of the Loan and DFID Grant, as the case may be; (v) a time-table covering the various activities under the Subproject; (vi) a time-table for implementing the outcomes of the Subproject after completion; and (vii) a detailed monitoring and evaluation strategy for Subproject implementation and outcomes, including clearly specified monitoring and evaluation indicators and commitment to adequateresources. 5) The Subproject total cost shall not be less than. $lOO,OOO.equivalent. The aggregate cost of goods under all Subprojects shall not exceed $3,200,000 equivalent. Project management. For each subproject, one or more sector specialists will join the Bank core team in the following activities: 13  0 Reviewing subproject proposals and providing general guidance and coaching on those that may need further refinement and work to meet the agreed selection criteria. In doing so, the Bank acts only in the role of a peer reviewer by providing necessary advice to the PMO and SMOs, without assuming any role as part of the preparation team involving in drafting, preparing the concepts and proposals. This will not compromise the formal approval of the subprojects by the Bank in due course. 0 Reviewing TORSand outputs of subprojects. 0 Participatingin subproject supervision missions. 3. Monitoring and evaluation of outcomes/results M&E by the MOF. The MOF will take primary responsibility in monitoring and evaluating subprojects, which will be carried out in view of various natures of subprojects: 0 For subprojects that are designed to carry out studies on strategic issues of reform and development, SIAs are expected to submit the final report to certain level of government decision makers and get feedbacks. 0 For subprojects that are expected to produce implementation plans, policy recommendations that can be directly adopted in some operational documents must be worked out. They will be then disseminated by SIAs to relevant departments of the government and get their feedback, which can be formal issuance of certain policies or implementation plans. 0 For capacity building subprojects, SIAs will develop specific outcome indicators, to be measured in various ways, including survey of participants of activities. Subprojects designed for training involving participants other than government officials (e.g., laid-off female workers) will be monitored and evaluated in a similar way, with particular focus on innovation and dissemination. M&E by the Bank. The Bank's task management team will work with the PMO and DFID to strengthen M&Ethrough supervision. Supervision plan includes the following: 0 Outputs will be evaluated based on evidence of timely and satisfactory delivery of high quality outputs under the sub-projects and improved capacity of institutions and their staff receiving support under the project. 0 Subproject preparation workshop will be held for potential applicants of each batch of subprojects. The first was held in August 2005. 0 Two formal supervision missions every year will be scheduled, including the annual review mission. In addition to the core task management team, a sector specialist will be included in the mission whenever it i s necessary. 0 A mid-term review of the project is scheduled for the second half of 2008. This will provide an opportunity for a more in-depth review of the project and evaluation of progress towards achievement of project objectives. 0 A Progress Report will be prepared and sent to the Bank by the PMO every half year prior to the supervision mission, together with the latest quarterly financial reporting package (see Annex 7). An Annual Implementation Plan will be submittedto the PMO by all SMOs by November 30 each year for consolidation and forwarding to the Bank. 14  0 The PMO will make broad assessment of project implementation in a draft Project Completion Report to be submitted to the Bank no later than six months following the Closing Date. 4. Sustainability Sustainability o f results produced by the project will depend on the following factors. The first three have been incorporated in the project design through, among others, selection criteria and implementation arrangement. The fourth will be taken care of inthe process of implementation. 1) Quality of the results in terms of, e.g., relevance and feasibility of strategies and policies regarding reform and development, skills and knowledge acquired by participants of capacity buildingactivities. 2) Ownership of subprojects by SIAs' government and its key officials. 3) Dissemination, replication and scaling up of subproject results including new knowledge learnt. 4) Adequate investment by both the MOF and the Bank in monitoring and evaluation. 5. Critical risksand possiblecontroversialaspects From output to outcome. There i s a medium level risk of failure in translating output into outcome. In particular, sound recommendations in strategies, policies may not be accepted, implemented. This i s provisioned for in project design by emphasizing ownership of SIAs' government, small size and shorter life span of subproject, and investment in dissemination, replication and scaling up. All SIAs are required by the PMO to set aside no less than 5% of the project budget for dissemination and formulate a detailed dissemination plan. Reports, materials and other products of subproject should be put in public domain unless special disclosure restricts apply. From input to output. The risk of failure in producing the expected level and quality of output i s also medium. A wide range of factors may have their effect. The soundness of subproject design, commitment and capacity of SIA and its government, adequacy of investment in supervision, monitoring and evaluation by both the PMO and the Bank, are some of them. The project design has taken into account all of these factors. Smaller size of subproject, while increasing total supervision cost, helps diversifying risks. Bank supervision, esp. through reviewing and commenting TORSand outputs (such as consultant reports), i s also designed to mitigate this risk. Subproject selection. There i s also a low level risk of selecting subprojects that are not in line with priorities of the government and inadequately designed. This i s to be mitigated by (i) discouraging potential applicants of poor subprojects through dissemination of information contained in the "Subproject Proposal Guidelines" of the PMO; (ii) agreeing with the M O F on a set of specific criteria for subproject selection; (iii) joint Bank-DFID review of draft proposals and general guidance and coaching on those that may need further refinement and work to meet the agreed selection criteria as indicated above; and (iv) in due course, rejecting proposals that the Bank finds not in line with the agreed selection criteria. Possible controversial aspects.Not applicable. 15  6. Loan conditions and covenants Effectiveness: a The PMO shall complete and distribute to all the relevant financial staff before effectiveness of the Loan Agreement a Financial Management Manual, which will provide detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management and withdrawal application procedures. Cofinancing: a It i s expected that the DFID Grant will be approved by May 31, 2006 and the DFIDGrant TF Agreement become effectiveby not later than July 31, 2006. 0thers: a The MOF shall at all times continues to maintain a PMO headed by the Chief of its Technical Assistance Division, International Department, to be responsible for ensuring overall management and supervision of the project and coordination of SMOs. a The PMO shall employ no later than March 2006 and thereafter maintain a full-time Project Coordinator with terms of reference and qualifications and experience acceptable to the Bank. 0 Selection of subprojects should comply with the criteria specified in section 2 above. a The MOF will make the project proceeds available to each SIA on financial terms acceptable to the Bank. a Annual Implementation Plan will be submitted by SMOs to the PMO by November 30 each year for consolidation and forwarding to the Bank. a The PMO will prepare, under the terms of reference satisfactory to the Bank, and furnish to the Bank the semi-annual Progress Report, prior to the supervision mission, together with the latest quarterly financial reporting package (see Annex 7),commencingon August 31,2006. a A mid-term report will be compiled no later than December 31, 2008. This report will integrate the results of monitoring and evaluating project performance during the period preceding the date of this report, and recommends measures to ensure efficient project implementation so as to achieve the project objectives during the period following the sate of the report. a The MOF will maintain a financial management system, including a Financial Management Manual, satisfactoryto the Bank. D. APPRAISAL SUMMARY 1. Economic and financial analyses Not applicable. 2. Technical Not applicable. 16  3. Fiduciary The adequacy of the project financial management system was assessed based on guidelines issued by the Financial Management Sector Board on November 3, 2005. The assessment concluded that the project meets minimum Bank financial management requirements, as stipulated in BP/OP 10.02. It found that the project will have in place by effectiveness an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project in the reporting format agreed with the Bank (see Annex 7). See Annex 8 for procurement capacity assessment. 4. Social The contents included in the proposal from State Ethnic Affair Commission (see Annex 4, sub- section 16)) mainly focus on design of CDD implementation plans for two of its own programs relating to ethnic nationalities. These ethnic nationalities fall within the scope of OP 4.10. OP 4. 10 i s therefore triggered. The overall objective of the proposal i s to address matters relating to ethnic nationalities and therefore there i s no need to prepare and implement an IPDPbut rather to design the proposal and implement the related subproject in accordance with the principles and provisions of OP 4.10. The proposal has been designed accordingly. 