Do The Worl FOR OFFCI Report N. 9945 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK (LOANS 2226, 2434, 2659-CHA AND CREDITS 1313, 1491, 1663-C:-A) OCTOBER 3, 1991 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit - yuan (Y) (annual averages) 1978 US$1 - Y 1.6836 1979 US$1 - Y 1.5550 1980 US$1 - Y 1.4984 1981 US$1 - Y 1.7045 1982 US$1 - Y 1.8925 1983 US$1 - Y 1.9757 1984 US$1 - Y 2.3200 1985 US$1 - Y 2.9367 1986 US$1 - Y 3.4528 1987 US$1 - Y 3.7221 1988 US$1 = Y 3.7221 1989 US$1 - Y 3.7651 1990 US$1 - Y 4.7832 ACRONYMS ABC - Agricultural Bank of China ADB - Asian Development Bank CIB - China Investment Bank DFC - Development Finance Company ERR - Economic Rate of Return FRR - Financial Rate of Return GOC - Government of China ICBC - Industrial and Commercial Bank of China MOF - Ministry of Finance NBFI - Non-Bank Financial Institution PBC - People's Bank of China (central bank) PCBC - People's Construction Bank of China PCR - Project Completion Report PPAR - Project Performance Audit Report PRC - People's Republic of China SAR - Staff Appraisal Report SPC - State Planning Commission FISCAL YEAR Government of China and CIB: January 1 to December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Offioo of Director-General Operations t' luation October 3, 1991 1MORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on China - China Investment Bank (Loans 2226, 2434, 2659-CRA and Credits 1313, 1491, 1663-CHA) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on China - China Investment Bank (Loans 2226, 2434, 2659-CHA and Credits 1313, 1491, 1663-CHA)" prepared by the Operations Evaluation Department. Attachment This docmuaut has a ustricted distibtion and may be use by wedpients onl la the pertlornance of their oftial datb&s its contents maW not otherwise be disclose without World Bank setherlandonM FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPURT CH "'J4INA INVESTENT BANK (LOANS 2226, 2434, 2659-CHA AND CREDITS 1313, 1491, 1663-CHA) TABLE OF CONTENIS Pae No. PREFACE. . . . . BASIC DATA SHEET.............. ........ . . iii EVALUATION SUMMARY........ ............ . v I. BACKGROUND. . .... ............ . . . . . 1 A. Introduction. . ............. . . . . . 1 B. The Macroeconomic Backaround......... . . . . . 1 C. The Industrial Sector. . ........... . . 3 D. The Financial Sector. . ............ . . 4 Interest Rates. . .......... . . . . . . . 6 Bank Taxation. . .............. . . 7 Foreign Exchange. .......... . . . . . . . . 7 Additional Reform Requirements.... . . . . . 7 E. Project Objectives . . . . . . . . . . . . . . . . . . 8 CIB I . . . . . . . . . . . . . . . . . . . . . . . 8 CIB II . . . . . . . . . . . . . . . . . . . . . . . 8 CIB III . . . . . . . . . . . . . . . . . . . . . . 8 F. Proiect Concept and Design. . .......... . . 8 CIB I.. .... ............ . . 8 CIB II. . ............... . . . ..10 CIB III. . ............... . . . .11 II. PROGRESS IN MEETING OBJECTIVES .......... . . ..11 A. CIB's Role . . . . . . . . . . . . . . . . . . . . . . 11 Appraisal Methodology . . . . . . . . . . . . . . . 11 Design of Projects . . . . . . . . . . . . . . . . . 12 Channel for Bank Group Funds . . . . . . . . . . . . 12 B. CIB's Autonomy....13 Project Selection. . ........... . . ..13 Management. . .............. . . . ..13 Branches.. ............ . . . . . . .14 C. Financing Industrial Projects . . . . . . . . . . . . 14 Foreign Technology Transfer . . . . . . . . . . . . 15 D. Training. .... ............ . . . ..16 This document has a restricted distribution and may be used by recipients ordy in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (cont'd.) Page No. III. OPERATIONAL AND FINANCIAL PERFORMANCE . . . . . . . . . . 16 A. Operations . . . . . . . . . . . 16 Appraisals . . . . . . . . . 17 Superv4sion . . . . . . . . . . . . . . . . . . . 17 Ex Post Evaluation . . . . . . . . . . . . . . . . . 18 Diversification of Activities . . . . . . . . . . . 18 B. Financial Position . . . . . . . . . . . . . . . . . . 18 Foreign Exchange Risk*.............. 19 Resources . . . . . . . . . . . . . . . . . . . . . 20 C. Loan Portfolio . . . . . . . . . . . . . . . . . . . . 21 Provision for Loan Loss........ . 23 D. Staffing . ....................... 23 E. Branches. . ........... . . . . . . . . . 24 IV. FINDINGS AND ISSUES. . ............ . . . . 24 A. Bank Performance......... . . . . . . . . . . .24 B. Overall Assessment ............ . . . .25 C. Sustainability . ........ . . . . . . 25 D. Lessone of Experience . . . . . . . . . . . . . . . . 26 Continuity of Bank Support . . . . . . . . . . . . . 26 Resource Diversification . . . . . . . . . . . . . . 26 Bank Supervision . . . . . . . . . . . . . . . . . . 26 Supervision by the DFC . . . . . . . . . . . . . . . 26 Local Commitment . . . . . . . . . . . . . . . . . . 26 The "Classic" DFC Model . . . . . . . . . . . . 26 ANNEXES 1. China: Selected Growth Rates, 1979-89 . . . . . . . . . . 27 2. China: Fixed Asset Lending by PCBC, ICBC, ABC and CIB . . 28 3. China: Structure of the Financial System, 1988 . . . . . 29 4. China: Interest Rates . . . . . . . . .*. . . . 30 5. CIB I - III: Geographical Distribution of Subprojects . . 31 6. CIB I - III: Sectoral Distribution of Subprojects . . . . 32 7. CIB I - III: Subproject Profile . . . . . . . . . . . . . 33 8. CIB I: Data from a Sample of Subprojects . . . . . . 34 9. CIB Ili Data from a Sample of Subprojects . .. 35 10. CIB lIII Data from a Sample of Subprojects . . . . 36 11. CIB I - III: Arrears Situation as of June 30, 1990 . . . 37 12. CIBs Staff Receiving Training, 1983-90 . . . . . . . . . 38 13. CIBt Operations, 1983-90 . . . . . . . . . . . . . . . . 39 TABLE OF CONTENTS (cont'd.) Page No. ANNEXES (cont'd.) 14. CIB: Balance Sheets, 1983-90 . . . . . . . . . . . . . . 40 15. CIB: Income Statements, 1983-90 . . . . . . . . . . . . . 41 16. CIB: Source and Use of Funds Statements, 1983-90 . . . . 42 17. CIB: Financial Ratios, 1984-90 . . . . . . . . . . . . . 43 18. CIB: Resource Mobilization, 1983-89 . . . . . . . . . . . 44 19. CIB: Companies in Arrears, 1986-90 . . . . . . . . . . 45 20. CIB: Age of Arrears, 1986-90 . . . . . . . . . . . . . . 46 21. CIB: Arrears Analysis, 1986-90 . . . . . . . . . . . . 47 22. CIB: Staff Movements, 1982-90 . . . . . . . . . . . . . . 48 23. CIB: Staff Deployment - June 30, 1990 . . . . . . . . . . 49 PROJECT COMPLETION REPORT PART I: REVIEW FROM THE BANK'S PERSPECTIVE . . . . o . . . . . . 53 1. Project Identity . . . . . . . . . . . . . . . . . . . . 53 2. Background . . . . . . . . . . . . . . . . . . . . . . . 53 3. Project Objectives and Description . . . . . . . . . . . 54 4. Project Design and Organization . . . . . . . . . . . . . 55 5. Project Implementation . . . . . . . . . . . . . . . . . 55 6. Project Results . . . . . . . . . . . . ..........55 Development of Institutional Capacity . . . . . . 57 Financial/Operations Results of CIB . . . . . . . . . . 58 Loan Utilization and Subproject Implementation . . . . 60 7. Project Sustainability . . . . . . . . . . . . . . . . . 66 8. Bank Performance .. . . . . . . . . . . . . . . . . . . 68 9. Borrower Performarce . . . . . . . . . . . . . . . . . . 69 10. Project Documentation and Data . . . . . . . . . . . . . 69 PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE . . . . 70 I. Background and Objectives of the Projects . . . . . . . . 70 II. Basic Information of Sub-projects........ . . . . . 72 III. Performance of the Sub-projects . . . . . . . . . . . .75 IV. Operational/Financial Status . . . . . . . . . . . . . . 87 V. Organization and Staff Training .... . . . . . . . . 89 PART II ANNEXES: 1-1: Distribution of CIB II . . . . . . . . . . . . . . . . . 91 1-2: Distribution of CIB III . . . . . . . . . . . . . . . . . 95 2-1: Disbursement of CIB II . . . . . . . . . . . . . . . . . 98 2-2: Disbursement of CIB III . . . . . . . . . . . . . * * * * 99 3 : Estimated and Actual Lending Operation (1984-1989) . . . 100 4 : Balance Sheet of CIB (1983-1989).... . . . . . . . . 101 5 : Income Statement of CIB (1983-89) . . . . . . . . . 103 6 : Staffing and Organization Chart . . . . . . . . . .105 7-1: Breakdown of CIB Pr.fessional Staff . . . . . . . . . . . 107 7-2: The Flow of ClB Staff .ot. . . . .. . . . . .. 108 TALE OF CONTENTS (cont'd.) Page No. PART III: STATISTICAL INORMATION . . . . . . . . . . . . . . . 109 1. Bank Loans and/or Credits to CIB . . . . . . . . . . . 109 2. Project Timetable . . . . . . . . . . . . ..... . . .111 3. Loan Disbursements...... . . . . . . . . . . . . . .111 4. Project Costs and Financing. ......... . . . . . . 112 5. Statu of Covenants . . . . . . . . . . . .... . . . .112 6. Use of Bank Resources..... . . . . . . . . . . . . . 113 APPENDICES 1. CIB Organization Chart. . ............ . .. 115 2. Comparative Finance Statements. ......... . . . .117 3. List of Subprojects under CIB II and III..... . . . .119 ATTACHMENT Comments Received from CIB . . . . . . . . . . 123 PROJECT PERFORMANKE AUDIT REPORT CHINA CHINA INVESTMENT BANK (LOANS 2226, 2434, 2659-CHA AND CREDITS 1313, 1491, 1663-CHA) PREFACE This is a Project Performance Audit Report (PPAR) on the First, Second and Third Industrial Credit Projects in China. The First (CIB I) involved an IBRD Loan in the amount of US$40.6 million and an IDA Credit in the amount of SDR28.0 million. It was approved on December 21, 1982 and became effective on April 5, 1983. The Closing Date of December 31, 1987 was extended to December 31, 1988. The entire loan and credit were disbursed, with the final disbursement made on June 20, 1989. The Second (CIB TI) involved an IBRD Loan in the amount of US$105.0 million and an IDA Credit in the amount of SDR65.8 million. It was approved on June 5, 1984 and became effective on October 9, 1984. The Closing Date of June 30, 1989 was extended to June 30, 1990. The entire loan and credit were disbursed, with the final disbursement made on December 7, 1990. The Third (CIB III) involved an IBRD Loan in the amount of US$75.0 million and an IDA Credit in the amount of SDR22.8 million. It was approved on March 4, 1986 and became effective on July 3, 1986. The Closing Date of June 30, 1990 was extended to June 30, 1991. The entire credit was disbursed; the final disbursement of the loan is still to be made. All three loans/credits were made to the People's Republic of China and on lent to the China Investment Bank (CIB). The PPAR is based on the Project Completion Report (PCR) on CIB I prepared by the Asia Regional Office (Parts I and III) and CIB (Part II) and issued in 19901, the PCR on CIB II and CIB III prepared by the Asia Regional Office (Parts I and III) and CIB (Part II) and attached hereto, the Staff Appraisal and the President's Reports, the loan and credit documents, the summaries of the Executive Directors' meetings at which the projects were considered, a study of related project and other reports, a review of material in the project files and discussions with Bank staff. An OED mission visited China in October 1990 and discussed the effectiveness of the Bank's assistance with CIB and the Government. Their kind cooperation and valuable assistance in the preparation of this report is gratefully acknowledged. The two PCRs provide a good account and assessment of the project experience, and discuss the performance of CIB and the Bank. The PPAR 'Project Completion Report, China - First Industrial Credit Project (CIB I) (Loan 2226-CHA and Credit 1313-CHA), Report No. 8780 dated June 21, 1990. - it - elaborates on particular aspects such as the economic backgiround and -Itting for the projects, their concept and design, CIB's financial situation inc,iuding the emerging loan arrearages, CIB's resource mobilization efforts and the question of its autonomy. The draft PPAR was sent to the Borrower for comments. The comments received from CIB are reproduced as an Attachment to the PPAR. - iii - PROJECT PERFORMANCE AUDIT REPORT CHINA FIRST INDUSTRIAL. CREDIT PROJECT (CIB I) (LOAN 2226-CHA AND CREDIT 1313-CHA) BASIC DATA SHEET LOAN/CREDIT POSITION (Amounts in US$ Million) As of July 31, 1991 Original Disbursed Cancelled Repaid Outstanding Loan 2226 40.60 40.60 0.00 9.49 31.11 Credit 1313 30.00 30.94 a/ 0.00 0.00 37.34 a/ CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS FY83 FY84 FY85 FY86 FY87 FY88 FY89 Appraisal Estimate (US$M) 1.6 20.6 50.6 65.6 70.6 70.6 70.6 Actual (US$W) 0.6 4.4 21.9 47.0 63.1 66.8 70.6 Actual as ? of Appraisal (2) 37.5 21.4 43.3 71.6 89.4 94.6 100.0 Date of Final Disbursement: June 20, 1989 PROJECT DATES Original Actual Appraiv..- n.a. 03/82 Negotiations n.a. .10/82 Board Approval n.a. 12/21/82 Signing n.a. 12/28/82 Effectiveness 03/28/83 04/05/83 Commitment Deadline 03/31/85 03/31/85 Loan Closing 12/31/87 12/31/88 STAFF INPUTS (staffweeks) FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY8 FY90 TOTAL Preappraisal 49.9 - - - - - - - - 49.9 Appraisal 71.3 7.2 - - - - - - - 78.5 Negotiations - 25.8 - - - - - - - 25.8 Supervision - 33.4 31.3 33.7 7.0 0.7 0.3 4.1 1.0 111.5 Other 13.5 10.4 - - - - - - - 23.9 Total 134.7 76.8 31.3 33.7 7.0 0.7 0.3 4.1 1.0 289.6 - iv - MISSION DATA No. of No. of Staff Date of Month/Year Weeks Persons Weeks Report Preparation 09/81 3 4 12 10/28/81 Preappraisal 11/81 12 4 48 h/ 12/09/81 Appraisal 03/82 3 9 27 11/23/82 Pre-Negotiation 09/82 3 2 6 10/12/82 Supervision I 03/83 2 8 16 04/06/83 Supervision II 07/83 4 4 16 08/29/83 Supervision III 06/84 2 4 8 08/10/84 Supervision IV 02/85 3 3 9 C/ 03/04/85 Completion 02/89 3 3 9 d/ 06/21/90 OTHER PROJECT DATA Borrower: People's Republic of Cbina Executing Agency: China Investment Bank Follow-on Prolect: Project: Second Industria' Credit Project (CIB II) Loan/Credit No.: 2434/1491-CHA .-ount: US$175 million equivalent Board Date: June 5, 1984 S/ The credit was fully disbursed. Disbursed and outstanding totals differ from the original amount of the credit in terms of US$ because of changes in the US$/SDR exchange rate. b/ This included an Industrial Sector Mission. c/ This was combined with the supervision of CIB II. After this mission supervision of CIB I was combined and included in missions covering other projects. 4/ This was combined with the appraisal of CIB V. Basic Data on CIB II and CIB III are contained in the attached PCR, Part III. - v - PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK (LOANS 2226, 2434, 2659-CHA AND CREDITS 1313, 1491, 1663-CHA) EVALUATION SUMMARY Introduction assist in developing CIB as an autonomous and efficient fi- 1. These projects were the first nancial intermediary in indus- three, of five so far, with the China trial f.'.nance (1.272). Investment Bank (CIB), a development finance company (DFC)' established 4. In an effort to improve ap- with Bank assistance in 1981 to help praisal methodology, the Government meet China's new industrial priori- selected CIB to be a pilot institu- ties. A DFC focussed, at least ini- tion to introduce better, more com- tially, on the modernization and/or prehensive and systematic approaches. expansion of existing small- and These included a broader economic and medium-sized, light industrial enter- sector perspective and the introduc- prises fitted in well with the tion of cost/benefit analysis based Government'sreadjustment strategies. on shadow prices. CIB, with Bank These were to increase production help, drafted a Project Appraisal quantity and quality with the minimal Manual, the first such in China investment necessary, and to correct (1.35). the imbalance between heavy and light industry. Implementation ExRerience 2. All three projects involved both 5. Project implementation proceeded a Bank loan and an IDA credit. The smoothly, significantly aided by total amount of Bank Group lending unusually frequent and intense Brk involved was US$345.6 million equiva- supervision. The review by Bank lent. The first project was approved missions of early CIB subproject in December 1982; the second, in June appraisals in particular was very 1984; and the third, in March 1986. helpful to CIB in improving its ap- No funds were canceled. praisal work (4.03). The three projects provided financial assis- Obiectives tance to almost 300 enterprises (2.15). In all cases, new foreign 3. The objectives of CIB II and III technology was successfully trans- were similar to those of CIB I: ferred to the enterprises (2.20). o help meet the need for foreign 6. CIB played only a limited role exchange financing; in the early stages of project design due to the nature of the project o improve CIB's ability to de- cycle in China. However, CIB is sign, select and appraise beginning to inject itself earlier in projects and to transfer for- the project cycle, and its influence eign technology to them; on project design should increase (2.03-2.04). - vi - 7. CIB can only lend to projects cease jupporting it, there is a real which have been approved by the plan- question as to whether it would be ning authorities. Thus, its indepen- allowed to survive, whether it would dence in selecting projects is some- st,.11 be considered to have a useful what circumscribed. However, it can ro.e if it no longer received Bank and does reject unsound projects funds (4.06-4.08). (2.08-2.11). Findings and Lessons 8. How much autonomy CIB has de- pends on one's perspective. In the 12. The experience with these Chinese context, CIB is extremely projects leads to a number of obser- independent. From the Bank's point- vations of general applicability of-view, complete autonomy is lacking (4.10-4.17). in several areas (2.07). 0 Continuity .3f Bank Support. A Results major underlying factor in CIB's success has been the 9. All three projects achieved sustained and visible support, their main objectives and the results technical as well as finan- can be considered highly satisfac- cial, which the Bank has pro- tory. This is as much a result of the vided through a series of five commitment and dedication of the projects. Chinese as it is of the Bank's ef- forts (4.05). CIB's Project Apprais- 0 Resource Diversification. A al Manual, now in its second revi- danger, though, with such a sion, has had a major impact all over visible series of Bank China, and is being used by many projects is that the institu- other financial institutions and tion will become too closely planning authorities as well as con- associated with the Bank. To sulting firms (2.01). prevent this, it is important that the institution diversi- 10. CIB's financial position is fies its sources of foreign reasonably sound (3.13), although exchange as soon as possible. some arrears have begun to appear (3.26-3.31). CIB started to diver- 0 Bank Supervision. The great sify its sources of foreign exchange importance of continued Bank only in 1986, but had made good supervision to the sound es- progress before the June 1989 inci- tablishment and growth of a dent (3.18-3.24). new institution is amply demonstrated here. This re- fers to properly planned and Sustainability staffed field missions as well as to thoughtful desk work. 11. CIB is now a well established and competently staffed institution, 0 Supervision by the DFC. enjoying a good reputation. It Supervision is a particularly therefore should be able to sustain weak point with many DFCs, itself and the benefits to the especially newer ones where economy which it provides. However, the early focus is on estab- its future may still be at risk. In lishing sound appraisal stan- part this is because of its close dards and procedures. The association with the Bank, and the Bank needs to constantly re- feeling prevalent in many Chinese mind DFCs of the importance of quarters that it is only a channel this aspect of their work. for Bank funds. Were the Bank to - vii - " Local Commitment. Commitment by the DFC to the velidity and practicality of the Bank's project appraisal methodology is necessary for it to be ac- cepted and promulgated. o The "Classic" DFC Model. The experience in China indicates that there are still occasions when the "clessic" DFC model is appropriate for the circum- stances. 1. CIB would prefer the term "specialized banking institution;" see Attach- ment. 2. References are to PPAR paragraphs. PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK (LOANS 2226, 2434, 2659-CHA AND CREDITS 1313, 1491, 1663-CHA) I. BACKGROUND A. Introduction 1.01 This Project Performance Audit Report (PPAR) discusses the Bank'sl/ experience with the first, second and third industrial credit projects involving the China Investment Bank (CIB). The first project (referred to as CIB I) was the subject of a Project Completion Report (PCR) which was distributed to the Executive Directors in 1990.1i The PCR covering the second and third projects (CIB II and CIB III) is attached to this PPAR. 1.02 CIB was established with Bank assistance in 1981 under the aegis of both the Ministry of Finance and the People's Construction Bank of China, and began operations in 1982. Its creation grew out of China's new industrial priorities, discussed in the following sections, and the desire to help improve investment efficiency in China's industrial sector. B. The Macroeconomic Background 1.03 The macroeconomic setting for Bank lending to CIB and the implementa- tion of the projects financed spans most of the decade of the 1980s. At the time that the first industrial credit project was approved in December 1982, China had only recently initiated a program of reform and adjustment to improve the overall efficiency of the economy. In the pre-reform era, although respectable growth rates had been achieved, they came at a high cost in terms of investment and labor inputs. Investment was largely dictated by mandatory plan targets and administrative direction spared no effort to maximize capital accumulation. The planned economy provided the basic necessities, but gave low priority to the widening of consumption opportunities, and the complexities of economic and bureaucratic control restrained initiative and interfered with the efficient use of resources. Inward orientation, neglect of industrial research, and preoccupation with production levels caused technology to fall far behind modern innovations. 1.04 Over the decade, the economy underwent major reforms aimed at administrative decentralization, greater efficiency and rapid modernization, with increasingly autonomous producers becoming more responsive in their investments and output levels to price signals emanating from competitive markets. The moves from a system of central planning to a selectively market oriented economy, while retaining vestiges of socialism, represent a systematic si In what follows, the Bank and IDA are referred to collectively as the Bank, and Bank loans and IDA credits as loans. Each of the three industrial credit projects under review involved both a Bank loan and an IDA credit. t Project Completion Report, China - First Industrial Credit Project (CIB I) (Loan 2226-CHA and Credit 1313-CHA), Report No. 8780 dated June 21, 1990. - 2 - attempt to remove fundamental weaknesses in a series of reforms, the active pursuit of which began in 1979 on a modest scale with a gradual reform of the pattern of collective agriculture heralding its incipient dissolution. This measure generated an average 8% annual agricultural growth rate, the reap- pearance of local markets, increases in rural purchasing pcwer and some rural diversification into light manufacturing, setting the stage for subsequent industrial reforms. These results, coupled with some successful experimenta- tion with enterprise responsibility, led to further reforms in 1984 designed to add greater impetus to the effort. One series of measures aimed at reducing the role of mandatory planning, correcting major rrice distortions and enhancing the role of markets. Another set aimed at changing the incentive structure and enlarging further the scope for managerial freedom at the enterprise level, expanding consumption possibilities to restore incentives eroded by years of austerity, multiplying trade links and establishing contacts and relationships through which foreign technologies could be acquired. 1.05 As a result of these reforms, enterprises, both agricultural and industrial, now have greater freedom to determine the composition of output and to retain profits. More authority has been given to provincial and local bodies to plan and manage local economic activity. This new freedom has led to some renewal of regional protectionism, which is having adverse consequences on the quality and efficiency of industrial productivity, but even so, the number of commodities and the volume of production subject to mandatory plan targets and distributed through state controlled channels have been signifi- cantly reduced. Forms of ownership other than public ownership have been permitted and the importance of the financial sector has been reinforced. Rapidly expanding external trade has assisted in opening up the economy and contributed to an increased readiness to seek foreign investment in a range of manufacturing and service industries, leading to the accumulation of a large amount of foreign capital. . 1.06 With the acceleration provided by these processes of decentralization - and liberalization, the economy, overall, has responded positively. Over the decade, GDP growth rate averaged 9.5% per annum, investment was high and matched by a strong savings performance which limited the need for external borrowing. Industrial modernization increased competitiveness in foreign markets, merchandise exports almost trebled in value and China's share of international trade grew from 0.97% to 1.7%. Absolute poverty receded and the average income of the 800 million rural population more than doubled. The growth rates of selected indicators are presented in Annex 1. 1.07 The attempt to transform so complex an economy in a relatively short space of time inevitably resulted in macroeconomic and institutional imbalances and, during this period, disequilibria emerged of increasing severity. The limits of the productive capacity of the economy were soon under pressure as demand increased rapidly. By late 1988, inflation had reached an annualized rate of 26%, at which time stabilization measures had to be introduced and further price liberalization measures had to be postponed. State investment was curtailed, a contractionary monetary policy was imposed and direct controls on pricing and marketing were made more stringent. These measures were effective in reducing the rate of inflation substantially to less than 1% in the first quarter of 1990, in limiting wage increases and, at least for a time, in lessening cost push pressures. Curbs on imports of consumer goods helped to reverse the trade imbalance. 1.08 The June 1989 incident led to some adverse economic developments; there was a partial withdrawal of investors from OECD countries, a fall in receipts from tourism and greatly reduced access to the international capital market. Growth slowed, trade and current deficits were smaller, and unemploy- ment increased. However, there are positive signs that these developments were temporary in nature, and already there is renewed interest by foreign investors, tourism is regenerating and industrial activity is on the rebound. The European Economic Community has recently lifted the sanctions it imposed, Japan is once more lending concessionary funds and the Bank is moving towards a complete normalization of relationships. 1.09 Not only have the imbalances that developed and the stabilization measures that were introduced in the 1980s emphasized the strengths and weaknesses of the economy, but also the resilience and dynamism of its productive sectors. There can be little doubt but thrt once the contractiotLary pressures are eased, the economy should continue to grow at satisfactory rates and that the resource needs for investment will be met, including resources made available through foreign borrowing. Overall, it must be judged that the reform measures were a qualified success, particularly as the attendant liabilities associated with a severe deflationary shock (such as an enlarged debt burden, capital flight or labor disputes of a debilitating magnitude) have largely been avoided. It is the declared intention of the Government to concentrate in the early 1990s on continued stabilization, on restoring GDP growth (the target for the early years of the 1990s is 6% per annum), and on correcting the deficiencies that became apparent in the preceding decade in the reform of macro-management and pricing. C. The Industrial Sector 1.10 China is one of the world's ten leading industrial producers, with industry contributing about half of its GDP and employing nearly one-fifth of the total labor force. Almost 100,000 State enterprises generate over 60% of total industrial output with the remainder being produced by more than a million other industrial entities, mainly urban and rural collectives. By the end of the 1980s, gross industrial production approximated to US$600 billion equivalent per annum, divided almost equally between light and heavy industry. During the decade it had grown annually at a rate of almost 11% in real terms. Light industry grew faster than heavy industry in line with the emphasis sponsored by Bank lending, but both recorded an impressive performance. Particularly impressive was the growth of exports from US$18 billion equivalent in 1980 to over US$52 billion equivalent in 1990. During this period, light industrial exports more than doubled and by 1990 accounted for one-third of the total exports of manufactured goods. 1.11 This rapid development of China's export potential is a relatively recent development. Traditionally, China's industrial development was inwardly oriented and from the mid-1950s to the mid-1970s based on an import substitu- tion strategy catering to a fast growing domestic market. Although such an approach initially sponsored rapid development of output and employment, the acquisition of industrial skills in the labor force and the creation of a wide -4- range of basic intermediate and consumer goods industries, it also resulted in inefficiencies in production, lack of technological development and poor product quality. At the same time, it perpetuated an ignorance of overseas markets. Low worker productivity characterized the sector, stemming from overmanning, outdated technologies, plant level inefficiencies and an absence of incentives conducive to better productive practices. At the present time, it is estimated that nearly 80% of the current stock of capital equipment is in need of replacement. 1.12 These fundamental weaknesses were exacerbated by mandator,- planning, institutional rigidities and an environment of controlled, and distorted, prices, which provided even less incentive for efficiency at the factory level. Over-emphasis on regional self-sufficiency caused fragmented markets and reduced domestic competition, and often resulted in failure to realize the economies of scale and the benefits of the division of labor and specializa- tion.!' The development of industry has been further retarded by limitations of physical infrastructure, inadequate research and development and little in the way of vocational training in modern technology. An additional constraint has been endemic shortages of foreign exchange and resulting difficulties in the importation of raw materials and spare parts. 