5. Environment This i s a TA project that will fund consulting services, workshops, training, study tours and other capacity building activities, and a small amount of equipment related to project implementation. It does not fund subprojects designed to pave the way for major investments or privatization. It i s an EA category C project that i s likely to have minimal or no adverse environmental impacts. None of the safeguard policies of the Bank i s likely to be triggered. However provision has been made in the selection criteria to comply as and when needed with the relevant Safeguard Policies of the Bank. 6. Safeguard policies Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/GP 4.01) [I [XI Natural Habitats (OP/BP 4.04) [I [X 1 Pest Management (OP 4.09) [I [X 1 Cultural Property (OPN 11.03, beingrevisedas OP 4.11) [I [X 1 Involuntary Resettlement (OP/BP 4.12) [I [ XI Indigenous Peoples (OP 4.10 ) [ XI [I Forests (OP/BP 4.36) [I [X1 Safety of Dams (OP/BP 4.37) [I [X 1 Projects in DisputedAreas (OP/BP/GP 7.60)* [I [XI Projects on InternationalWaterways (OP/BP/GP 7.50) [I [ XI 7. Policy Exceptions and Readiness This project complies with all applicable Bank policies. * By supporting theproposed project, the Bank does not intend to prejudice thefinal determination of theparties' claims on the disputed areas 17  Annex 1:Countryand Sector or ProgramBackground CHINA: EconomicReformImplementationProject Over the past quarter-century, successes in economic reform have sustained China's remarkable economic growth and exceptional achievement in poverty reduction. B y the US$1 per day standard, the number of the poor declined by over 400 million during 1981-2001. The success of the past notwithstanding, however, China also faces enormous challenges in its endeavor to build a Xiaokang (reasonably well-off) society in the first two decades of the 21Stcentury. In 2004, China i s still the home to 135 million people living in absolute poverty. China's key challenges are three-fold: how to keep growth going; how to keep it sustainable; and how to generate it more evenly. These are seen in increasing degree of economic and social imbalances. Rural-urban and regional disparities are the first to note. China's poverty remains mainly a problem of its rural population living in western and central regions. It i s estimated that over 99% of the poor in 2003 was found in rural areas and 79% in western and central regions. They tend to be more concentrated in localities that lag behindin terms of growth and are remote, poor in human and natural resources, or weakly linked to the rest of the economy. China's Gini indices went from 0.25 in 1985 (comparable to Germany) to 0.45 in 2003 (comparable to the Philippines). Rural-urban and regional disparities together are responsible for 37% of the overall inequality. If recent trends in rural-urban income gaps and increasing regional disparity continue, income inequality would rise to alarming levels in the coming two decades, posing a serious threat to the sustainability of growth and to poverty reduction. The prospect of poverty reduction i s also threatened by an array of weaknesses in the current system of service delivery. There have been growing public concerns over the increasing difficulties for the poor to access to basic education and medical care. Inthe health sector, nearly two thirds of government financing i s allocated to urban areas and thus available to only about one third of China's population. Duringthe past decade when cost of medical care escalated, the share of out-of-pocket expenditure in total health expenditure also rose sharply, making medical care services increasingly unaffordable to the poor, especially the rural poor. The World Health Report 2000 ranked China 61Stout of 191 countries in overall quality of health, but 18Sthin fairness of government financial contribution on health. Inequality i s reflected in part by the regional disparity of key health outcomes. Life expectancy at birth varies from about 65 years in Guizhou, Tibet and Yunnan, to 76-79 years in Beijing, Jiangsu, Shanghai and Tianjin. Infant under-5-year and maternal mortality rates are on average three times higher in rural compared to urban areas. The spread of tuberculosis and other preventable diseases i s of great concern in a number of poor localities. Education service delivery i s also characterized by high degree of inequality. Out of the 500 counties that had not achieved the goal of universal compulsory education by 2001, most are poor, often in mountainous and remote localities. Insufficient human capital i s one of the key factors behindpoverty and inequality in China today. This is further complicated by weaknesses in the existing system that undermines the sustainability of economic growth. Despite successful reform in the past, China's economic system i s still quite far from one that leads to economic growth of high efficiency in terms of 18  capital investment, consumption of energy and other resources, and environmental cost. As China i s now emerging as a major economic force-it already represents a 12% share of the world economy on a purchasing-power parity basis, a share that i s likely to double over the next 20 to 30 years-it i s more difficult than ever before for China to continue along its traditional path of growth. In2004, China accounted for about half of global growth inmetals demand and a third of global growth in oil demand. The high energy intensity of China's GDP is resulting in rapidly-rising fuel consumption, and, while China i s rich incoal (which provides 71% of China's energy needs) it needs to import most of its oil and natural gas, increasing its reliance on politically-unstable supplier countries. Water i s also becoming scarce, relative to China's requirements, yet the efficiency of water usage remains low. Reliance on coal together with the spread of motorization i s also intensifying air pollution; 20 of the world's 30 most polluted cities are in China. The Government of China (GOC) i s fully aware of the challenges and has committed itself to an agenda for reform and development in the Decision on Zssuesfor Perfecting the Socialist Market Economic System, adopted by the Central Committee of the Communist Party of China (CPC) in October, 2003. The agenda centers at the notion of "scientific development", which emphasizes "human-centered", "coordinated, balanced and sustainable" growth. Primary focuses of reform and development policies are put on the following (known as "five balances": (i)rural development, (ii)reduction of regional disparity, (iii)public service delivery and social sector development, (iv) harmony of people and nature in development, and (v) coordination between domestic development and opening-up. The 1lth Five Year Plan (2006-201 l),be reviewed and to adopted by the National People's Congress (the parliament) in March 2006, i s expected to outline an action plan for the coming five years. The recent "Proposal" for the plan by the CPC has set key guidelines, including: Doubling the per capita GDP of 2000 by 2010 on the basis of improved economic structure, higher efficiency of use of energy and other resources. "Construction of socialist new countryside'' aiming at improved service delivery, faster technological progress to sustain modern agriculture, and building of administrative, financial and other institutions in the rural area. Structural upgrading of the economy focusing on technological innovation to promote the development of manufacture, greater role of the service sector in growth, and strengthening of basic industries and infrastructure. Coordination of regional development by further implementation of special programs for the western region, the northeast region, and greater financial support to laggedregions to equalize delivery of public services. Building up a resource-saving and environment-friendly society by promoting circular economy, further strengthening protection of environment and ecological resources. Implementationof a set of reforms to create and enhance the institutional foundations for a balanced and sustainable development, with government reform as primary focus. Successful implementation of this agenda relies very much on the reform and capacity building of the government itself. Despite market-oriented reform of over two decades, the government i s Per capita availability of water is only about one-third of the world average; most of the water is in the south, though 40% of the population lives in the north; and all major river systems are seriously polluted. 19  still on its way in a transformation of itself to fit a socialist market economy and a well-off society, which are its goals of reform and development. Both the national and sub-national governments must further withdraw from investment decision making and allocation of financial resources and land to allow for a greater role of entrepreneurs and factor markets, and in the meantime shift to more market-friendly instruments of economic policies. The focus of development policies must be changed from over-emphasis on current GDP growth to sustainability o f growth and balances between growth and other social goals. This requires further reforms in public finance including reform of budgeting institutions and adjustment in intergovernmental fiscal relations, as well as many other public administration institutions, such as management of natural resources and environmental protection. Successful implementation of the new reform and development agenda requires not only political determination, change of reform and development policy, but also government capacity building.This i s particularly a key constraint to governments at local levels and in less developed regions. 20  Annex 2: Major RelatedProjects Financed by the Bank and/or other Agencies CHINA: Economic ReformImplementation Project China: Fourth Technical CooperationProject (4473-CHA, Cr.3212-CHA). This project was designed to provide continued support to the GOC in its economic and structural reform effort through (a) strengthening institutions that are key to GOC's ongoing but unfinished economic and structural reform agenda; (b) developing selected economic and structural reform programs which address priority needs of GOC; (c) strengthening agencies involved in poverty reduction and rural development; and (d) improving the preparation of projects involved in fostering sustainable development. The project is ongoing. The IP rating from the latest Project Status Report is S, so is the DO rating. China: Reform, Institutional Support and Pre-investment Project (Cr. 2447-CHA). The project (TCC3) was to support China's overall economic reform and modernization effort and help to strengthen key institutions responsible for policy research, training and implementation, and help prepare projects financed by the Bank. The project took effective on December 3, 1993 and closed on December 31, 2003. The project i s rated by OED as satisfactory. Similar project financed by other international agencies i s unknown. 21  Annex 3: Results Framework and Monitoring CHINA: Economic Reform ImplementationProject Results Framework PDO Project Outcome Indicators Use of Project Outcome Information To assist the GOC in Evidence of (i) adoption high Regular evaluation of reform implementing its reform and and use o f sound reformand and development development agenda by development strategies, achievements of the 11" significantly increasing the policies developed under the Five-Year Plan period at the adoption and use of sound project ;(ii)highlevel of outset of next Five-Year Plan reform and development effectiveness in the by the PMO and project strategies, policies and implementation of reform regions and departments in implementationplans in China and development strategies areas covered by the project. and policies growing out of through a series o f technical the project; (iii) improved Relevant statistics of project assistance subprojects tailored soundness of reform and regions and departments. to address specific challenges development strategies through institutional capacity emerging from the project. Monitoring o f relevant buildingat the national and outcomes achieved by sub-national levels. project regions and departments by the PMO and independent parties including the media, academia and NGOs. Intermediate Outcomes Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring For project regions and More policy focuses on MDGs in PMO's monitoring of reform departments: project regions and departments. policy change, as well as other Better reform and independent monitoring, development strategies. Higher quality of reformprocess including the press, academia and More effectiveness o f o f project regions and NGOs. implementation of departments in areas covered by reform and development the project. Selected institutional assessment strategies. o f change in quality o f reform More effectiveness o f Replication o f project process before and after the reform and development innovations innon-project project. policies. regions and departments. Higher capacity of Speeches of regional and institutions and their staff departmental leadership. involved in implementing reform and development strategy. New knowledge learnt and its replication and scaling up 22  As indicated in the main text, this is an umbrella project comprising possibly 50-100 subproject, most of which will be selected during the implementation period. The first batch of subprojects submitted by the PMO represents 27% of the total amount of IBRD loan and Trust Fund. In addition to the general result framework, a more detailed table at the end of this