1.13 Since 1979, the Government has endeavored systematically to remedy these deficiencies by the adoption of a development strategy for the industrial sector which, in addition to the macroeconomic reforms already described, has emphasized the modernization of equipment, the development of more efficient light industry, the promotion of manufactured exports and the conservation of materials and energy. Although these reforms are being implemented with differing degrees of haste and conviction across regions and subsectors, their impact has already been significant in that up to 90% of all medium and large scale State enterprises now operate under a "contract responsibility" system in which managers have greater autonomy over investment decisions and are increasingly subjected to competitive pressures. Some progress has been made in freeing the labor market of its rigidities, but continuing efforts and policy reforms will be necessary if the still existing brakes on industrial development are to be released. Shortages of domestic energy are likely to constrain the growth of heavy industry, and the growth of light industry remains inhibited by uncertainties and insufficiency in the supply of raw materials. The basis of industrial growth, which is still largely dependent on capital accumulation, will have to shift to even more efficient use of available inputs if greater levels of resources are to be released to other sectors such as energy and transport and, of course, for consumption. It will also have to meet improving living standards and more sophisticated consumer tastes through improved quality and variety of its products as well as increased volume production. D. The Financial Sector 1.14 China's banking system now comprises a small number of nationwide specialized banks with extensive branch networks under the supervision of the People's Bank of China (PBC/ which serves as the country's central bank. For At CIB states that the Government has taken remedial measures; see Attachment. -5- much of the period before 1979, China had what was essentially a monobank system typical of socialist economies in which PBC fulfilled both central banking and commercial banking functions. In such a system, all financing needs, both of government and of enterprises generally, were met out of directly allocated financial resources from the annual Central and Provincial budget and credit plans. The specialized banks essentially operated as fiscal agents implementing the Government's plans in support of a physical output program and serving mainly as cashiers. PBC dominated the financial system, handling domestic industrial credit and most agricultural credit. Two other banks provided specialized services; the Bank of China dealt with foreign exchange transactions and financed international trade, and the People's Construction Bank of China (PCBC) channelled budgetary funds to State enterprises and construction projects. 1.15 The first reforms of the financial secsor which took place in the early 1980s focussed on the creation of a separate central bank, the restruc- turing of the existing specialized banks to undertake traditional commercial banking business and the use of indirect monetary policy instruments for macroeconomic management. In 1981, the Agricultural Bank of China (ABC) was re-established as a specialized bank to take over PBC's rural banking functions and at the beginning of 1984, the Industrial and Commercial Bank of China (ICBC) was established to take over the urban commercial banking functions previously exercised by PBC. The Bank of Communications became a national level comprehensive bank. PBC assumed the traditional role of a central bank to the exclusion of any commercial activities. PCBC, under the aegis of the Ministry of Finance, remained the nation's investment bank specializing in the financing of capital construction projects with budget appropriations and loans but also handling commercial banking business for China's construction industry. CIB was created in 1981 as an industrial finance institution to provide long-term foreign exchange and local currency loans for small and medium scale light industrial projects. Following these changes, all the specialized banks have carried out major branch expansions greatly improving their regional dispersion. Annex 2 indicates the relative size of PCBC, ICBC, ABC and CIB; on the basis of total lending for fixed assets in 1989, PCBC, the largest of the four specialized banks, was 50 times the size of CIB, the smallest. 1.16 It is of relevance to sectoral reform that, although specialization of both activities and clientele remains a primary feature of these arrange- ments, there is some overlap, especially in the financing of fixed investment in industry, which is leading to desirable competition among the banks to finance viable and attractive industrial projects. The non-bank financial institutions (NBFIs), of which there are a number, many with an international orientation, were also designed to increase competition within the financial sector and their scope of business continues to expand. Prominent among them are the People's Insurance Company of China, which until 1988 was China's only insurance company, and the China International Trust and Investment Corpora- tion, which was established in 1979 as both a consulting firm and a merchant bank to provide capital and intermediation services to joint ventures. There are also some 15 regional trust and investment corporations and over 600 smaller firms carrying out similar investment banking services. A recent development has been the appearance of urban collective credit cooperatives formed and financed by small groups of individuals pooling capital. -6- 1.17 The growth of NBFIs has been very rapid, fed as it has been by pent-up demand on the one hand and credit rationing and other regulatory distortions on the other, so that by 1988 they totalled some 3,700 institutions including trust, leasing and finance companies, joint ventures, mutual aid cooperatives and insurance companies. The network of rural and urban credit cooperatives is vast, exceeding 64,000 and the rural cooperatives remain the primary institutions for the limited financial services needed in the countryside. A few foreign banks have also been allowed an increased role and permitted to open branches with limited operations, mostly foreign trade related. The structure of the financial system is given in Annex 3. 1.18 This diversification is a positive development, enhancing the financial sector's ability to mobilize savings and to direct them to needed investments with high rates of return. In this context, bonds, stocks, :ertificates of deposit and commercial bills now contribute to the growing variety of financial instruments available, despite some continuing restric- tions on secondary trading. Since 1988, PBC has also permitted treasury bills issued from 1982 onwards to be sold in the secondary market, and the issuance of commercial paper has been authorized in Shanghai allowing enterprises there to issue short-term tradable bonds for their working capital needs. Experi- ments have also been undertaken with securities markets which now exist in rudimentary form in over 50 cities. 1.19 Interest Rates. The multiplicity of domestic interest rates which obtain in China are established by administrative decree, with some variation permitted within an allowed band. They have traditionally been low, since they have not until very recently been regarded as instruments for the mobilization or allocation of resources. The rates vary according to their purpose, location, social priority etc., and following the high inflation levels of the late 1980s were mostly negative in real terms. Interest rates on foreign exchange loans also carry many different rates, varying from almost zero to world market levels. Under the reforms of the 1980s, interest rates are becoming an increasingly important instrument for macro-management and allocating resources and efforts to unify their structure have been relatively successful. Increases in interest rates have reduced the multiplicity of rates and removed the major anomaly of differential rates for deposits by enter- prises. Indexing of long-term deposits has been introduced and State sector investments are now largely funded on a loan basis rather than by budgetary grants. In several provinces NBFIs are allowed to set rates according to supply and demand, subject to PBC-imposed ceilings and, in one province, Zhejiang, specialized banks and NBFIs have been given freedom on an experi- mental basis to set rates. Annex 4 presents the interest rates in effect in recent years. 1.20 The measures to raise interest rates and to introduce greater flexibility are significant developments, even though continuing low rates in some priority sectors exacerbate the demand for investment capital. However, the Government continues to adjust rates upwards and, to check inflation, is applying greater controls on the expansion of the money supply and credit. A further distortion lies in the continuance of subsidized budgetary loan interest rates for priority, strategically important industries. -7- 1.21 In the pre-reform era, interest rates remained positive and prices remained relatively stable for over 25 years. With effect from September 1988, irterest rater on leposits were raised by 1%, followed by price index-linked interest rates on '*eposits of three years or longer. In February 1989, all deposit rates were increased by 3% and all lending rates by 2%. As the rate of inflation declined through 1989 and early 1990, indexing of savings deposits became less important because, for the first time since 1984, real long-term interest rates became positive by a significant margin. In March 1990, when inflation dropped to less than 1%, the Gov'ernment reduced interest rates by 1.26%. 1.22 Bank Taxation. Unlike other enterprises, whose profits are subject to taxation, Chinese banks, although having more autonomy than in the -Rst, are not responsible for their profits and losses; any profits are wholl ' mitted to the government budget, which provides the banks with all wages and other operating expenses. CIB is an exception, and is responsible for the payment of taxation on its trading results; CIB did enjoy a tax holiday until recently. The only other exception is ABC. Commencing in 1988, ABC is being integrated fully into the enterprise tax system in an experiment which is likely to spread soon to the other banks and allow them also to assert their independence vis-a-vis the central authorities.!/ 1.23 Foreign Exchange. During the 1980s important steps were taken, as one aspect of the efforts to modernize the economy, to liberalize access to foreign exchange, a major departure from the self-reliance and autarchy which characterized previous regimes for many decades. As a result, foreign investment and borrowing have supported technology transfer, modernization of equipment and the importation of capital goods, machinery and materials, imports which have contributed significantly to greater efficiency and higher rates of growth in the economy. As far as the botrowing of foreign exchange is concerned, the requirement that project entities repay borrowings in foreign currency from their export earnings can be a serious impediment, exacerbated by the foreign exchange retention system that allows local governments and enterprises to retain a portion of their foreign exchange earnings. Until recently those earnings could not be traded freely but in the last few years selective trading of foreign exchange has been allowed in some areas under the supervision of PBC. The ultimate objective, it is hoped, is the total liberalization of the foreign exchange market. 1.24 Additional Reform Requirements. The reforms implemented in the 1979- 1989 period have assisted in the emergence of a broader financial market providing alternative financing sources for a wide spectrum of clients. However, additional reforms are needed if the banks are to become real intermediaries rather than just channellers of funds in accordance with government priorities and if a better separation of fiscal and monetary functions is to be achieved. The reforms have given the economy new dynamism, but the rapid growth of the banking system and, especially, of NBFIs requires greater supervision and regulation by the central bank which itself needs to have strengthened capacity in these areas. The change in 1981 to financing key i CIB notes that, at present, all the specialized banks pay taxes, and are responsible for their profits and losses; see Attachment. - 8 - projects with loans rather than grants and the increased role of the banks in financing investment has succeeded in making borrowers more accountable, but there is a risk of large losses if low yielding, lorg gestation projects occupy too great a total of bank loan portfolios. 1.25 The reforms have increased the role of monetary policy in macro- economic management and new monetary policy instruments have been developed. The measures available to PBC, previously limited to direct lending to enterprises and the administration of credit ceilings for the specialized banks, have widened to include direct lending to the banking system, changes in reserve ratios and discounting operations. However, in spite of these developments, PBC's control over the financial system is limited, particularly on the money supply and overall creation of credit. Its role in conducting monetary policy needs strengthening, and it needs to rely more on indirect measures of monetary control. 1.26 The rapid progress and increasing complexity of the reform of the financial sector make it mandatory that a sound regulatory and supervisory infrastructure be urgently developed and that tho instruments for the management of the sector and the macroeconomy be strengthened, objectives that the World Bank continues to support in its sector work and lending program. E. Proiect Oblectives 1.26 CIB I. The objectives of CIB I were: (a) to help meet the need for foreign exchange financing; (b) to improve CIB's ability to design, select and appraise projects and to transfer foreign technology to them; and (c) to assist in developing CIB as an autonomous and efficient financial intermediary in industrial finance. 1.28 CIB II. The primary objective of CIB II was to continue the Bank's institution building work with CIB. However, the other objectives of CIB I were also carried over to CIB II. 1.29 CIB III. CIB III was an "interim operation," designed to assist CIB to implement its short-term financing plan for covering commitments through 1986. It remained practically identical to CIB II in objectives and design. F. Project Concept and Design 1.30 CIB I. The creation of CIB and the first industrial credit project grew out of China's new industrial priorities. A development finance company (DFC)!i which focussed, at least initially, on the modernization and/or expansion of existing small- and medium-sized, light industrial enterprises fitted in well with the Government's readjustment strategies of increasing production quantity and quality with the minimal investment necessary, and of correcting the imbalance between heavy and light industry. 1.31 In many ways, CIB's establishment followed the Bank's "classic" DFC formula. It was formed to fill a specific niche: industrial term lending 1t CIB would prefer the term "specialized banking institutio ; see Attachment. - 9 - based on thorough project appraisal. It had a substantial equity infusion, a primary source of local currency funds. It had a Policy Statement and a Development Strategy Statement, drafted with Bank assistance. 1.32 CIB was conceived as helping both to fill a gap in foreign exchange industric.l finance and to address some of the central issues in improving investment efficiency. It was to achieve the latter by helping to organize the transfer of foreign technology to investing enterprises and by improving project appraisal methodology within a broader economic and sector perspective. 1.33 CIB's contribution to technology transfer was anticipated to be the following: (a) financing hardware and software imports; (b) apptaising the economics of alternative technologies; (c) serving as a channel for locating and utilizing Chinese and, as necessary, international experts, and sending local engineers to visit facteries abroad; and (d) monitoring the technology import process. It would be able to play such a role in part because it was expected to be involved from an early stage in subproject preparation. 1.34 With regard to project appraisal methodology, all projects which would coma to CIB had to be included in the annual plan. Once included in the plan, ee h project must undergo a feasibility study covering a wide range of issues. However, the main investment criterion, in addition to technical feasibility, was whether the project was consistent with the plan and national economic objectives. The feasibility study frequently did not evaluate projects in their sectoral or national context, due to the absence of medium-term plans and to the fragmentation of responsibility for individual industries among different ministries as well as regioas. Although economic criteria were supposed to largely determine project selection, there were no formal cost/benefit analysis :nd insufficient examination of relevant alternatives with respect to scale, technology, location or timing. In addition, projects might be poorly prepared technically because of lack of knowledge by the enterprise concerned, due to the scarcity of contact with firms making similar investments in other provinces o: with foreign users or suppliers of the technology. 1.35 In an effort to improve appraisal methodology, the Government selected CIB to be a pilot institution to introduce better, more thorough approaches. To do this, CIB staff, with significant help from the Bank and other Chinese officials and researchers, dtafted a Project Appraisal Manual, the first such manual in China; its formal issuance to CIB's branches, with instructions for its use, was a condition of loan effectiveness. One important objective of the manual was to make appraiaals more comprehensive and systematic. Another, more innovative objective was to introduce cost/benefit analysis based on shadow prices. This was especially important given the lack of a market economy and the highly distorted prices. CIB, by developing and using its Project Appraisal Manual, was expected to provide experience in adapting new methods of appraisal to Chinese circumstances. Staff Appraisal Report, China - Industrial Credit Project (China Investment Bank), Report No. 4009-CHA dated November 23, 1982, page 16. -10 - 1.36 The project was 4ppraiaed in March/April 1982 and approved in December 1982. It was financed by a loan and a credit totalling US$70.6 million equivalent2' and had three components: a. Investment subloans (UF$68.7 million equivalent) - This was expected to be committed to some 30-40 subprojects within 18 months. b. Preparation subloans (US$1.0 million equivalent) - Some potential subborrowers were expected to need, during the preparation of their feasibility studies, foreign exchange to cover the cost of expatriate technical consultants and overseas technical visits.!/ c. Technical assistance and training for CIB (US$300,000 equivalent) - This was expected to finance, over two years, the foreign exchange costs of overseas study tours and technical visits by CIB staff and short-term visits by technical experts to assist CIB in its appraisals. 1.37 In addition to the training for CIB staff included in the project, additional overseas training in development banking had been arranged through the Bank with financing from a UNDP project. This supplemented an EDI development banking course held in Shanghai before the project was approved (the first of a series of yearly EDI courses for Chinese participants). CIB also had developed an in-house training program, focussed primarily on project appraisal. 1.38 CIB I!. The primary focus of the second project on institution building resulted from the rapid growth in CIB's project pipeline and branch network (seven had been established by mid-1984). In response, CIB needed to quickly build up its appraisal staff, and especially to strengthen the critical areas of technical, economic and market analysis. It was felt that these weaknesses had prevented CIS from playing a more significant role earlier in the project cycle, at the design stage. In addition, the Bank felt that CIB should begin to appraise larger and more complicated projects, including those involving sectoral issues. 1.39 To help achieve these institution building goals, CIB agreed with the Bank on a staff recruitment plan, the use of outside consultants, an expanded training program and the revision of CIB's Project Appraisal Manual. 1.40 The second project was appraised in October/November 1983 and approved in June 1984. It was financed by a loan and a credit totalling US$175.0 Z' Including a capitalized front-end fee of US$600,000. i In the event, funds were available for this purpose from other sources as a result of foreign exchange liberalization, and this amount was reallocated to the investment subloan component some 19 months after the project was approved. - 11 - million equivalent.Y The entire amount was allocated for investment subloans and was expected to be committed to some 60-80 subprojects over 18-20 months. As most of the US$300,000 technical assistance and training component under CIB I had not yet been committed,1' it remained available to cover these needs. 1.41 CIB III. As noted in paragraph 1.29, the design of the third project was the same as the second, reflecting the hurried nature with which it was put together and processed in order to meet CIB's urgent need for funds (no SAR was prepared, reliance being placed on the earlier appraisal done for CIB II). The only new understanding reached as part of this project was that CIB would borrow US$50 million from non-Bank Group sources in the first half of 1986. CIB was also requested to prepare an adequate long-term financing plan designed to cover its foreign exchange needs over the period mid-1986 to mid-1988 so that a recurrence of negative resource positions and the interruption of its lending operations could be avoided in the future;- this was in anticipation of CIB IV. 1.42 The project was approved in March 1986. It was financed by a loan and a credit totalling US$100.0 million equivalent.- The entire amount was allocated for investment subloana and was expected to be committed to some 80 subprojects representing 6 months of CIB's operations, in line with the experience under CIB II. CIB's technical assistance and training needs would be financed from tha component under CIB I. II. PROGRESS IN MEETING OBJECTIVES A. CIB's Role 2.01 Appraisal Methodology. CIB was expected to be the pilot institution in introducing a new project appraisal methodology to China. In this it has succeeded very well. CIB's Project Appraisal Manual, now in its second revision and including case studies, has had a major impact all over China, and is being used by many other financial institutions and planning authorities, as well as the "designing institutions" which carry out feasibility studies for enterprises. This major impact is out of all proportion with CIB's size (its yearly lending for fixed assets has averaged only about 1% of total bank lending--see Annex 2), and perhaps reflects the move in recent years, as part of the economic reform in China, away from financing larger projects with grants and towards the use of loans, with the financial institutions being responsible for loan repayments. 1t CIB paid in advance the US$262,500 front-end fee on behalf of the Government. Lo CIB had seen no need Ao far for expatriate engineering advice beyond that supplied by Bank missions. Because of the language barrier, it had been emphasizing domestic rather than overseas training. AU President's Report, China - Third Industrial Credit Project, Report No. P-4232-CRA dated February 11, 1986, page 23. Lt There was no front-end fee associated with this project. - 12 - 2.02 CIB has disseminated the new methodology through three basic means. (a) The first version of the Project Appraisal Manual was made available to any interested institution free of charge. A small charge was made for the second version while the third version, which has been professionally published, is available for sale to any interested purchaser. (b) Beginning in 1982, CIB offered training courses on the new rethodology which, while primarily intended for its own staff, were open to participants from other institutions.L3 Later, CIB staff gave lectures in other institutions and branch staff ran courses for local branches of other institutions, including planning commis- sions. (c) The value of adopting the methodology was concretely demonstrated by projects which, for example, had employed shadow exchange rates during appraisal and subsequently, after the yuan was devalued, experienced fewer problems than those that had not. 2.03 Design of Projects. CIB was also expected to be involved at an early stage in the preparation of projects, and thus to have a significant influence on their design, especially on the choice of technology. In this area, however, CIB has played only a limited role due to the nature of the project cycle in China. Projects are normally prepared by the enterprises proposing them, which enterprises often have the necessary technical expertise to decide on the appropriate technology. When they do not, they employ local engineering and designing institutions to prepare the technical aspects of the projects. Given CIB's relatively limited in-house technical capability, there is little that CIB could contribute on the technical side to most of these projects even were it involved at an earlier stage. 2.04 Actually, some of CIB's branches are in contact with enterprises early in the project cycle, and thus are in a position to influence project design (see para. 2.09). As time gocs on, this early involvement in the cycle can be expected to grow, and CIB's influence on project design to inc'ease. 2.05 Channel for Bank Group Funds. CIB's 1982 Policy Sta-ement specific- ally noted that CIB would borrow foreign exchange funds from foreign sources other than the Bank. In spite of this clear statement, there was a feeling initially that CIB was created only as a window of PCBC to provide a channel for Bank funds to reach the industrial sector. In fact, tle Government at first tried to use CIB to absorb any extra, unallocated funds in the Bank's overall program for China. Many in China still express the view that CIB's main function is to attract Bank funds, and if such funding were to stop, CIB's purpose in life would be ended. This is in spite of CIB's success, albeit belated, in raising foreign resources from sources other than the Bank (see paras. 3.23-3.24). 2.06 This feeling stems in large measure from the way CIB was created. The Government would not let the Bank use the existing PCBC as the ve.14cle for the industrial credit projects as it did not want PCBC's activities changed; PCBC was providing funds in the form of grants to projects identified by the Government, a procedure which was unacceptable to the Bank. CIB was therefore CIB estaff members who attended the EDI development banking courses, which covered project appraisal methodology, became the trainers for the courses given by CIB. - 13 - created, in large measure by the Bank,L' to emulate the Bank's methods and procedures--in short, to be a smaller version of IBRD. The Government initially objected to the Eank's insistence that CIB have certain of these attributes, but in the end agreed in order to have CIB as a channel for Bank funds. B. CIB's Autonomy 2.07 How much autonomy CIB has depends on one's perspective. In the Chinese context, CIB is considered tc be extremely independent. From the Bank's point-of-view, CIB lacks complete autonomy in a number of areas. From either perspective, though, it is fair to say that CIB has gained a fair amount of independence and autonomy since its establishment. 2.08 Proiect Selection. CIB can only lend to projects which are approved by the local planning and economic commissions and are included in the annual plan; it has no authority to lend for projects not in the plan. The enter- prises which put forward the approved proposals choose which financial institution they will approach. This selection process, however, is usually mutual. The financial institutions have discussions with the planning and economic authorities while the plan is being prepared, and so they are aware of what projects are being considered and by whom. Often they are in touch with the enterprises while the proposals are being finalized. 2.09 CIB in particular, through its more active branches, is constantly meeting with the local industrial community to explore for and identify potential projects. Some of these may have already been put forward for inclusion in the plan, but others are identified and developed by CIB and only later included in the plan. 2.10 CIB can reject a project even though it has been included in the plan, and has often done so (see Annex 13). Of course, a rejected project may secure financing from sowe other financial institution, though this is not likely to happen too often, given the shortage of funds and the relative abundance of approved projects. 2.11 While CIB's independence in selecting projects is clearly somewhat circumscribed due to the requirement that each project it accepts must have been approved by the local authorities and included ia the plan, it does appear at the moment to have sufficient freedom to identify sound projects and reject unsound ones. This situation may change, though, should the number of good projects seeking financing decrease. 2.12 Management. At the beginning, CIB relied for much of its management personnel, and staff in general, on PCBC. In August 1986, after much Bank urging, a full-time President was appointed. Before then, the President of CIB was the First Vice President of PCBC, and only acted part-time for CIB. Similarly, until fairly recently, the Presidents of CIB's branches were usually Vice Presidents of the local PCBC branches, and acted only part-time for CIB. 1t CIB would prefer a different emphasis; see Attachment. - 14 - Now, most branches have their own, full-time Presidents..L However, the Chairman, Vice Chairmen and some other members of CIB's Board of Directors (all appointed by the Government) are members of PCBC's senior management. Thus, while CIB is gradually developing its own independent management cadre, it still has close ties to PCBC, and is in fact considered a member of "the PCBC Group." 2.13 Branches. As is common with Chinese institutions, each of CIB's branch offices has a dual loyalty: to CIB's Head Office and to the local provincial or municipal government. As noted above, the ,ranches work closely with the local economic and planning commissions on project selection. However, this does not imply that branches are forced by the local government to accept projects against their wills, but rather that a cooperative process takes place in preparing the annual plan. Branches can and, as noted earlier, do reject projects. If a branch feels awkward in doing so, it can cite the Bank's requirements as a reason. CIB's Head Office is also prepared to back up a branch's decision, especially if there is undue pressure from the local government to accept the project.6 2.14 The branches are also receiving greater autonomy in investment decision making from the Head Office. Five of the older, more established branches were granted a free limit of US$2 million equivalent in 1989, and another 14, US$1 million equivalent. These free limits are reviewed periodi- cally as part of the Head Office's review of the appraisal capability and quality of operations of each branch. C. Financing Industrial Projects 2.15 The proceeds of CIB I that were allocated to investment subloans were used by eight of CIB's branches to finance 55 subprojectsLi in ten industrial subsectors. The proceeds of CIB II, all of which were allocated to subloans, were used by 20 branches to finance 163 subprojects in twelve industrial subsectors. The proceeds of CIB III, also entirely allocated to subloans, were used by 18 branches to finance 71 sublouns in eleven industrial subsectors. Annexes 5 and 6 provide data on the geographical and sectoral distribution of subprojects. As might be expected, there is a heavy concentration of subprojects in the more developed coastal provinces. Sectorwise, light industry (which includes consumer goods), textiles and clothing, and electronics account for over half the subprojects by both number and subloan amount. 2.16 A profile of the subprojects, based on a sample of about 25% by number, is presented in Annex 7. Governments, usually provincial or municipal, i It is noteworthy, though, that the President of the CIB branch in a particular location still ranks lower in the overall managerial hierarchy in China than the President of the PCBC branch in the same location. ' Most of the enterprises sponsoring the projects that come to CIB are owned by the local government. i The number of subprojects financed under each project that is used in this PPAR differs slightly from that used in the PCRs due to transfers of subprojects between projects; see footnote to Annex 5. - 15 - were the owners of over 92%, with collectives owning the rest. Some 46% were modernization proiects and 39% expansion, with the remaining 15% being new enterprises. Subloan maturities were generally quite short, with over 70% being five years or less. The sizes of the subloans covered a wide range, with over half being less that US$750,000 equivalent. 2.17 Annexes 8, 9 and 10 present a variety of data from a sample of subprojects financed under CIB I, II and III respectively. Cost overruns on CIB I and II subprojects were high at an average of 29% and 332, while under CIB III, they had been reduced to less than 3% on average; reaaons are given in the Annexes for individual subprojects. Time overruns averaged 10 months for CIB I and II subprojects, but were reduced to an average of 3 months under CIB III; again, reasons are given in the Annexes for individual subprojects. Capacity utilizazion averages 81% for CIB I subprojects, dropping to 73% and 70% for CIB II and III subprojects, no doubt reflecting their shorter history of operations. 2.18 Annexes 8-10 also provide the expected and, when calculated, the actual FRR and ERR; few actual rates of return have been calculated for CIB III subprojects as yet. These results suggest that, by and large, the subprojects have been financially and economically well justified. Employment data indicate that, on average, CIB I subprojects created 132 new jobs each, CIB II, 195 new jobs each, and CIB III, 96. However, as the samples consist of the largest subloans, these results are probably misleading. 2.19 Though data are not available on the exact number, many of the 289 subloans made under all three projects have been totally repaid, often in advance of maturity. Under the Chinese system, repayments of principal are deducted from taxable income. Therefore, enterprises pay off as much of their loans each year as their operations permit. However, there were 25 subloans in arrears as of June 30, 1990; details are given in Annex 11. The principal in arrears totalled Y26.23 tLillion (about US$5.5 million equivalent) and represented 27% of the total principal outstanding to these 25 subprojects. As the total amount of principal still outstanding to all subprojects financed under CIB I, II and III is not available (initially some US$342 million equivalent was disbursed), it is difficult to comment on the seriousness of the situation with Bank subloans. However, the situation here appears to be similar to that with the entire portfolio, discussed in paras. 3.26-3.31. 2.20 Foreign Technoloav Transfer. As each of CIB's loans has involved the importation of foreign equipment, each has also involved the transfer of foreign technology which, in practically all cases, was new to China. The selection of the technology has been quite good, and done after thorough consideration of alternatives. Occasionally a borrower has resisted spending foreign exchange to pay for the knowledge necessary to erect and operate the new equipment, which could have resulted in an inadequate transfer of technology. However, CIB has insisted that enterprises pay for the knowledge as well as the equipment, and this is now seldom an issue. - 16 - D. Training 2.21 CIB has been very active in providing training for its staff from the beginning, as Annex 12 indicates. Practically every staff member has received some training, usually in house or within China, but on occasion abroad. CIB is felt to provide more training opportunities for its staff than other financial institutions in China. Local training is usually in project appraisal, international settlements, computer useage or the English language. Local training costs covered by the Head Office alone now amount to about Y1 million a year, with branches funding additional training. Overseas training has been financed from Bank loans, ADB, UNDP (through ADB) and foreign correspondent banks; by the end of 1989, US$660,000 equivalent had been spent for overseas training. 2.22 The technical assistance and training component of CIB I was used to provide 80 staff members with training of various kinds between ..986 and 1988. Six staff members pursued masters degree programs in the United States in finance and economics. Three others undertook long-term studies in Japan and Germany in international finance and management. The total cost for these nine overseas academic programs, covered by the CIB 1 component, was US$117,640 equivalent. Another 51 staff members received short-term training abroad in a variety of subjects including international settlements, international finance, bank management, project appraisal and sufervision, accounting and funds management. The countries involved were Japan, Hong Kong, Singapore, the United States, West Germany, the Phillipines and Canada. The total cost of this training, covered by CIB I, was US$165,860 equivalent. An additional 20 staff members received financial market training through study trips to the United States, Canada, Japan, West Germany, England, France, Italy, Hong Kong and Singapore. The CIB I component covered the cost of US$87,090 equivalent. In total, overseas training costing US$370,590 was covered by CIB I. III. OPERATIONAL AND FINANCIAL PERFORMANCE A. Operations 3.01 The selection, appraisal and supervision of projects are handled by the individual branchesLa according to the policies and guidelines established by the Head Office. The Head Office reviews and approves all project proposals except those below the free limits established for some branches (see para. 2.14). It also will assist the branches in appraisal work as necessary. 3.02 CIB's lending operations expanded rapidly until the June 1989 incident, much more so than the Bank had forecast (see the attached PCR, paras. 6.11-6.12). Annex 13 presents yearly data on loan requests received, approved, committed and rejected, as well as disbursements, since the commencement of lending operations in 1983. The significant slowdown that took place in 1989 is still evident in the figures for the first half of 1990. Overall, though, As of June 30, 1990 there were 30 branches, with nine of them having between one and seven sub-branches for a total of 29 sub-branches. The branches are listed in Annex 23. - 17 - since its establishment CIB has received 1,536 requests for loans, of which it has approved 1,220 and rejected 188. Almost three-quarters of its operations, on a comitment basis, have been in foreign currency. 3.03 Appraisals. The quality of CIB's appraisals, especially those prepared by the older, better established branches, is generally up to international standards. They begin with the feasibility studies prepared by the borrowing enterprises, or the designing institutions appointed by them, which are usually very good, especially regarding the technical aspects. While reviewing and expanding on these studies, CIB focuses mainly on the financial and economic analyses and the market aspects. It is in this latter area where weaknesses often show up. 3.04 CIB's appraisal work usually includes having members of its staff actually reside in the factory complex for a month or so to learn as much as possible about the enterprise and its project. Staff members also carry on extensive investigations outside the enterprise, meeting with the consulting bureaus of the local planning and economic commissions and with others who are familiar with the type of project and its market, including foreign trading companies. Often a foreign tour to potential equipment suppliers is arranged for both CIB and enterprise staff. 3.05 Supervision. Supervision work is guided by a fairly comprehensive Project Supervision Manual prepared (with Bank help) and issued by CIB in 1983. It covers the full cycle from loan agreement to project completion report.-L As more and more of its projects mature, CIB has been putting increased stress on supervision work. Branch staff visit the projects quite frequently (sometimes monthly) and prepare regular reports. One reason for the frequent visits to borrowing enterprises is to be able to spot emerging problems early on and deal with them before they get out of hand. While this is a laudable intention, CIB staff will need more experience and training to become truly proficient in identifying and, more importantly, managing problems. Super- vision, including staff visits, continues until CIB's loan is entirely repaid. 3.06 The following table gives an idea of how intense CIB's supervision work is. Supervision Activities 6 mos. 1986 1987 1988 1989 1990 Number of Visits 2,233 4,081 2,648 4,455 4,223 Number of Projects Visited 345 697 786 996 1,025 Average Visits/Project 6.5 5.9 3.4 4.5 4.1 Number of Reports Prepared 564 706 643 n.a. n.a. of which, detailed 193 378 259 summary 371 428 384 i One iacuna in the manual is guidelines on how to handle problem loans. - 18 - The number of supervision visits to a sample of CIB I, II and III subprojects is given in Annexes 8-10. On average, CIB I subprojects were visited nine times during construction and eight times during operations, CIB II subprojects seven and eight times, and CIB III subprojects ten and ten times. 3.07 Ex Post Evaluation. When a loan has been entirely repaid (not, as is the Bank's practice, after disbursements have been completed), the branch is expected to prepare a Project Completion Report (called a Post Appraisal Report by CIB). Actually, PCRs are prepared usually only for the larger projects; two or more smaller ones might be covered in one PCR. These PCRs are generally circulated among that branch's staff (and sub-branch if any) so that all can learn from the experience. They are also usually sent to the Head Office. 3.08 The Head Office reviews the PCRs it receives from the branches, and on occasion will include in its periodic newsletter, which is circulated to all branches, an article summarizing lessons learned and other information gleaned from the PCRs. The PCRs themselves, however, are not circulated between branches, which would be a better method of disseminating the findings. The Head Office at the moment is not paying sufficient attention to PCR preparation and review, being too busy dealing with implementation problems. 3.09 Nevertheless, CIB is one of the very few DFCs associated with the Bank that is attempting any lx post evaluation of project experience. The system it has in place is quite developed and, while there are areas for improvement and refinement, represents a solid foundation for further enhancement. 3.10 Diversification of Activities. Until 1987, CIB's primary activity was making investment loans, though it did make three equity investments during this period. Since then, however, it has received authority to provide a variety of other services, such as accepting foreign exchange deposits, handling international trade settlements, dealing in foreign exchange, making working capital loans, engaging in leasing and issuing guarantees. It feels, rightly, that it needs to diversify its activities in order to better compete with other financial institutions which are also expanding their activities. 3.11 In furtherance of this, at the time CIB V was being prepared (in early 1989), CIB suggested to the Bank that some of the funds for that project be allocated for equity investments and leasing operations, which CIB was then authorized to engage in. Later, though, after CIB V was signed, the Government decided to separate investing in equities and leasing operations from the banks, and issued a regulation to that effect. CIB was eventually able to persuade the Government that, because it had entered into the CIB V contract before the regulation was issued, it should be allowed to use the funds allocated under that project for equity investments and leasing. However, only those funds can be used for these investments, limiting CIB's ability to diversify its activities into these areas. B. Financial Position 3.12 CIB's Balance Sheets and Income Statements for 1983 through June 30, 1990 are given in Annexes 14 and 15, its Source and Use of Funds Statements in Annex 16 and various financial ratios in Annex 17. As noted in the Source and Use of Funds Statement annex, while the figures for 1983-1989 are audited, - 19 - certain adjustments from 1986 on were necessary to reconcile the several audited statements with each other. This no doubt reflects the newness to China of the international accounting standards; however, it is noteworthy that Bank staff did not notice these discrepancies and brir.g them to the attention of CIB and its auditors. 3.13 CIB has recorded a profit since it began operations, all of which has been retained. The absolute level has increased dramatically as its operations have expanded, exceeding the Bank's forecasts (see the attached PCR, para. 6.15), but as a percent of average total assets, profit before taxL1 peaked in 1986 and has been declining since. This has been caused by an increase in expenses, especially financial expenses, that has been larger than the increase in income. Administrative and Other Expenses, however, have been remarkably low at less that one-half of one percent of average total assets. 3.14 The ratio of long-term debt to net worth has remained less than 3 to 1, well below the 5 to 1 limit stipulated in Bank loan agreements. CIB's current ratio, however, slipped below unity in 1989 and was 0.7 to I at the end of June 1990. While a cause for concern, it may be that much of the deposits and inter-bank borrowings included in current liabilities have a longer-term nature. Also, the current portion of both the investment loans and the long- term debt are excluded; adding them might return the current ratio to above unity. 3.15 Unexplained in the audited statements are the large build-up of Other Assets and Other Long-term Liabilities. As these now represent 12.5% and 15.7% of the total respectively, an explanation of what they comprise is called for.11y 3.16 Foreign Exchange Risk. Under the terms of the first four Bank projects, subborrowers assumed the foreign exchange risk between the US dollar and the yuan, with the Government assuming the risk between the US dollar and the currency pool (for Bank loans) or the SDR (for IDA credits). Under the fifth project, which only involved a Bank loan, the subborrowers carry the entire foreign exchange risk between the Bank's currency pool and the yuan, though subborrowers with a subloan of less that US$1 million equivalent have the opt-an of only carrying the risk between the US dollar and the yuan. In this case, they pay a fee to CIB for carrying the risk between the currency pool and the US dollar.L/ 3.17 CIB insists on having some form of local government or other authority guarantee for the repayment of its loans, including guarantees that its borrowers will have access to foreign exchange to allow them to repay foreign currency loans to CIB. When a borrower has trouble acquiring foreign exchange at CIB began to be liable for income taxes in 1988. 11 CIB notes that Other Assets comprise "mandated loans" and Other Long-term Liabilities comprise "funds of mandated loans"; see Attachment. -i The Government also absorbed the interest rate risk between the Bank's variable rate to the Government and the Government's fixed rate to CIB on the first four Bank loans. The fifth Bank loan was on-lent through CIB to subborrowers at a variable rate of interest. - 20 - to repay CIB, the H-ad Office will approach the guarantor to make good on its guarantee. CIB reports that it has had no difficulty being repaid in foreign exchange. 3.18 Resources. As noted in Chapter II, CIB's original Policy Statement specifically provided that CIB would raise foreign exchange resources from other sources as well as the Bank. However, CIB was slow to begin diversifying its sources, in part because it needed Government approval for any foreign borrowing' and in part, perhaps, because it believed that the Bank would supply all its needs in this regard. This belief was no doubt strengthened by the ease with which it received the third Bank loan. / 3.19 The Decision Memorandum following the appraisal of CIB II noted that, instead of the Bank seeking an assurance that CIB would raise foreign exchange from other sources besides the Bank, CIB and the Government should be advised that the Bank would not consider a third loan to CIB until at least two years after CIB II and unless CIB had obtained from other sources the foreign exchange necessary for the two-year period.L' The SAR for CIB II, however, only noted that "In addition to its Bank/Association funds and the foreign exchange already purchased from Government, CIB hopes to raise forei n exchange from other sources as well, starting with US$40 million in 1985."126 3.20 In the event, CIB II was committed much more rapidly than forecast (within twelve months of its becoming effective), and CIB did not raise any additional foreign exchange in 1985 in spite of its hopes. CIB III was therefore quickly prepared and approved as an interim operation because of "CIB's now urgent need for new resources."3-/ The speed with which the Bank came to the rescue perhaps created the impression that the Bank expected, and was prepared, to provide CIB with all of its foreign exchange needs.2/ 3.21 During the negotiations for CIB III, the Bank tried again to impress on CIB and the Government that CIB had to diversify its sources of foreign exchange funds. An understanding was reached that CIB would borrow US$50 million from non-Bank Group sources in the first half of 1986. CIB was also requested to prepare an adequate long-term financing plan designed to cover L/ This is true for all financial institutions and is part of the control over the country's external debt. Lt CIB has a different view; see Attachment. Li Decision Memorandum dated December 5, 1983. CIB and the Government were so advised in a letter dated December 23, 1983, which made it clear that the Bank did expect CIB to obtain foreign exchange from other sources between mid-1984 and mid-1986. This point was reemphasized in the Minutes of Negotiations dated May 9, 1984. Lt Staff Appraisal Report, China - Second Industrial Credit Project, Report No. 4897-CHA dated May 15, 1984, page 19. LU President's Report, China - Third Industrial Credit Project, Report No. P-4232-CHA dated February 11, 1986, page 16. Li As noted at para. 3.19, CIB has a different view. - 21 - CIB's foreign exchange needs through mid-1988 so that a recurrence of the negative resource positions and the interruption of its lending operations could be avoided in the future. The President's Report noted that CIB had received authority from the Government to borrow up to US$50 million on the international cuital market; a first borrowing of USq30 million was already being arranged.2 3.22 Later in 1986 CIB was listed by the Government as one of ten Chinese institutions authorized to borrow abroad, and it remains one of the few. The Government, therefore, has supported CIB in diversifying its resources, at least since 1986. 3.23 CIB has achieved a substantial diversification of its foreign resources since 1986, though all progress in this regard ceased after June 1989 when international lenders ceased operations in China. Before this, CIB had raised US$259 million equivalent from foreign financial institutions and a first loan of US$100 million equivalent from ADB (see Annex 18). Just before the incident, CIB had nearly reached agreement on additional loans from Germany and England. 3.24 CIB has been dealing since late 1987 in letters of credit and other international settlement transactions in order to improve its international standing and reputation and to form the basis for further borrowing. This was also a reaction to the other specialized banks having started international operations, and CIB needing to follow suit in order to compete. 3.25 With regard to local currency, in the past CIB depended heavily on Central Government budget grants to finance the local cost of its subprojects. When these dried up in 1988/89 as part of the inflation control effort, the branches had to turn to the local governments for funds, as well as to increase their efforts to attract deposits from borrowing enterprises (see Annex 18). Because of the reputation for solid appraisal work that CIB and its individual branches have established, local governments have been prepared to provide funds for CIB projects. C. Loan Portfolio 3.26 Up to June 30, 1990 CIB had approved some 1,220 loans. Of these, about 160 have been totally repaid and another 400-500 are to projects in operation, with the rest financing projects under construction. Of the over 1,000 outstanding loans, 59 were in arrears at the end of June 1990. Other loans would have been had they not been rescheduled.!1 Four of the companies in arrears, accounting for about 5% of the principal in arrears, were being liquidated and 29, accounting for 24% of the principal in arrears, were operating at a loss or experiencing other difficulties. The rest were either still under construction (12 projects; 16% of the principal in arrears) or operating profitably (14 companies; 55% of the principal in arrears). Details are in Annex 19. at Ibid, pages 22-23. at The attached PCR (para. 6.16) notes that 22 loans had been rescheduled in 1990. - 22 - 3.27 Comparable data are not available for earlier years, but it would appear that the number of loans in arrears has been reduced from that at the end of 1989, when it was probably higher than at any previous year-end.Li As indicated in Annex 20, which presents an aging analysis of arrears since the end of 1986, CIB's portfolio problems started in late 1988, following the Government's efforts to curb the rapid expansion that had occurred in the early 1980s. They have been exacerbated since the June 1989 incident. 3.28 Arrears were not a significant problem in 1986 and 1987, but by the end of 1988 they had increased to Y12.8 million (principal only). However, practically all of this was overdue by less than one year, and represented only 0.3% of the total loan portfolio (see Annex 21). By the end of 1989, principal in arrears had grown to Y79.36 million, representing 1.1% of the total portfolio; some 18% was overdue by more than a year. The situation had improved by mid-1990 (in part due to rescheduling) when only Y50.68 million of principal was in arrears, or less than 0.7% of the total portfolio; however, a third of this was overdue by more than a year. 3.29 There are four main causes for a project to fall behind in loan repayments. (a) The start up of operations was delayed, due to the late delivery of equipment, delays in completing civil works or other similar causes. This led to short falls in the enterprise's cash flow. (b) The market for its product, domestic and/or international, deteriorated. The June 1989 incident hurt many exporters quite dramatically. (c) As a result of the Government's contractionary monetary policy, imposed in late 1988 to control inflation, many enterprises suffered from a lack of working capital because they could not borrow local currency. All of their available liquid resources were used to cover production costs. (d) Problems arose when the new technology was introduced. These were usually short-lived as the equipment was still under warranty and the supplier or manufacturer was available to solve the problem. However, these did cause delays in starting up operations. 3.30 CIB has no policy regarding how the accrual of unpaid interest is to be handled. Instead, interest is taken into income when it is due, regardless of whether it is paid or not. At the end of 1989, interest in arrears over three months totaled Y27.84 million; this had dropped to Y20.87 million by June 30, 1990 when it represented 0.3% of the total outstanding portfolio. Needless to say, CIB's profit has been overstated to the extent that accrued interest has not been received.2' 3.31 Overall, the arrears problem facing CIB does not appear to be especially serious, and has been caused mainly by discrete events in the macroeconomic arena, not by faulty project appraisals by CIB. CIB's super- vision practices, which are being strengthened, should be sufficient to keep control of the situation. In any case, the situation appears to be improving; the loan portfolio affected by arrears has dropped from 4.6% of the total portfolio at the end of 1988 to 2.8% by mid-1990. 1 The attached PCR (para. 6.16) notes that the number of companies in arrears had fallen to 48 by the end of November 1990. U CIB has a different view; see Attachment. - 23 - 3.32 Provision for Loan Lose. The Ministry of Finance establishes the allowable provision for loan loss; this is not subject to change by CIB or any other financial institution." The allowable provision had been set at 0.02% of the portfolio until 1988 when, in July, the Ministry raised it to 0.2% because, ostensibly, of pressures to adhere to international accounting standards. The Government's argument for such a low provision Is that all financial institutions are state-owned and their borrowing enterprises are either state-owned or collectives. Under these circumstances, the likelihood of a bad debt is small, so the need for a provision is slight.L1 3.33 This situation is expected to change, however, as the enterprise reforms deepen and banks and enterprises become more accountable for their own finances and investment decisions. In view of this, the Bank reached an understanding with the Government during the negotiations for CIB V that it would allow CIB to gradually increase its provision to a minimum level of 2% of its total loan portfolio by 1992.2si The Government, though, had not followed through on this by the end of 1990, and CIB was still limited to a provision of 0.2% of its loan portfolio. u 3.34 CIB's actual provision for loan loss has varied from 0.02% in 1984 to a high of 0.4%, reached in 1986 (see Annex 17). In 1987, when it had to come into line with the Government's requirement, it actually reduced its provision, writing almost half back to income; at the end of that year, the provision represented 0.13% of the loan portfolio. The provision was restored to 0.33% of the loan portfolio in the following year and stood at 0.29% at the end of June 1990, apparently larger than that allowed by Government. This, of course, would still be considered farcically small by most non-Chinese financial institutions. 3 D. Staffina 3.35 The staff of CIB (Head Office and branches) has increased from 50 at the end of 1982 to 1,515 by mid-1990 (see Annex 22).1i Most of the staff are professional level; in June 1990 less than 14% of the total were support staff. Few secretaries are needed, for example, as most higher level stafi use their own personal computer work stations to prepare reports, etc. CIB currently is 1i Before 1987 CIB was free to set its own level of provisions. However, in 1987 the Ministry of Finance required CIB to follow its regulations. 1t CIB notes that a financial enterprise is not allowed to use the provision mandated by Government for tax purposes and a separate, larger provision for its own reporting purposes. 3U Staff Appraisal Report, China - Fifth Industrial Credit Project, Report No. 7659-CHA dated April 28, 1989, page 29. 3i The attached PCR, at para. 6.17, notes that this issue was resolved in early 1991. EU CIB provides an explanation of the provision for loan lose in the Attach- ment. 11 Appendix I to the attached PCR presents CIB's organization chart. - 24 - having few problems recruiting qualified staff, though at the beginning there were some problems attracting experienced engineers and economists. 3.36 Since 1986 CIB has been one of only a few financial institutions actively recruiting candidates, whether recent graduates of colleges and universities or those with work experience. This represents a significant change from CIB's previous practice of simply accepting the people assigned to it by the authorities. This personnel management reform has been adopted with Government encouragement. E. Branches 3.37 Both CIB and the Government feel that CIB should have a branch in every province and in each of the 14 cities earmarked in 1984 for accelerated development. By mid-1990, CIB had 30 branch offices covering 22 of the 30 provinces- (eight were municipal branches) and six of the 14 designated cities. In addition, nine provincial branches had established 29 sub-branches in major urban areas other than the provincial capital; these allowed CIB staff to be physically nearer significant concentrations of clients. Annex 23 lists the CIB's branch offices and indicates the staffing of each. 3.38 While there currently is no electronic data link between all of the branches and the Head Office, due to inadequacies in the national telephone system, work is proceeding on a common computerized management information system. In due course, all branches and the Head Office will be electronically linked, in part due to technical assistance provided under CIB V. IV. FINDINGS AND ISSUES A. Bank Performance 4.01 The Bank was very instrumental in the successful establishment of CIB as a sound and effective DFC, ' and in the spread throughout China of the more thorough project appraisal methodology pioneered by CIB. This is not only a reflection of good project preparation and appraisal work on the part of the Bank, but also, and more importantly, of solid, consistent supervision work by the Bank. 4.02 The Bank's expectation that CIB could become actively involved in project design in its early years was perhaps the only significant flaw in its project preparation work. This expectation did not adequately recognize the facts of the Chinese environment. On the question of CIB's autonomy, the Bank appears to have accepted the arrangements with PCBC and the Government with its eyes open, recognizing the pitfalls but believing that no better option was available. at Cities with provincial status (Shanghai, Beijing and Tianjin) are included with provinces. Provinces without CIB branches are, with one exception, in the western part of China. Li CIB would prefer the term "specialized bank"; see Attachment. - 25 - 4.03 Bank supervision of these projects, especially technical help with subprojects, was frequent and intense. The work of Bank missions in reviewing the early appraisals of subprojects done by CIB was very helpful to CIB in establishing and improving its appraisal work, as it was to designing institutions and others in improving their own appraisal procedures. Bank missions provided advice on a variety of other matters, which CIB found very helpful and which made a significant contribution to CIB's successful establishment and operation. Bank supervision might be faulted in more recent years in the areas of financial analysis (especially of CIB's own situation) and anticipating CIB's need for more active supervision of its own projects. 