annex, "arrangements for results monitoring: the first batch of subproject", provides more specific results indicators and monitoring arrangements inview of varying nature of subprojects. Arranpements for results monitoring M&E by the MOF. The MOF will take primary responsibility in monitoring and evaluating subprojects, which will be carried out in view of various natures of subprojects: For subprojects that are designed to carry out studies on strategic issues of reform and development, SIAs are expected to submit the final report to certain level of government decision makers and get feedbacks. For subprojects that are expected to produce implementation plans, policy recommendations that can be directly adopted in some operational documents must be worked out. They will be then disseminated by SIAs to relevant departments of the government and get their feedback, which can be formal issuance of certain policies or implementation plans. For capacity building subprojects, SIAs will develop specific outcome indicators, to be measured in various ways, including survey of participants of activities. Subprojects designed for training involving participants other than government officials (e.g., laid-off female workers) will be monitored and evaluated in a similar way, with particular focus on innovation and dissemination. M&E by the Bank. The Bank's task management team will work with the M O F and DFID to strengthen M&Ethrough supervision. The supervision plan includes the following: Outputs will be evaluated based on evidence of timely and satisfactory delivery of high quality outputs under the sub-projects and improved capacity of institutions and their staff receiving support under the project. Subproject preparation workshop will be held for potential applicants of each batch of subprojects. The first was held in August 2005. Two formal supervision missions a year will be scheduled, including the annual review mission. In addition to the core task management team, a sector specialist will be included in the mission whenever it i s necessary. A mid-term review of the project i s scheduled for the second half of 2008. This will provide an opportunity for a more in-depth review of the project and evaluation of progress towards achievement of project objectives. A Progress Report will be prepared and sent to the Bank by the PMO every half year, by February 28 and August 31 each year. An Annual Implementation Plan will be submitted to the PMO by all SMOs by November 30 each year for consolidation and forwarding to the Bank. The PMO will make broad assessment of project implementation in a draft Project Completion Report to be submitted to the Bank no later than six months following the Closing Date. 23  0 The overall project performance indicators are (i) adoption and use of sound reform high and development strategies, policies developed under the project; (ii)high level of effectiveness in the implementation of reform and development strategies and policies growing out of the project; (iii)improved soundness of reform and development strategies emerging from the project. 24  5x e, 9 c U .I b .f5 E +- 0 rc C 5c 4 c c;a f fi .I c c $ c .I i c rI 5 2 rc t +- 0 c E$ U s A b b U m  .-c  *O -h 3 rr 0  L) 3 e, * 5 nh M h B E c I in .e * -5 e, > P e, cc N  P md E 8m .C EC U rr 0 OD C .C 9 .C 9s  -0 9 0 m cu 0  Annex 4: Detailed Project Description CHINA: Economic ReformImplementation Project The project i s expected to have 50-100 subprojects over the whole implementation period of five years. The average size of subprojects under Categories A, B and C will be set around US$300,000. For Category D subprojects, average size can be as large as around US$1 million. The first batch of subprojects has been identified. Summarized below i s their key information, grouped under five primary themes. Reform of civil services andpublicfinance 1) "Management system of a database for personnel of public service units and government offices" (Budgeting Department, Ministry of Finance). This subproject supports the MOF to build a database to collect and process data of all personnel of government offices and public service units (PSUs) funded by the central government budget. This is designed to support the ongoing implementation of budget reform, which seeks to rationalize personnel expenditure of government departments and public service units. In the current system, budgeting relies heavily on non-continuous data reported to the M O F level by level and aggregated by the primary expenditure units. As found by the recent World Bank report on China's public service unit reform, "the financial operations of PSUs are substantially beyond the monitoring and control of the government. The informational basis for sound budgeting i s lacking". The success of this subproject will help addressing these weaknesses. Its experience will be disseminated to local governments. 2) "Comparative study on models of management of state assets in government departments and public service units" (Administrative and Law Enforcement Department, Ministry of Finance). This subproject i s complementary to the one proposed by the Budgeting Department of MOF. While budget reform deals with the "flow" of public financial resources invested in government department and PSUs, the management of state assets addresses issues of "stock". Both are critical to the effectiveness and efficiency of central government spending on public services. Reform in this field has lagged far behind. It was not until late 2004 that two divisions were created within M O F to become the focal points of management of state assets in government departments and PSUs. Basic data are still lacking. And discussion on models and instruments of management to be employed has just started. This subproject is designed to assist M O F in its search for a feasible model in this regards through a combination of comparative studies on international experience and workshops. 3) "Formulation of regulation and training to enforce the Government Procurement Law" (Legal Department, Ministry of Finance). This subproject provides support to MOFin its enforcement of the recently enacted Government Procurement Law. It will support drafting complementary regulations and training of staff, which are instrumental in enforcing the law. The enactment of this law represents a major step forward 31  for the GOC in reforming the government itself to fit a socialist market economy. It helps building a clean and transparent government, and increasing private participation in public service delivery. 4) "Study of strategic framework of China's government accounting reform and management" (Treasury Department, Ministry of Finance). The subproject aims to develop a strategy for government accounting reform in China. It will define the key characteristics of a government accounting management system and put forward recommendations with regard to (i) the management scope of government accounting entities, in particular, public services units; (ii) principles and methods of developing China's government accounting standards; (iii) key elements of an institutional framework of government accounting system; and (iv) principles and methodology of preparing and disclosing comprehensive annual financial report o f government agencies. 5) "Reforming the budget management of government investment projects in China" (Economic Construction Department, Ministry of Finance). This subproject supports the Economic Construction Department of MOF in its efforts of formulating an implementation strategy for investment system reform, which requires new ways of budget management of government-funded investment project. Consultants will be mobilized to summarize relevant international experience in reports, to be presented and discussed with Chinese officials in a series of training workshops. Staff of the department will conduct short visit to and secondment in ministries of finance of selected foreign countries to learn first-hand knowledge in this area. Improving service delivery and social protection 6) "Enhancing quality management for AIDS treatment in rural Henan province" (Henan Provincial Health Bureau). Henan province accounts for over 80% of China's AIDS patients who are receiving medical treatment. Around 98% of these patients live in about 200 rural villages. The ,provincial authorities have put in place a network of treatment reaching each village, but have experienced difficulties in monitoring and controlling the quality of treatment. This subproject will support the Henan Provincial Health Bureau to develop a set of standards for quality control and a plan for implementing the standards and carrying out quality assessment. 7) "Capacity buildingof China's work injury protection system" (Ministry of Labor and Social Security (MOLSS)) There are about 1million Chinese workers suffered from work injury and 20,000 have died. 25 million workers are working in an environment prone to work injury. Families with a member suffered from work injury often run into poverty or become vulnerable. This subproject will support MOLSS carrying out studies on policies and schemes of work injury prevention, developing a set of technical standards needed for medical treatment and post-injury 32  rehabilitation, and improving technical capacity of staff from both the ministry and its provincial counterparts. 8) "Study on the coordination and impact assessment of employment policies and social security policies" (Social Security Department, Ministry of Finance). In this subproject, the Social Security Department of MOF seeks to (i)obtain a better understanding of the structure and characteristics of Chinese labor market as well as a characterization of the unemployment problem; (ii) set up a framework for an evaluation system with regards to impact on unemployment of government spending in this regard; (iii) evaluate the effects of existing employment policies; and (iv) put forward recommendations of improvement. 9) "Study on social security issues related to rural and urban vulnerable groups in Jiangxi province" (Jiangxi Provincial Bureau of Finance). Vulnerable groups in Jiangxi province involves nearly 5 million of its population, including 1 million rural population that receive regular assistance from the government, 1 million urban population under the "dibao (minimum living allowance)" line, and 0.15 million unemployed workers. Current government strategy in assisting vulnerable groups i s characterized by many weaknesses, including inconsistent policies and inadequate finance. This subproject will support the provincial authorities in its attempt to put in place a consistent general framework of social securities policies for vulnerable groups. It will produce a methodology and manual about the definition, verification of members of "vulnerable groups" that are eligible for government assistance. Policy recommendations will be produced through separate studies with regard to a number of programs and groups, including dibao experiment in rural areas, medical assistance program, social securities of migrant workers. 10) "Training of unemployedwomen" (Gansu Provincial Finance Bureau). Gansu province has suffered from severe unemployment. There are currently 25000 urban female workers are unemployed. The province has experienced success in helping unemployed women in their efforts to seek new jobs by offering them training and other assistance. This subproject will build on past success and scale it up by involving more unemployed women, and test new ideas and practices to make the Gansu experience a replicable model to other provinces. 11)"Building uprural community study centers" (Yunnan Provincial Bureau of Education). This subproject aims to pilot a mechanism in poor and remote rural areas whereby local schools are opened to communities and adults to facilitate communication and learning activities. Gradually, this will make schools centers of multi-dimensions: providing not only equal and quality education for school age children, but also adult education, agricultural technical training and teachers training. 