4.04 CIB did find some of the Bank's regulations and procedures too rigid and inflexible, and in some cases even irrational. These relate to such matters as subproject approvals, disbursement procedures and reallocation of funds between subprojects (when the amounts originally authorized proved to be too high or too low). The Bank might have done a better job in explaining the rationale behind the offending practices. On the whole, though, the coopera- tion between the two institutions has been good. B. Overall Assessment 4.05 All three projects have achieved their main objectives and the results can be considered highly satisfactory. The Bank enjoyed substantial success at institution building, not only with CIB but also in the sense of having helped introduce a new project appraisal methodology to China; the job is not finished, but then, there is always room for improvement. A large number of small- and medium-sized industries have benefitted from having acquired new foreign technology; with a few exceptions most are operating quite success- fully. The achievement of these objectives is as much a result of the commitment and dedication of the Chinese as it is of the Bank's efforts. C. Sustainability 4.06 CIB has instituted sound procedures and guidelines, and has engaged competent staff and provided them with thorough training. It enjoys the support of Government, and has built up a good reputation in local and international banking circles. With an improvement in the political situation, CIB's external financing situation should improve. Thus, CIB should be able to sustain itself and the benefits to the economy which it provides. 4.07 However, CIB's future may still be at risk. In part, this is because of its close association with the Bank. Were the Bank to cease supporting it, there is a real question as to whether it would be allowed to survive, whether it would still '3e considered to have a useful role if it no longer received Bank funding. 1-ere it to cease to exist, at least in its present form, a very dynamic part of China's growing financial sector woulc be lost, to everyone's detriment. 4.08 With a continuation of the same level of Bank attention as in the past, CIB's independence is likely to continue to grow, and its future to become more secure. However, if the Bank turns away from CIB, either by focusing on other financial institutions through an apex operation or by moving to broader sector lending, CIB's sustainability may well be in doubt. - 26 - 4.09 Most of the enterprises financed through the projects under review are operating successfully, in spite of the recent economic downturn, and can be expected to continue to do so. D. Lessons of Experience 4.10 The experience with these projects leads to a number of observations of general applicability. 4.11 Continuity of Bank Support. A major underlying factor in CIB's success has been the sustained and visible support, technical as well as financial, v-hich the Bank has provided through five projects. Because institution building is a continuing process, such a series of projects is often necessary to ensure the successful establishment of a new financial institution. 4.12 Resource Diversification. A danger, though, with such a visible series of Bank projects is that the institution will become too closely associated with the Bank. As also noted in the attached PCR (para. 8.6), to prevent this it is important that the institution diversifies its sources of foreign exchange as soon as possible. 4.13 Bank Supervision. The great importance of continued Bank assistance after project preparation and appraisal, through consistent and critical supervision, to the sound establishment and growth of a new institution is amply demonstrated here. This refers to properly planned and staffed field missions as well as to thoughtful desk work. 4.14 Supervision by the DFC. Supervision is a particularly weak point with many DFCs, especially newer ones where the early focus is on establishing sound appraisal standards and procedures. The Bank needs to constantly remind DFCs of the importance of this aspect of their work. The attached PCR makes a similar point (para. 8.4). 4.15 Local Commitment. Commitment by the DFC to the validity and practicality of the Bank's project appraisal methodology is necessary for it to be accepted and promulgated. 4.16 The "Classic" DFC Model. The experience in china indicates that there are still occasions when the "classic" DFC model is appropriate for the circumstances. PROJECT PERFORMANCE AUDIT REPORT CHINA SELECTED GROWTH RATES, 1979-89 (annual % increase) 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 GDP La 7.0 6.4 4.9 8.3 9.8 13.5 13.1 8.0 10.5 11.2 3.9 Industry /a 8.1 10.9 1.7 6.0 9.8 14.9 19.6 9.6 14.3 20.7 8.3 Industry Share of GDP La 46.9 48.9 47.4 46.4 46.4 47.0 49.7 50.4 52.1 56.6 59.0 Gross Merchandise Exports ,$ b 40.1 33.7 20.5 1.4 -0.4 17.6 4.6 13.1 27.5 20.5 10.4 Light Industry Exports /a - - 17.1 -8.6 1.5 15.8 -11.1 31.0 45.6 22.4 3.9 Gross National Savings La 11.4 -0.5 -2.6 14.4 9.0 18.0 17.9 12.8 21.0 7.4 -2.7 Gross Domestic Investment 11.8 -1.8 -4.9 10.2 12.5 20.8 35.3 9.7 10.1 10.4 -2.8 Retail Prices 2.0 6.0 2.4 1.9 1.5 2.8 8.8 6.0 7.3 18.5 17.8 /a In constant 1980 prices. Lb FOB. Source: Extracted from World Bank, China: Country Economic Memorandum - Between Plan and Market, Report No. 8440-CBA of May 8, 1990. x PROJECT PERFORMANCE AUDIT REPORT CHINA FIXED ASSET LENDING BY PCBC. ICBC, ABC AND CIB AS PERCENTAGES OF TOTAL LENDING FOR FIXED ASSETS BY (i) THE BANKING SYSTEM AND (ii) THE NATION, 1986-89 (Figures in RHB millions) Total Total As As As As As As As As Bank National PCBC 2 of 2 of ICBC 2 of 2 of ABC 2 of 2 of CIB % of Z of Year Lend Investment Lendi AL (ii) Lendin AL "i) Lendin M (ii) Lendin M W2 (i) (ii) (2) (M) (2) (2) (%) (2) (2) (2) 1986 1,005.94 3,019.62 386.31 38.4 12.8 418.30 41.6 13.9 38.78 3.9 1.3 10.08 1.0 0.3 1987 1,286.75 3,640.86 549.51 42.7 15.1 572.30 44.5 15.7 41.88 3.3 1.2 10.79 0.8 0.3 1 1988 1,559.20 4,496.54 612.61 39.3 13.6 575.30 36.9 12.8 58.46 3.8 1.3 16.56 1.1 0.4 O0 1989 1,775.96 4,000.00 768.52 43.3 19.2 636.89 35.9 15.9 65.60 3.7 1.6 14.59 0.8 0.4 PCBC - People's Construction Bank of China ICBC - Industrial and Commercial Bank of China ABC - Agricultural Bank of China CIB - China Investment Bank Source: CIB. rD x~. Annex 3 PROJECT PERFORMANCE AUDIT REPORT CHINA STRUCTURE OF THE FINANCIAL SYSTEM, 1988 No. of Branches and No. of Assets Subsidiaries Employees (Y bil.) Banking System Central Bank PBC 2,431 131,327 405.0 Specialized Banks ICBC 29,998 469,805 561.7 ABC 50,777 443,970 301.5 BOC (domestic and foreign) 959 51,986 559.7a PCBC Lb 3,293 172,906 339.4/c Universal Banks BOCOM (including Hong Kong) 44 5,620 111.6 CITIC 2 143 8.8 Development Bank CIB 28 1,338 6.7 Cooperatives RCCs 60,872 471,900 149.0 UCCs 3,274 54,888 20.5 Other Deposit Takers Foreign deposit-taking banks 4 n.a. n.a. Foreign joint-venture banks (19) 29 950 n.a. Non-bank Financial Institutions TICs 745 16,000 { 83.9 ITICs 34 - { PICC (domestic) 2,749 67,645 n.a. PICC (abroad) 54 750 n.a. Finance companies 17 400 3.2 Financial leasing companies 9 300 n.a. Security companies (MOF) 61 - n.a. Security companies (PBC) 34 800 n.a. /a Includes BOC's foreign exchange operations. fT PCBC could also be classified as a development bank. PCBC's Annual Report figures differed from those provided by PBC (3,511 branches and 141,000 employees). /c Includes MOF's trust portfolio. Sources: PBC, System Reform Commission, Annual Reports of the four specialized banks, and World Bank, China - Financial Sector Review: Financial Policies and Institutional Development, Report No. 8415-CHA, dated June 29, 1990. - 30 - Annex 4 PROJECT PERFORMANCE AUDIT REPORT CHINA INTEREST RATES Rates up to - - - - - - - Rates Effective - - - - - - - July 1985 Aug. 1. 1985 Sept. 1. 1988 Feb. 1, 1989 (% p.a.) (% p.a.) (% p.a.) (% p.a.) Individual Deposits Demand Deposits 2.88 2.88 2.88 2.88 Time Deposits 6 months 4.32 6.12 6.48 9.00 1 year 5.76 7.20 8.64 11.34 3 years 6.84 8.28 9.72 13.14 5 years 7.92 9.36 10.80 14.94 8 years 9.00 10.44 12.42 17.64 Enterprise Deposits Demand Deposits 1.80 1.80 2.88 2.88 Time Deposits 1 year 3.60 4.32 8.64 11.34 2 years 4.32 5.04 9.18 12.24 3 years 5.04 5.76 9.72 13.14 5 years n.a. n.a. 10.80 14.94 8 years n.a. n.a. 12.42 17.64 Loans Circulating Capital 7.20 7.92 9.00 11.34 Settlement/State Appropriation 3.60 3.60 4.32 a Modernization Loans: Under 1 year 5.04 7.92 9.00 11.34 1-3 years 5.76 8.64 9.90 12.78 3-5 years 6.48 9.36 10.80 14.40 5-10 years 7.20 10.08 13.32 19.26 Over 10 years 7.92 10.80 16.20 +24.00 /b Foreign Exchange Loans: Bank of China /e 8.0-9.5 8.5-9.5 5.1-10.6 China Investment Bank /d 8.0 8.0 8.5 Capital Construction 2.4-3.6 2.4-4.2 7.92-9.36 a Loans to Urban and Rural Individual Enterprises 8.64 9.36-11.52 9.72 Ia a To be determined by MOF and SPC. b Interest rate will depend on maturity period. /c The Bank of China rates are linked to its borrowing cost in different currencies. The rates for 1988 are 6-month variable rates for 3-5 years term. Ld CIB is charging 8.5% rate on CIB III and IV and a variable rate on CIB V. Source: World Bank, Staff App-aisal Report, China - Fifth Industrial Credit, Report No. 7659-CHA, dated April 28, 189. PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK CIB I-III: GEOGRAPHICAL DISTRIBUTION OF SUBPROJECTS (disbursed amounts in US$000s) CIB I CIB II CiB III Totals No. Amoit % No. Amount % No. Amount % No. Amount % Branch Office- - Jiangsu 26 21,671.3 30.6 42 43,645.0 23.8 10 23,030.9 26.4 78 88,347.2 25.9 Tianjing 9 21,989.1 31.0 7 19,028.9 10.4 6 4,684.0 5.4 22 45,702.0 13.4 Hebei 8 9,866.4 13.9 22 14,591.4 8.0 5 7,789.1 8.9 35 32,246.9 9.4 Shanghai 2 4,028.0 5.7 10 17,679.3 9.6 4 2,090.2 2.4 16 23,797.4 7.0 Hubei 1 1,189.0 1.7 17 10,200.1 5.6 10 9,622.3 11.0 28 21,011.4 6.2 Liaoning 2 968.3 1.4 16 8,259.6 4.5 4 6,538.0 7.5 22 15,765.9 4.6 Zhejiang 10 8,785.3 4.8 3 6,113.6 7.0 13 14,899.0 4.4 Anhui 7 5,755.5 3.1 7 8,197.5 9.4 14 13,953.0 4.1 Shandong 5 6,548.8 3.6 4 3,999.6 4.6 9 10,548.4 3.1 Fujian 5 4,855.0 6.9 6 3,843.4 2.1 3 1,302.8 1.5 14 10,001.3 2.9 Beijing 2 1,464.5 2.1 6 6,160.3 3.4 3 842.3 1.0 11 8,467.0 2.5 Guangdong 2 5,611.0 3.1 2 761.9 0.9 4 6,372.9 1.9 Inner Mongolia 2 1,892.4 1.0 2 3,642.1 4.2 4 5,534.4 1.6 Shenyang 1 5,170.0 2.8 1 5,170.0 1.5 Guangxi 3 695.8 0.4 2 3,772.9 4.3 5 4,468.7 1.3 Jilin 2 4,091.9 4.7 2 4,091.9 1.2 Shanxi 1 2,000.0 1.1 2 753.7 0.9 3 2,753.7 0.8 Wuhan 1 1,560.6 0.9 1 1,560.6 0.5 HeiLong-Jiang 1 1,293.5 1.5 1 1,293.5 0.4 Hunan 1 979.7 0.5 1 204.8 0.2 2 1,184.4 0.3 Sichuan 3 919.6 0.5 3 919.6 0.3 Henan 1 633.6 0.3 1 633.6 0.2 Subtotals 55 66,031.5 93.2 163 163,960.3 89.5 71 88,731.0 101.7 289 318,722.8 93.4 Transferred Amounts La 3,924.1 5.5 19,254.6 10.5 - 23,178.7 6.8 Study Tours 281.2 0.4 - 281.2 0.1 Front-end Fee 600.0 0.8 - 600.0 0.2 Revolving Fund - 10.3 0.0 (1.47.4) -1.7 (1,457.0) -0.4 Totals 70,836.8 100.0 183,225.2 100.0 87,263.6 100.0 341,325.7 100.0 / Amounts for subprojects initially approved under a different Loan/Credit that were transferred to this Loan/Credit to fully utilize the Loan/Credit. Source: IBRD subproject database and disbursement records. X Ln PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK CIB i1ll: SECTORAL DISTRIBUTION OF SUBPROJECTS (disbursed amounts in USSOOs) CIB I CIB 11 CIB III Totals No. Amount % lo. Amount % No. Amount % No. Amount % Industrial Subsector Light Industry /a 9 11,052.2 15.6 37 47,501.1 25.9 24 34,019.7 39.0 70 92,573.0 27.1 Textiles and Clothing 17 12,771.8 18.0 46 41,447.0 22.6 10 4,936.1 5.7 73 59,155.0 17.3 Electronics 8 6,234.9 8.8 25 22,892.5 12.5 13 17,301.6 19.8 46 46,428.9 13.6 Chemicals 2 8,262.4 11.7 10 17,008.3 9.3 1 512.6 0.6 13 25,783.4 7.6 Packaging Materials 6 12,181.6 17.2 6 4,536.1 2.5 3 3,744.6 4.3 15 20,462.3 6.0 Building Materials 2 2,105.6 3.0 5 6,950.8 3.8 4 7,602.9 8.7 11 16,659.3 4.9 Machinery and Parts 2 3,171.9 4.5 10 6,544.9 3.6 7 4,789.4 5.5 19 14,506.2 4.2 Metalurgical 3 5,354.9 7.6 3 2,312.1 1.3 3 6,273.5 7.2 9 13,940.5 4.1 Pharmaceutical 4 3,649.9 5.2 6 3,943.2 2.2 3 4,124.8 4.7 13 11,717.9 3.4 Food Processing 8 4,649.5 2.5 2 3,468.1 4.0 10 8,117.6 2.4 Agricultural, Forestry and Dairy Products 4 3,904.8 2.1 1 1,957.8 2.2 5 5,862.6 1.7 Services 2 1,246.3 1.8 3 2 O270.0 1.2 0.0 5 3.516.2 1.0 Subtotals 55 66,031.5 93.2 163 163,960.3 89.5 71 88,731.0 101.7 289 318,722.8 93.4 Transferred Amounts L 3,924.1 5.5 19,254.6 10.5 - 23,178.7 6.8 Study Tours 281.2 0.4 - 281.2 0.1 Front-end Fee 600.0 0.8 - 600.0 0.2 Revolving Fund - 10.3 0.0 (1,467.4) -1.7 (1.457.0) -0.4 Totals 70,836.8 100.0 183,225.2 100.0 87,263.6 100.0 341,325.6 100.0 L Light Industry includes consumer goods. L Amounts for subprojects initially approved under a different Loan/Credit that were transferred to this Loan/Credit to fully utilize the Loan/Credit. Source: IBRD subproject database and disbursement records. D - 33 - Annex 7 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK CIB I-III: SUBPROJECT PROFILE (based on a sample) CIB I CIB II CIB III Totals % Ownership Government 14 37 22 73 92.4 Collective - 4 2 6 7.6 Totals 14 41 24 79 100.0 Type of Subprolect New 3 4 5 12 15.2 Expansion 8 13 10 31 39.2 Modernization 3 24 9 36 45.6 Totals 14 41 24 79 100.0 Maturity of Subloans I to 3 Years 1 6 6 13 16.5 3 to 5 Years 6 23 14 43 54.4 5 to 10 Years 6 10 4 20 25.3 Over 10 Years 1 - - 1 1.3 Not Available - 2 - 2 2.5 Totals 14 41 24 79 100.0 Size of Subloans /a 0 to US$250,000 - 34 6 40 13.8 US$250,001 to US$500,000 12 37 20 69 23.9 US$500,001 to US$750,000 14 24 9 47 16.3 US$750,001 to US$1,000,000 9 20 10 39 13.5 US$1,000,001 to US$2,000,000 14 29 13 56 19.4 Over US$2,000,000 6 19 13 38 13.1 Totals 55 163 71 289 100.0 Ia Disbursed amounts; includes all subloans. Source: CIB, based on a sample consisting of about 25% of the subprojects under each project, generally those receiving the largest subloans. For Size of Subloans, IBRD disbursement records. PROJECT PERFOANCR AUDIT KElPRT cum CamA IES aK CIB Is DATA FRON A SAHPLE OF SUBPHOJECTS Number of Sub* Subloan Cost Overrun Start Up Date Time Overrun 2 Exported Capacity FIr E Number suPervieton Visite proj. SIte I& UtIl of Jobs During During Subproect Nam NO. (OSS000) 2 Cause E. Act. ros. Cause ! Act. sation R e E Act. Created Construction O o_ lasu Silk Will of Susbon A-03 1,362.8 -2.62 g Jan-85 Nov-84 -2 802 19.32 17.22 IS.12 28.22 80 10 S LI Sheang Pharmaceutical Factory A-04 1,438.1 27.12 b & c Sep-84 Dec-86 27 k 1002 16.92 19.22 66.12 n.a. 24 8 5 Randan Iron and Steel Plant A-07 3,251.9 222.8 * Oct-65 Dec-86 k4 1 1002 52.02 n.a. 69.02 n.e. 0 5 8 Tagahon Transistor Factory A-08 1,333.4 -15.62 f Dec-85 Aug-88 32 1 301 56.42 n.e. a.e. n.S. 95 20 25 Tianjin Sensitive Film Factory A-12 7,079.9 61.42 b & c Jun-6? n.a. n.e. j n.a. 39.21 U.S. 27.92 n.S. o10 IS n.S. Tianjin Copper itre Mesh Factory A-14 5,000.6 -6.11 f Aug-65 Dec-85 4 1002 19.5z U.a. 16.82 39.22 249 12 t0 Shanghai Li in Paper Hill A-IS 3,526.0 6.0% c &d Aug-7 Dec-88 16 1 902 31.32 4.62 15.22 34.01 0 7 9 tkat Silk Printing 4 Dyeig Factory A-16 1,147.9 -3.42 g Mov-84 Dec-86 25 1 1002 492 402 35.82 n.S. 37.52 U.a. 40 8 6 Toubms, Corrugated Fiberglass Plastic A-18 1,454.7 1.42 Sep-86 Now-87 14 1 252 0 ;".* 23.02 16.02 26.02 29.32 0 7 9 Fusbou Wire Factory A-20 2.218.7 8.62 a Oct-83 Oct-85 0 n6t 47.11 n.S. a.e. n.a. 0 5 6 Tichsag Ro. 5 Plastic Meabbage A-21 1,189.0 -23.62 f Jul-86 Jul-86 0 902 0 952 39.81 15.02 27.02 21.82 60 9 9 ShIjathung 4th Printing & Dyeing Pleat A-24 1,418.2 -0.32 Jan-86 Jan-66 0 742 842 1002 20.22 12.62 14.61 34.52 781 6 a Changshou o. 5 Woolen Kill A-28 1,666.5 19.02 b G c Jan-87 Dec-86 -1 702 34.42 U.S. 31.72 n.a. 56 12 5 Tisbvng Non-Frrous Metal Factory A-30 1,306.2 24.12 a Oct-86 Oct-86 0 402 26.11 U.e. 36.61 n.e. 159 5 2 Average for Sample 2,385.3 28.62 10 all 132 9 8 J0 Disbursed amounts. Jb Supervision visits continue until the subloan is repaid. Cost Overrun Caue*s Cost Underrun Causes$ Tim overrun Causs a. Domestic equipment price increase f. Scale of construction reduced 1. Delay in construction b. Construction and building cost Increase g. Amount of Imported equipment reduced J. Delay in receiving equipment c. Imported equipment price Increase b. Price of equipment reduced k. Equipment breakdown 4. Currency devaluation a. Custom taxes not reduced Sources CIB, based on a sample consisting of about 252 of the subprojects, generally those receiving the largest subloans. For Subioan Sie, IBD disbursement records. (D 00 PROJECT PERFCSMAlCE AUDIT REPORT CIRA INVESIMET AK CIS 1i DATA TIEM A SAMPL OF SUBPROJECTS Wumber of Sub- Subloan Co*t Overrun Start 1p Date Time Overrun 2 Exported Capacity Fit ERMwomber Supervi ton ists proj. SIs* tiltu- of Jobs During During Subproject am Mo. (US00 2 Cause E. Act. Moe. Canse E Act. satten Ar Act. E. Act. Created Consetction Op*r&tt Lb *o. I Knitting Mill of numagabi A-01 1.593.8 45.2t b Sep-87 Jun-88 9 1 302 U.S. 702 29.22 16.11 44.02 19.3z 318 7 a Shanghai Alufioum Fol Plant A-02 10.909.1 66.81 a.c,d Aug-89 U.a. n.a. 23.12 n.a. 14.21 U.a. 550 7 10 Tianjin Paper Laboratory A-04 1,169.1 8.52 d Apr-86 Dec-6 8 1002 35.01 35.01 24.01 24.01 60 a 7 Shanghai Syntbatic Detergent Factory A-05 1,464.3 55.32 a,c.d Jan-69 U.a. n.a. 20% n.a. 36.12 12.22 U.a. n.a. 90 8 5 thAban go. 13 Plastic Factory A-06 1.560.6 78.52 * Aug-86 Apr-88 20 1 402 30.92 11.22 17.42 19.72 0 9 9 Lintyi Knitting Mill A-07 1.714.2 -82.12 t Feb-86 Jan-67 iI 1 802 C.a. 802 28.92 20.52 44.42 33.82 400 5 5 Zhavgjakou Cigarette Factory A-09 1,147.6 20.22 a Bar-86 Sep-86 6 1002 68.22 18.61 69.22 27.01 0 4 6 Beijing Silk M111 A-ll 2.888.1 152.32 b S c Jun-86 Jan-88 19 1 122 0 80% 32.4t 13.22 30.72 12.62 500 10 16 Tianjin Synthetic Detergent Factory A-12 3,810.4 6.62 b Mar-87 Jan-90 35 1 152 0 1002 32.42 14.62 30.71 10.92 56 8 10 Tidt Radio Transformer Factory A-13 1,721.3 93.32 c Dec-85 Jun-6 6 1 502 47.32 n.. 59.62 P.a. 200 ID 4 Chia Tobus, Glass Factory A-14 2.837.4 10.2% e Os $6 Oct-86 0 1002 22.02 17.22 23.01 28.02 1200 9 4 Torgliao tool*n ML1I A-IS 1,700.0 37.42 a 6 e Jun-88 Apr-87 -14 j 702 21.82 0.62 12.81 14.2? 1713 6 13 Guanaftg Silk wil1 A-16 2.639.1 7.42 a & c Jan-86 Jan-86 0 802 33.92 n.a. 34.02 D.a. 50 12 12 Z chang Woolen Mill A-1 1.660.5 26.12 b Jan-86 Jul-87 18 1 201 641 50t 22.91 24.02 31.11 42.3% 32 6 10 Datong General Bicycle Factory A-21 1.650.0 25.6Z b Dec-85 Aug-89 45 1 452 35.62 n.a. 42.32 U.a. 53 5 4 Dega Chemical Plant A-22 9,400.0 48.4Z b . c Aug-87 n.a. U.S. 6 1002 26.02 n.a. 45.02 a.e. 128 2 12 Tanghou Machinery Factory A-26 683.1 -33.92 f Jul-86 Apr-87 9 1 702 30.92 n.e. 44.32 a.&. 48 7 4 Guangdoeg Electrical factory A-27 2.6S0.0 33.92 b Jul-86 Jul-86 0 100z 24.7n U.a. 16.0Z a.*. 30 5 a zhanya Silk Hill A-28 4,129.0 33.82 c Jan-86 May-87 16 1 1002 47.92 n.a. 2.82 n.S. 280 7 15 Dandog Relay factory A-29 2,032.6 71.9% a Mar-86 Apr-86 1 872 n.a. 802 25.72 52.02 43.22 0.01 400 6 4 Banda City *o. 9 Plastics factory A-31 1.836.0 48.02 e Aug-85 Oct-87 26 1 a s o0t 28.51 0.02 12.52 0.01 410 4 7 Shanyang Glass Bottle factory A-32 5.170.0 116.61 a.b.c Sep-87 Jul-88 10 J 502 31.42 -1.42 82.62 4.8 286 7 9 1antoug No. 2 Cotton Hill A-33 1,931.3 14.91 a Dec-87 Jan-69 13 1 802 702 8 21.62 n.*. 46.32 n.e. 80 6 10 X".*o Qao Industry Company A-34 1,669.0 -23.52 f Dec-85 Dec-86 12 1 302 71.92 a.s. 37.82 n.e. 68 6 3 LI) Anbu Silk factory A-35 2,800.0 35.32 c Feb-86 Dec-86 10 j 202 102 802 29.3% 21.52 20.92 19.21 50 7 10 U Chagshou Petroleum Chemical Factory A-36 2.800.0 S.62 Jun-89 a.e. n.a. 802 28.92 0.01 44.52 0.02 89 11 6 Cist County Mo. 2 Cotton Kil1 A-37 2.002.0 15.7 b Oct-86 Apr-87 6 1 252 502 so 18.92 17.82 39.12 25.52 54 5 15 Tantat Glass Factory A-39 2,459.4 I43.52 a & b Dec-86 Jun-87 6 1 1002 28.61 18.42 54.52 35.51 50 11 4 Changthom Packing Embellishing Factory A-41 2.395.3 -3.72 f Jun-87 Sep-86 -9 1002 31.11 23.61 31.32 28.3 59 a 4 Changsh Vashing Machine Factory A-42 2,000.0 76.02 b Aug-86 Aug-86 0 1001 43.61 n.&. 61.22 n.S. 300 10 a Tangshan Mayl Food Factory A-45 1.200.0 1.32 Jan-86 May-87 16 1 651 16.51 11.32 18.82 28.82 41 7 3 9tat trireless Factcry A-46 1,520.2 -24.52 f Jul-86 Dec-86 5 0 52 802 31.81 n.a. 25.72 n.e. 19 7 a Mat Capacitor Pactory A-48 2,170.0 -26.72 f Row-86 Dec-86 I 302 8t 80% 55.01 n.e. 20.22 n.A. 43 7 9 Jlangen Jiag TIn lst Chemical Factory A-50 1,334.2 1.31 May-87 Oct-87 5 752 29.22 0.02 52.12 0.01 34 4 3 UaX no. 6 Component Factory A-53 2,580.0 2.12 Kay-86 Dec-86 7 0 62 1002 51.51 U.a. 40.42 n.S. 49 10 11 Foshan 3rd Domestic Ceramic Factory A-54 2.961.0 1.52 b Dec-89 n.a. n.a. n.e. 28.12 n.a. 48.02 n.a. 65 12 n.a. Shanghai No. I Printing Dyeing Factory 5-11 1,627.8 66.71 a Dec-85 Feb-87 14 1 6 4 752 n.a. 952 74.02 43.61 38.02 57.32 0 4 7 ambat Sen Type guilding Materials Fact. 8-12 681.3 3.12 e Nov-85 Jul-86 8 1 602 35.01 0.01 22.02 0.01 0 4 13 Tiaalin obhat Radio factory 8-13 1,497.0 17.71 d Dec-85 Mov-86 11 j 102 0 1002 42.82 29.7X 45.02 33.42 300 4 8 Tianjin He Ping Pharmaceutical Factory 8-15 2,043.1 30.42 c Dec-85 Dec-86 12 7 401 0 1002 41.41 3.62 38.72 18.5% 56 8 7 Llaontag Jfnzhou Plastic Products Plant N-88 349.6 0.02 Sep-86 Apr-87 7 7 302 28.42 n.a. 46.02 nes. 16 12 4 Average for Sample 2.449.1 32.82 10 731 195 7 a L Disbured amounts. Supervision visits continue until the subloen t repaid. Cost Overrun Causess Cost Underrun Causess Time Overrun Causes- a. ometic equipment price increase f. Scale of construction reduced 1. Delay in construction b. Construction and building cost increase g. Amount of amported equipment reduced J. Delay in receiving equipoent c. Imported equipment price increase h. Price of equipment reduced k. Equipment breakdomn 4. Currency devaluation e. Custom tases not reduced Sources CIB. based on a sample consisting of about 25% of the subprojects, generally those receiving the largest sublanz. For Subloan Size, 18.D disbursement records. PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT AMK CIB i1. DATA FROH A SAMPLE OF SUBPROJECTS Number of Sub- Subloan Cost Overrun Start Up Date Time Overrun 2 Exported Capacity FRI ERR Number Supervision Visits proj. Size / Utili- of Jobs Dtring During Subproject Name (US$000) 2 Cause E Act. Mos. Cause Esp Act, tation Act. Act. Created Construction Opersti L Shandong Jinan Steel Vorks A-01 1.767.7 5.52 a Jan-88 Apr-88 3 70 42.52 46.11 0 10 12 Shanhaiguan Foodstuffs Factory A-OS 3,065.8 103.01 b & c Oct-7 may-8s 7 1 552 372 20Z 18.12 16.91 246 8 10 *azt TV Factory A-06 1,499.8 0.02 Apr-86 Dec-88 33 j n.a. 922 1002 22.5Z 19.71 36 16 18 Hubei Yichang Paper Kill A-07 1,773.1 7.3% e & a Jan-88 May-68 4 j 1002 32.IZ 36.12 0 10 5 Changthou Radio Materials Factory A-08 3,009.4 0.02 Jan-87 Mar-87 2 901 20.22 31.32 54 9 1o Taobus Glass Company A-09 2.509.7 9.62 b Jun-87 Sep-87 3 122 n.a. 85% 35.52 20.02 182 9 7 Changchun Nonferrous Metal Working Fact. A-10 3,691.6 11.42 c 6 d Jun-88 Ang-8 2 802 20.0? 38.22 200 9 10 Tangtbou Printing factory A-Il 2.330.0 6.3Z a Aug-87 Aug-67 0 872 22.22 34.5 47 7 3 Hubel Ltangfan Art Paper Hill A-13 2,030.3 40.42 c 6 e Dec-87 Jun-88 6 1 j 701 41.11 43.42 0 5 6 Yichang Shansla Porcelain Factory A-15 1.759.1 21.02 a & * Juo-88 May-88 -1 482 0 75% 28.5? 38.0? 0 7 9 Xuabou Synthetic Detergent Plant A-16 1,803.1 0.02 a Oct-88 Oct-88 0 1002 35.72 24.0? 46.22 20.02 67 6 4 Hang thou Artificial Fibre Factory A-17 4,647.0 0.02 Sep-86 Oct-S 25 1 15% 0 302 29.52 27.4 52 20 8s Feizian roolen Hill A-Is 1,796.0 7.22 c 6 d Aug-87 Jul-87 -1 482 0 402 14.72 42.22 600 8 31 Sutbou Refrigerator Factory A-19 11,389.6 0.02 Sep-97 Dec-89 -94 1 1O 70.52 25.72 127 0 13 Ne" Type Building Materials Plant A-20 2,980.0 0.02 Mar-85 n.S. .aS. I n.e. 30.22 41.42 260 6 10 Shashi So. I RefrIgerator Parts Factory A-21 1,429.0 11.72 a,b,* Oct-87 Oct-88 12 1 702 42.22 60.4 0 6 5 1 Suzhou TV Factory A-22 768.9 -30.51 z Dec-87 Dec-88 12 j 202 26.02 28.92 41 8 12 Guilin No. 3 Radio Factory A-23 2,985.0 28.92 c 6 d Jan-88 Feb-89 13 1 212 n.&. 701 58.52 21.22 86 10 6 Fusbun Chemical Industrial Plastic Fact. A-24 3.544.5 -3.62 g Jan-89 Jan-89 0 701 21.52 40.22 0 10 10 Vabu Pharmaceutical Factory A-25 2,902.8 -1.92 b Mar-89 Jun-90 I5 1 n.S. 21.62 65.0? 5 12 4 Dandong Gea'l Semiconductor Device Fact. A-26 2,246.2 7.62 * Apr-87 Oct-87 6 1 702 42.12 34.81 100 1 I Changthou General Household Appliances A-29 184.6 0.Ot Oct-87 Aug-S8 10 1 52 19.42 26.12 33 15 11 Dandong Electronic Tuner fectory A-30 2,247.3 -53.22 g Jun-57 Jun-87 0 902 21.92 41.92 80 9 10 tiai Electrical Fan Factory A-31 1,125.7 -10.92 Dec-88 Sep-89 9 j 501 502 100? 20.2? 24.82 Is 8 9 Average for Sample 2.569.4 2.82 3 70 96 10 10 a Disbursed amounts. b Supervision visita continue until the subloan is repaid. Cost Overrun Causes Cost Underrun Causess Time Overrun Causest a. Domstic equipment price iacrease f. Scale of construction reduced 1. Delay in construction b. Construction and building cost increase g. Amount of imported equipment reduced 3. Delay in receiving equlpmeant c. Imported equipment price iacre*se b. Price of equipment reduced k. Equipment breakdown d. Currency devaluation e. Cusetom taxes not reduced Sources CIS. based on a Sample consisting of about 252 of the subprojects, generally those receiving the largest subloans. For Subloan Size. IBRD disbursement records. - 37 - Annex 11 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK CIO I - III: ARREARS SITUATION AS OF JUNE 30, 1990 (amounts in mittions of yuan) Unprofitable Companies Companies Companies Profitable Under or Those in in Companies Construction Difficulty Liquidation Total Over 3 to 6 Months Number 1 0 0 0 1 Principal 0.77 0.77 Interest 0.31 0.31 Subtotal 1.08 1.08 Over 6 to 12 Months Number 4 1 8 0 13 Principal 11.54 0.11 4.42 16.07 Interest 3.78 0.71 4.59 9.08 Subtotal 15.32 0.82 9.01 25.15 Over 1 Year Number 4 1 6 0 11 Principal 6.11 0.45 2.84 9.40 Interest 2.22 0.00 0.87 3.09 Subtotal 8.33 0.45 3.71 12.49 Total in Arrears Number 9 2 14 0 25 Principal 18.42 0.55 7.26 26.23 Interest 6.31 0.71 5.47 12.49 Total 24.72 1.27 12.72 38.71 Total Outstanding to These 25 Companies Principal 36.47 13.32 48.13 97.92 Interest 7.17 0.71 5.47 13.35 Total 43.63 14.03 53.60 111.26 Arrears as % of Total Outstanding Principal 50.5% 4.2% 15.1% 26.8% Interest 88.0% 100.0% 100.0% 93.61 Total 56.7% 9.0% 23.7% 34.8% Source: CIB. - 38 - Annex 12 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK STAFF RECEIVING TRAINING, 1983-90 6 months 1983 1984 1985 199 1987 1988 1989 1990 Cumutative Staff Attending Domestic Trainina Courses /a Less than 1 Month - 30 120 130 35 405 164 884 1 - 6 Months 10 90 240 100 143 102 36 61 782 More than 6 Months - - - - 5 1 - TotaL Number of Staff 10 90 270 220 273 142 442 225 1,672 c. E W WWW us. u.: 5:: 55::E Staff Attending Overseas Training Courses /b Less than 1 Month 1 6 10 8 18 10 6 20 79 1 - 6 Months - - 2 3 2 17 7 31 More than 6 Months - - - 4 4 2 4 - 14 TotaL Number of Staff 1 6 10 14 25 14 27 27 124 WW 5E 55 WE :5 WE SnZ a Organized by Head office; a number of branches aLso organize their own courses. L Organized by Head Office; branches organize onLy a few on their own. Source: CIS. - 39 - Annex 13 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK OPERATIONS, 1983-90 (in mitlions of yuan unless otherwise stated) 6 mos. 1983 1984 1985 1986 1987 1988 1989 1990 Loan Requests Received Number 57 164 247 251 316 352 97 52 Local Currency 225.1 376.9 377.5 301.0 535.7 539.3 88.5 15.1 Foreign Currency La 317.3 592.0 824.0 917.6 1,612.6 1,647.8 648.4 378.4 (USs million) (113.3) (211.4) (280. (265.8) (433.3) (442.) (172.2) (801) Total 542.4 968.9 1,201.5 1,218.6 2,148.4 2,187.1 736.9 393.5 Loan Approvals Number 31 95 230 94 281 328 134 27 Local Currency 119.9 184.4 335.1 276.8 525.9 506.3 45.6 (2.1) Foreign Currency a 137.7 185.5 640.3 640.3 1,522.9 1,578.8 812.0 249.0 (US$ million) (49.2) (66.2) (218.0) (185.4) (409.2) (424.2) (215.7 (52.7) Total 257.6 369.8 975.4 917.1 2,048.8 2,085.2 857.6 247.0 Loan Commitments LocaL Currency 32.5 188.1 328.1 344.2 457.8 484.2 63.1 4.2 Foreign Currency La 46.2 231.0 595.3 600.4 1,138.6 1,637.9 554.6 466.9 (USS million) (16.5) (82.5) (202.) (173.9) (305.9) (440.1) (147.3) (98.9) Total 78.7 419.1 923.4 944.6 1,596.4 2,122.1 617.7 471.1 Loan Disbursements Local Currency 4.8 109.1 220.3 364.8 450.9 523.6 297.4 38.6 Foreign Currency L 9.2 52.9 331.3 693.0 913.0 1,716.9 1,069.9 390.7 (USS million) 13.3) (18.9) (112.) (200. (245.3) (461.3) (284.2) (8.7) Total 14.0 162.0 551.6 1,057.8 1,363.9 2,240.5 1,367.2 429.3 Lan Requests ReJected Number 45 25 35 62 14 7 Local Currency 132.2 81.0 55.2 109.4 2.9 0.0 Foreign Currency La 321.7 220.9 151.6 325.9 60.8 43.5 (US$ million) (109.6) 6 (40.7) (87.6) (16.2) (9.2) Total 454.0 301.9 206.8 435.3 63.7 43.5 La Exchange rates: 1983/84 : $1 = Y 2.8000 (period average) 1985 : $1 = Y 2.9367 1986 : S1 = Y 3.4528 1987 : $1 a Y 3.7221 1988 : SI = Y 3.7221 1989 : SI = Y 3.7651 1990 (6 mos.): $1 = Y 4.7221 Source: CIB. - 40 - t- aex 14 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVES1TENT ANRK BALANCE SHEETS, 1983-90 (in yuan 000's) June 30, December 31, 1983 1984 1985 1986 1987 1988 1989 1990 - - - - - - - - - - - - - - - - - audited - - - - - - - - - - - - - - - - ASSETS Current Assetes Cash and Bank Deposits 510.291 724,889 400,868 779,326 748,687 952,123 829,103 786,120 Account Receivables 293 388 80.529 64.811 38,370 65,802 61,557 91,500 Due from Foreign Banks - - - - - 183,401 106,807 2,000 Inter-bank Loans -228236 736,890 649,872 555,940 Subtotals Current Assets 510,584 725,277 481,397 844,137 1,015,293 1,938,216 1,647,339 1,435.560 Investment Loanst Long-tern Foreign Currency 9,330 61.525 389.147 1,071,266 1,695,669 3,024,104 4,529.739 4.749,970 Long-term Local Currency 28,812 105,378 318,313 643.859 1,098,649 1,425,474 1,598,362 1,595,210 Working Capital ------- Z 1,014,755 1,267.380 Subtotals Investment Loans 38,142 166,903 707.460 1,715.125 2.794,318 4,449,578 7,142,856 7,612,560 Less: Provision for Loan Loss (a) 41) (2,744) (6,831) (3,646) (14,823) (21,488) (22,430) Net Investment Loans 38,134 166,862 704,716 1,708,294 2,790.672 4.434,755 7.121,368 7,590,130 Equity Investments 1,840 5,329 6,801 13,951 32,056 14,875 12,820 Subtotali Portfolio 38,134 168,702 710,045 1,715,095 2.804,623 4,466,811 7,136,243 7,602,950 Prepaid and Deferred Charges 1,594 2,210 2,264 2.889 2,667 2,447 3,122 3.180 Net Fixed Assets 17 380 1.446 1,948 3,669 7,319 10,699 11,720 Other Assets - - 62553 7,192 3,883 289,571 830,111 1,295,300 TOTAL ASSETS 550,489 896,569 1,257,705 2,571,261 3.830,135 6,704,364 9,627,514 10,348,710 LIABILITIES AND NET WORTH Current Liabilities, Foreign Currency Deposits - - 2,933 3,155 198,977 629,558 745,625 711,070 Local Currency Deposits - 384 10,422 16,985 121,804 731,565 575,037 592,440 Deposits for Cuarantee - * - - - 38,983 37,963 42,780 Accounts Payable 78 1,417 65,314 26,453 49,201 39,277 83,276 125,590 Taxes Payable - - - - - 4,563 1,674 a.