33  Improving management of land and natural resources 12) . "Policy studies on management and utilization of built-up collectively owned lands" (Department of Finance, Ministry of Land and Natural Resources (MOLR)). Rural collective built-up land refers to the land owned by rural collectives and used for construction. Statistics of MOLR show that the total amount of rural collective built-up land i s about five times of urban built-up land. Urbanization and industrialization has often resulted in deprivation of farmers from their lands with inadequate compensation, and low efficiency in use of land. This subproject supports a policy study aimed to develop policy recommendations with regard to rural collective built-up land management to protect farmers' rights and interests, promote rational land use, and improve farmers' living and working conditions so as to fulfill the goal of sustainable land use and economic development inrural China. 13) "Sustainable development of Hengshui Lake wetland" (Management Commission for Hengshui Lake Wetland, Hengshui Municipality, Hebei Province). Hengshui lake wetland i s one of the national natural reserves designated by the State Council. It i s characterized by ecological diversity and relatively poor living standards of 60,000 residents in the area, which has created tension between natural resources protection and economic development. This subproject supports studies designed to recommend to the municipal government a sustainable development strategy for the wetland, a strategy to promote ecological tourism and an institutional model of managing the wetland by the government. This i s expected to strengthen the capacity of the wetland Management Commission and the Municipal Government of Hengshui in managing the tension between natural resources protection and economic development. 14) "Demonstrative Project of Sustainable Utilization of Land Resources in Tropical Forest Areas in Hainan Province, the Case of Shiyun Township of Qingzhong Autonomous County of Ethnic Liand Miao" (Hainan Provincial Bureau of Land and Resources). Hainan province i s the home of over 70 natural reserves, most of which locate in the inland part of the island, where ethnic minorities concentrate. Tension has existed between ecological resources protection and economic development as there areas are lagged behind in economic growth and living standards. This subproject supports the Hainan provincial authorities in testing a model of coordination between ecological protection and economic development in one township. Through the pilot, the subproject will provide advices to the provincial government on legislative and administrative means it may employ in protecting ecological resources and in the meantime promoting economic development. Building public and market institutions 15) "Pilot of rural Community Development Funds" (State Council Leading Group Office of Poverty Alleviation and Development, Agriculture Department, Ministry of Finance). 34  China's poverty reduction efforts are hampered by an inadequate financial system in poverty stricken regions, where formal financial institutions have failed to deliver loans to poor farmers despite explicit government policy. In the meantime, the government spends millions every year to subsidize loans borrowed by poor farmers. The effectiveness and efficiency of government spending has been questionable. This subproject, drawing on experiences of other donors (including Asian Development Bank) and results of a subproject of TCC4, supports a pilot program to be implemented in 12 villages in two counties, to be chosen from Henan and Sichuan provinces. The pilot program i s intended to test a model of Community Development Fundto be financed by budgetary spending on poverty alleviation and governed by the community with full participation of poor farmers. The success of this model may pave a new way for government spending on financial support to the poor. 16) "Better Understanding Ethnic Characteristics and Optimizing the Implementation of Development Planning for Ethnic Minorities and Ethnic Minority Areas" (Economic Development Department, State Ethnic Affairs Commission) Ethnic minorities account for a large share of China's population living under poverty. This subproject i s designed to strengthen the government's capacity in promoting the development of ethnic minority regions. It aims to solidify the poverty reduction achievements and optimize the implementation of the government's action plans of developing ethnic minority areas. It supports studies on the special characteristics of ethnic minorities and ethnic minority areas to design community-driven poverty reduction scheme, including an operation manual for two Action Plans of the government. Capacity building activities will be carried out to enhance the ability of local citizens in participating, self-management and income generation, as well as the ability of local governments in decision-making, service delivery and development management. The overwhelming majority of direct beneficiaries of the subproject proposed i s ethnic minority group. The principles of OP 4.10, such as informed consultation, participation, cultural respect, which are consistent with GOC's own policies, have been incorporated in the design of the proposed subproject. 17) "Study on Community Development Policies in Transition Period in China", (Social DevelopmentDepartment, National Development and Reform Commission). Urban community development remains in its infancy in China. There i s a lacking of government policies and planning, as well as inadequacy of citizens participation. This subproject supports the Social Development Department of NDRC, responsible for policy- making on community development, in formulating China Community Sewice System Development Plan in 11`" Five-Year Plan Period. It seeks to characterize real demand for community services of urban residents, identify existing problems in service provision, and design sustainable development mechanisms of community service provision. 18) Capacity building of China Exim Bank. 35  China Eximbank i s one of the three policy banks created during a wave of comprehensive reform in 1993-94 aimed at a separation of commercial and policy banking. As the only state-owned export credit provider in China, Eximbank remains young and immature in comparison with its counterparts in developed countries. This subproject will support Eximbank's efforts in strategic planning for its long term role, upgrading its internal control mechanism, improving its risk management of overseas project credits, and capacity building targeting on its senior and middle level managers. Improving regional and sectoral developmentstrategy 19) "Study on Economic Development of Qinghai Province" (Qinghai Provincial Bureau of Finance) Qinghai province i s one of least developed western provinces in China and home to a significant number of poor o f various ethnic backgrounds. This subproject provides support to the provincial government in a study on overall economic development of Qinghai, subjects of the study include medium and long term of economic growth potential, characterization of Qinghai's natural and institutional endowments, reform of financial sector, policies regarding industrialization and urbanization, policies towards energy and mining industries and environmental issues, issues of rural sector development, and coordination between Qinghai and neighboring provinces (Gansu, Xinjiang, Tibet). It i s expected that this study would put the decision making of the provincial government on a solid analytical basis. 20) "Study on sustainable development strategy of energy and chemical industrial base in Shaanxi province" (Shaanxi Provincial Bureau of Finance). This subproject supports the Shaanxi provincial authorities in a study on development strategy for the proposed Northern Shaanxi Energy and Chemical Industry Base (NSECB) by looking at a range of issues critical to the sustainability of development, including diversification of water resources, energy management, population, follow-up industries (industries to follow up sustaining local economy when resources are depleted), etc. 21) "Study on transformation strategy for Panzhihua as a city of resources depletion" (Sichuan Provincial Bureau of Finance). Panzhihua city of Sichuan province i s a city heavily relying on steel industry and natural resources.Responding the call for "balanced development", the municipal authorities intendedto transform the local economy to one that relies less on steel (from 70% of GDP to 30%) and i s more environment friendly with a larger share of recycling economy. This study supports the municipal authorities to formulate a strategy for this transition. 22) "Study on integration and development of the three ports of Guangxi", (Development & Reform Commission of Guangxi Zhuang Autonomous Region) The three ports of Fangcheng, Qinzhou and Beihai inthe coastal areas of Guangxi are the nearest seaports for the Southwest China. The current administrative system, whereby the three ports are owned and managed by municipal governments of the three cities, respectively, has 36  demonstrated substantial negative impact on the sustainable development of the three ports. In particular, the three seaports, which are about 90 km one from another, are engaging in competitive expansion plans that are probably wasteful of public investment funds --including buildingexpressways far ahead of the demand. This subproject assists the Region government to address the root causes of the problem, the role of the government port management. It also helps the Region government to formulate effective competition policies for the three ports and define the future expansion path for them. 37  Annex 5: ProjectCosts CHINA: EconomicReformImplementationProject Project Cost B y Component and/or Activity Local Foreign Total us$ us$ us$ 1. Strengthening of the institutional ability of the Export- 398,750 601,250 1,000,000 Import Bank of China 2. Promote employment and training of unemployed women in 500,724 40,000 540,724 Gansu 3. Guangxi Ports Integration Strategy 243,928 278,541 522,469 4. HainanTropic forests land resourcesustainability study 136,743 263,520 400,263 5. Study on Sustainable Development Strategy at Hengshui 289450 36,250 325,700 Lake Wetland 6. AIDS Medical Treatment Cure of the Rural Area of Henan 350000 350,000 Province 7. Social Security of rural and urban disadvantageousGroups 445600 294,400 740,000 inJiangxi 8. An comparative study on public asset management 256000 144,000 400,000 9. Central Personnel Databasefor Government Staff 559500 40,500 600,000 10.Reform the government investment projects budgeting 140800 396,000 536,800 system 11. Government Procurement Legislation 128000 107,000 235,000 12.Study on the social security consistency 201000 199,000 400,000 13.Accounting Reform 371000 429,000 800,000 14.Study onRural Collective Land UtilizationPolicy 292560 64,240 356,800 15.Work Injury Insurance System 389690 87,500 477,190 16.Community Development ina Transitional Stage 311480 28,620 340,100 17.Rural Community Development Fund 1270640 0 1,270,640 18. Qinghai Economic Development Strategy 654500 145,500 800,000 19.Ethnic Areas Development Strategy 402661 42,847 445,508 20. The Sustainability Development Strategy for Shaanxi 406759 143,241 550,000 Heavy Industrial Bases 21. Panzhihua Transformation Strategy 334400 79.600 415.000 22. Yunnan Rural EducationReform 507663 58,150 565,813 Subtotal 8,592,848 3,479,159 12,072,007 23. Sub-projects to be selected 19,836,770 8,041,223 27,877,993 Total Baseline Cost 28,429,618 11,520,382 39,950,000 Physical