&. Inter-bank Borioinge _ 68.700 408,410 532,590 563,130 Subtotals Current Liabilities 78 1,801 78,469 46,593 438,682 1,852.356 1,976,165 2.037,010 Long-term Debts Foreign Currency 5,225 33,831 215.099 899,231 1,448,977 2,596,548 4,197,152 4,292,760 Local Currency 140,000 440,000 420.000 420,000 420,000 520,000 620,000 628,000 Subtotals Long-term Debt 145.225 473,831 635,099 1,319,231 1,868,977 3,116.548 4.817,152 4,920,760 Other Log-term Liabilities 10,027 112.937 199,761 161.706 222,671 1,146,344 1,622,780 Subtotalt Total Liabilities 145,303 485,659 826,705 1,565,585 2,469,365 5,191,575 7,939,661 8,580,550 Net Worth 405,186 410.910 431,000 1.005.676 1.360,770 1.512.789 1,687,853 1.768,160 TOTAL LIABILITIES AND NET WORTH 550,489 896,569 1,257,705 2,571,261 3,830,135 6,704,364 9,627,514 10,348.710 Sources CIB* Auditor's Report (1983-1989) and CIB (1990). - 41 - Annex 15 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK INCOHE STATEMENTS. 1983-90 (in yuan 0001s) June 30, Tear Ending December 31, 1983 1984 1985 1986 1987 1988 1989 1990 - - - -- - - - - - - - - - - Audited - - - - - - - - - - - - - INCCHE Interest Incomes Foreign Currency Investment Loans ) 1,833 14,430 66,405 115,062 200,111 292,690 123,610 Local Currency Investment Loans ) 1,284 2,251 16.238 46,083 79,798 157,561 242,730 132.450 Deposits 6.492 11,171 12,554 25,783 29,207 34,763 87,070 54,970 Subtotalo Interest Income 7,776 15,254 43,223 138,271 224,067 392,435 622,490 311,030 Other Income - 9 72 274 1,034 4,490 7,840 4,030 TOTAL INCCHE 7,776 15,263 43,295 138,546 225,101 396,925 630.330 315,060 EXPENSES Financial Expensees Foreign Currency Borrowings n.a. 2,982 9,127 44,021 92,166 150,810 288,670 158,950 Local Currency Borrowings n.a. 4,509 7,711 19,056 18,467 27,190 76,500 45,840 Foreign Currency Deposits n.a. - - - - 9,380 28,070 10,890 Local Currency Deposits n.e. - 538 591 2,974 6,950 24,220 9,290 Commiseions U.e. - - - - 920 1,310 260 Subtotals Financial Expenses n.a. 7,491 17.376 63,668 113,608 195,250 418,770 225,230 Administrative and Other Expenses 2,149 1,682 3,771 7,925 14,487 22,270 26,046 10.698 Amortisation of Front-end Fees 84 121 128 112 222 244 204 n.a. Depreciation 9 21 58 87 87 270 870 420 Provision for Loan Lose 8 33 2,703 4,088 (3,186) 11,177 8,440 942 Business Tax 389 205 1,554 3,658 5,547 11,084 15,950 3,770 TOTAL EXPENSES 2.6SF 9.552 25,589 79,538 130,766 240,295 470,280 241060 Profit Before Income Tax 5,137 5,711 17,706 59,008 94,335 156,630 160,050 74.000 Lessa Income Tax 0 0 0 0 0 95,544 97,630 a.e. NET PROFIT 5,137 5,711 17,706 59,008 94,335 61,086 62,420 W.S. Financial Expenses in 1983 are included with Administrative and Other Expenses Sources CIB's Auditor's Report (1983-1989) and CIB (1990). - 42 - Annex 16 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESThENT BANK SOURCE AND USE OF FUNDS STATEHENTS, 1983-90 (in yuan 000's) June 30, Year Ending December 31, 1983 1984 1985 1986 1987 1988 1989 1990 ----- --------- - - audited - - - - ----------- SOURCE OF FUNDS ProvidedFrom Operations Net Profit 5,137 5,711 17,706 59,008 94,335 61,086 62,420 74,000 Items Not Involving Cash Movements Asortisation of Front-end Fees 84 121 128 112 222 244 204 0.a. Depreciation 9 21 58 87 87 270 870 420 Adjustment to Depreciation a - - - - - - (42) - Provision for Loan Loss 8 33 2,703 4,088 (3.186) 11,177 8,440 942 Adjustment to Loan Loss Provision La (1,775) Subtotals From Operations 5,238 5,886 20,595 63.295 91,458 72,777 70,117 75,362 Provided from External Financing (net) Foreign Currency Borrowings 5,225 28,606 181,268 684,132 549,746 1,147,571 1,600,604 95,608 Local Currency Borrowings 140,000 300,000 (20,000) 0 0 100,000 100,000 8,000 FoLeign Currency Deposits - * 2,933 222 195,822 430,581 116,067 (34.555) Local Currency Deposits - 384 10,038 6,563 104,819 609,761 (156.528) 17,403 Deposits for Guarantees - - - - - 38,983 (1,020) 4,817 Increase in Share Capital & Special Funds 400,049 13 2,385 515,667 260,759 90,933 112,644 6307 Subtotals From External Financing 545,274 329.003 176,624 1,206.584 1,111,146 2,417,829 1,771,767 97,580 Inc.l(Dec.) in Accounts & Taxes Payable 78 1,339 63,897 (38,861) 22,748 (5.361) 41,110 40,640 Inc./(Dec.) in Other Long-term Liabs. - 10,027 102,910 86,824 (38,055) 60,965 923.673 476,436 TOTAL SOURCES 550,590 346,255 364,025 1,317.842 1,187,297 2,546,210 2,806,667 690,018 USE OF FUNDS Long*term Loan Disbursements 42.980 138,806 604,020 1,201,779 1.460,561 2,298,240 1,637.624 n.a. Least Repayments (4,838) (10,045) (63,463) (180,317) (377,004) (656,100) (601,742) n.a. Adjustments /b (13,797) (4,364) 13,120 642,642 Subtotals Long-term Loans 38,142 128,761 540,557 1,007,665 1,079,193 1,655,260 1,678,523 217,079 Working Capital Loans (net) . - - - - - 1,014,755 252,625 Equity Investments - 1,840 3,489 1,472 7,150 18,105 (17,181) (2,055) ncn./(Dec.) in Cash and Bank Deposits 510.291 214,598 (324,021) 378,458 (30,639) 203,436 (123,02m) (42,983) Inc./(Dec.) to Inter-bank Loans (net) - - - 159,536 168,;44 (211,198) (126,472) Inc./(Dec.) in Other Current Assets 293 95 80,141 (15,718) (26,441) 210,833 (80,839) (74,864) Inc.1(Dec.) in Prepaid Charges (gross) 1,680 735 182 737 0 24 880 58 Inc./(Dec.) in Fixed Assets (gross) 184 226 1,124 589 1,808 3,920 4,208 1,441 Inc.I(Dec.) in Other Assets 62,553 (55,361) (3,310) 285,688 540,539 465,189 TOTAL USES 550,590 346,255 364,025 1,317.842 1,187,297 2,546,210 2,806,667 690,018 ..m.......e.......e .......m..................m ......... ......... /a This adjustment is necessary in order to re,oncile the audited Balance Sheet with the audited Income Statement. L These adjustments are necessary in order to reconcile the audited Balance Sheet with the Auditor's Supplementary Information regarding long-term loan disbursements and repayments. Sources CIB's Auditor's Report (1983-1989) and CIB (1990). - 43 - Annex 17 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK FINANCIAL RATIOS, 1984-90 1984 1985 1986 1987 1988 1989 1990 (annuaLi zed) Loan Income as % of Average Investment Loans Foreign Currency 5.17% 6.40% 9.09% 8.32% 8.48% 7.75% 5.33% Local Currency /a 3.35% 7.67% 9.58% 9.16% 12.48% 12.02% 9.68% Financial Expense as % of Average Long-term Debt Foreign Currency 15.27% 7.33% 7.90% 7.85% 7.46% 8.50% 7.49% Local Currency 1.55% 1.79% 4.54% 4.40% 5.79% 13.42% 14.69% Provision for Loan Loss as % of Investment Loans / 0.02% 0.39% 0.40% 0.13% 0.33% 0.30% 0.29% Ratios Long-term Debt/Net Worth 1.15 1.47 1.31 1.37 2.06 2.85 2.78 Current 402.71 6.12 18.12 2.31 1.05 0.83 0.70 Major Income Statement Items as % of Average Total Assets Interest Income 2.11% 4.01% 7.22% 7.00% 7.45% 7.62% 6.23% Total Income 2.11% 4.02% 7.24% 7.03% 7.54% 7.72% 6.31% Financial Expenses 1.04% 1.61% 3.33% 3.55% 3.71% 5.13% 4.51% Administrative and Other Expenses 0.23% 0.35% 0.41% 0.45% 0.42% 0.32% 0.21% Total Expenses 1.32% 2.38% 4.15% 4.09% 4.56% 5.76% 4.83% Profit Before Income Tax 0.79% 1.64% 3.08% 2.95% 2.97% 1.96% 1.48% Net Profit 0.79% 1.64% 3.08% 2.95% 1.16% 0.76% /a Includes working capital loans in 1989 and 1990. Source: Based on data from CIB's Auditor's Report (1984-1989) and CIB (1990). PROJECT PERFORMANCE AUDIT REPORT CHINA INVESTMENT BANK RESOURCE MOBILIZATION, 1983-89 (in mili ons of units) 1983 1984 1985 1986 1987 1988 1989 LM! Pon (US f CS) Q usf) 15 IM (fl _"M -MyTT Morld Bank Loans/IDA Credits; General Credit Lines 70.6 - 175.0 - - - 100.0 - 300.0 - - - 300.0 - Tianjin Light industry Project - - - - - - - - - - 141.2 - Asian Development Bank - - - - - - - - 100.0 - - Foreign Financial Institutions - - - - - - 60.0 - 44.0 - 130.0 - 25.0 Domestic Borrowings - 140.0 - 280.0 - - - - - 100.0 - 100.0 Paid-in Capital - 400.0 - - - - - 500.0 - 250.0 - - - - Deposits (net) /- - 0.4 1.0 10.0 0.1 6.6 .2.6 104.8 115.7 6 30.8 (156.5) TOTALS 70.6 540.0 175.0 280.4 1.0 10.0 160.1 506.6 396.6 354.8 345.7 709.8 497.0 (56.5) La Foreign currency deposits were converted from Y to US$ using the following exchange rates (period average): 1985: $1 = Y 2.9367 1986: S1 = Y 3.4528 1987: $1 = Y 3.7221 1988: $1 = T 3.7221 1989: $1 = Y 3.7651 Source: CI8 and CIB's Auditor's Reports. C PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK COMPANIES IN ARREARS. 1986-90 (amounts in millions of yuan) June 30, December 31, 1986 1987 1988 1989 1990 Profitable Companies Number n.a. n.a. n.a. n.a. 14 23.7% Principal 1.02 26.0% 2.37 51.6% 5.25 35.5% 44.87 41.9% 27.93 39.0% Interest 1.52 38.6% 0.36 7.8% 1.43 9.7% 14.63 13.6% 9.69 13.5% Subtotal 2.54 64.6% 2.73 59.4% 6.68 45.1% 59.50 55.5% 37.62 52.6% CoManies Under Construction Number n.a. 0 n.a. n.a. 12 20.3% Principal 0.34 8.5% 0.00 0.0% 5.50 37.2% 19.13 17.8% 7.93 11.1% Interest 1.06 26.9% 0.00 0.0% 0.40 2.7% 4.37 4.1% 2.70 3.81 Subtotal 1.40 35.4% 0.00 0.0% 5.90 39.9% 23.50 21.9% 10.63 14.9% Unprofitable Companies or Those in Difficulty Number 0 n.a. 5 47 29 49.2% Principal 0.00 0.0% 1.40 30.4% 2.02 13.6% 12.79 11.9% 12.25 17.1% Interest 0.00 0.0% 0.26 5.7% 0.17 1.1% 7.68 7.2% 7.32 10.2% Subtotal 0.00 0.0% 1.66 36.1% 2.19 14.8% 20.47 19.1% 19.57 27.4% Companies in Liquidation Numbier 0 n.a. 1 4 4 6.8% Principal 0.00 0.0% 0.17 3.7% 0.03 0.2% 2.57 2.4% 2.57 3.6% Interest 0.00 0.0% 0.04 0.8% 0.00 0.0% 1.16 1.1% 1.16 1.6% Subtotal 0.00 0.0% 0.21 4.5% 0.03 0.2% 3.73 3.5% 3.73 5.2% Total in Arrears Number n.e. n.a. n.a. n.a. 59 100.0% Principal 1.36 34.6% 3.94 85.7% 12.80 86.5% 79.36 74.0% 50.68 70.8% Interest 2.58 65.4% 0.66 14.3% 2.00 13.5% 27.84 26.0% 20.87 29.2% Total 3.94 100.0% 4.60 100.0% 14.80 100.0% 107.20 100.0% 71.55 100.0% Source: CIB's Auditor's Report (1986-1989) and CIB (1990). PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK AGE OF ARREARS, 1986-90 (amounts in millions of yuan) June 30, December 31, 1986 1987 1988 1989 1990 _ %_ % Over 3 to 6 Months Principal 0.00 0.0% 0.18 3.8% 5.21 35.2% 32.21 30.0% 5.21 7.3% Interest 0.61 15.4% 0.00 0.0% 1.28 8.7% 6.07 5.7% 1.94 2.7% Subtotal 0.61 15.4% 0.18 3.8% 6.49 43.9% 38.28 35.7% 7.15 10.0% Over 6 to 12 Months Principal 1.36 34.5% 0.74 16.2% 7.09 47.9% 33.02 30.8% 28.49 39.8% Interest 0.11 2.8% 0.13 2.8% 0.69 4.7% 12.61 11.8% 12.19 17.0% Subtotal 1.47 37.3% 0.87 18.9% 7.78 52.5% 45.63 42.6% 40.68 56.9% Over 1 to 2 Years Principal 0.00 0.0% 3.02 65.7% 0.50 3.4% 11.65 10.9% 16.98 23.7% Interest 1.86 47.3% 0.53 11.6% 0.03 0.2% 7.59 7.1% 6.74 9.4% Subtotal 1.86 47.3% 3.55 77.3% 0.53 3.6% 19.24 17.9% 23.72 33.1% Over 2 Years Principal 0.00 0.0% 0.00 0.0% 0.00 0.0% 2.48 2.3% /a Interest 0.00 0.0% 0.00 0.0% 0.00 0.0% 1.57 1.5% /a Subtotal 0.00 0.0% 0.00 0.0% 0.00 0.0% 4.05 3.8% /a Total in Arrears Principal 1.36 34.5% 3.94 85.7% 12.80 86.5% 79.36 74.0% 50.68 70.8% Interest 2.58 65.5% 0.66 14.3% 2.00 13.5% 27.84 26.0% 20.87 29.2% Total 3.94 100.0% 4.60 100.0% 14.80 100.0% 107.20 100.0% 71.55 100.0% /a Included in Over 1 to 2 Years. Source: CIB's Auditor's Report (1986-1989) and CIB (1990). 0 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK ARREARS ANALYSIS, 1986-90 (amounts in millions of yuan) June 30, Decewber 31, 1986 1987 1988 1989 1990 % % % %% Total in Arrears Over 3 Months Principal 1.36 34.5% 3.94 85.7% 12.80 86.5% 79.36 74.0% 50.68 70.8% Interest 2.58 65.5% 0.66 14.3% 2.00 13.5% 27.84 26.0% 20.87 29.2% Total 3.94 100.0% 4.60 100.0% 14.80 100.0% 107.20 100.0% 71.55 100.0% Total Portfolio Affected Principal n.a. 10.41 202.87 280.02 191.53 Interest n.a. 1.27 2.24 35.73 22.15 Total n.a. 11.69 205.11 315.75 213.68 Arrears as % of Affected Portfolio Principal n.a. 37.9% 6.3% 28.3% 26.5% Interest n.a. 51.8% 89.3% 77.9% 94.2% Total n.a. 39.4% 7.2% 34.0% 33.5% Total Loan Portfolio 1,715.1 2,794.3 4,449.6 7,142.9 7,612.6 Principal in Arrears as % of Total Portfolio 0.08% 0.14% 0.29% 1.11% 0.67% Total Arrears as % of Total Portfolio 0.23% 0.16% 0.33% 1.50% 0.94% Affected Portfolio as % of Total Portfolio n.a. 0.42% 4.61% 4.42% 2.81% Source: CIB's Auditor's Report (1986-1989) and CIB (1990). - 48 - Annex 22 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK STAFF MOVEMENTS, 1982-90 6 months 1982 1983 1984 1985 1986 1987 1988 1989 1990 Staff at Beginning of the Year 0 50 114 321 576 655 975 1,314 1,539 Staff Joining During the Year 50 67 208 313 113 378 447 247 11 Staff Leaving During the Year - (3) (1) (58) (34) (58) (108) (22) (35) Staff at End of the Year 50 114 321 576 655 975 1,314 1,539 1,515 of which: Economists 22 44 154 267 325 520 663 688 689 Financial AnaLysts/Accountants 6 12 35 57 84 141 232 336 341 Engineers 4 10 38 102 84 122 184 177 184 Other Professional Level 18 16 30 40 70 60 79 134 91 Support 0 32 64 110 92 132 156 204 210 Source: CIB. - 49 - Annex 23 PROJECT PERFORMANCE AUDIT REPORT CHINA CHINA INVESTMENT BANK STAFF DEPLOYMENT - JUNE 30, 1990 No. of No. of Staff Sub-Branches Head Office 182 Branches (30): Beijing 41 Shanghai 65 Jiangsu 145 7 Hebei 113 4 Hubei 139 5 Tianjin 61 Liaoning 63 1 Fujian 49 3 Shandong 50 2 Anhui 37 Zhejiang 28 Heilong-Jiang 24 Guangdong 62 3 Guangxi 36 3 Sichuan 16 Inner Mongolia 22 Shanxi 24 Jilin 35 Hunan 56 Henan 20 Shaanxi 14 Hainan 18 1 Harbin 18 Shenyang 37 Dalian 37 Qing Dao 22 Chong Qing 24 Wuhan 24 Guangzhou 31 Shen Zhen 22 Totals 1.515 29 Source: CIB. - 51 - PROJECT COMPLETION REPORT CHINA THE SECOND AND THIRD INDUSTRIAL CREDIT PROJECTS (CIB II AND III) (LOAN 2434-CHA/CREDIT 1491-CHA AND LOAN 2659-CHA/CREDIT 1663-CHA) May 21, 1991 Industry and Energy Operations Division Country Department III Asia Regional Office - 53 - PROJECT COMPLETION REPORT CHINA THE SECOND AND THIRD INDUSTRIAL CREDIT PROJECTS (CIB II AND III) (LOAN 2434-CHA/CREDIT 1491-CHA AND LOAN 2659-CHA/CREDIT 1663-CHA) PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Project Identity 1.1 Project Name: Industrial Credit Project (China Investment Bank, CIB) Loan/Credit Number: Loan 2434-CHA/Credit 1491-CHA and Loan 2659-CiA/Credit 1663-CHA RVP Unit: Asia Region Country: China Sector: Industry and Finance Subsector: Financial Interediary 2. Background 2.1 When the Bank's first line of credit to the China Investment Bank (CIB I, Loan 2226-CiA/Credit 1313-CA) was approved in December 1982, China had just initiated a program of reform and adjustment to improve the efficiency of the economy. Rural reforms started in 1978/79 and reforms in the industrial sector were initiated in 1983/84. The Bank and the Government of China (GOC) had also begun to develop a longer-term strategy for the Bank Group's industrial lending to China. In the context of the economic goals at that time, China's industrial sector needed foreign exchange and more efficient intermediation mechanisms to support the "transformation" investments and to upgrade industrial technologies and processes. The GOC was also exploring ways to improve the operations and efficiency of the financial system. Planned mea- sures were to include the establishment of nCw financial institutions, treamlining of some functions of existing institutions, and the eventual development of a financial system consisting of sophisticated banking and other financial institutions (universal banks, merchant banks, and nonbank financial intermediaries). 2.2 In December 1981, the State Council approved a special charter estab- lishing the China Investment Bank (CIB), one of the first of the new institutions which would form part of an increasingly competitive and efficient financial intermediation system. CIB was expected to borow funds from interrational financial institutions, including the World Bank, to finance investment loans for small- and medium-sized light industrial enterprises needing foreign exchange. 2.3 The First Industrial Credit Project (CIB ) was the first in a series of projects the Bank has supported to help the CIB develop into an important actor in China's economic reform program. CIB I consisted of Loan 2226-CA ($40.6 million) and Credit 1313-CiA (SDR 28.0 million), which were provided on standard IBRD/IDA terms for the People's Republic of China (PRC). The proceeds of the loan/credit were onlent to subborrowers in the light industrial sector. - 54 - The loan was closed on December 31, 1988, and the PCR was issued on June 21, 1990. 2.4 The second credit line project (CIB II), consisting of Loan 2434-CHA ($105.0 million) and Credit 1491-CHA (SDR 65.8 million), was approved by the World Bank on June 4, 1984. The loan, credit, and project agreements, signed on June 25, 1984, specified: (i) standard IBRD/IDA terms for the PRC; (ii) a fixed interest rate of 7.0 percent per annum, plus commitment fees equal to those under the loan and credit, and a maturity period of 20 years, including a grace period of 5 years for onlending by GOC to CIB; (iii) a minimum interest rate of 8.0 percent per annum and a maximum maturity of 12 years including the grace period for onlending by CIB to subborrowers; and (iv) GOC's assumption of the interest rate risk and the foreign exchange risks between the US dollar and SDR and the currency pool for the loan/credit, and the subborrowers' absorption of the foreign exchange risk between the US dollar and local Yuan. 2.5 The third credit line project (CIB III), consisting of Loan 2659-CHA ($75.0 million) and Credit 1663-CHA (SDR 22.8 million), was approved by the Bank on March 4, 1986. The loan, credit, and project agreements were signed on April 16, 1986. The terms and conditions of these agreements were the same as those for CIB II, except for CIB's relending rate to subborrowers, which was raised from 8.0 percent to 8.5 percent per annum. The closing date is June 30, 1991. 2.6 The Bank has two more credit line projects, CIB IV and CIB V, approved, respectively, in March 1987 and May 1989. CIB IV consisted of Loan 2783-CHA ($250 million) and Credit 1763-CHA (SDR 40.9 million). CIB V was based on Loan 3075-CHA ($300 million). These two projects are currently being implemented. 2.7 This PCR covers both CIB II and CIB III (the projects). Sections 3 and 4 explain the objectives, design, and organization of these two projects. Section 5 reviews CIB's performance on project implementation. Section 6 provides institutional, financial, and operational background on the CIB, as well as the results of project-specific analyses. Sections 7-9 highlight conclusions and lessons learned from the projects. 3. Proiect Objectives and Description 3.1 The objectives of the two projects covered in this PCR were almost identical. Both emphasized building up CIB's institutional capacity to achieve its organizational mandates. The CIB was established to provide foreign exchange for industrial financing and to improve investment efficiency in the small and medium light industrial sector. The CIB was to be the first development bank in China to provide term financing based on comprehensive project analysis, with a focus on economic appraisal. CIB I designed to help the CIB establish its basic institutional structure and operational procedures; CIB II and III under review were designed to allow the CIB to broaden its capacities by: (i) moving further upstream into project design; (ii) improving its appraisal work, especially in the weaker branches; and (iii) gaining experience in appraising larger and more complex projects, including those involving sectoral concerns. - 55 - 3.2 The projects provided investment subloans for eligible enterprises in the light industrial sector. The program for improving CIB's overall appraisal capacity under CIB II (funded from the proceeds of CIB I) included: (i) the recruitment of new qualified junior and senior staff; (ii) the use of outside consultants; (iii) expanded overseas and domestic training; and (iv) revisions to the CIB Appraisal Manual, taking into account lessons learned from CIB I. Under CIB III, a program to build up the CIB's capacity for resource mobilization and cash management was implemented. 4. Project Design and Organization 4.1 The projects were designed to allow the CIB to firm up its institu- tional capacity and consolidate its market niche. Bank support was extended to assist the new financial institution in quickly building up its capacity for project preparation, appraisal, and supervision. Such a task could not have been achieved as easily without Bank support because of the CIB's limited funding and the nascent state of baning practices in the county at that time. 5. Proiect Implementation 5.1 Loan Effectiveness and Implementation Schedule. The loan/credit for CIB II became effective on December 8, .1984--about three months after the planned date. This delay was mainly due to a delay in CIB's hiring of a qual- ified senior engineer and an experienced economist satisfactory to the Bank. These talents were needed for the CIB to strengthen its capability for techni- cal and economic analyses in subproject appraisal. The original loan closing date was June 30, 1989. This date was later extended to June 30, 1990. The main reason for the extension was a delay in the completion of several sub- projects; most of the subprojects were completed on schedule. 5.2 The loan/credit for CIB III became effective on July 3, 1986--about two weeks before the planned date. However, the loan closing date was extended from the original date of June 30, 1990 to June 30, 1991 because of a delay in the implementation of certain subprojects. These subprojects were mainly affected by the shortage of local funds resulting from GOC's economic austerity program initiated in late 1988. 5.3 The Bank and the CIB have maintained a good working relationship throughout the implementation of the two projects. The Bank has responded to requests from the CIB in a timely and sincere manner, and the CIB has been receptive to recommendations made by Bank supervision missions. 6. Project Results 6.1 Both projects performed well in terms of meeting their specific objectives. The CIB utilized the proceeds of the loans/credits to support economic investments (subprojects) in the light industry sector, in line with the lending criteria agreed with the Bank. Overall implementation of these subprojects was satisfactory, and most of the subprojects are operating at a satisfactory level of capacity. The CIB's institutional capacity has been enhanced during project implementation, and its overall financial situation is sound. -56 - 6.2 However, despite the successful implementation of these and other Bank- supported projects, the ClB faces an uncertain future due to the changing environment in the financial sector.1/ In particular, the CIB has experi- enced a major setback in lending in recent years due to increasing difficulties in resource mobilization 6.3 Since its establishment, the CIB has had a privileged access to foreign exchange resources from international development agencies, including the World Bank and the Asian Development Bank (ADE). The CIB also has had special access to local funds, provided by GOC as matching funds for foreign currency loans. The CIB's special capacity for resource mobilization has been the basis of its comparative edge over other banks in the term lending market. This position has begun to deteriorate in recent years as the CIB has found it harder and harder to obtain additional resources from both sources. Emerging competition in the financial market has posed another challenge. Other institutions with a wider range of services and a stronger capacity for domestic resource mobilization, including its own parent institution (the People's Construction Bank of China, PCBC), are now allowed to borrow from international development agencies and lend on foreign exchange terms. In fact, CIB's position in the term lending market has eroded significantly since 1989, when the Government stopped providing additional local funds to CIB. Because of these factors, the CIB's lending level for foreign exchange and local currency has decreased sig- nificantly since the peak of 1987. 6.4 The CIB's current difficulty stems primarily from its unclear role and position in the changing financial sector. Since China's financial sector is still in its infancy, the role of financial institutions is lar&ely dictated by the intentions of related government agencies, including the Ministry of Finance (MOF), the State Planning Commission (SPC), and the Peoples' Bank of China (PBC). Traditionally, these agencies have viewed the CIB as a financial intermediary channeling funds from international development agencies--mainly the Bank--to small- and medium-sized industrial enterprises. When the CIB was a new institution operating in an unstructured financial market, this view did not hinder its development. However, as the financial market took on more structure, this perception became quite limiting. Therefore, an agreement had to be reached between CIB/GOC and the Bank on a development strategy for the CIB. This strategy was developed during the preparation of CIB V, which was approved in 1989. 6.5 The strategy spelled out the need for the CIB to function more inde- pendently as a banking institution, to provide a wider range of products and services, and to receive institutional and policy backing from the Government in order to mobilize foreign and local resources from diversified sources. Apart from some superficial changes, such as the granting of permission for commercial borrowing abroad, the Government has not shown sufficient support 1/ A good description of the major changes taking place in the financial sector is found in the following reports: (a) Staff Appraisal Report No. 7650-CHA for the Fifth Industrial Credit Project (CIB V), dated April 28, 1989; and (b) Chinese Financial Sector Review--Financial Policies and Institational Development, Report No. 8415-CHA, dated June 1990. - 57 - for progress to occur in these areaG. On the contrary, adverse conditions were created for the CIB when the Government stopped providing local currency resources by means of taking deposits or issuing bonds. 6.6 The CIB's future role clearly needs to be defined, and a strategy should be developed consistent with this role. The strategy should take into account the CIB's institutional and resource mobilizing capabilities and its comparative advantages and disadvantages with respect to other banking insti- tutions. Very recently, the Bank has initiated a dialogue with CIB and related government authorities about the bank's future role and strategy in connection with expected changes in the financial market. Development of Institutional Capacity 6.7 Policies and Strategies. The backbone of the CIB's operating policies during the implementation of CIB II and III has been its Policy and Development 0tritegy Statement. This document was approved by the Bank and CIB's Board for CIB I, and has been used in implementing CIB II and III also. According to the Statemant, CIB's main function was to raise medium- and long-term foreign archange Tasources from abroad in order to provide investment loans to small- and medium-sized enterprises. The strategy was relatively straightforward: CIB's priority waa to buildup its staff and clientele and to relend its funds to light industrial projects, in keeping with the national policy of upgrading technology and modernizing productive facilities in priority sectors. Initia.ly the CIB emphasized projects that were export-oriented and could be implementeO quickly. In this way, the CIB was to concentrate mainly on textile and some light indvstrial ectors in coastal areas. As its branch network expandad, the CIB was to brQaden its portfolio to cover additional sectors and typec at. 1xatsns of berefiting enterprises. The utilization of funds under the projects rret - .s strategy (paras. 6.15-6.18). 6.8 Or&a Jtion aI. Appendix 1 shows the organizational chart for the ClR As of J .o, 0 Th v2ain differences since 1982 are: (a) the addition of d Acding one in project lending, one in credit managem- r- Coi or -l up e v on) and another in personnel/training; (b) establishmeint -f a !ru-et .ener: and (c) an increase in the number of br&nches trom 3 to 30. The !7 n- c employs 1,500 staff, including 184 engi- neers rnO 1,0* nn1 Ai0vots/ conomists who are directly involved in project -. L 6.9 The 'T.g aute n row F:"' has been a recurring issue, and major progress hlt boun maritd it, this ::ea, CIB has become an independent financing institution aeA - 4.s l-o orwa. and business policy statement. Before 1986, the CIE 'ii Yot r 5f3-time president at its headquarters or at the branch leveA 'nt;a tf bai% w.s under the charge of a part-time presi- dent from the Pe,'s Cini4rz- .izy Bank of China (PCBC). After repeated requests from the B,tk, the CII appainted its own full-time president in 1986. By the end of June 1990(, wA C. also had appointed presidents for 24 of its 30 branches. However, tna boak vill not become a fully autonomous unit until its management is s,.parate? frtm tha explicit and implicit influence of the PCBC. For example, PCC s'. *11 itorvenes extensively in CIB's personnel policies. At present, sw,eral key %,ositions in the CIB remain unfilled or are filled by staff who fu=c-.L . at ouch CIB and PCBC employees. - 58 - 6.10 The CIB's autonomy in financing decisions has expanded significantly. In its earlier years of existence, the CIB had difficulties in rejecting requests for financing projects which were approved by the provincial (or municipal) governments and listed in the State plans. Now, the bank has the right not to provide financing for such projects if its own assessment does not support their technical, financial and economic viability. The CIB's intervention in the investment decision process at an early stage of project formulation would further increase the CIB's autonomy and independence. Financial/Operational Results of CIB 6.11 Loan Operations. Since its establishment in 1983, the CIB has regis- tered remarkable growth in its lending operations. Under CIB I, the bank's operation was expected to grow by about 40 percent per year during 1983-87, starting at a level of loan approvals of $50 million in foreign exchange and Y 50 million in local currency. CIB's actual performance during this period was much better. Average actual foreign and local currency operations were 50 percent and 70 percent higher than projected, respectively. At the time of . CIB II appraisal in 1983, the CIB was expected to increase its term lending operations at an annual average rate of 29 percent in both local currency and foreign exchange during 1984-88. The CIB generally equalled or outperformed these estimates. Actual approvals during this period amounted to about 95 percent of the estimated loan approvals in local currency, and 131 percent in foreign exchange. 6.12 At the time of CIB III appraisal in 1985, local currency loan approvals were expected to increase by 10.6 percent per year during 1986-90 and foreign exchange loan approvals by 11.6 percent per year. Actua. foreign exchange loan approvals were close to projections. However, actual local currency loan approvals were only 51 percent of projections. The sudden reduction in local currency approvals was due to a change in the CIB's local currency lending policy in early 1989. This change was brought about by the Government's economic austerity program starting in 1989, which significantly reduced local currency resources. Since that year, the CIB has not been able to obtain additional local currency funding from the State Government, which had been the major provider of local currency resources. Commitments and disbursements showed similar trends. Projected and actual loan approvals and disbursements under CIB II and III are given in Table 6.1 on the next page. 6.13 In recent years, CIB's lending activities both in foreign exchange and local currency have slowed down significantly due to the bank's difficulties in mobilizing resources. This situation is expected to persist in the near future. CIB's loan approvals fell from a peak Y 498 million and $400 million in 1987 to Y 50 million and $150 million in 1990. CIB's current plan for 1991-93 envisages 19 percent annual growth in foreign exchange loan approvals over the 1990 level and 20 percent growth in local currency loans. However, the estimated level for 1993 is much lower than the peak level of 1987. Fur- thermore, it is not certain whether CIB will be able to meet the plan targets given its current difficult resource situation. As mentioned earlier, this issue is being addressed in the Bank's dialogue with the CIB and related government agencies, and any future Bank operation will address this issue as well. - 59 - Table 6.1: CIB--LOAN APPROVALS AND DISBURSEMENTS OF TERMS LOANS PROJECTED VS. ACTUAL UNDER CIB II AND III (In Yuan million unless otherwise stated) CIB II (1984-88) CIB III (1986-90) Pro- Actual/ Pro- Actual/ jected Actual projected jectel Actual projected Approvals Local currency 1,760.0 1,664.0 0.95 2,520.0 1,286.9 0.51 Foreign exchange 2,464.0 4,273.3 1.73 4,000.3 4,886.8 1.22 ($ million) (880.0) (1,156.0) 1.31 (1,270.0) (1,245.7) 0.98 Disbursements Local currency 1,237.0 1,72b.5 1.40 2,116.7 1,837.3 0.87 Foreign exchange 1,616.8 3,728.5 2.31 3,344.1 5,768.2 1.72 ($ million) (612.4) (923.9) 1.51 (1,061.6) (1,425.8) 1.34 Note: Projected figures as provided by the appraisal missions, respectively, for CIB II and III. Actual figures for 1990 are preliminary. 6.14 The diversification of operations has always been one of CIB's oper- ational objectives. In recent years, the bank has made significant progress in this area. New financial products have been added to its traditional term loan; these include working capital loans, leasing, equity investments, and loans to collectives and joint ventures. On the side of resource mobilization, CIB's dependence on the World Bank for foreign exchange resources has been somewhat reduced. During 1989/90, non-Bank financed resources accounted for over 50 percent of CIB's total foreign exchange resource mobilization. However, further diversification of resource mobilization is needed for the CIB to evolve into a sound financial institution. 6.15 Financial/Operational Performance. A summary of the projected and actual financial statements of the CIB is given in Appendix 2, and additional details are available in the Project Files. CIB's actual performance was much better than projected during the appraisal of CIB III. This was mainly because CIB's actual lending, particularly in foreign exchange during 1986-90, was much higher than the estimate at appraisal. Successive devaluations of the local currency vis-&-vis the US dollar during this period also had a positive impact; the conversion rate was Y 3.15/$1 in 1986 and was Y 4.72/$1 as of the end of 1990. Because most subloan borrowers ate exporting enterprises, the impact of devaluations on them has been manageal-le. 6.16 Quality of Loan Portfolio and Loan Collection Performance. An emerging issue for the CIB is whether the bank can maintain its financial soundness given its deteriorating portfolio and falling loan collection performance. The uncertainty about its capacity to mobilize resources for future lending operations adds to this concern. During 1990, the CIB had to reschedule loans for 22 subprojects due to the delay in subproject completion as well as the - 60 - borrowers inability to repay the loans on time. These subprojects accounted for 4.5 percent of CIB's loan portfolio. At the end of November 1990, loan principals and interests in arrears represented 2.4 percent of CIB's total loans, and the 48 subprojects that could not meet the repayment schedules accounted for 7.9 percent of CIB's total loans. While this problem was created partly by the economic downturn in China and associated scarcity of local currency credit, institutional weaknesses at the CIB have also been a factor. 6.17 Many of the bank's limitations affect its project appraisal and supervision capability. These limitations relate to: (i) insufficient focus on project supervision, particularly in coordinating the management of identi- fied problems with related supporting agencies; (ii) the absence of operational guidelines and manuals for managing problem loans, including "write-off" policies for non-performing loans; (iii) insufficient manpower for project supervision activities at all levels; and (iv) unrealistic project appraisal practices, including overly optimistic assumptions about construction periods. The CIB intends to correct these problems and has agreed with the Bank on measures to do so. Strengthening of the bank's project supervision capacity will receive top priority. In this respect, it is noteworthy that the CIB recently has taken action to increase its provision for bad debts. Under CIB V, the CIB's provision for bad debt is to be gradually raised to 2 percent of its total portfolio by 1992. After some delays, this agreement is now being implemented. Loan Utilization and Subproiect Implementation 6.18 Actual Loan Utilization and Disbursements. The $183.2 million ($105 million and SDR 65.8 million) in proceeds from CIB II were used to sup- port 177 subprojects, and the loan/credit has been fully disbursed. As of March 30, 1991, the Bank has authorized 73 subloans for 73 enterprises under CIB III. The total disbursements for CIB III amounted to $93.9 million ($65.6 million and SDR 22.6 million). Under both CIB II and III, free limits under which CIB was allowed to approve subloans without Bank approval were $2 million for branches agreed between CIB and the Bank and $1 million for certain other branches. A summary of the subloans as of March 15, 1991 is shown in Table 6.2 on the next page. Additional details are provided in Appendix 3. 6.19 The Bank reviewed 57 subloans under CIB II and 32 subloans under CIB III. Under CIB II, the subloans reviewed accounted for 32 percent of total subloans and 65 percent of total funds, as compared to the appraisal estimates of 40 percent and 70 percent, respectively. Under CIB III, these figures were 43 percent by number and 76 percent by amount, compared to the appraisal esti- mates of 50 percent and 75 percent. For each project, the first subloans were reviewed by the Bank regardless of their size in order to confirm CIB's sub- project appraisal capability. Bank intervention in CIB's subloan approval process was satisfactory, particularly given that the projects were similar to those of CIB I. The average size of subloans under CIB II was $1.09 million, ranging from $0.1 million to $8.0 million. The average size of subloans under CIB III was $1.37 million, ranging from $0.1 million to $10.3 million. These levels are reasonable given the type of subprojects the CIB is aiming to sup- port. - 61 - Table 6.2: SUBLOANS UNDER CIB II AND III ($ million, SDR million) Number of Amount % of Amount 2 of subloans authorized total disbursed total CIB II Loan 2434-CRA Above free limit 40 77.9 74.2 77.9 74.2 Below free limit 81 27.1 25.8 27.1 25.8 Total 101 105.0 100.0 105.0 100.0 Credit 1491-CHA Above free limit 19 34.3 52.1 34.3 52.1 Below free limit 57 31.5 47.9 31.5 47.9 Total 76 65.8 100.0 65.8 100.0 CIB III Loan 2659-CHA Above free limit 23 60.3 82.9 53.9 84.7 Below free limit 21 12.4 17.1 9.7 15.3 Total 44 72.7 100.0 63.6 100.0 Credit 1663-CHA Above free limit 9 9.9 43.8 9.8 43.6 Below free limit 20 12.7 56.2 12.7 56.4 Total 29 22.6 100.0 22.5 99.1 6.20 Subproiects Financed Under CIB II and III. Subloans extended under CIB II and III financed subprojects for new capital construction and "trans- formation" (balancing, modernization, rehabilitation, and expansion--BMRE) at export-oriented, state-owned, and collective enterprises. These enterprises were located in more than 20 provinces and municipalities but were concentrated in the provinces of Jiangsu, Hubei, Liaoning, Shanghai, Tianjin, and Zhejiang. The subprojects were directed largely to the textile, electronics, and other light industrial sectors. Table 6.3 provides a breakdown of approved CIB II and III subloans as of March 15, 1991. 6.21 Despite this apparent concentration of subprojects in several prov- inces, the CIB's portfolio became more geographically diversified as its branch network expanded. As shown in Table 6.3, about one-fourth of subprojects in terms of both number and amount were located in Jiangsu Province--one of the most industrially advanced provinces. These subprojects accounted for - 62 - Table 6.3: SUBLOAN BREAKDOWN UNDER CIS II AND III CIB II CIB III Amount Amount % of approved 2 of Z of approved % of No. total ($ m1n) total No. total ($ m1n) total Type of Project New 148 84.2 130.6 71.3 68 93.2 83.7 84.9 BMRE 28 15.8 52.6 28.7 5 6.8 14.9 15.1 TYpe of Enterprise State-owned 112 63.3 137.4 75.0 51 69.9 77.8 78.9 Nonstate-owned 65 36.7 45.8 25.0 22 30.1 20.8 21.1 Sector Textiles 50 26.2 46.3 25.3 10 13.2 5.0 5.1 Light industry 49 27.7 62.7 34.2 24 32.9 28.5 28.9 Electronics 25 14.1 22.9 12.5 13 17.8 20.4 20.7 Machinery 11 6.2 7.5 4.1 9 12.3 8.3 8.4 Packaging 6 3.4 4.5 2.5 - - - - Others 36 20.3 39.3 21.5 17 23.3 36.4 36.9 Location Jiangsu 44 24.9 45.2 24.7 10 13.7 29.4 29.8 Hebei 25 14.1 19.6 10.7 5 6.8 7.0 7.1 Hubei 18 10.2 15.3 8.4 11 15.1 12.3 12.5 Shanghai 11 6.2 19.6 10.7 4 5.5 0.4 0.4 Zhejiang 11 6.2 9.7 5.3 2 2.7 1.3 1.3 Liaoning 17 9.6 8.8 4.8 5 6.8 7.9 8.0 Others 51 28.8 65.0 35.5 36 49.3 40.3 40.9 Total 177 100.0 183.2 100.0 73 100.0 98.6 100.0 26.3 percent of the amounts approved under CTB II and 29.8 percent of amounts approved under CIB III (31.3 percent under CIB I). CIB's lending activities in Hubei, Hebei, and Liaoning Provinces and Shanghai Municipality continued to be strong. Subprojects under CIB III were spread much more evenly among prov- inces than those under CIB I and II. 6.22 Diversification by Sector. CIB's portfolio diversification was evident in other areas too. By sector, textiles was predominant under CIB I and CIB II. The textile sector accounted for 26.3 percent of total amounts approved under CIB I and 25.3 percent under CIB II. Under CIB III, the focus of operations shifted away from textiles to the electronics, light industry, and machinery sectors, in accordance with CIB's portfolio diversification strategy. The textile sector accounted for only 5.1 percent of amounts approved under CIB III. Despite this change in policy, CIB's loan approvals for textiles still represented 30 percent of total approvals by the end of - 613 - 1988. Therefore, it was agreed between the Bank and the CIB that under CIB V, the bank's exposure to any single sector would be limited to no more than 25 percent of its portfolio in order to lower overall lending risk. By the end of June 1990, the portion of subloans to the textile sector had declined to about 22 percent of the total portfolio. 6.23 Diversification by Type of Enterprise. The CIB has been successful in diversifying its loans to benefit collectives, township and village enterprises (TVEs), and foreign joint ventures. State-owned enterprises represented 98 percent of subproject entities under CIB I and a little less than 70 percent under CIB II and III. The balance went to collectives. The Bank and the CIB have agreed that under CIB V at least 10 percent of total approvals beginning in 1989 will provide assistance to less regulated nonstate-owned enterprises. In 1990, TVEs and foreign joint ventures accounted for a little more than 10 percent of new approvals. 6.24 Diversification by TYpe of Project. Subloans for new projects are receiving priority over subloans for rehabilitation projects, partly due to the emphasis on new technologies for the sectors and enterprises concerned. Under CIB I, over 90 percent of subloans were issued for "transformation" purposes, but this share dropped to 15 percent under CIB III. 6.25 Subproject Costs/Financing. Table 6.4 provides a summary of subproject cost estimates at appraisal and the actual costs and financing for the 177 subprojects under CIB II and 73 subprojects under CIB III. The appraisal reports for the projects did not provide a breakdown of cost estimates and financing plans, but assumed that the funds from the World Bank would cover 100 percent of foreign exchange costs, or about 65 percent of the total sub- project costs. The actual figure for CIB II was 40 percent, and the one for CIB III was 44 percent. The actual foreign exchange portion of subproject costs was much smaller than the appraisal estimate mainly because indirect foreign costs were included in the local costs and were covered by local financing. The local costs were covered by local currency loans from CIB and subborrowers' internal funds. (A detailed breakdown of actual subproject costs and financing as collected by CIB from its clients is available in the Project Files.) 6.26 The average cost overrun for the subprojects, as compared with the cost estimates of each individual subproject at the time of CIB approval, was 3.5 percent for CIB II and 7.2 percent for CIB III. Based on information gathered by the CIB, the main causes for the overruns were delays in project implementation arising from changes in the investment programs and equipment design. Other factors contributing to the cost overrun were: (i) the devalu- ation of the US dollar against other major currencies; (ii) the devaluation of the US dollar against the Chinese yuan; and (iii) the higher than expected price escalation in locally purchased building materials and equipment. While the enterprises themselves financed a major portion of these overruns, the CIB also increased loan amounts to cover its portion. - 64 - Table 6.4: ESTIMATED AND ACTUAL SUBPROJECT COSTS FOR CIB II AND III (In $ million unless stated otherwise) CIB II CIB III Actual Actual Appraisal as % of Appraisal as 2 of Estimates Actual Estimates Estimates Actual Estimates Total investments 269.2 469.3 174.0 153.8 229.1 149.0 CIB loans Foreign currency 175.0 183.2 106.0 100.0 103.6 103.6 Local currency } 94.2 101.4 } 301.0 } 53.8 46.7 } 239.0 Enterprise } 184.7 } } 81.7 } Foreign currency loans/total investments (%) 65.0 40.0 10.0 65.0 44.0 Foreign currency loans/total CIB loans (2) n.a. 65.0 - n.a. 68.0 Source: CIB. 6.27 Subproiect Implementation. Overall implementation of the subprojects was satisfactory. Of the 177 subprojects under CIB II, 128 were completed either ahead of or on schedule, 21 were delayed by up to 6 months, 14 were delayed by up to 1 year, 11 were delayed by up to 2 years, 8 were delayed by more than 2 years. Of the 73 projects under CIB III, 31 were completed either ahead of or on schedule. Table 6.5 provides a summary of the implementation performance. 6.28 Since the subproject delays and cost overruns were largely the result of changes in design, the CIB is stepping up its role in project preparation in order to ensure a proper design and agreement with project entities at the outset. This strategy should help to avoid delays later in the project cycle and should lead to more accurate estimates of costs and financing needs. 6.29 Performance of the Subprojects. As of the end of 1990, 174 of 177 subprojects under CIB II had been completed and were operating; only 3 had not been completed. Under CIB III, 72 of 73 subprojects had been completed and were operating. 6.30 As of the end of 1990, 105 subprojects under CIB II were operating at more than 90 percent of designed capacity, 32 were operating at 70-89 percent of capacity. Thirty subprojects had capacity utilization below 70 percent, 14 had one between 50-69 percent, and the remaining 16 had one below 50 percent. - 65 - Table 6.5: THE PERFORMANCE IF SUBPROJECT IMPLEMENTATION CIB II CIB III Z of % of Number total Number total On time or ahead of schedule 128 72.3 31 42.5 Delays of up to 6 months 21 11.9 10 13.7 Delays of 6 months t- 1 year 14 7.9 21 28.8 Delay of I to 2 years 11 6.2 9 12.3 Delays over 2 years 3 1.7 2 2.7 Total 177 100.0 73 100.0 Under CIB III, 31 subprojects were operating at over 90 percent of designed capacity, 18 were operating at 70-89 percent, and 17 were operating at 50-79 percent. Nine subprojects had a capacity utilization below 50 percent. Those subprojects that operated at low capacity could not meet expectations at appraisal due to: (i) delays in project implementation; (ii) shortages of raw materials; (iii) lack of working capital; and (iv) a sluggish market demand. In other words, it would appear that their poor operational performance was largely attributable to the general downturn of the economy and the Government's austerity program of recent years. 6.31 Repayment Experience. Table 6.6 summarizes the repayment and arrears positions of the individual subprojects under CIB II and III as of the end of 1990. About 8 percent of the total subprojects under CIB II and III were experiencing problems in repaying the subloans. Fourteen subprojects under CIB II and six subprojects under CIB III could not meet the repayment schedule of their respective subloans due mainly to delays in subproject imploment. Some subloans have been paid back ahead of schedule; thus, reducing the overall level of arrears. This arrears situation is expected to improve as the delayed subprojects are completed and put on stream. Further details car be found in the Project Files. 6.32 The above figures provide a reasonable indication of the state of arrears and repayment performance for subloans under the projects. The col- lection performance on the CIB II and III subloans reflects the performance of the subprojects/enterprises. While repayment arrears represent less than 1 percent of the total amounts due on CIB II subloans, they represent over 10 percent of amounts due on CIB III subloans. Although most of the enter- prises carry a guarantee from their parent companies or from the provincial governments, this issue should be a concern to the CIB (para. 6.10). 6.33 Economic and Financial Rates of Return. The ex-ante financial rates of return (FRR) for subprojects ranged widely, from a low of 18.9 percent to a high of 74.0 percent. Similarly, the ex-ante economic rates of return (ERR) ranged from a low of 14.2 percent to a high of 82.6 percent. For the purpose of the PCR exercise, the CIB compared ex-ante and ex-post rates of return for - 66 - Table 6.6: LOAN REPAYMENT AND ARREARS OF SUBPROJECTS UNDER CIB II AND III CIB II CIB III Foreign Local Foreign Local currency currency currency currency ($ million) (Y million) ($ million) (Y million) Prin. Ir:. Prin. Int. Prin. Int. Prin. Int. A. Repayment in Arrears (a) Amount due 131.8 60.4 122.1 127.0 54.6 19.5 69.3 49.8 (b) Amount in arrears 1.1 0.6 (1.4) 5.2 3.0 0.5 (0.9) 0.8 (c) b/a (%) 0.8 0.9 (1.2) 4.1 5.5 2.5 (1.3) 1.6 B. Subloans in arrears: (a) Number of sub- projects affected 14 10 7 8 6 4 5 3 (b) Amount due 11.0 5.4 8.2 21.0 5.6 1.5 6.1 1.3 (c) Amount in arrears 6.7 0.8 7.8 7.5 4.5 0.5 2.4 0.8 (d) c/b (2) 60.9 14.8 95.1 35.7 80.9 34.2 39.3 60.4 Notes Prin. = principal; int = interest. a sample of ten subprojects. The results show that actual rates of return are generally lower than the estimates. This outcome reflects the unfavorable macroeconomic condition in recent years. However, most of the subprojects still show satisfactory level of 10-12 percent or higher. 6.34 Other Economic Benefits. Direct employment in CIB II subprojects has been estimated at about 19,160 jobs, and that in CIB III at 6,430 jobs. For the 17 subprojects with data, actual export earnings in 1986/87 were about Y 145 million ($39 million equivalent), representing 32 percent of total sales. Textile/garment factories account for most of the exports, although the pharmaceutical and machinery sectors contributed marginally to exports. This level of exports could be expanded, although the current amounts were in line with projections and may be sufficient to service the foreign exchange loans. 7. Proiect Sustainability 7.1 The projects have yielded benefits in the following areas': (a) They have significantly increased the efficiency of the light indus- trial sector through the rehabilitation of outdated production facilities, upgrading -)f technology, and installation of new facili- ties employing up-to-date processes. Before the start of the reforms this sector had received less attention than the heavy industrial sector. (b) They have strengthened CIB's capacity for project design, technology selection, and project appraisal in the term lending market. - 67 - (c) They have helped the CIB develop into a more independent and market- oriented financial institution in the highly regulated but nascent financial sector. 7.2 To maximize these benefits, the GOC needs to continue its efforts to Aevelop and restructurg the financial sector. At present, investment and financing decisions for the light industrial sector are still dominated by government agencies. Frequently, Chinese banks serve as mere providers of funds for projects while investment decisions are taken by provincial and local government authorities. In this context, the allocation of resources to more productive sectors and investment projects cannot be ensured without a proper functioning of the financial sector. The Bank and GOC have had a continuing dialogue on this irsue. The Bank has carried out several sector studies and has prepared comprehensive reports suggesting ways to address the issue through future reforms. The proposed Financial Sector Technical Assistance Project and a follow-up Financial Sector Development Project--Bank operations under preparation and consideration--will support GOC in experimenting with some important reform measures. 7.3 Because sector-wide reforms will take some time to introduce, the current investment system is only expected to undergo minor changes in the short- and medium term. In this context, it is important that the CIB increase its involvement in the investment decision process tor the beneficiary projects at an early stage of their preparation. CIB's active participation in project identification and design would allow it to contribute to a more rational allo- cation of resources for the light industry sector. Future Bank support for the CIB would emphasize facilitating a larger role for the bank in investment decision-making. 7.4 To ensure its longer-term financial and operational viability, the CIB needs to examine its role, market position, and institutional strengths and weaknesses in the rapidly changing financial sector (see paras. 6.2-4). At the urging of the Bank, the CIB has tried to increase its funding from commercial sources. However, it has not been successful in this effort, mainly due to the lack of support from GOC. Until recently, GOC viewed the CIB largely as a financial intermediary handling funds from international development agencies. 7.5 In recent months, however, there have been indications that GO% has started to review the CIB's situation with flexibility. The CIB's long- and medium-term viability now appears to be appreciated by GOC as an important issue. In this context, it is important that the Bank continues its dialogue with GOC and CIB on the CIB's future role and market strategy in connection with future reforms being considered in the Chinese financial sector. This strategy should allow the CIB to sustain its competitiveness in its own market niche. The CIB should not compete with larger deposit-taking money banks with much larger branch networks for individual and institutional deposits and for consumer credits. An appropriate action would be to concentrate on its term lending operations, and develop a new line of financial services based on its institutional strength. As for the sources of new funds, the CIB should try to tap foreign and domestic savings through the issuance of securities such as long- and medium-term bonds and certificates of deposit, which do not need a broad branch network. A clear understanding of CIB's future role with GOC would provide the basis for further Bank lending to the CIB. Within this - 68 - framework, CIB would be requested to refine its products and services to better serve the needs of its target clientele. 7.6 The CIB's longer-term viability and role in the financial sector has always been an issue since its creation. However, this iss4e was not picked up as a main subject in the design of CIB II and III because, by far, the most pressing issue for the CIB as a new institution in its early years was how to build up its basic capacity as a financial institution. With the strengthening of the CIB's institutional capacity ac , consequence of the first series of operations, the focus of subsequent operations (CIB IV and V) has been shifted gradually to how to develop the bank as a market-oriented, commercially viable financial institution. Any future Bank operation for the CIB should address this issue in a more systematic way. 8. Bank Performance 8.1 The Bank, together with GOC and PCBC, was instrumental in the creation and development of the CIB. It played a key role in developing CIB's organiza- tional mandates and strategies, in developing and improving its operational manuals, and in improving its overall management and operational procedures. Therefore, it is worthwhile to assess the Bank's performance in terms of the results of all its operations for the CIB. Overall, Bank perfo- mance through its five operations has been satisfactory. 8.2 The Bank has made three major contributions to the CIB through its projects. It has significantly improved the CIB's capacity for project appraisal. It has provided in the CIB a modality of proper project appraisal for other financial institutions. It has helped to increase the administra- tion, managerial, and operational autonomy of the CIB. Following the success- ful adoption and initial applications of the Project Appraisal Manual under CIB I, an extensive recruitment and training program for project appraisal staff was prepared and implemented. Special emphasis was given to the strengthening of analytic methodologies and skills for project design and financing alternatives. The same manual, along with the techniques for technical, economic, and financial evaluation of projects developed by CIB, now is being used extensively in China, particularly by government agencies and other financial institutions. The increasing autonomy of the CIB is evidenced in its growing operation from PCBC--previously, the provider of administrative services, staff, and resources for the CIB. During the implementation of CIB II and III, the bank appointed full-time presidents at its headquarter and branches. 8.3 In retrospect, however, several lessons may be learned from the Bank's experience in lending to the CIB. 8.4 First, considering the rapid growth of its portfolio and staff con- straints at the project preparation stage, the CIB's project supervision capa- bility should have been invoked more often in the design of the projects. Similarly, the program for developing an institutional capacity should have included a substantive program for hiring and training staff for project supervision. - 69 - 8.5 Second, although pushing for the appointment of full-time presidents was an effective first step to securing CIB's independence from PCBC, the Bank might have pursued a more permanent and fundamental solution to this issue. For example, transferring administrative control and supervision from PCBC to the Ministry of Finance might have been more effective. At'present, CIB is officially under MOF's direct supervision. However, PCBC influences CIB's personnel and business policy. 8.6 Third, the diversification of CIB's foreign exchange and local currency resources should have been pursued more aggressively. In retrospect, CIB's dependence on PCBC for local currency funds undermined CIB's autonomy and limited the operational independence of PCBC. 9. Borrower Performance 9.1 Except for some delays in submitting progress reports, CIB's perfor- mance has been satisfactory. CIB's institutional capacity for project appraisal has reached a satisfactory level through rigorous staff recruitment and training. 9.2 However, project supervision did not receive sufficient attention until the quality of the CIB's loan portfolio began to deteriorate. In retrospect, the CIB was the casualty of its own extraordinary success during the first five years of its operation--a time when the Chinese economy enjoyed robust growth. The bank's institutional focus and allocation of staff resources went to expanding the volume of lending in a market with a seemingly unlimited demand for investment funds. As a result, the CIB lacked the capability for dealing with the type of problems that arise in the course of project implementation. The CIB is now fully aware of this problem and has agreed with the Bank on several measures to improve its institutional and operational arrangements for project supervision and management of bad debts. The CIB recently took action to increase its provision for bad debt, for example. 9.3 CIB's own assessment of its performances is given in Part II of this PCR. 10. Prolect Documentation and Data 10.1 The Loan and Credit Agreements with the People's Republic of China for the projects were adequate and appropriate for achieving the project's objectives in key )rganizational and financial areas. The related Project Agreements with the CIB also were adequate. The appraisal reports for the projects provided a useful framework for both the Bank and the CIB to review project implementation. The CIB prepared the draft PCR for the projects and subsequent clarifications. - 70 - PART II PROCT REVIEW FRO THE 8ORROWER'S PERSPECTIVE I. Background and Objective of the Prolects Projects Identity 1.1 Projects Names: Industrial Credit Project II & III (China Investment Bank II & III) Loan/Credit No.: Loan 2434-CHA/Credit 14'A-CHA: Loan 2659-CHA/Credit 1663-CHA Borrower: The People's Republic of China Beneficiary: The China Investment Bank Amounts: CIB II: $175.0 million equivalent, comprising $105.0 mil. equivalent IBRD and SDR 65.8 million ($70.0 million equivalent) IDA. CIB III: $100.0 milli-n equivalent, comprising $75.0 million equivalent IbRD and SDR 22.8 million ($25.0 million equivalent) IDA. Terms: Loan: 20 years, including 5 years grace; standard variable interest rate. Credit: 50 years, including 5 years grace; no interests charge. Relending Terms: Loan and Credit: 20 years, including 5 years of grace; fixed interest rate of 70 p. a., plus commitment fees equal to thoseunder the loan and credit; the Government would bears the interest rate risk on the Bank loan and the foreign exchange risk between the US dollar and (a) the currency pool for the Bank loan and (b) the SDR for the IDA credit. Sub-borrowers would bear the foreign exchange risk between the US dollar and the Yuan. CIZ onlend to sub-projects at the fixed race - 71 - of 8% p. a. for CIB II and 8.5% for CIB III. .oatd Ap,,roval: CIB II: May 1984 CIB III: February 1986 Date of 'igning: CIB II: June 25, 1984 CIB III: April 16, 1986 Effectiv;!ness: CIB II: Oct. 9, 1984 CIB III: July 3 1986 Free Lim.t: CIB II: US$ 1 to 2 million, the aggregate amount US$ 10 million.CIB III: US$ 1 to 2 million, the aggregate amount US$ 30 million. Maximum 5ubloan size: CIB II: US$8 to 12 million CIB III: below US$ 15 million Planned L.itest Commitment Date: CIB II: Oct. 1986 CIB III: June 30, 1987 Actual Latest Commitment Date: CIB II: *Oct. 1985 CIB III: May. 1987 Plann,Td Lstest Withdrawing Date: CIB II: June 30, 1989 CIB III: June 30, 1990 Actual Latest Withdrawing Date: CIB II: June 30, 1990 CIB III: June 30, 1991 Cumulative Disbursement Amount: CIB II: Loan 2434-CHA $105 million Credit 1491-CHA SDR65.8 mil. CIB III: Loan 2659-CHA $65.6 million Credit 1663-CHA SDR22.62 mil. Economic Backaround. 