Contingencies Price Contingencies TotalProject Costs' 28,429,618 11,520,382 39,950,000 Interest during construction Front-endFee 50,000 TotalFinancingRequired 28,429,618 11,570,382 40,000,000 38  Annex 6: ImplementationArrangements CHINA: Economic ReformImplementationProject Project Management Ofice. As in previous TCC projects, the MOF, through a Project Management Office already set up in its International Department, will implement the project. Responsibility o f overall coordination and management of project implementation i s vested in the Technical Assistance Division, International Department of MOF. The PMO i s led by Ms. LiuFangyu, Chief of the Technical Assistance Division of InternationalDepartment, and staffed with 3 full time staff, with Ms.Sun Lin as Project Coordinator. Subproject Zmplementation Agency. Under the overall supervision of the MOF, subprojects will be managed by SIAs. The PMO will require each SIA to set up, as condition for participating under the project, and thereafter maintain until the completion of the relevant subproject or subprojects, a Subproject Management Office (SMO) headed by a qualified officer and assigned with staff in adequate numbersto designSubprojectproposals and implementthemas so approved by the Bank. Subproject selection procedure. Subprojects will be selected according to the following procedure: 1) Any department or agency of the central government and local governments at provincial or municipal (prefecture) levels can apply for subproject financing under the project by submitting to the PMO a draft concept (in both Chinese and English) and proposal (in Chinese) following the "Subproject Proposal Guidelines" issued by the PMO. 2) The PMO shares with the Bank and DFID those concepts and proposals that pass through its screening. To provide general guidance and coaching on those that may need further refinement and work to meet the agreed selection criteria, the Bank and DFIDjointly review concepts and proposals expected to be funded out of the DFID Grant, and the Bank may ask DFID's comments on those expected to be financed out of the Loan proceeds. In doing so, the Bank and DFID acts only in the role of a peer reviewer by providing necessary advices to the PMO and SMOs, without assuming any role as part of the preparation team involving in drafting, preparing the concepts and proposals. This will not compromise the formal approval of the subproject by the World Bank in due course. 3) The PMO and the SMO concerned revise the proposal, if need be. The PMO organizes a Steering Committee, comprising the National Development and Reform Commission and relevant government departments, to review the final subproject proposal and, based on the review, approves it according to the agreed selection criteria. The PMO then forwards the approved proposal to the Bank to seek no-objection. 4) The Bank reviews the subproject proposal. Based on the review, the Bank issues a no-objection letter if it agrees that the proposal meets the agreed selection criteria, and informs the PMO of the reasons for rejecting any proposal, if that be the case. Subproject selection, evaluation and approval criteria. A Subproject shall be eligible for financing out of the proceeds of the Loan only if it meets the following criteria: 39  1) The Subproject shall support the overall development objective of the Project, shall has been prepared by a SIA in accordance with the "Guidelines for Subproject Proposal", satisfactory to the Bank, and shall meet the provisions of the World Bank Safeguard Policies, if applicable. The Subproject proposal shall contain a detailed description of its objectives, activities and expected benefits, including its direct relation in assisting the Borrower's reform and development agenda, and the potential of replication and scaling up, in one or more of the following areas: reducing poverty, inequality and social exclusion, improving public and market institutions, managing resource scarcity and environmental challenges, financing sustained and efficient growth, and integrating China into the world economy, and such other areas as the Borrower and the Bank shall so agree from time to time. Subprojects under Category B and C shall also be designed to focus primarily on reducing poverty, inequality and social exclusion and promoting achievement by China of the Millennium Development Goals (i.e., eradicate extreme poverty and hunger; achieve universal primary education; promote gender equality and empower women; reduce child mortality; improve maternal health; combat HIV/AIDS, malaria and other diseases; ensure environmental sustainability; and develop a Global Partnership for Development). 3) The Subproject outputs and activities shall be clearly defined in both form and substance, adequately designed to ensure the realization of Subproject objectives, and reasonably expected to have direct and significant impact on the implementation of reform and development agenda of the Borrower in sectors and regions in the areas described in paragraph (b) above. The impact shall be demonstrated through one or more of the following: (i) improved soundness of reform and development strategies; (ii)increased effectiveness of implementation of reform and development strategies; (iii)increased effectiveness of reform and development policies; (iv) innovative mechanisms that support the implementation of reform and development strategies and capacity building; (v) improved capacity of institutions and their staff involved in implementing reform and development strategy; (vi) new knowledge learnt and its replication and scaling up. 4) The Subproject proposal shall include: (i)demonstrated strong ownership and firm commitment to the implementation of the Subproject by the relevant SIA through the provisions of detailed organization, management, staffing and other resources requiredfor the efficient and effective carrying out of the Sub-project; (b) Subproject costs, including a budget table, and an implementation action plan that provides the following information: (i)the proposed procurement plan for the Subproject, including proposed procurement procedures for goods and technical assistance, including a description of consultants assignments, estimated costs, selection methods, expected terms of reference, submission date and expected duration of the contracts; (ii)a detailed description of expenditure on staff training program and study tours; (iii)an estimate of the foreign and local costs of the different items of expenditures; (iv) a proposed financing plan and a proposed disbursement plan for the Subproject, including a detailed description of the expenditures proposed to be 40  financed out of the proceeds of the Loan and DFLD Grant, as the case may be; (v) a time-table covering the various activities under the Subproject; (vi) a time-table for implementing the outcomes of the Subproject after completion; and (vii) a detailed monitoring and evaluation strategy for Subproject implementation and outcomes, including clearly specified monitoring and evaluation indicators and commitment to adequate resources. 5) The Subproject total cost shall not be less than. $lOO,OOO.equivalent and the aggregate amount of goods would not exceed $50,000 equivalent Project management. For each subproject, one or more sector specialists will join the Bank core team in the following activities: 0 Reviewing subproject proposals and providing general guidance and coaching on those that may need further refinement and work to meet the agreed selection criteria. In doing so, the Bank acts only in the role of a peer reviewer by providing necessary advices to the PMO and SMOs, without assuming any role as part of the preparation team involving in drafting, preparing the concepts and proposals. This will not compromise the formal approval of the subprojects by the Bank in due course. 0 Reviewing TORSand outputs of subprojects. 0 Participating in subproject supervision missions. 41  Annex 7: Financial Management and Disbursement Arrangements CHINA: Economic Reform Implementation Project ExecutiveSummary The Financial Management Specialist (FMS) has conducted an assessment of the adequacy of the project financial management system of the China Economic Reform Implementation Project (TCCS). The assessment, based on guidelines issuedby the Financial Management Sector Board on November 3, 2005, has concluded that the project meets minimum Bank financial management requirements, as stipulated in BP/OP 10.02. In the FMS' opinion, the project will have in place b y effectiveness an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project inthe reporting format agreedwith the project and as requiredby the Bank. Funding sources for the project include Bank loan, grant from the Department for International Development (DFID) of the Government of UnitedKingdom and counterpart funds. The Bank loan proceeds and the DFID grant will flow from the Bank into the project designated accounts to be set up at and managed by the Investment Appraisal and Evaluation Center, Ministry of Finance (MOF), to various project implementing agencies, and finally to contractors or suppliers. The Bank loan and the grant agreement(s) will be signed between the Bank and the People's Republic of China through its MOF, and financial arrangements for making the proceeds of the Bank loan and DFID grant will be done by M O F and SIAs. The constitution of counterpart funds will be mostly contributions inkind. No outstanding audits or audit issuesexist with any of the implementingagencies involved inthe proposed project. However, the task team will continue to be attentive to financial management matters duringproject supervisions. Audit Arrangement The Bank requires that project financial statements be audited in accordance with standards acceptable to the Bank. In line with other Bank financed projects in China, the project will be audited in accordance with International Auditing Standards and the Government Auditing Standards of the People's Republic of China. The Audit Service Center of China National Audit Office for Foreign Loan and Assistance Projects has been identified as auditors for the project. Annual audit reports will be issued by above audit center and subject to reviews by the China National Audit Office (CNAO). The Bank currently accepts audit reports issued by CNAO or provincial/regional audit bureaus/offices for which CNAO i s ultimately responsible. The annual audit report of project financial statements will be due to the Bank within six months after the end of each calendar year. This requirement i s stipulated in the loan and DFID trust fundgrant agreements. The responsible agency and timingare summarized as follows: 42  Audit Report Submittedby Duedate Project financial statements IAEC June 30 FundsFlow and DisbursementArrangements Funds flow for Bank loan and the grant will follow Bank and MOF requirements. Two designated accounts (DAs), one each for Bank loan and the grant, will be established and managedby IAEC. The funds flow i s as follows: The - - DAs SMO Suppliersand World managed --+ contractors Bank by IAEC Counterpart funds will be contributions in kindfrom central, provincial and local governments. Bank loan and the grant proceeds would be disbursed against eligible expenditures as in the following table. For subprojects of Category A and D, withdrawals up to an aggregate amount not to exceed $1,000,000 equivalent may be made for payments made prior to this date but on or after February 1, 2006 for eligible expenditures. 43  Amount of Amount of Percentag the Loan Grant e of Category Allocated Allocated Expenditu (inUSD (in USD res million) million) to be Financedout of the Loan and Grant (1) Category A subprojects (funded with IBRDloan and 10 100% implemented by central government departments with no repayment obligation) (2) Category B subprojects (funded with DFIDTrust Fundand 7.5 100% implemented by local government departmentswith no repayment obligation) (3) Category C subprojects (funded with 50% IBRD loan and 2 2 50% DFID grant and implemented by local government departments with 50% repayment obligation) (4) Category D subprojects (all other subprojects funded with 7.45 100% IBRDloan, implemented by either central or local government departments, and with 100%repayment obligation) (5) Unallocated 0.5 0.5 (5) Frond-end Fee (0.25%)' 0.05 Amount due under the Loan Agreement Total 20.00 10.0 The four disbursement methods: reimbursement, advance, direct payment and special commitment are all available for the project. . Two Designated Accounts (DAs), one each for the Loan and Grant, will be established in IAEC. The authorized allocation of each DA will be based on the project's quarterly financial reporting package, which will include forecasts. Disbursement will occur once the Bank determines the financial reportingpackage i s acceptable. IAEC will be directly responsible for the management, monitoring, maintenance and reconciliation of the DA activities of the project. The periodic financial reporting package will serve as the supporting documentation for reimbursement and reporting eligible expenditures paid from the DA. Included in the financial reporting package are the interim un-audited - - - financial reports in the format agreed between the Bank and the borrower. The flow of the withdrawal application i s as follows: SMO Approval Approval World by PMO by IAEC Bank 50% of the subproject cost exclusive of counterpart funding will be funded, and 100%disbursed, out of the proceeds of IBRDloan. The other 50% will be funded, and again 100%disbursed, out of the proceeds of DFID grant. 'The fee is up to 1% which has been waived to 0.25% for projects approved by the Board inFinancial Year 06, 44  FinancialManagementandReportingArrangements Implementing Entities. The MOF, through its International Department, will be the Project Implementing Agency, where a Project Management Office (PMO) has been created and headed by the Chief of its Technical Assistance Division. The PMO, mainly staffed by the Technical Assistance Division, will be responsible for the overall project coordination and supervision of project implementation. The project accounting and disbursement will be managed by the Investment Appraisal and Evaluation Center (IAEC) of MOF. Under the overall supervision of PMO, subprojects will be managedby Subproject Implementing Agencies, which could be a department (agency) of either the national government or a provincial or municipal government. Each Subproject Implementing Agency will have its own SMO. Each SMO, staffed with qualified personnel, will be responsible for respective operation and finance administration. Budgeting. Although the cost table has been prepared for the project and the PMO will prepare i t s annual implementing plan, the budgeting system within the project are usually not well maintained or monitored. The FMS will work with the related agencies to improve their budgeting system during project implemenation. Accounting. The administration, accounting and reporting of the project will be set up in accordance with the Circular #13: "Accounting Regulations for World Bank Financed Projects" issued in January 2000 by MOF. The circular provides in-depth instructions of accounting treatment of project activities and covers the following: 0 Chart of account; 0 Detailed accounting instructions for each project account; 0 Standard set of project financial statements; 0 Instructions on the preparation of project financial statements. The TCC5 project financial reporting package, including detail format and content of project financial statements was agreed to between the Bank and MOF. Such project financial statements will serve both for periodic financial reporting as part of Financial Monitoring Report and as supporting documentation for disbursement of Bank funds. This set of project financial statements includes the following: 0 Balance Sheet; 0 Summary of Sources and Uses of Funds by Project Component; 0 Statement of Implementation of Loan Agreement / Grant Agreement; 0 Statement of Designated Account; and 0 Notes to the Financial Statements. IAEC will be managing, monitoring and maintaining respective project accounting records. IAEC will also prepare project financial reporting package and submit i t to the Bank for review and comments on a regular basis. Original supporting documents for project activities will be retained by originating subproject implementing agencies. 45  Adequate project accounting staff with educational background and work experience commensurate with the work they are expected to perform i s one of the factors critical to successful implementation of project financial management. Based on discussions, observation and review of educational background and work experience of the staff identified for financial and accounting positions in implementing agencies, the task team note that the staff are qualified and appropriate to the work they are expected to assume. To strengthen financial management capacity and achieve consistent quality of accounting work, the task team has suggested that a project financial management manual (the Manual) be prepared. The Manual will provide detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management and withdrawal application procedures. The manual will be finalized and distributedto all the relevant financial staff before loan effectiveness. The PMO will use the computerized financial management system Jia He, an accounting software package exclusively designedfor World Bank projects. The task team will monitor the processing of accounting work closely, especially in the initial stage to ensure complete and accurate financial information will be providedin a timely manner. Internal Control and Internal Auditing The related accounting policy, procedures and regulations were issued by M O F and the project will followed these documents. The funds flow will be arranged and monitored through IAEC and basedon expenditure reimbursement basis. There i s no formal independent Internal Audit department for the project. However, this will not impact on the project's financial management as PMO's management and monitoring and annual external audits will serve as the mechanism to ensure that financial management controls are functioning appropriately. Financial Covenants No additional financial covenants proposed by the F M S other than the standard financial covenants, (e.g. maintaining project accounts in accordance with sound accounting practices, audit requirement and SOE), as described in the legal document and Disbursement Letter. Supervision Plan A detailed supervision plan for this project will be included as part of the China Audit Strategy document. This document takes into consideration of the size of project and the FMrisk rating of this project. 46  Annex 8: ProcurementArrangements CHINA: EconomicReformImplementationProject A. General Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Loan Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame are agreed upon between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements ininstitutional capacity. Procurementof Works:No civil works will be financed by the project. Procurement of Goods: Goods contracts for necessary equipment (such as computers and peripherals, etc.) and software related to project activities will be procured under this project. ICB will be applied to the contracts estimated to cost $500,000 equivalent or more each; the contracts estimated to cost less than $500,000 each will be procured through NCB and Shopping will be applied for the contracts estimated to cost less than US$lOO,OOO each), The procedures to be followed for National Competitive Bidding shall be those set forth in the Law on Tendering and Bidding o f the People's Republic of China promulgated by Order No. 21 of the President of the People's Republic o f China on August 30, 1999, with the following clarifications required for compliance with the Guidelines: All invitations to prequalify or to bid shall be advertised in a newspaper of national circulation inthe Borrower's country, except-for goods contracts that are estimated to cost less than $300,000 equivalent each, which may be advertised in a provincial daily newspaper. Such advertisement shall be made in sufficient time for prospective bidders to obtain prequalification or bidding documents and prepare and submit their responses. In any event, a minimumof thirty (30) days shall be given to bidders between the date o f advertisement in such newspaper and the deadline for submission of bids, and the advertisement and bidding documents shall specify the deadline for such submission. Qualification requirements o f bidders and the method o f evaluating the qualification of each bidder shall be specified indetail inthe biddingdocuments. All bidders shall be required to provide security inan amount sufficient to protect the Borrower or [insert name o f province], as the case may be, in case of breach o f contract by the contractor, and the bidding documents shall specify the required form and amount of such security. Bidders will be allowed to submit bids by mail or by hand. The time for opening o f all bids shall be the same as the deadline for receipt o f such bids. 47  All bids shall be opened in public; all bidders shall be offered an opportunity to be present (either in person or through their representatives) at the time of bid opening, but bidders shall not be required to be present at the bidopening. All bid evaluation criteria shall be disclosed in the bidding documents and quantified in monetary terms or expressed inthe form of pasdfail requirements. No bid may be rejected solely on the basis that the bid price falls outside any standard contract estimate, or margin or bracket of average bids established by the Borrower or [insert name o f province], as the case may be. Each contract shall be awarded to the lowest evaluated responsive bidder, that is, the bidder who meets the appropriate standards of capability and resources and whose bid has been determined (A) to be substantially responsive to the bidding documents and (B) to offer the lowest evaluated cost. The winning bidder shall not be required, as a condition of award, to undertake responsibilities for work not stipulated in the bidding documents or otherwise to modify the bid as originally submitted. Each contract financed with the proceeds of the Loan shall provide that the suppliers and contractors shall permit the Bank, at its request, to inspect their accounts and records relating to the performance of the contract and to have said accounts and records audited by auditors appointed by the Bank. Government owned enterprises in the Borrower's country may be permitted to bid or submit a proposal of goods and works if they can establish that they (i)are legally and financially autonomous (ii)operate under commercial law and (iii) are not a dependent agency o f the agency conducting the procurement Re-bidding should not be allowed solely because the number o f bids i s less than three (3)." Procurement of non-consulting services: Not applicable. Selection of Consultants: Consultants are expected to be hired to provide services in the following areas: project management, subprojects preparation, technical training and information disseminating, economic studies and management system reform, monitoring and evaluation, and other technical studies as needed. All consultant services financed by the project will be procured according to the Bank's guidelines on the selection and employment of consultants and on terms and conditions acceptable to the Bank. Under QCBS contracts, the Standard Request for Proposals and model contract for consultant will be used; the selection procedure will follow the provisions