1.2 In 1984, under the guide of the Opening-up and Reform policy, the national economy had developed rapidly and the structures among agriculture, light industry and heavy industry had been reasonable and the econoaic bethific of all aspects had been achieved. The national economy was developed towards the trends of coordination and stability. - 72 - 1.3 However, some week points still existed in the national economy at that time, for ir.stance, the unsuitable industrial structure to the changing demand of domestic consumption and international market; insufficient productive capacity of some good quality, famous brand and marketable products; poor quality of some exported textile, machinery and electronic products with low rate of foreign currency generating, less competitive ability. The main reasons are lack of new technology and equipment. 1.4 In order to solve these problems, many adjustment policies have been taken by GOC, including further adjusting the industrial structure, strengthening the technical innovation, utilizing foreign funds, importing the advanced technology and equipment , upgrading the quality of the products, developing new products etc. Under such background, CIB relent the World Bank loans/credit to help the technical innovation and importing advanced technology and equipment in small or medium sized industrial enterprises at home. Oblective of the Loans/Credits 1.5 The objectives of CIB II and III are as follows: 1). to assist CIB in financing industrial sub-projects in line with the national economy, technology and social development; 2). to assist CIB to reach the targets stated in CIB Charter, PolicX Statement of CIB. and Develooment Strategy Statement for CIB by relending to the enterprises. 3). to assist CIB in developing its business including project preparation, appraisal and implementation. 1.6 The Staff Appraisal Report written by the World Bank Mission, suggested CIB should improving the overall appraisal ability, particularly in the areas of technology, economic analysis and market analysis. The World Bank also suggested that CIB should revise the Anraisal Manual for Industrial Project, expend the tvaining plan and develop ths institution and recruit medium and senior profession personnel. The fulfillment of the above-mentioned objectives will be discuss in the following parts. II. Basic Information of Sub-proiects Allocation of Loan/Credit 2.1 CIB II got into effectiveness in Oct. 1984. The planned daze for the last of commitment was Oct. 1986. 1owever, CIB nearly fulfilled the commitment - 73 - by the end of Oct. 1985. The loan and credit were used in 161 sub-projects, amounted to US$ 17.61 mil. The average size of the sub-project was US$ 1.09 mil. Meanwhile, CIB provided the counter-part local currency loan of RMB 320 mil. Yuan. The size of the sub-project in terms of local currency is 1.99 mil.Yuan. The ratio between US$ and Yuan was 1 : 1.82. 2.2 Bye the end of 1989, as the account 2434-CHA and 2659-CHA was going to close and there were still undisbursed balance over US$10 mil. CIB wanted to adjust the account. With the help of World Bank, CIB transferred 16 sup- projects under CIB IV and V to CIB II. Now the total sup-project number is 177 under CIB II. 2.3 Under Loan 2434-CHA, there are 101 subprojects, of which 40 sub- projects were above free limit which was US$ 77.9 mil, accounted for 75% of the total amaunt. Another 61 subporjects were below free limit. 2.4 Under Credit 1491-CHA, there were 76 sub-projects, of which 19 were above free limlit amounted for SDR 34.33 mil. accounted for 51% of the total amount. The rest of 57 sub-projects were below free limit. 2.5 After hard working of all parts concerned, CIB III got into effectiveness in July, 1986. The planned date for the last commitment was June, 1987 and the actual last commitment was made in that time. There were 73 sub- projects under CIB III with the average foreign currency loan US$ 1.37 mil. CIB provided the counter-part iocal currency loan of 157.56 mil.Yuan. The size of the sub-project in terms of local currency is 2.16 mil. Yuan. The ratio between US$ and Yuan was 1 : 1.56. 2.6 Under CIB III No. 2659-CHA has been distributed to 44 sub-projects amounted to US$ 72.71 mil. of which, 23 sub-projects amounted US$ 60.26 mil were above free limit accounted for 82.9% of the total. The rest of the sub-projects were below free limit. 2.7 Under CIB III No. 1636-CHA has been distributed to 29 sub-projects amounted to SDR22.53 mil. of which, 9 sub-projects amounted SDR 9.87 mil. were above free limit accounted for 43.8% of the total. The rest 20 sub-projects amounted for SDR 12.66 mil. were below free limit which accounted for 56% of the total. 2.8 The comitment for CIB II and III were very fast, for CIB II, 12 months ahead of the schedule and CIB III, according to the schedule. This indicated that from one side, the enterpris,as needed the foreign funds badly after the opening to the outside policy while from the other side indicated that CIB has improved its staffing and the quality of appraisal and the speed of appraisal. Sectoral Distribution of Sub-proiects 2.9 The distribution of CIB II were in the sectors of light industry and - 74 - textile industry ( see Annex 1-1). Of the 177 sub-projects, 50 were in light industry accounted for 28.2% of the total number, the loan amount was US$61.5 mil. accounted for 34% of the total amount; the textile sub-projects numbered in 46 accounted for 25.9% and the amount was US$46.79 mil. which accounted for 26%. 2.10 CIB III was mainly used in the light and electronic industries. These two industries shared half of the sub-project numbers and amounts. (Annex 1-2). The remaining loan scattered in the areas of chemistry, building materials, machinery, and textile industries. 2.11 The distribution of sectors of CIB II and III were in line with the Sixth-five National Plan as well as the Development Strategy of CIB. GeograRhical Distribution of Sub-Drolecta 2.12 The distribution of CIB II and III were in more than 20 provinces, cities over the country. The main provinces and cities, like Jiangsu, Hubei, Liaoning, Tianjin, Shanghai and Zhejiang had more sub-projects. They are economic developed areas with industry sectors of electronics, textile and light industry. Most of the enterprises in these regions were set up in 1950 to 1960 with backward equipment and low productivity. These enterprises needed to be updating urgently. 2.13 In accordance of the suggestions made by the World Bank, CIB adjusted the geographical distribution of the sub-projects. Compared with CIB I, CIB II and III distributed in more than 10 provinces and municipalities. Nature and Ownershin of Sub-2rojects 2.14 Of all the 177 sub-projects under CIB II, 153 were with the nature of technical innovation which was 86.5% of the total numher. The remaining 24 sub-projects were with the nature of capital construction which accounted for 13.5% of the total sub-project. 2.15 In terms of ownership, 115 sub-projects were state owned covering 65% while 62 sub-projects were collective owned which Accounted for 35% of the total sub-projects. 2.16 Of all the 73 sub-projects under CIB 111, 68 were with the nature of technical innovation which was 93% of the total number. The remaining 5 sub- projects with the nature of capital construction accounted for 7 % of the total sub-project. - 75 - 2.17 In terms of ownership, 51 sub-projects were state owned covering 70% while 22 sub-projects were collective owned which accounts for 30% of the total sub-projects. III. Performance of Sub-Proiects Pipeline Sub-proiects 3.1 As of June 1984, CIB had 497 tentativre sub-projects and it selected 175 as pipeline sub-projects for CIB II and III. In 1985, CIB selected 118 sub- projects from hundreds of sub-projects as pipeline sup-projects for CIB III. The total amount of pipeline sub-projects was US$ 294 mil. 3.2 During the preparation of the pipeline projects, CIB staff made detailed study to the operation, profitability of the enterprises, the market of the new projects, construction conditions and estimated profits and costs. According to the preliminary statistics, for every tentative project, CIB staff spent six working days. 3.3 Because of the detailed study to the pipeline projects, the quality of the pipeline projects were pretty good which laid a good foundation for project appraisal. Aopraisal of Sub-pro1ects 3.4 At the stage of appraisal of sub-projects, CIB staff went to the enterprises and made on spot investigation. They made thorough analysis in terms of construction condition, market, technology, economic and financial aspects. Only after that CIB would make loans to the feasible sub-projects. 3.5 From May 1984 to Oct. 1985, CIB staff appraised 189 pipeline projects completed 189 appraisal report and sent 161 to the World Bank for approval. All of the sub-projects submitted by CIB had been approved by the World Bank. CIB II with total amount of US$ 175 mil. had been fully commitment within 17 months which was one year ahead of the schedule. 3.6 The appraisal of sub-projects under CIB III had been going on smoothly, too. Within one year, CIB appraised 120 sub-projects, of which, 79 sub-projects had been sent to the World Bank and got the approval from the World Bank. As of May 1987, CMS III, amount of US$ 100 mil. had been fully commitment. - 76 - 3.7 The practice of appraisal of sub-projects under CIB II and III shown that CIB had set up a completed procedure for project appraisal and supervision. CIB has had a team of people who know very well about the methodology of the appraisal. Meanwhile, both quality and efficiency of the appraisal have been improved. 3.8 However, the quality of some of the appraisal report are not so good. The week points are as follows: 1). the data for market analysis are not enough; 2). the analysis period is too short to indicate the trend; 3). the factors which will influence the market have not been carefully thought; and 4). the technology analysis is too simple. 3.9 In order to improve the quality of the appraisal, CIB has adopted a series of measures, including: 1). Training of the appraisal staff. With the help of EDI, the World Bank, CIB had run four Seminars on Development Banking and 180 staff from CIB in different regions participated the seminars. Meanwhile, CIB itself hold 13 courses and trained 65J staff. The quality of the appraisal has been improved gradually. 2). Running workshop. CIB also run appraisal workshop to make chances for the appraisal staff to exchange ideas and experience. 3). Revising Appraisal Manual. To meet the needs of new business, CIB has revised its Appraisal Manual twice in 1984 and 1989 respectively. The revised parts are: a). With or Without and Incremental Method; b). Domestic and Internatical Pricing Method; c). Sensitivity Analysis and Converting Value Analysis; d). Five year financial projection for enterprises, and e). Appralc&l method for joint venture enterprises. Isolementation and Suervision of Sub-2rojecta - 77 - 3.10 At the stage of the implementation and supervision, he major work taken by CIB are: helping the enterprises to get quotation from foreign suppliers; participating the technology exchange and business negotiation; coordinating the relationship among the enterprise, construction firms andl procurement firm; supervising the disbursement of the local currency. Upon the completion of the project, CIB will help the enterprises to solve the problems in marketing as well as operations to make sure that the project get the efficiency to able to repay back the loan to CIB. 3.11 When CIB II entered into the period of implementation, CIB had strengthened the work of the supervision. In Sept. 1985, CIB established Division of Supervision and Implementation in its Head Office ( now it is called Credit Management Division). The responsibility of the Division are to undertake the supervision and implementation work of CIB. Later, some early established Branches also set up. the Department of Supervision and Implementation to strengthen the project supervision work. 3.12 In July 1987 and April 1989, CIB hold two courses on project supervision and implementation participated by branch supervision staff. The courses invited experts in the fields of international trade and projects supervision to give lectures in the areas 6f international trade and management of fund and progress management. CIB also run two workshops participated by the Branch Managers to exchange the experiences in project supervision. All of this were good for the strengthening the project supervision work. Progress of the Sub-orojects 3.13 As of end of 1988, all the sub-projects under CIB II had finished the business negotiation and had signed the business contracts. Of all 177 sub- projects, 123 had finished the procurement on time, accounted for 76.36 of total sub-projects. 38 sub-projects had delayed their procurement. 3.14 By the end of 1990, all sub-projects had been put into operation. Among the completed projects, 128 were put into operation on time or ahead of the schedule, accounted for 72.32%. There were 49 sub-projects wnich postponed the completion. See the following table for the details. - 78 - Table 1 Number % of Total On Time or Ahead of Schedule 128 72.32 Delays of Up to Six Months 21 11.86 Delays of Six Months - 1 Year 14 7.91 Delays of 1 Year to 2 Years 11 6.21 Delays of over 2 Years 3 1.69 Total 177 100 3.15 For 73 sub-projects under CIB III, there were 28 projects with some delays in the procurement, of which, 4 had been delayed for negotiation, 1 had changed the design, 14 with late arrival of the equipment and 12 delayed in equipment adjustment. 3.16 By the end of 1990, 73 sub-projects had been put into operation. Out of the 73 sub-projects, 42 had not been put into operation on time, see the following table: TabiL Number % of Total On Time or Ahead of Schedule 31 42.5 Delays of Up to Six Months 10 13.7 Delays of Six Months - 1 Year 21 28.8 Delays of 1 Year to 2 Years 9 12.3 Delays of over 2 Years 2 2.7 Total 73 100 3.17 The above discussion shows that most of the sub-projects under CIB II and III were able to complete ti,e procurement on time and put into operation on schedule. However, there are some sub-projects had been delayed and could not put into operation on time. 3.18 The main reasons for the delays are: 1). There were big gap between the offered prices and the prices expected by the enterprises. The enterprises had to change their design. - 79 - 2). For the procurement method, CIB insisted on the policy of comparing three offers. It would take at least one year to :inish the procedures including: enquiring the price, offering the price, exchanging ideas and negotiation. For some large projects, it would take up to three years. During the appraisal stage, CIB had not foreseen all of this. 3). Some preliminary preparation work such as requisition of land, relocation had not been done as schedule. 4). The shortage of local currency loan because of the prices increase of the building materials and local equipment could not be provided on time. 5). The equipment could not been delivered on time due to some reasons. 6). Some of the imported equipment could not meet the needs of the design or the foreign firms delayed the adjustment of the equipment. Disbursement of Sub-rolects 3.19 As indicted in the Annex 2, the disbursement for CIB II took place in the year 1985, 1986 and 1987. The cumulative disbursement amount were US$ 79.15 mil. and SDR 55.87 mil. accounted foi 75% and 85% of the total respectively. From 1988, the disbursement became slow down with the total amount of US$ 13.68 and SDR 3.51. AS of June 30, 1989, which is the planned date of the end of the disbursement, there were US$ 13.95 mil. and SDR 4.32 mil. in balance. 3.20 The main reasons for the slow disbursement were: 1). Amount transferred from CIB I. In order to close the account of CIB I on time, some unallocated amount had been transferred from CIB I and resulted an increase of balance in CIB II. 2). Postpone of the procedures. Some delays in project preparation, procurement and adjustment of the equipment had caused the slow disbursement. 3). Because some equipment could not meet the needs of the design, the last payment to the supplier could not be done. 4). For the projects using ICB procurement method, the last payment for the equipment and software could not be completed within the period of disbursement. 3.21 With the help of the World Bank, CIB had transferred 16 sub-projects from CIB IV and CIB V, and successfully disbursed the whole amount of the loan - 80 - and credit under CIB II before June 1990, 3.22 For CIB III, the disbursement was very quick. As of the first half of 1986, over 12 mil. of SDR which made up 52.7% of the total credit had been disbursed. As of end of 1988, the cumulative disbursement amount was SDR 22.66 mil. accounted for 99.2% of the credit. The disbursement of the loan started from 1987 and the disbursement amount for that year was US$ 30 mil. made up 40.1% of the total loan. Since then, the disbursement is also very quick. As of Sept. 1990, the disbursement for the credit (under Account 1661-CHA) was SDR 22.62 mil. which accounted for 99.2% of the total, while the disbursement of the loan was US$ 65.60 mil. accounted for 87.5% of the total. 3.23 At present, the two accounts are in the process of disbursement and adjustment. It is estimated that by the time of the close of the accounts, that is June 30, 1991, both of the credit and the loan can be disbursed out. Sub-proiect Cost/Financing 3.24 As of the end of 1990, the projected and actual cost of CIB II was as follows: Table 3 Projected Actual Actual as % of Projected Total Investment 1933.88 1872.54 96.83 CIB Loan Foreign Currency 211.04 207.13 98.14 (US$ mil) Local Currency (RMB mil.) 422.74 398.46 94.26 Total CIB loans (RMB ail.) 1534.93 1490.01 97.07 Total CIB Loan/ Total investment (%) 79.37% 79.57% Foreign Currency Loans/ Total CIB Loans (%) 72.46% 73.26% Local Currency Loans/ Total CIB Loans (1) 27.54% 26.74% - 81 - 3.25 In view of the sub-project, Out of 177 sub-projects, there were 57 sub-projects under CIB II needed less foreign currency loan with the decrease amount of US$ 22.29 mil. meanwhile, another 52 sub-projects needed more foreign currency loan with the increase amount of US$ 18.38 mil. For the local currency loan, out of 177 sub-projects, there were 51 sub-projects needed less local currency loan with the decrease amount of RMB 86.18 mil. mearkwhile, another 36 sub-projects needed more local currency with the increase amount of RKB 61.90 mil. 3.26 As of the end of 1990, the planned and accual cost for CIB III was as follows: Table 4 Projected Actual Actual as % of Projected Total Investment 792.70 859.70 108.40 CIB Loan Foreign Currency 98.70 101.90 103.20 (US$ mil) Local Currency (RKB mil.) 157.50 173.80 110.30 Total CIB loans (RMB mil.) 621.20 653.20 105.20 Total CIB Loan/ Total investment (%) 78.00% 76.00% Foreign Currency Loans/ Total CIB Loans (%) 66.70% 72.20% Local Currency Loans/ Total CIB Loans (%) 33.30% 27.80% -----------------....f--------------------------------------------------- 3.27 In view of the sub-projects, out of 73 sub-projects under CIB III, there were 21 sub-projects needed more foreign currency loan with the increase amount of US$ 9.9 mil. meanwhile, another 33 sub-projects needed less foreign currency loan with the decrease amount of US$ 6.7 mit. For the local currency loan, there were 12 sub-projects needed less local currency loan with the decrease amount of RMB 2.44 ail. meanwhile, another 21 sub-projects needed more local currency with the increase amount of RMB 18.74 ail. 3.28 The above discussion shows that the total cost changes for CIB II and T1I are not large, 3.17% decreased for CIB II and 8.4% overrun for CIB III. The foreign currency cost decreased 1.86% for CIB II and increased 3.2% for CIB III. - 82 - There are more changes in terms of local currency cost. For CIB II, the amount was 10.3%. 3.29 The main reasons for the difference of the cost between the plan and actual are as following: 1). During the peloid of procurement a.nd disbursement for CIB II and CIB III, there was devaluation of US $ against other main Western Currencies like Japanese Yen, Deutsche Mark and French Franc so that the project cost in terms of US$ increased. 2). The devaluation of RMB against US$ which caused the increpse of the domestic counter part fee for the imported equipment. 3). The prices had been raised for some local building materials and equipment. 4). The actual prices for some of the imported equipment changed. Analysis of Economic Benefit of Sub-pro1ects 3.30 As of the end of 1990, there were 177 sub-proj,i. ..s under CIB II went into operation. The capacity utilization is as follows: IAbiL-. CIB II Actual Capacity Number of sub- % of Total Utilization projects 90% and over 115 64.97 70 - 90% 32 18.08 50 - 70% 14 7.91 Below 50% 16 9.04 Total 177 100.00 3.31 The performance of the sub-projects mentioned above in 1989 is as follows: - 83 - Table 6 Item Actual (RMB mil.) % of Estimation Sale revenue 2426.97 90.6 Profits 442.61 82.1 Taxes 290.10 82.0 Export sales revenue US$ 120.5 mil. 88.0 Saving Foreign Currency US$ 16.00 mil. 33.1 3.32 The new employed personnel for the 177 sub-projects are 10522 which is 88% of the planned figure. 3.33 As for CIB III, as of 1990, there were 73 sub-projects went into operation. The capacity utilization is as follows: Table 7 CIB III Actual Capacity Number of sub- % of Total Utilization projects 90% and over 31 42.47 70% - 90% 16 21.92 50 - 70% 17 23.29 Below 50% 9 12.33 Total 73 100.00 3.34 The performance of the sub-projects mentioned above in 1989 is as follows: Table .8 Item Actual (RMS mil.) % of Estimation Sale revenue 1239.7 80.0 Profits 101.5 40.8 Taxes 86.7 54.0 Export sales revenue US$18 mil. 32.5 Saving Foreign Currency US$18.53 mil. 55.6 - 84 - 3.35 The new employed personnel for the 73 sub-projects are 6502 which is about 520 people more than the planned figure. 3.36 The following table shows the estimated and actual return rate of 10 sub-projects under CIB II and III. Of which, 5 sub-projects were with the highest rate, and 5 were with lowest rate. Table 9 Financial Economic Rate of Rate of Return (%) Return (%) Ex-Ante Expost Ex-Ante Expost 1. Under CIB II B-030 Taohualing Hotel, Yichang 14 9 23 19 B-098 Hebei Changshan Foodstuff 16 10 8-076 Shijiazhuang No. 2 Cotton mill 80 76 B-011 Shanghai No. 1 Printing and Dyting mill 74 80 38 40 B-097 Zhejiang Packing Material Factory 80 72 2. Under CIB III B-001 Hebei Changzhou Platinum Factory 15 14 A-008 Changzhou Radio Material Factory 16 16 25 25 A-005 Shanhaiguan Foodstuff Factory 18 8 A-023 Guilin No. 3 Radio Factory 59 58 21 21 B-003 Sanzing Flocking Cloth Factory 67 16 3.37 The above discussion shows that the performance of the sub-projects under CIB II and III are satisfactory even though there are some diffidence compared with the appraisal results. Besides of the reasons from the appraisal (like not so accur.te), there are the following causes: 1). Some sub-projects are short of raw materials. 2). Some of them are lack of working capital meanwhile the account receivable are too much. 3). The sluggish domestic market causes the sale revenue going - 85 - down. &eayment of the Sub-orojects 3.38 All the 177 sub-projects under CIB II have been put into operation and began to repay the loan. As of end of 1990, the repayment of the sub- projects under CIB II is as follows: Table 10 Items Foreign Foreign RKB RMB interest ct!rrency currency Principal (Y mil.) Principal interest (Y mil.) (US$ mil.) (US$ mil.) 1.Amount due 131.81 60.44 122.06 127.03 2.Amount repaid 130.76 59.89 123.46 121.85 (include payback in advance) 3.Amount in 1.05 0.55 -1.40 5.18 Arrears (1-2) 4. 2/1 (%) 99.20 99.09 101.15 95.92 5. 3/1 (%) 0.80 0.91 -1.15 4.08 6. Sub-loan in Arrears (a) Number 14 10 7 8 (b) Amount 10.96 5.40 8.19 20.95 Due (c) Amount 4.28 4.61 0.44 13.50 Paid (d) Amount in 6.68 0.79 7.75 7.45 Arrears 7. 6 (d)/(b) 0.61 0.15 0.95 0.36 3.39 For CIB III all of the 73 sub-projects are been put into operation and began to repay the loan. As of end of 1990. the repayment of the sub- projects under CIB III is as follows: - 86 - Table 11 Items Foreign Foreign RMB RMB interest currency currency Principal (Y mil.) Principal interest (Y mil.) (US$ mil.) (US$ mil.) 1.Amount due 54.60 19.50 69.30 49.80 2.Amount repaid 51.57 19.01 70.20 48.99 (include payback in advance) 3.Amount in 3.03 0.50 -0.90 0.81 Arrears (1-2) 4. 2/1 (%) 94.46 97.46 101.3U 98.38 5. 3/1 (%) 5.54 2.54 -1.30 1.62 6. Sub-loan in Arrears (a) Number 6 4 5 3 (b) Amount 5.56 1.46 6.06 1.34 Due (c) Amount 1.07 0.96 3.67 0.53 Paid (d) Amount in 4.49 0.50 2.38 0.81 Arrears _ 7. 6 (d)/(b) 0.81 0.34 0.39 0.60 3.41 The tables above show that 14 subprojects about 7.9% of the total sub-projects under CIB II are in arrears. Meanwhile, about 6 sub-projects accounted for 8.2% of the total sub-projects under CIB III are in arrears. 3.42 The main reasons are as follows: 1). Because of the extended of the construction period of the sub- projects, some sub-projects had not been put into operation as schedule. 2). Products costs of some of the sub-projects increased and profits went down. 3). Due to the change of the market, some of the products could not be sold out. - 87 - IV. Ogrational/Financial Status Hiahtifht 4.1 During the past ten years, CIB has made great efforts to improve and expand its operations and find more resources. Up to now, besides of making capital investment to enterprises, CIB has also developed some other business such as direct investment, making working capital loan. Altogether, there are 16 kinds of business which CIB is undertaken. Forein Resources Mobilization 4.2 CIB is one of the ten windows which can raise funds directly from international financial markets stipulated by the Chinese Government in 1986. In 1986, CIB borrowed about JY'.0 billion from foreign commercial banks. In 1988, CIB borrowed US$ 140 mil. from foreign market, too. Up to now, the total borrowing from international markets have reached to US$260 mil. (not including the loans from the World Bank and Asian Development Bank) 4.3 In the second half of 1989, after the June 4th event, China had met difficulties in the international financial*market. Still CIB kept its word and repaid its loan on time. 4.4 It is obviously that with the deepen of the reform and the continuity of the opening to outside policy and in line of the development of national economy, CIB will work hard to explore more channels of funds as well as diversify its operations. Loan fterations 4.5 Annex 3 shows loan operations of CIB from 1984 to 1989. With the increase of the loans, CIB 's business has also extended year by year. The approval, commitment, disbursement and repaymen; of the loans are in gcod order. 4.6 Loan aiDroval. As of 1989, the total number of sub-projects financed by CIB were 1194 with the total approved loan amount US$ 1380.6 mil. and RMB loan 2024.54 mil. CIB started its operation in 1983. In 1983, the total foreign currency loan was US$50 mil. and local currency loan 50 mil. Yuan. Now, ten years have past and the a.verage annul growth rate of the approval is 43.2%. 4.7 Commitment and disbursement. From 1984 to 1987, commitment and disbursement were in good condition. The actual amounts for commitment and disbursement were -a little bit higher than the planned figures. However, in - 88 - 1989, the actual amount were lower than plan. It is estimated that in the year of 1990 and the coming years, the situation will be improving. 4.8 Loan relarment. CIB has got repayment from its sub-loans since 1984. As majority of the sub-projects could gain good results, the repayment plan are being implemented very well. From 1984 to 1988, the accumulative repayment amounted RMB 406.24 mil. and US$ 310.55 million %;hich fulfilled the plan. 4.9 In 1989, the repayment was not as good as previous years. The repayment was only US$89.2 mil. accounted for 80.84% of the plan. The main reasons are as follows: 1). Some products met difficulties in its export because of the influence of the international situation. 2). The domestic market for some of the products also turned sluggish. 3). The devaluation of the exchange rate of RMB against US$ by the government made some of the sub-borrowers earn more money to payback the loan provided their products are not exportable. 4.10 In 1990, the Government carried out the policy of reform and opening to the outside and continued to do ratification and adjustment. As a result of this, the current economic situation is improving. For the first half of the year, the national economy began to increase, this shows that the government policy have got a good outcome. It is believed that in the coming years, the national economy will continue to develop healthily and the loan repayment situation of CIB will be better. Financial Situation 4.11 Annex 4 shows the Balance Sheet of CIB from 194 to 1989. In 1984, the total assets of CIB was RMB 894.9 mil. From then to 1989, the total assets has got an average annual growth rate of 35.9%. In 1989, the total assets of CIB amounted to RKB 9136 mil. which is 10.2 times of the amount in CIB 's early year of 1983. 4.12 As of the end of 1984, the amount of long-term loan was RMB 159.5 mil.which was about 17.8% of the total assets. In the end of 1989, the balance of long-term loan went to RMS 5930 mil. which accounted for 64.9% of total assets. 4.13 The assets and long-term liabilities ratio of CIB in 1984 was 1.9 - 89 - 1 while in 1985 the ratio was 1.8 : 1 and in 1989 the ratio became 1.9 ;1 again. The ratio is in line with the Loan and Credit Agreement. 4.14 In 1984 the total income af CIB accounted for 2.6% of the total assets while in 1989, the ratio was 6.9%. In 1984, the total expense of CIB was 1.06% of the total assets while in 1989, the rption was 5.15%. The net profit of CIB was RKB 5.7 mil. in 1984 and 94.33 mil. in 1987. Since 1988, CIB has not have the tax holidays, the net profit was down to 70.48 mil. in 1898 and 62.43 mil. in 1989. 