of section I1 of the Consultant Guidelines. In case of small firm consultant contracts, CQS, in accordance with the provisions of paragraph 3.7 of the Consultant Guidelines, will be used as the selection method. As for individual contract contracts, the selection procedure shall follow the provisions of section V of the Consultant Guidelines. SSS will be used for special cases in accordance with the provisions of paragraph 3.9 of the Consultant Guidelines. Each subproject shall plan the SSS, if any, in its procurement plan with the justification which shall be approved by the Bank. 48  Short lists of consultants for services estimated to cost less than $300,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Since this is a TA project, and considering China's situation, universities and research institutes, NGOs and public training institutions may be selected as consultants. OperatingCosts: Not applicable Others:Not applicable B. Assessment of the agency's capacityto implementprocurement Procurement activities will be carried out by the PMO and SMOs. The PMO i s staffed by TA Division of International Department, MOF; SMOs are staffed by relevant line ministries and provincial and municipal governments. The procurement function i s staffed by the PMO and SMOs in which two or three full-time staff will be assigned for handling the project implementation, including procurement and financial management under PMO or SMOs. An assessmentof the capacity of the PMO to implement procurement actions for the project has been carried out by the Bank's procurement specialist in September 2005. The assessment reviewed the organizational structure for implementingthe project and the interaction between the project's staff responsible for procurement and MOF's relevant central unit for administration and finance. The overall project risk for procurement i s average. The key issues and risks concerning procurement for implementation of the project and proposed action plan have been identified as below. 49  PROPOSEDPRIOR REVIEW THRESHOLDS SUPERVISIONPLAN: AND Prior Review Thresholds OverallRisk Assessment Proposed Works: NJA High Goods US$ 100,000 and the first Average X contract procured ineach sub-project - Consulting US$ 100,000 for firm and Low $30,000 for individual (equivalent), the first firm contract and the first individual contract procured in each sub-project PostReview Ratio:One in 3 contracts Frequencyof procurement Formpreparedby:Xiaowei Guo supervisionmissionsproposed:One Date: November 1,2005 every 6 months (includes special Cleared by: Bertrand Ah-Sue procurement supervision for post- Date: November 29,2005 1 I I 1 I 1 reviewlaudits) Post review will be carried out either ProcurementMethodThresholds ($ million) during the supervision mission or between two missions together with ICB NCB Shopping :B CQ I C SOEreview. The review thresholds, SJQB ratio and frequency are selectedbased on findings of the assessments and the Works NIA NIA NIA Bank's experience in other projects. Goods >$OS <$OS <0.1 Consultant II II II II 20.2 I<0.2 II This project is the fifth Bank financed TC :project to be implemented by the PMO. The procurement of the previous 1 Bankfinanced projects were successfully carried out. The PMO has accumulated the experience on Bank financed projects. Having been fully authorized to implement the project, the PMO is able to fulfill its procurement function for this project. The risk in the procurement processis average. C. ProcurementPlan A draft procurement plan will be prepared by SMOs for each approved first batch subproject before negotiation, to be finalized for Bank's review by project effectiveness. For other subprojects, considering most of them will be selected during project implementation, according to criteria specified in Loan Agreement, their procurement plans will be contained in subproject proposals to be submitted by the PMO for no-objection by the Bank. The procurement plan shall be available at the PMO and SMOs. It will also be available in the project's database and in the Bank's external website if needed. The Procurement Plan will be updated in agreement with the Bank's project management team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. D. Frequencyof ProcurementSupervision 50  In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the PMO has recommended supervision missions (twice a year) to visit the field to carry out post review (once a year) of procurement actions. 51  Annex 9: EconomicandFinancialAnalysis CHINA: EconomicReformImplementationProject Not applicable. 52  Annex 10: SafeguardPolicyIssues CHINA: EconomicReformImplementationProject This i s aTA project that will fund consulting services, workshops, training, study tours and other capacity building activities, and a small amount of equipment related to project implementation. It does not fund subprojects designed to pave the way for major investments or privatization. It i s an EA category C project that i s likely to have minimal or no adverse environmental impacts. None of the safeguard policies of the Bank i s likely to be triggered. However provision i s made in the selection criteria for subprojects that all applicable World Bank Safeguard Policies would be complied with as the case may be. 53  Annex 11:ProjectPreparationand Supervision CHINA: EconomicReformImplementationProject Planned Actual PCNreview 09/08/2004 09/08/2004 Initial PID to PIC 09/16/2004 10/22/2004 Initial ISDS to PIC 12/30/2005 Appraisal 01/13/2006 01/13/2006 Negotiations 01/25/2006 01/25/2006 Board/RVP approval 04/11/2006 Planned date of effectiveness 06/30/2006 Planned date of mid-term review 11/01/2008 Plannedclosing date 12/31/2011 Key institutions responsible for preparation of the project: Ministry of Finance, China Bank staff and consultants who worked on the project included: Name Title Unit Chunlin Zhang Senior Enterprise EASFP Restructuring Specialist, TTL Carlos Ricardo Escudero LeadCounsel LEGEA Zhengxuan Zhu Senior Agriculture EAPRD Specialist, TTL for TCC4 Louisa Huang Trust FundCoordinator EACCF Xiaowei Guo Procurement Specialist EAPCO Yi Geng Fh4Specialist EAPCO Fang Zhang Finance Analyst L O A G l Xiuzhen Zhang Program Assistant EACCF Bank funds expended to date on project preparation: 1. Bank resources: US$38,576.21 2. Trust funds: 0 3. Total: US$38,576.21 Estimated Approval and Supervision costs: 1. Remainingcosts to approval: US$50,000 2. Estimated annual supervision cost: US$65,000, in addition to an additional budget to cover the cost of sector specialists for the whole life of a subproject, which can be determinedby multiplying a coefficient with the size of each subproject. 54  Annex 12: Documentsinthe ProjectFile CHINA: EconomicReformImplementationProject 1. Project Concept Paper of MOF 2. IdentificationMission Schedule 3. TOR for identification mission for China Economic Reform Project 4. Back-to-office report for identification mission 5. Draft IntegratedSafeguard Data Sheet 6. Project InformationDocument 7. Project Concept Note (PCN) review package 8. PCN review: comments received and meeting agenda 9. PCNreview meetingminutes 10.Minutes of the tripartite meeting 11.Project Preparation Review (PPR) package 12. Completion Memo of PPR 13. Concepts and proposals of 22 subprojects 14. Draft Project Appraisal Document 15. Decision Memo 55  Annex 13: Statementof Loansand Credits CHINA: EconomicReformImplementationProject Differencebetween expectedand actual OriginalAmount in US$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Fm. Rev'd PO75732 2006 CN-ShanghaiUrbanAPL2 180.00 0.00 0.00 0.00 0.00 180.00 0.00 0.00 PO67625 2005 CN-GEF-RenewableEnergy Scale-Up 0.00 0.00 0.00 40.22 0.00 40.22 -0.35 0.00 Program PO67828 2005 CN-RenewableEnergyScale-upProgram 87.00 0.00 0.00 0.00 0.00 87.00 4.44 0.00 PO68752 2005 CN-Inner Mongolia Highway & Trade 100.00 0.00 0.00 0.00 0.00 99.50 2.00 0.00 Conid PO69862 2005 CN - AgriculturalTechnology Transfer 100.00 0.00 0.00 0.00 0.00 99.50 3.17 0.00 PO71094 2005 CN - Poor RuralCommunities 100.00 0.00 0.00 0.00 0.00 100.00 9.43 0.00 Development PO57933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0.00 0.00 5 1.09 0.64 0.00 PO72721 2005 CN-GEF-HeatReform & Bldg Egy Eff. 0.00 0.00 0.00 18.00 0.00 18.00 0.40 0.00 PO75730 2005 CN-HUNAN URBANDEV . 172.00 0.00 0.00 0.00 0.00 171.14 8.14 0.00 PO86505 2005 CN-NINGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 129.35 -0.65 0.00 PO81161 2005 CN-Chongqing SmallCities Infrast. 180.00 0.00 0.00 0.00 0.00 180.00 0.00 0.00 PO81346 2005 CN-LIUZHOU ENVIRONMENT 100.00 0.00 0.00 0.00 0.00 100.00 0.85 0.00 MGMT PO69852 2004 CN-Wuhan UrbanTransport 200.00 0.00 0.00 0.00 1.oo 188.00 158.10 0.00 PO84003 2004 CN-GEFGUANGDONG PRD URB 0.00 0.00 0.00 10.00 0.00 10.00 0.62 0.00 ENV PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 121.82 -1.10 0.00 PO65463 2004 CN-JiangxiIntegratedAgric. Modern. 100.00 0.00 0.00 0.00 0.00 93.44 16.70 0.00 PO65035 2004 CN-Gansu& Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 51.06 9.03 0.00 Development PO81749 2004 CN-HubeiShiman Highway 200.00 0.00 0.00 0.00 1.oo 160.76 31.76 0.00 PO73002 2004 CN-BasicEducationinWestern Areas 100.00 0.00 0.00 0.00 0.00 81.97 39.03 0.00 PO75035 2004 CN - GEF-Hai BasinIntegr. Wat. 0.00 0.00 0.00 17.00 0.00 14.54 3.43 0.00 Env.Man. PO75602 2004 CN-2ndNationalRailways (Zhe-Gan 200.00 0.00 0.00 0.00 1.oo 159.04 -1.63 -2.30 Line) PO75728 2004 CN-GUANGDONGPRD UR ENVMT 128.00 0.00 0.00 0.00 0.64 117.24 -0.62 0.00 PO77615 2004 CN-GEF-Gansu& Xinjiang Pastoral 0.00 0.00 0.00 10.50 0.00 9.41 3.73 0.00 Develop PO77137 2004 CN-4th InlandWaterways 91.00 0.00 0.00 0.00 0.46 88.09 6.38 5.88 PO67337 2003 CN-2ndGEFEnergyConservation 0.00 0.00 0.00 26.00 0.00 14.40 25.17 0.00 PO40599 2003 CN-TIANJINURB DEV I1 150.00 0.00 0.00 0.00 0.00 136.32 14.30 0.00 PO68058 2003 CN-YixingPumpedStorageProject 145.00 0.00 0.00 0.00 0.00 128.07 9.44 0.00 PO70191 2003 CN-SHANGHAIURB ENVMTAPLl 200.00 0.00 0.00 0.00 0.00 172.10 30.17 0.00 PO70441 2003 CN-HubeiXiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 0.00 70.23 -16.44 0.00 PO58847 2003 CN-3rdXinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 66.56 21.56 0.00 PO76714 2003 CN-2ndAnhui Hwy 250.00 0.00 0.00 0.00 0.00 199.05 37.88 0.00 PO60029 2002 CN-GEF-Sustain.ForestryDev 0.00 0.00 0.00 16.00 0.00 10.48 9.93 0.00 PO58846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0.00 0.00 23.79 19.63 0.00 PO64729 2002 CN-SustainableForestry Development 93.90 0.00 0.00 0.00 0.00 52.06 18.06 0.00 PO68049 2002 CN-HubeiHydropowerDev in Poor 105.00 0.00 0.00 0.00 0.00 52.54 23.54 0.00  Areas PO70459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0.00 0.00 52.73 9.73 0.00 PO71147 2002 CN-Tuberculosis ControlProject 104.00 0.00 0.00 0.00 0.00 62.67 22.71 0.00 PO58845 2001 CN-Jiangxi I1Hwy 200.00 0.00 0.00 0.00 54.77 30.05 37.15 0.00 PO47345 2001 CN-HUAIRIVER POLLUTION 105.50 0.00 0.00 0.00 0.00 64.72 61.22 0.00 CONTROL PO45915 2001 CN-Urumqi UrbanTransport 100.00 0.00 0.00 0.00 0.00 34.47 34.47 0.00 PO51859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 0.00 38.00 27.00 0.00 PO56199 2001 CN-3rd Inland Waterways 100.00 0.00 0.00 0.00 0.00 47.66 12.83 0.00 PO56516 2001 CN-Water Conservation 74.00 0.00 0.00 0.00 0.00 16.14 9.05 0.00 PO56596 2001 CN-Shijiazhuang UrbanTransport 100.00 0.00 0.00 0.00 0.00 73.15 67.15 0.00 PO58843 2000 CN-GuangxiHighway 200.00 0.00 0.00 0.00 19.70 25.43 33.47 0.00 PO49436 2000 CN-CHONGQINGURBANENVMT 200.00 0.00 0.00 0.00 3.70 125.07 102.84 0.00 PO58844 2000 3rd HenanProv Hwy 150.00 0.00 0.00 0.00 0.00 26.59 22.92 0.00 PO45910 2000 CN-HEBEIURBANENVIRONMENT 150.00 0.00 0.00 0.00 0.00 70.16 41.16 0.00 PO45264 2000 CN-Smallholder Cattle Development 93.50 0.00 0.00 0.00 0.00 0.10 -0.50 0.00 PO64924 2000 CN-GEF-BEUING ENVMT I1 0.00 0.00 0.00 25.00 0.00 22.35 23.26 14.77 PO64730 2000 CN-Yangtze Dike Strengthening 210.00 0.00 0.00 0.00 0.00 91.99 91.99 18.69 PO56424 2000 CN-TONGBAIPUMPEDSTORA 320.00 0.00 0.00 0.00 LOO.00 56.32 117.32 0.00 PO42109 2000 CN-BEUING ENVIRONMENT I1 349.00 0.00 0.00 25.00 0.00 246.11 211.21 0.00 PO41890 1999 CN-Liaoning UrbanTransport 150.00 0.00 0.00 0.00 0.00 4.11 4.11 -1.01 PO36953 1999 CN-HEALTH IX (ShiyongWang, Back- 10.00 50.00 0.00 0.00 0.40 24.07 22.89 6.77 UP) PO43933 1999 CN-SICHUAN URBANENVMT 150.00 2.00 0.00 0.00 0.00 65.20 55.14 44.06 PO46564 1999 CN - Gansu & Inner MongoliaPoverty 60.00 100.00 0.00 0.00 13.30 8.93 19.79 -12.16 Red. PO46829 1999 CN-RENEWABLE ENERGY 100.00 0.00 0.00 0.00 0.00 2.62 89.62 2.62 DEVELOPMENT PO42299 1999 TEC COOP CREDIT IV 10.00 35.00 0.00 0.00 0.00 28.62 26.77 0.00 PO58308 1999 CN-PENSION REFORM PJT 0.00 5.00 0.00 0.00 0.00 0.43 0.40 0.00 PO57352 1999 CN-RURALWATER N 16.00 30.00 0.00 0.00 0.00 8.82 8.53 8.53 PO38121 1999 CN-GEF-RENEWABLEENERGY 0.00 0.00 0.00 35.00 0.00 18.05 34.58 18.44 DEVELOPMENT PO41268 1999 CN-Nat Hwy4/Hubei-Hunan 350.00 0.00 0.00 0.00 0.00 32.35 32.35 0.00 PO51888 1999 CN - GUANZHONG IRRIGATION 80.00 20.00 0.00 0.00 0.00 10.75 11.12 0.00 PO51856 1999 ACCOUNTING REFORM & 27.40 5.60 0.00 0.00 0.00 13.35 13.23 0.00 DEVELOPMENT PO51705 1999 CN-Fujian 11Highway 200.00 0.00 0.00 0.00 0.00 35.41 35.41 -0.27 PO49665 1999 CN-ANNING VALLEY AG.DEV 90.00 30.00 0.00 0.00 0.00 6.35 7.48 -9.19 PO03539 1998 CN - SUSTAINABLE COASTAL 100.00 0.00 0.00 0.00 2.06 38.36 40.42 7.71 RESOURCESDEV. PO03566 1998 CN-BASIC HEALTH (HLTH8) 0.00 85.00 0.00 0.00 0.00 21.05 18.34 0.00 PO03606 1998 ENERGY CONSERVATION 63.00 0.00 0.00 22.00 0.00 18.21 15.05 0.00 PO03614 1998 CN-GuangzhouCity Transport 200.00 0.00 0.00 0.00 20.00 82.81 102.81 -1.21 PO03619 1998 CN-2ndInlandWaterways 123.00 0.00 0.00 0.00 37.00 7.80 44.80 7.80 PO35698 1998 HUNANPOWER DEVELOP. 300.00 0.00 0.00 0.00 161.90 3.32 165.22 2.88 PO45788 1998 CN-Tri-ProvincialHwy 230.00 0.00 0.00 0.00 0.00 15.14 15.14 0.00 PO36414 1998 CN-GUANGXI URBANENVMT 72.00 20.00 0.00 0.00 13.48 45.49 58.38 3.95 PO51736 1998 E.CHINNJIANGSUPWR 250.00 0.00 0.00 0.00 86.00 21.06 107.06 18.69 PO40185 1998 CN-SHANDONGENVIRONMENT 95.00 0.00 0.00 0.00 1.40 5.17 6.57 -1.84 PO46952 1998 CN - ForestryDevelopment 100.00 100.00 0.00 0.00 0.00 6.42 -92.01 7.99 57  PO44485 1997 SHANGHAIWAIGAOQIAO 400.00 0.00 0.00 0.00 0.00 49.60 49.60 49.45 PO03637 1997 CN-NATL RURALWATER 3 0.00 70.00 0.00 0.00 0.00 0.41 3.62 3.20 PO03650 1997 TUOKETUO POWERIINNER 400.00 0.00 0.00 0.00 102.50 10.79 113.29 10.79 PO36405 1997 CN - WANJIAZHAI WATER TRA 400.00 0.00 0.00 0.00 75.00 10.49 85.49 10.49 PO03594 1996 CN - GANSU HEX1CORRIDOR 60.00 90.00 0.00 0.00 0.00 53.25 52.43 -2.38 PO34618 1996 CN-LABOR MARKET DEV. 10.00 20.00 0.00 0.00 0.00 1.58 3.68 0.00 PO03639 1995 CN-SOUTHWESTPOVERTY 47.50 200.00 0.00 0.00 0.01 0.15 24.21 24.21 REDUCTIONPROJECT Total: 10,682.07 862.60 0.00 244.72 695.32 5,010.64 2,587.24 236.56 CHINA STATEMENT OF IFC's Held andDisbursedPortfolio InMillions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2003 Anjia 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 2005 BCCB 0.00 57.87 0.00 0.00 0.00 0.00 0.00 0.00 2003 BCIB 0.00 0.00 11.60 0.00 0.00 0.00 0.00 0.00 2005 Babei 11.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1999/00/02 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2005 BioChina 0.00 3.00 0.00 0.00 0.00 0.03 0.00 0.00 2002 CDH China Fund 0.00 4.95 0.00 0.00 0.00 0.00 0.00 0.00 2005 CDH China I1 0.00 18.00 0.00 0.00 0.00 1.63 0.00 0.00 2003 CSMC 0.00 7.86 0.00 0.00 0.00 7.86 0.00 0.00 2005 CT Holdings 0.00 0.00 40.00 0.00 0.00 0.00 0.00 0.00 2004 CUNA Mutual 0.00 11.47 0.00 0.00 0.00 0.94 0.00 0.00 2005 ChangyuGroup 0.00 17.64 0.00 0.00 0.00 0.00 0.00 0.00 1998 Chengdu Huarong 4.48 3.20 0.00 4.69 4.48 3.20 0.00 4.69 1992 China Bicycles 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 2004 China Green Ener 20.00 0.00 0.00 0.00 11.50 0.00 0.00 0.00 2004 China I1 28.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 ChinaRe Life 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 1994 ChinaWalden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2004 Colony China 0.00 16.07 0.00 0.00 0.00 4.60 0.00 0.00 2004 Colony China GP 0.00 0.84 0.00 0.00 0.00 0.22 0.00 0.00 2002 Darong 10.00 1.so 0.00 8.00 6.67 1.so 0.00 5.33 1994 Dynamic Fund 0.00 5.64 0.00 0.00 0.00 3.99 0.00 0.00 2005 FangXin SHMT 7.20 0.00 0.00 4.80 7.20 0.00 0.00 1.42 2005 FangXin Limited 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 2005 FangXin SHDX 1.80 0.00 0.00 1.20 0.60 0.00 0.00 0.12 2005 FangXin SZFX 1.20 0.00 0.00 0.80 1.20 0.00 0.00 0.24 2004 Fenglin 19.00 0.00 6.00 14.00 12.45 0.00 6.00 11.62 58  200s Five Star 0.00 0.00 7.00 0.00 0.00 0.00 0.00 0.00 2003 Great Infotech 0.00 2.01 0.00 0.00 0.00 1.31 0.00 0.00 2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2002 HuarongAMC 9.00 2.51 0.00 0.00 9.00 0.49 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2004 JiangxiChenming 60.00 12.90 0.00 0.00 40.00 12.90 0.00 0.00 1998 LeshanScana 2.92 0.00 0.00 0.00 2.92 0.00 0.00 0.00 2001/05 MaanshanCarbon 11.oo 1.oo 0.00 0.00 5.oo 0.00 0.00 0.00 200s Minsheng 15.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001/05 Minsheng Bank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 2001 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996104 Nanjing Kumho 34.00 2.23 0.00 0.00 34.00 2.23 0.00 0.00 2001 New China Life 0.00 13.21 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 199s Newbridge Inv. 0.00 0.22 0.00 0.00 0.00 0.22 0.00 0.00 200s North Andre 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 Orient Finance 0.00 0.00 3.81 4.76 0.00 0.00 3.81 4.76 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 RAK China 13.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2000 SEAF SSIF 0.00 3.89 0.00 0.00 0.00 1.23 0.00 0.00 2004 SHC 40.00 0.00 0.00 30.00 30.86 0.00 0.00 23.14 2004 SIBFI 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 1998 Shanghai Krupp 22.75 0.00 0.00 47.24 22.75 0.00 0.00 47.24 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 2002 SinoGold 0.00 3.54 0.00 0.00 0.00 3.54 0.00 0.00 1995 SuzhouPVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 Wanjie High-Tech 12.19 0.00 0.00 0.00 12.19 0.00 0.00 0.00 2004 Wumart 0.00 3.90 0.00 0.00 0.00 3.90 0.00 0.00 2003 XACB 0.00 19.94 0.00 0.00 0.00 3.25 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 1993 Yantai Cement 1.53 0.00 0.00 0.00 1.53 0.00 0.00 0.00 2003 Zhengye-ADC 15.00 0.00 0.00 7.00 11.59 0.00 0.00 5.41 2002 ZhongChen 0.00 5.00 0.00 0.00 0.00 5.oo 0.00 0.00 Total portfolio: 408.93 365.39 113.41 122.49 268.05 207.81 9.81 103.97 59  Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2005 Babei Silk Tie 0.00 0.00 0.00 0.01 2004 CCB-MS NPL 0.00 0.00 0.00 0.00 2004 ChenmingLWC 0.00 0.00 0.00 0.16 2004 China Green 0.00 0.00 0.01 0.00 2002 HuarongAMC 0.02 0.00 0.00 0.00 2002 IEC 0.00 0.00 0.01 0.00 2005 MSShipping 0.00 0.01 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 2004 SIBFI 0.00 0.00 0.00 0.00 2002 SML 0.00 0.00 0.00 0.00 2002 SinoMining 0.01 0.00 0.00 0.01 2005 Vetroarredo 0.01 0.00 0.00 0.00 2002 Zhong Chen 0.00 0.00 0.00 0.03 Total pendingcommitment: 0.04 0.02 0.04 0.21 60  Annex 14: Country at a Glance CHINA: EconomicReformImplementationProject East Lowar- POVERTY and SOCIAL Asia & mlddle- C hlna Pactflc Income 1Development dlamond' 2004 Population,mid-year(millions) 1396.5 1,870 2,430 GNI percapita (Atlas method, US$) 1290 1280 1,580 Life expectancy T GNI (Atlas method, US$ billiOnS) 1,672.5 2,389 3,847 Average annual growth, 1998-04 Population (77) 0.7 0.9 1.0 Laborforce (?A) 0.8 1.1 0.7 GNI Gross per --- primary M o s t recent estimate (latest year avallable, 1998-04) capita enrollment poverty (%of population belownationalpovertyline) 5 Urbanpopulation (%of totalpopulation) 40 41 49 Life expectancyat birth (years) I 71 70 70 Infantmortality(per lOoOllve births) 30 32 33 Childmalnutrition(%ofchildren under5) 13 15 n Access to improvedwater source Access to an improvedwatersource (%ofpopulation) 77 78 81 Literacy(%ofpopulation age E+) 91 90 90 Gross primaryenrollment (%of school-age population) 115 1u 114 s--**--s China Male 115 1t3 115 Lo wr-middle-incomegroup Female 115 1E 1t3 KEY ECONOMIC RATIOS and LONG-TERM TRENDS II 1984 1994 2003 2004 Economic ratios' GDP (US$ billions) 256.1 542.5 1,418.3 1,653.8 Gross capital formatIorVGDP 34.4 412 43.8 452 Exports of goods andservicesiGDP 11.3 25.3 34.2 39.7 Trade Gross domestic savings/GDP 34.5 42.7 42.5 44.9 Gross national savingsiGDP 35.3 42.7 43.2 46.1 Current account balancelGDP 0.7 19 3.2 4 2 Interestpaynents/GDP 0.4 0.9 0.5 0.4 Total dabtiGDP 4.7 t8.5 `3.6 13.7 Total debt service/exports 7.3 7.7 7.2 3.6 Present value of debt/GDP w.3 Present value of debtieports 36.4 Indebtedness 1984-94 1994-04 2003 2004 2004-08 (average annualgrowth) GDP 9.4 8.3 9.3 9.5 8.O *v--_ China , GDP DercaDita 7.9 7.4 8.6 8.9 7.3 LOwr-middle-incomeo r o u ~ STRUCTURE of the ECONOMY Fbevs lga4 2003 lgg4 2004 I%ofGDP) IGrowth of capltal and GDP (%) I Agriculture 320 202 146 Industry 433 478 Manufacturing 355 344 522 367 z: 373 o""o--"o Services 247 319 332 319 *%*1_ Householdfinal consumption expenditure 512 445 449 General gov t final consumption expenditure 142 E8 P 6 E O Imports of goods andservices 114 234 317 367 mh *GCF -GDP 1984-94 1gg4-04 2003 (average annualgroluth) Growth of exports and imports (Oh) Agriculture 4.0 3.3 2.5 6.3 40i Industry E 3 100 P 7 Manufacturing 117 101 149 Services 98 82 7 3 Householdfinal consumption expenditure 8 1 79 6 1 7 9 Generalgov't final consumptlon evendlture 94 8 6 4 8 6 8 99 00 01 02 03 04 Gross capital formation 9 1 9 5 189 DO ----Exports -Inports lmports of goods andservices 99 155 248 225 61  China PRICES and GOVERNMENT FINANCE 1984 1994 2003 2004 D o m e s t i c prices (%change) Consumer prices 8.3 24.1 1.2 3.9 Implicit GDP deflator 4.9 19.9 2.1 6.5 Government finance (%of GDP,includes current grants) Current revenue 22.9 11.9 18.7 8.4 Current budget balance 1.0 1.3 1.9 Overall sumlusideficlt -0.8 -1.2 -2.8 -1.7 T R A D E 1984 1994 2003 2004 (US$ millions) Export and Import levels (USS mill.) Total exports (fob) 26,139 P1,006 438,228 593,369 Food 3,232 10,015 7533 18,870 Fuel 6,027 4,069 11,110 14,476 800 000 Manufactures 14,205 101,298 403,560 552,818 Total imports (cif) 27,410 15,614 4T?,760 561,423 400 000 Food 2,331 3,07 5,959 9,156 Fuel and energy 139 4,035 29,214 48,003 200 000 Capital goods 7,245 51,467 192,869 252,624 0 Eqort price index (2000=00) 50 103 96 102 98 99 00 01 02 03 04 Import price index (2000=00) 74 98 102 1P I oExports n Inports Terms of trade (2OOO=WO) 68 n 7 95 91 BALANCE of P A Y M E N T S 1984 1994 2003 2004 (US5 millions) Exports of goods and services 29,039 07,378 485,003 655,827 Imports of goods and services 29,183 127210 448,924 606,543 Resource balance -144 n,88 36,079 49,284 Net income 1,534 -1,036 -7,838 -3,523 Net current transfers 442 1,337 7,634 22,898 Current account balance 1,832 10,469 45,875 68,659 Financing items (net) -2,363 20,058 71.148 '07,705 Changes in net reserves 531 -30,527 -17,023 406,364 1 98 99 00 01 02 03 04 1 Memo: Reserves including gold (US$ millions) 57,770 473208 622,945 Conversion rate (G'EC,locaVUS5) 2.8 8.6 8.3 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2003 2004 (US$ millions) Total debt outstanding anddisbursed T?,O82 100,457 193,567 77,709 IBRD 73 5,933 10,657 11,035 A 11,035 IDA 181 6,097 10,314 10,670 Total debt service 2285 11,05 37,073 24,498 IBRD 6 679 2,690 1,P4 IDA 4 50 219 262 G 72967 Compositionof net resourceflows Official grants 1P 337 Official creditors 831 3,17 -3,092 -2,485 Private creditors 240 6,691 -1,778 -0,373 Foreign direct investment (net inflows) 1,419 33,787 55,507 60,906 Portfolio equity(net inflows) 0 3,915 7,729 10,923 I World Bank program Commitments 959 4,035 1250 1250 -- IBRD ~ A E - Bilateral Disbursements 8 7 2,080 1,615 1,246 6 IDA D- Mher mltilaiera. F. Privaie Principal repayments 0 323 2,459 999 C - I M F G Start-term - 62  MAP SECTION   80