4.15 The above discussion shows that the financial situation of CIB is sound. CIB can easily make its end and earn some profits. V. Organization and Staff Training Branches and Staff 5.1 In its early stage, CIB only had three branches and total of 50 staff. As the development of its business and with the help of MOF, PBC and PCBC, CIB expanded to seven branches and 321 staff in 1984. As of end of 1989, CIB had total 32 branches and 1539 staff in total. Internal Functional Divisions 5.2 With the development of the banking business, CIB set up some new divisions in its head office and branches. As of end of 1989, there are ten divisions in its head office, namely, Coordination and Planning, No. 1 Project, No. 2 Project, Credit Management, Financing and Accounting (including international settlement), Auditing, Investigation and Research, Personnel and Training, Computing Center and Administration Office. (Annex 6). The brauches have set up similar departments like: Project, Credit Management, Coordination and Planning, Financing and Accounting and Administration Office. Staff Classification 5.3 Along with the development of its business, CIB has recruited a great number of high qualified staff and the structure of the staff become more reasonable in terms of their fields in economics, accounting and engineering. As of June, 1990, there are about 689 members who specialized in economics which is 45.5% of the total. There are 341 staff, about 22.5% of the total specialized in acc-nunting and also 184 staff, about 16.2 % of total specializea Ln engineering. The number of legal staff and translator are about 91, which is 5% of the total. (Annex 7) - 90 - 5.4 The quality of the staff also becomes high. At present, about 375 staff have got middle and high titles , 24.69% of the total staff. Of which staff witn senior titles are 71, about 4.69% of the total while the middle titles staff are 304, about 20 n% of the total. Trainine 5.5 CIB had paid much attentions to Its staff training. With the help of EDI, CIB had run four seminars in the filed of development bankin- business. These seminars were held in Beijing and Shanghai from 1982 to 1985 and had trained total 180 staff members of CIB. From 1982 to 1989, CIB has hcld about 26 courses in the field of project appraisal , project implementation, international finance, international settlement, and computers. In these courses, about 1170 staff of CIB were trained, and about 184 experts were invited to give lectures, which including 14 foreign experts. 5.6 In order to develop its international financial business, CIB had sent 138 staff for overseas training over the past several years. Of which, there are about 124 staff being trained in a shout time and about 14 staff being trained for middle or long term. 5.7 Having been worked hard for so many years, the training work of CIB has achievement the following results: 1). Having trained a good team of project appraisal which has ability and have finished the appraisal work for over thousands of sub-projects. 2). Having improved the quality of the staff specialized in project management. They have made great contribution to the projects construction, the disbursement, the operations of the projects and the repayment. 3). Having trained a group of key staff for international business. From 1984, CIB started to do some new business such as the international settlement, foreign exchange buying and selling and mobilizing fund from international market. 4). Having done so much in staff training , CIB now has got a team of high quality staff. There are about 468 manager in CIB head office and branches almost all of them have been trained in home or aboard. ANNEX 1- - - 91 - Page 1 of 3 DISTRIBUTION OF CIB II DEC.30,1990 UNIT:USD'O.000 A: SECTOR AMOUNT % VALUE % SECTOR AMOUNT OF TOTAL VALUE OF TOTAL TOTAL 177 100 18057.8 100 Light 50 28.2 6150.4 34 Eelec 25 14.1 2347.5 13 Textile 46 . 25.9 4679.2 26 Machinery 11 6.3 1264.2 7 Chemical 10 5.7 1083.5 6 Metallurgy i 2.3 541.3 3 Medicine 6 3.5 361.0 2 Foodstuff 7 3.9 360.1 2 Buiding 5 2.9 352.1 2 Agriculture & stock raising 4 2.3 185.2 1 Package 5 2.9 361.7 2 Service 3 1.7 190.0 1 Other 1 0.5 181.6 1 B: CONSTRUTIVE NATURE AMOUNT % VALUE % AMOUNT OF TOTAL VALUE OF TOTAL TOTAL 177 100 18057.8 100 Capital Constructive 24 13.5 3431.0 19 Technical Transform 153 86.5 14626.8 81 - 92 - ANNEX 1-1 Page 2 of 3 C: ENTERPRISE OWNERSHIP AMOUNT % VALUE % OWNER AMOUNT OF TOTAL VALUE OF TOTAL TOTAL 177 100 18057.8 100 State-operated 115 65 13723.9 76 Coletives 62 35 4333.9 24 0: GEOGRAPHY AMOUNT % VALUE % BRANCH AMOUNT OF TOTAL VALUE OF TOTAL TOTAL 177 100 18057.8 100 Beiijng 7 3.9 1082.6 6 Tianjin 7 3.9 1626.1 9 Hebei 24 '13.6 1625.2 9 Shanxi 1 0.5 181.0 1 Neimeng 2 1 180.7 1 Liaoning 9 5 541.7 3 Shanghai 14 7.9 2166.8 12 Jiangshu 42 23.7 4333.9 24 Zhejiang 11 6.2 1083.6 6 Anhui 10 5.6 722.3 4 Shenyong 7 3.9 541.0 3 Dalian 1 0.5 181.0 i Henan 1 0.5 186.0 1 Wuhan 4 2.2 360.0 2 Shandong 5 2.8 724.0 4 Fujian 6 3.3 541.9 3 Hubei 14 7.9 902.9 5 Hunan 1 0.5 179.0 1 Guangdong 4 2.2 360.0 2 Guangxi 3 1.7 196.0 1 Sichuan 3 1.7 187.2 1 Jilin 1 0.5 034.9 1 Ali L - 93- Page 3 of 3 Es NUMBER OF AMOUNT % OF AMOUNT % OF SUB-LOANS AUTHORIZED TOTAL DISBURSED TOTAL LOAN 2434-CHA (USD) ABOVE FREE LIMIT 40 7790.00 75.00 7789.00 74.54 BELOW FREE LIMIT 61 2660.00 25.00 2660.00 25.46 TOTAL 101 10450.00 100.00 10449.00 100.00 CREDIT 1491-CM (S0R) ABOVE FREE LIMIT 19 3433.00 51.00 3311.00 50.53 BELOW FREE LIMIT 57 3241.00 49.00 3241.00 49.47 TOTAL 76 6674.00 100.00 6552.00 100.00 ANNEX 1-2 - 95 - page 1 of 3 DISTRIBUTION OF CIB III DEC.1990 UNIT:USD'0,000 A: SECTOR AMOUNT % VALUE % SECTOR AMOUNT OF TOTAL VALUE OF TOTAL TOTAL 73 100 9864 100 Lighte 24 33 2852 29 Eetec 13 18 2036 21 Text 7 10 503 5 Machinery 9 12 834 8 Chemical 7 10 1256 13 Metallurgy 2 3 615 6 Medicine 3 4 456 5 Foodstuff 2 3 255 3 Buiding matrials 5 7 861 9 Agriculture & stock raising 1 1 195 2 B: CONSTRUTIVE NATURE AMOUNT % VALUE % AMOUNT OF TOTAL VALUE OF TOTAL TOTAL 73 100 9864 100 Capital Constructive 5 7 1490 15 Technical Transform 68 93 8374 85 - 96 - ANEX L2 - Pags 2 of 3 C:ENTERPRISE OWNERSHIP AMOUNT % VALUE % AMOUNT OF TOTAL VALUF uF TOTAL TOTAL 73 100 9864 100 Atate-Operated 51 70 7781 79 Colletives 22 30 2082 21 B:GEOGRAPHY AMOUNT % VALUE % AMOUNT OF TOTAL VALUE OF TOTAL TOTAL 73 100 9864 100 Beiijng 3 4 120 1 Tianjin 6 8 510 5 Hebei 5 7 700 7 Shanxi 2 3 979 10 Neimeng 2 3 378 4 Liaoning 5 7 794 8 Shanghai 4 5 26 0 Jiangshu 10 14 2943 30 Zhejiang 2 3 133 1 Anhui 7 10 898 9 Shandong 4 5 436 4 Fujian 3 4 192 2 Hubei 11 15 1220 12 Hunan 1 1 24 0 Guangdong 1 1 50 1 Guangxi 2 3 391 4 Heilongjiang 1 1 135 1 Jitin 2 3 463 5 Jiangxi 1 1 30 0 - 97 - ANNEX 1-2 Page 3 of 3 Es NUMBER OF ANDUVT 5 OF AMOUNT % OF SUP-LOANS AUTHO2ED TOTAL DISBURSED TOTAL LOAN 2659-CHA (USO) ABOVE FREE LIMIT 23 6026.00 82.90 5386.00 84.70 BELOW FREE LIMIT 21 1245.00 17.10 970.00 15.30 TOTAL 44 7271.00 100.00 6356.00 100.00 CREDIT 1663-CHA (SOR) ABOVE FREE LIMIT 9 987.00 43.80 88.00 24.50 BELO FREE LIMIT 20 1266.00 56.20 272.00 75.50 TOTAL 29 2253.00 100.00 360.00 100.00 DISE8URSENENT OF CIB 11 TINE NO.OF ACTUAL CUMULATIVE CUNULATIVE % LOAN/CREDIT DISBURSENENT DISBURSENENT OF TOTAL LOAN/CREDIT 1985: The first half of the year 1491 (SØR) 2,622.274.13 2.622.274.13 4.00 2434 (USU) 0.00 0.00 0.00 The latter half of the year 1491 (SØR) 12,469.989.81 15,092.263.94 23.00 2434 (USD) 17.069.961.12 1 169,961.12 16.00 19863 The first huilf of the year 1491 (SDR) 19.624,583.20 34,716.847.14 53.00 2434 (USD) 28,449,174.67 45,519,135.79 43.00 The latter half of the year 1491 (SØR) 14.630.882. 83 49,347.729.97 75.00 2434 (USD) 23,738,924.10 69,258,109.89 62.00 1987: The first half of the year 1491 (SDR) 25,546,613.52 51.902.343.49 79.00 2434 (US0) 7.677,909.64 76,936.019.53 73.00 The first latter of the year 1491 (SØR) 3,925,696.78 55.878,040.27 85.00 2434 (USU) 2.215,041.33 79,151,160.86 . 75.00 19883 The first half of the year 1491 (SDR) 4.543,106.42 60,<21,146.69 92.00 2434 (USD) 5,884,492.13 85.036.252.99 81.00 The latter half of the year 1491 (SDR) -1,026,491.18 59,394,655.51 90.00 2434 (USU) 7, 803,834.42 92,840,087.41 88.00 19892 The first half o; the year 1491 (SØR) 2,089,522.72 61,484,178.41 93.00 2434 (USU) -990,862.40 91,849,224.99 87.00 The latter half of the year 1491 (SIR) 4,943.779.17 66,427,957.40 101.00 2434 (US0) 439.346.44 92,288.571.43 88.00 1990 The first half of the year 1491 (SOR, 65,000.000.00 100.00 2434 (USD) 12,711,427.57 104.999,999.90 100.00 ---------- -------------------------- ------ ------------------------------- DISEBURSENENT UF CIN 111 TINE NO.OF ACTUAL CUMULATIVE Ct,MULATIVE % LOAN/CREDIT DISBURSENENT DISBURSEMENT OF 76TAL LOAN/CREDIT 1986. The latter half of the year 1663 (SØR) 12.017.273.00 12.017.273.74 52.70 2569 (USO) P.00 0.00 0.00 1987. The first hall of the year 1663 (SOR) 0.00 12.017.273.74 52.70 2659 (USD) 3,656,257.33 3, 656.257.33 4. 90 The latter half of the year 1663 (SDR) 9.254,599.58 21,271,833,32 93.30 2659 (USU) 26, 421,440.89 30. 077, 698, 22 40. 10 1988. Tte first half of the year 1663 (SØR) 633.908.70 21.905.742.02 96.10 2659 (UJSU) 20.714.687.01 50.792, 385. 23 67. 70 The latter half of the year 1663 (SØR) 717.248.80 22,622,990.82 99.20 2659 (USD) 5,390, 181. 14 56, 182,566,37 74.9 1989, TIhe first half of the year 1663 (SUR) 0.00 22.622,990.82 99.22 2659 (USD) 2, 141,471.19 58,324,037.56 77.80 The latter half of the year 1663 (SUR) 0.00 22.622,990.82 99.20 2659 (USU) 2,772.099.20 61,096,136.76 81.50 1990, The first half of the year 1663 (SØR) 0.00 22,622,990.82 99.20 2659 (USD) 3,480.209.67 64,576.346. 43 86. 10 The latter half of the year 1663 (SØR) 0.00 22,622. 990.82 99. 20 2659 (USU) 1,026,332. 92 65,602,679. 35 87.50 - - - - -- - - - - - - - - - - - -- - -- - - - - -- ESTIMATIVE AND ACTUAL LENDING OPERATION (1984-1989) UNIT-10.000.00 1984 1985 1986 1987 1988 1989 EST. ACTIAL EST. ACTIAL EST. ACTIAL EST. ACTIAL EST. ACTIAL EST. ACTIAL APPROVALS LOCAL CURRENCY LOANS 18000 18430 36000 33910 32000 27240 58500 56840 69000 49443 29900 4600 FOREING CURRENCY LOANS 5800 6620 23000 21530 18000 18180 39000 40080 36254 31684 28767 15446 COMMITENNT LOANS LOCAL CURRENCY LOANS 8200 18810 22490 30810 29960 31370 48780 50600 63040 48419 28405 6300 FOREING CURRENCY LOANS 8200 8250 13000 20270 16900 17390 35020 35800 44278 34683 27392 14695 DISBURENENT LOCAL CURRENCY LOANS 8020 10900 21580 22030 28080 36480 32700 45090 43047 48068 34831 28800 p FOREING CURRENCY LOANS 1670 1890 8200 11280 14050 20070 21300 24530 24422 36354 34394 27797 REPAYMENTS LOCAL CURRENCY LOANS 80 100 1590 2180 2680 2850 4113 8160 11003 19834 13b65 7500 FOREING CURRENCY LOANS 0 60 260 780 4090 3920 4936 7680 5382 9695 11034 8920 OUTSTANDING LOANS LOCAL CURRENCY LOANS 9940 11280 31520 31130 56920 64760 85507 101690 142429 138500 167313 159800 FOREING CURRENCY LOANS 2870 2160 11070 12660 21030 28810 37394 45660 54932 72881 83401 91759 BALANC1 SWET OF CIB (1983 - 1989) 1]N It Rff10.(XX T~~~ -- -------___ __ M 13 1 1984 1 1985 5 1986 5 1987 5 19M8 5 1909 I .-- -- ---1 - -r---- - -- - - --,--- - t- -· - --f- OFEMCAST 5 ACTWAL FORCAST 5 ACIURAL FOFÆCASI ACT^AL 5 FOKCASI 1 ACTIAL 5 FOECASJ 1 ACTURAL l FOWCAST l AC^æAL IFOK*CAST l PCTAL i 5.- 4- i 1 [---- t- -- 1 -5 l-------4 - 1 4 ASSETS 5 5 5 1 5 1 1 5 5 5 5 5 5 5 O - --- --- 5 1 1- 4 5--- 1 -- --- ---------t - I------------- C~ET ASSE TS | | ¡ I l CASH Aff OEPSIY 50 151465 144802 573070 128798 3503 l82960 177930 1 107990 174868 1 81300 5 11:553 3814 5938K0 1 l DE OF LOWa TERM LOANS I0 680 12320 l 3130 l 6860 11070 123170 1 16970 122460 136730 136400 165594 l 6941C l 158X8 l e- -- ---- -- - 1 ---------1-- 5----- -+--l---------- - -- 5 - - - - --F------ 5 OTKER AC0MIS ICElVA0 10 10 540 50 18290 18290 16770 56770 l26928 10000 12441 l120899 510793K l a i i i --- i o - t i-I i i l l TOTAL 0^EN1 ASETS 1O 152145 147122 176270 13566 154410 l 114420 l 101670 l 123722 5138526 112770 f 231588 5754131 l 3695K l LOM TEFt ASSETS 5 5 1 5 5 5 1 5 1 5 1 1 5 5 LONW TFM LOANS 0 l 390 120740 1 15950 559170 170740 1 151130 1 171510 1 25230 l 279432 1401700 1482732 16%3187 53000 l l LESSe flOV0ISI FOR 10 l 1 15 50 117 1270 1 1030 5680 1730 1365 l 1168 l 1118 1 24.r 12100 1 S 0ÆsADtUTS 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 S. O LON TuLAN ^ 0 1680 12320 13160 l 680 l 11070 12310 1 16970 122460 136730 136400 5t6594 169418 1158300 1 1 T W: LOG TEM LOANS l 0 53299 518415 l 12790 552293 59400 1 126930 1153860 1227040 1242337 5364132 l 416018 l 591293 1432600 l l INWSTMINT 50 50 10 10 10 1530 5980 1680 12190 51395 1395 53206 l3206 51500 l 1 1 1 1 1 5 5 1 1 ---- ' - 1- -- 5 5 T G:FIXID ASSETS 10 50 50 140 10 5140 5230 1210 1290 5367 1513 1732 1861 51000 1 5 1i 5 1 1 5 1 1 t------- -- -5+ ----- lOTWN ASSETS 50 1160 1222 l30 1210 50 10 1720 1720 1389 510000 518894 511075 5118700 TOTAL G LONG TE ASSET 0 53459 518637 5 13220 552503 560070 l 128140 l 155470 1230240 1244488 537640 l 438850 5M606435 553800 l - i i i i i i i i ti ITOTAL G: ASSETS 10 55604 65759 189490 188159 l 114480 5 242560 1257140 5 367460 1383014 503740 l 670438 186066 913609 l > 0 bi UAAN(1 SWLT OF Cli (1983- 1989) Ilm b »10.000 1983 1984 m 's 5 19%6 197 1 198 1989 FOECAST l ACitRAL F0CAST l ACIMIAL FOKCAST l ACItUAL FRKCAST l ACTLRAL l FOF£CAST l AC~UW 5 FOKCAST l ACIPAL l F0ECAST l ACMWJA I LIABiU TIES 5 5 5 5 5 5 1 5 5 1 5 5 5 5 5 5 5 1~ 1- --l-------1-----1 --i-----i---+---+---- 1 * 5QIMTLA8ILITIES 5 5 5 5 5 1 5 5 5 5 5 5 5 5 5 1iU0siT lo 10 10 10 10 10 k0 10 10 56661 l28268 1140010 1137122 l5133] 5 i OERPAYALE 0 10 10 510 10 18110 515300 l46f 17510 543868 137696 150727 180419 561800 i D OE LGWTERMPAYABLEIO 50 50 10 1o 10 10 10 51510 1495 15000 556 115000 15300 STOTAL OF OfNT L ABIL TY IO 10 50 510 50 58110 115300 54660 19020 151024 i70964 196253 1158541 l 18040( JI6 TEM LIABItITIES 5 1 5 5 5 5 5 5 5 1 5 5 5 1 5 5 OESTIC ~0merNG 10 114000 514000 14230 114000 142000 142000 142000 44000 542 572000 152000 1 .12000 594500 l MB B~IING 10 1090 5 10890 56040 132900 521510 178(20 174240 120620 5106210 1122530 1146728 : 44390 l256200 5 OTKR oERaA goWiMING 00 0 10 10 0 10 12M l 150 541290 5188 5 84811 176275 l 1250 5 14270 5 s1TOTAL 0 10 10 148390 146900 10 10 1131930 1205910 518898 1279341 l27503 1 i81489 l493400 LESS: OU OF LON TERM 0 10 10 10 10 10 10 10 11510 1495 150X l5506 I15000 515300 l TOTAL L06 TIM LIABILI 50 1 1500 124890 148390 1 46900 83510 132100 5 131930 l 204400 51864 1 5274341 1269497 1466489 1478100 l OTI LIAuILITICS 10 10 10 10 50 l0 0 119980 520870 9510 l20000 553409 19978 586200 5 TOTAL W IABIL T IES 50 515090 524890 48400 46900 5 71620 5147400 l156570 1234290 1248937 1294341 1322906 1486467 l564300 5 5 1--> 1 1- 1--- 5---5 5 -1 1- -1 1 1 1 VAWD CaI TAL 10 140000 140000 140000 0000 140000 190000 190910 5115910 5115000 5115000 5115000 5115000 5115000 5 -5 - -f * 1 5 1 --1 - 1 | ACuAITIW EAMINGS 10 1514 1869 l 1090 5 1259 l 2860 5160 59560 517260 121077 523435 136279 146558 553900 5 lTOTAL O t VALtf 50 5 40514 1 40869 141090 541259 542960 195160 1 0040 l 13370 1 136077 l 138435 151279 l 161558 5168900 5 1 * 5 1 * 1 5 5 1 - -- i 5 ii 5TOTAL OF LIABILiTIES AM 10 556604 16759 189490 588159 5114489 1242580 1257040 53674M 5383014 5503740 1670438 5860566 913600 l #fT VALIE 5 5 5 5 5 5 5 5 5 5 5 5 1'> STATEWNT OF CIB IN Pi 1 A" LOSS 5 1983 1 1984 1 1985 1 198b 1987 Et8d 1tt9g 1 * 1 T 1 - 1 --, ----I - i-- - 5F~EAST 5 ACIML F 1AST ~ TUAL 5 F0fCAST i ACTUIW FORASI l ACIRJA IftCASI 5 AcIljAi l FORAST 1 A,, P w fOHCAS1 5 ACIUAL 4 5 1 * I--I 1 5- -------t - - - ----- 1 IlOX 10 1777 11491 1a20 i3580 13430 112130 l 13850 120740 l 22Åi5 l 35288 i396b? I62508 56033 I 1 1 1 *1----- 5----1---- --i-- - ----- - -- 1- - 1 --- 5- - LAN INEJST 1IM 10 1128 1708 1410 12710 13060 19450 1 118580 l 18, 14 13:40/ l 3/0/ I54/9 149414 1 1 4~ 5 1 1 4 I------------- - ----- -- - t- .----- DIPOSI1S INE(SI Me 0 l 5149 I83 1110 1820 1260 2670 l 258) 12420 l ,594 S 3i1 24W 12722 18707 1 1 4| | | 1--- -- - ---------.-.-..-.----- i OTM INE 10 10 10 10 150 110 510 1A) 14') 4s I /bo li j 53307 i /912 1 _______ - 1 1 1 4 5-- - 1- 1-- ----- --tf-----f --t----- --- -1 lEXPE ES 50 1263 11137 I50 12340 12560 18930 17950 513040 113072 123459 1241e 144665 147028 4 ai i i i i i i-- i - - -g -- --t F BSIrSSEPENWS 1o 1159 189 1770 51530 1100 1 n60 16420 511560 l11364 120741 1204/2 140429 143406 0 a i i i 4 i -- f--- i - - f------- --i-- - -- f--- 1 AlINISTRATIW EP 10 164 l188 110 1380 1420 110m0 1730 l1000 11061 11167 l1/4t 51494 if15 s 1 1i * 4 1 1 1---] 1-----1 --- --t---------- ADEBTS I0 1 15 10 1310 1270 1760 1410 150 156 1803 111d 11358 1844 1 1 1 5 * 4 5 5- 1 --i--+----1------- -- ---- ~PICIATIGN 9ATM ATIN 50 50 10 50 I10 110 530 120 120 136 154 585 156 5178 5 TAX 10 139 175 120 1110 1160 1620 1370 1410 1555 1694 51109 l139 1595 5 1 1 4 4 i 5 1 1- -- 4-- F-- 5- --1----t 1 4 5 1 4 1 5 1 1 -4 -- l - --1------1-- PIWIT OEFM INO TAX 0 1514 1354 5570 11240 l 1770 1 2300 55900 7700 9433 l 11829 l 15tb3 117843 l 16005 1 1 5 -*-1 - ' --- 5-- ------- 1- -l-- 5 LEs: ImmE TAX i0 10 10 10 10 10 10 1 0 0 10 l516 18615 19814 19762 5 E W 1m 157 1 1 1 -1-- - 143 ---- -4--- l 5TPRFT 0 54 4m i570 51240 1110 5 2300 15900 17700 59433 5 5323 5-7048 5 8029 5 62431| -105 - Annex 6 -b page i of 2 Ia læ -åi - i, i~ i I e g CL 1 7 i i j lesis rama ressadeolt Ta501 b Stiaan blattrl reesidetal Chet« ShafnAj Utnancth ireldtI loe 1a %m tranch President vanS Ut- oafa ¥are premdemet Tan Ura-..a Qi Vare I.r:.ldrt tu Rey,oni l i ni.åln 4 statt tbar A ti-an tat tmel ice presidemt nq 4r sstt Grättcs. nejika ti !at mmevatker!. !.el# t.r. - kau tSeqjas. iea as§ 37 staff aches Tanqae.Velhah Jcabers Sa~1sI Branch Presudeit sa *b- - anu Branch Presadett Zholl tti- Jaln Branch President Ju Oenså oini ao Branch President Sa iaa os Ute* presidemt Le tilSi ö$ mao vece president Orana Stuans an Iice president Zhang Penl1 1 qtnq vice president Da .Uai .2 statt aeers. -- dins 3? stat mabers. --35 stat meabers 1 {st acabers. Jimsa tranch President mmw u 1 Zheiang Branch President Wane Runan ranch President Du Shit i (hontt ana Branch tresident Nua- Unay' ice president la luci. Jiain Vice President ru jaran ..s an fice president Dam Tiaana. nu ket:iut 24 stall sextbers. aag haoiaa 145 mbera S'f ra - statt meabirs Chef Zlaolin 66 stall memihers nebes:Iarbee Tamstboe.Smzbum.Ci- an~ i.tUa: Liaaisaugu Bautgns Nebet Branch Presideat la Shithe Reilons Jasat Branch Pre.itdenlt tenan Bratch Vice presedent i vulin Branch President u Tasa- Vice psidnt m. Paa 113 sta- Chi Qanaie 24 staff neåbers Bunszbeno 20 statt aeabers. tiasa 24 stafl raers. fl me~ters s-branchea:hudaa. Kubwe Bralch prestdent vag Una Geamnsd1a l s:t:. PresIdent peng Shaaxi Branch ptesident 7hang Goafizhou Branch Var! President shiens fce president Baa Gukanl Dizbao Vice president Chen Tan- Zhaguo Vice president l. guo tien danshenj 31 st.ff aeabers. Li Ping.Lun Shde.139 statl - chens.2bcasj Tuata 62 staff mec aut J4 statt cmabe.j eabers Sub-branches:Shadbo.1t- bers Sub-brancars Zhubai.Shan- seglas Tichw.o Shträan 11~ngsi toa.2banians. Tanlion Braab President ti Be- Guanxi Br.in.a President Jeang atanan Branch Vice presiult ita :1 a ihen Branch President Be 5. ding vice presideat #an "§ng~r. Giisk-i110&trr president Les Date ag Meldan 1B statt memtiers In hytt é2 stalfi enbers. 61 statl mmaers. 1 38 stall maebers Sub-branches: braches §ainan. Gethal.Guilin.Luatbou. .iaoibes Brancl trestaemi t a Sicken* &ranch president Zlam Barbin Branch President (in Hon Ana fice President ea~s ai. Led* Vice president U 10ag sun(part ticel Vice president ban Shikam 53 statl oeaers Sab - hia l6 statt erabel. biN Chenqyou 13 sraft sia bra;ahrc; b.tadarnj Fuaxm ranah fr:.iat M a Jan Innar aar'aI l.a Peastaan Pre-.idest Shetsjany Branci Presidient ftA, buetew &l Ia tff r ·rsataot 1.1t1 t··hni a. 1a. r.- I (Be.et l i ea n ?enj ian-o V ic ra 14--ala 't . - 6he lai *nesams.Ll.hs lamemansi 43 - ia, m . a.tahr - NO9meahanm et sa 3 talt b . ..,i ra -. Stdb branctr r k-, Monsa.uwahi- sia en. _lamen 01 THE BREAKDOWN OF CIB'S PROFESSIONAL STAFFS (1982 --- 1990.12.30) I ECONONICS ACCONTING ENGINEERS OTHERS IYEAR I I I I I I | NUMER PERCET NUMR I PERCENT I NUNDER1 PERCENT I NUNBER IPERCENT I 11982.12 1 22 1 44.0 1 6 1 12.0 1 4 1 8.0 1 18 1 36.0 1 1983.12 I 44 I 53.7 I 12 I 14.6 I 10 12.1 I 16 | 19.5 | 1984.12 151 59.9 35. 13.6 38 14.8 30 11.7 1985.12 I 267 I 57.3 I 55 I 12.2 I 102 21.0 I 40 I 8.6 I 11986.12 1 325 1 57.7 1 81 14.9 1 84 1 14.9 1 70 1 12.4 1 11987.12 520 61.7 I 141 I 16.7 I 122 14.5 | 60 I 7.1 | 1988.12 544 59.1 181 19.6 145 15.7 52 5.6 11989.12 I 519 I 59.9 I 129 I 14.9 I 187 21.6 r 32 I 3.7 I 1990.12 689 45.5 341 22.5 184 16.2 91 6.0 Others Including law. translator. etc. THE FLONING OF CI STAFF INFLOM OF STAFFS OUTFLOW OF STAFFS TilE NUMER AT THE END YEAR ( I - r ---I THE ANAI YSIS OF THE AMO= VNICK AMONG WHICH AMUNT WIlCH THE PMESSI1NAL VFUWING REASONS EA TOTAL TE PROWFSIO TOTAL THE PROFESSIM TOTAL THE PAESSIONAL I STAFFS T% I STAFFS STAFFS STAFFS I TOTAL STAFFS | | I (Adjusting and increasing on the I 1962.12 0 0 0 0 50 32 | 64 lbasis of operational developing I I I I |I | Adjusting and increasing on the 1983.12 67 52 3 2 114 I 82 7 72 basis of operational developing Adjusting and increasing on the 11984.12 1 208 1 175 1 I 1 0 321 1 257 1 80 (basis of operational developing I I I II I I I I Adjusting --d increasingoan the 11985.12 1 313 1 252 1 58 1 43 516 1 466 81 lbasis of operational developing I I I I I Adjusting and increasing on the 1966.12 IIll 111 34 14 1655 1 563 86 lbasis of operational developing I I I II I I Adjusting and increasing on the 1987.12 378 328 5848 915 843 86 lbasisof operational eVeloping I I I I I I IAdjusting and inc~reasing mn the 1968. 12 2bt 246 21 20 1314 1130 86 lbasis of operational developing I I~~~~ I Adjusting and increasing on the 9 1 213 1 22 20 1539 130 1989.2 24 I 123 1 86 Ibasis of operational developing ___ __ ___ _ _ __ _ ___ _ _ _ . __ __ _Adjus___ting_ andinresin _o_te_ ( 6bai f prtinldeeo ing i - 109 - PART III: STATISTICAL INFORMATION 1. Bank Loans and/or Credits to CIB A. First Industrial Credit Proi'ect (CIB I) Amounts: Loan - $40.6 million Credit - SDR 28.0 million Total - $71.5 million (actual) Purpose: To assist CIB in meeting the need for foreign exchange for industrial financing, improving investment efficiency, and orga- nizing and improving CIB's capacities for project design, selec- tion, appraisal, and technology transfer. Year of approval: 1983 Status: Project completed as of June 30, 1989. B. Second Industrial Credit Proiect (CIB II) Amounts: Loan - $105 million Credit - SDR 65.8 million Total - $183.2 million (actual) Purpose: The main objective of CIB II was to continue the institutional building efforts of CIB I. These efforts included expanding the bank's branches and assisting the bank in the appraisal of larger projects; and allowing the bank to meet its resource requirements, which were expanding much faster than anticipated in CIB I. Year of approval: 1984 Status: Project completed as of June 30, 1990. C. Third Industrial Credit Proiect (CIB III) Amounts: Loan - $75 million Credit - SDR 22.8 million Total - $103.6 million (estimated) Purpose: To assist the CIB in financing productive facilities and resources in China that will contribute to the economic and social development of the country; to provide the CIB with the funds needed to develop its operations and carry out its Charter and Statements of Policy and Strategy. Year of approval: 1986 Status: The loan closing date is June 30, 1991. - 110 - D. Fourth Industrial Credit Project (CIB IV) Amounts: Loan - $250 million Credit - SDR 40.9 million Total - $300 million equivalent (at appraisal) Purpose: To assist the government in promoting and implementing technology upgrading and modernization in industry, to build up sound institu- tions and procedures for project appraisal and investment financing and to improve financial intermediation practices; specifically, to continue institutional assistance to the CIB and provide a general line of credit for industry. Year of approval: 1987 Status: CIB IV is progressing satisfactorily; commitments and disbursements have accelerated after an initial delay in loan/credit effectiveness; disbursements were $175.8 million (70.3 percent) and SDR 37.0 million (90.5 percent); the loan closing date is June 30, 1992. E. Fifth Industrial Credit Prolect (CIB V) Amount: Loan - $300 million Purpose: To continue institutional strengthening of CIB in its traditional and new areas of activities; to expand and diversify CIB's resources, to remove its operational bottlenecks, and to provide funds for investment in the modernization and restructuring of light industry. Year of approval: 1989 Status: CIB V is progressing satisfactorily; disbursements were 91.0 million (30.3 percent); the loan closing date is June 30, 1994. - 111 - 2. Project Timetable Date Timetable of key events CIB II CIB III First presentation to Bank/IDA 02/83 10/85 First Bank mission to identify project 02/83 11/85 Time taken to prepare the project 3 months I month Agencies preparing the project CIB with Bank Bank assistance Departure date of appraisal mission 10/83 10/85 Completion of negotiations 04/30/84 01/31/86 Board approval 06/05/84 03/04/86 Loan signing 06/25/84 04/16/86 Planned effectiveness date 09/25/84 07/16/86 Actual effectiveness date 10/09/84 07/03/86 Latest commitment date 10/02/87 11/09/87 Original closing date 06/30/89 06/30/90 Actual closing date 06/30/90 06/30/91 3. Loan Disbursements ($ million) Bank fiscal year 1985 1986 1987 1988 1989 1990 1991 CIB II Appraisal estimate 3.0 40.0 110.0 145.0 175.0 175.0 175.0 Actual 2.6 81.2 133.3 153.2 163.6 177.9 183.2 Actual as % of estimate 88.0 203.0 121.2 105.7 93.5 101.5 104.7 Date of final disbursement 12/07/90 CIB III Appraisal estimate 5.0 23.0 63.0 83.0 100.0 100.0 100.0 Actual - - 42.7 79.2 86.7 93.0 103.6 (p) Actual as % of estimate 0.0 0.0 67.8 94.2 86.7 93.0 103.6 (p) Date of final disbursement n.a. Note: (p) - projected. - 112 - 4. Project Costs anj Financing (in $ million) Appraisal estimate Actual Local Foreign Total Local Foreign Total CIB II CIB loans Foreign currency - 175.0 175.0 - 183.2 183.2 Local currency - 101.4 - 101.4 Enterprises 94.2 - 94.2 184.7 - 184.7 Total 94.2 175.0 269.2 286.1 183.2 469.3 CIB III CIB loans Foreign currency - 100.0 100.0 - 103.6 (p) 103.6 (p) Local currency - 46.7 - 46.7 Enterprises 53.8 - 53.8 81.7 - 81.7 Total 53.8 100.0 153.8 128.4 103.6 232.0 Note: (p) - projected. Comments: The estimates were derived assuming that the World Bank funds will fund the foreign exchange costs, equivalent to about 65 percent of the total subproject cost. 5. Status of Covenants Deadline for Covenant Subject compliance Status Sec. 5.01(c)-DCA Appointment of CIB senior Condition of Complied Sec. 5.01(g)-DCA engineer, and economics effective- (under CIB II) staff ness Sec. 3.03-PA Maintenance of a 5:1 At all times In compliance (CIB II) long-term debt/equity Sec. 3.02-PA ratio or lower (CIB III) Sec. 2.08-PA Issuance of revised Proj- By 12/31/84 Complied (CIB II & III) ect Appraisal Manual LA - Loan Agreement DCA - Development Credit Agreement PA - Project Agreement - 113 - 6. Use of Bank Resources A. Staff Inputs (staff-weeks) Actual Comments CIB II Through appraisal/ 64.7 Board approval 12.5 Supervision 79.7 Total 156.1 CIB III Through appraisal/ 1.6 Prepared based on the appraisal work of one brief mission. Board approval 0.6 Supervision 28.6 Total 30.8 B. Missions Performance Stage of No. of Days in Specialization rating Types of project cycle Month/year persons field represented status problems CIB II Through appraisal/ Board approval /a 10/83 3 20 Eco Fin Eng 2 f Supervision ft 07/84 4 13 Eco Fin Eng 2 M Supervision /b 01/85 3 15 Eco Fin Eng 2 M Supervision / 07/86 3 7 Eco Fin Eng 2 M Supervision /d 05/87 2 8 Eco Fin 2 M Supervision /e 05/88 2 6 Eco Fin 2 M Supervision /e 10/88 3 5 Eco Fin Eng 2 M Supervision e 01/89 2 3 Eco Fin 2 M Supervision /e 10/89 2 3 Fin Eng 1 Supervision /e 09/90 3 3 Fin Eng 1 CIB III Through appraisal/ Board approval NA Supervision /c 07/86 3 4 Eco Fin Eng 2 M Supervision /d 05/87 2 3 Eco Fin 2 H Supervision /e 05/88 2 4 Eco Fin 2 M Supervision /e 10/88 3 5 Eco Fin Eng 2 H Supervision /e 01/89 2 3 Eco Fin 2 M Supervision /a 10/89 2 3 Fin Eng 1 Supervision Le 09/90 3 3 Fin Eng 1 / The mission also supervised CIB I. P Combined mission to supervise CIB I and CIB II. C Combined mission to supervise CIB I - III and prepared CIB IV. /d Combined supervision for CIB I - IV. /e Combined mission to supervise CIB I - V. 2=l CHINA I1ÉWseT 8M1< Orapnization Cart (ms of June 1990) 8NAMO OF DIRT0s Cha 'ran: Zou Dao-Jiang President of People'* Construction Bank of China (33 mera) As of .~ i9 The oe1 no. of C2a åtaff: 1.835 iacluding 1= meåera in M~md Office and 1.~ In 9~ach~. Ider C Mead Office: 30 branches end 9~ OF ~ ODIRE S Auditor 29 aufi ramchem Menaging Director (5) Tang Tian-Shen ~MeW Lu Xiani in Vice Premident Vic Pregidant Z2o Ming Sr. Töchnica1 AdÄviorjjSr. Economic Adviso Chan N&; -Long Tao Zeng-Y; COWI00MNIS ATI 9~I CODINTD FINAIICM i IRAWICATIOa PMR LOMI PMOT LOM aOT 0~OfflC EWATION EPT. PLAMDEJ DE". ACC»TIM~ DerT fR M DWICE DwT. #b ior Ha 2T KA«WD4T Che;Cif he:Cif hio.Chie*f: chie*f: Chief Deputy Chief. o% Pei Zhang M En-Tian ShiSun mXiao-Fan Zoo Fong-Lian Tang Zh -De Ya Bin-Q; Hang T;*-An Cuan Xian-Si Tang Cmang-DO 12 27 13 22 31 8 it 18 17 aQ r ffi 0 0D< Drøanization Chart (cont'dl U t~TIMUD iJ JIMiU IBE1 IGEI RJJIAN LIU President: PreIdut: President: President: President. President: President. President: Su Zhne Li 41ing Yang Bao-Pin Zhou Cuang-yi xu-sh; ZhG Wsna Hui Shung La; Jin- Cont An-Fu Vie Presi*dent: Vice President. ViCe President: Vie* President: Vice President: Vice President: Vice President Vice Pre.ident. Le Kui Ki Pan Big-eng Yang Wei Ceng Ku ung Xu Cri-Pu Hen Guo-Ding Chen H~ng-Zh&n Seo Shi-a Wang Shbo Xiamn Huang Shoude vang Kai Liu Ping SS 61 j j41 145 113 139 49 63 SMAc gIEJIAI ILCJIAANC GUANM~XN aN~ SICHJAN I @90 L1A DRANH M ORA"H a~M ØR W~ ORIM~H President President President: President: President: President: President: President: Chan Qi os ZhoU vi-~a Wang Ji-Min Chi Quøn Xie Peng Dizhec, Ji&ng Qin-Xicnq Zho~ Le De Liu Shu L*n *o Vice President Vie* President: Vice President: Vice President: Vice President: Vice President: Vice Presdent. Vice President: Ku-Ri Vang DyGne Guang Min Fu Ji-Can Liu Shou-Ping Chan Yao Cheng Lei Din wu Hong-sing Lieng Zng-Xiu Li ;Bøjian Du Hæng-Yang Zhong YuiL Fe 507 2 24 62 36 16 22 SM~AII JILIN ØAAM ê4Ai SMMI HAINAN HAR~IN SHEYM m~AH H O H OANCH OANCH President: President: President: President: President: President: President Pre&dent- Xu. Shen-nin Xu Ben-~San Du Shitien Lei Bing-Zheng ZhOng Zhen Cuo Qin Høn-Shun*. Hoc Zhen-Jieang Vice President Vice Preident: Vice President: Vice President: Vice President: V. President: Vice Pres.dent: Vice Pre,dent: Zhang Fang -li Del Tien-Nin Li Guo-Wei Tang Wei Dn WU Cheng-Yo~ Li Zhengang Choen Zhao-Lin 24 36 20 14 18 1e 37 DALIME QDemA WGWU QJANCZI SMENZIM~ OO~ING ORAHN BRN Ø ~ANC President: President: President: President- President: President WVng Qin *o Sun Fu-Qing *o Yu Tien-Xi:ng Bs Shiyu Hung Ren Cui Vie. Presi dent: Vice President: Vice President: Vie* Preident Vie President: Vice PreSident Zho ge Cong M Lu-hai Chen H~n Sheng Xia Bin >ey 37 22 2L 31 22 2' se Part-time; concurrent PCDC Vie* President. - 117 - TH sECOND AND THIRD INNUTRIAL CREDIT PROJECTS (CIS 1! AND III) LOAN 2434-C4/CRWT 1491-CM4 AM) LOAN 2f59-CHA/CREDIT 1663-CHA PROJECT COMPLETION REPOFT CIS - Summary of Comoarative Financin. Statements CIS - Projected and Actual Financial Statements. 1985-1990 (in million yuan) J..L 1980 1987 198* 1989 1990 Actual Proj Actual Proj. Actual Proj. Actual Proj. Actual Proj Prol im Income Statement Total income 43.3 94.3 138.5 156.3 225.1 229.5 396.9 295.9 630.3 349.0 1,016.1 Ensenses 24.0 61 6 75.7 100.1 125.3 154.3 229.2 204.9 454 3 247 2 555.1 Income before income ta 17.7 29 9 59 1 43.1 94.3 65.5 156.6 81.0 160.1 67 8 324.2 qtIsEI0fit 1L. 292.2 A2 43.1 24 3 2.A 1 J .4 UA I1 id Funds Flow Sta_man Cash generated 20.5 33.2 63.3 47.5 95.3 33.6 82.5 39.7 72.2 42.1 205.8 Net new borrowings 161.3 630.0 627.6 652.1 522.0 695.9 840.0 645.1 2,118.5 556.0 821.9 Other sources 221.8 69.1 859.4 298.6 934.2 476.8 1,665.3 708.5 1,957.0 871.3 2,307.1 Total Sources 4., 732.3 1,59a 990) 1,5 5 2 3 1,3933 Lg J 4,147.7 1469.4 3-J33 Net subioan disbursements 536.8 654.3 892.1 658.2 996.1 793.3 1,583.5 634.4 1,420.5 496.3 1,209.2 Other uses 203 4 10 7 316.4 149.0 351.9 327.2 821.8 606.9 2,683.6 671.7 2,166.7 Iota s Za9 §J.A 120.L LA0L2 1JMLa . 1120.5 2 L243 4.104J 1J . 3 Ad4L.9 Cash Syrolus (Deficit) (16,)L !7. 3A.8 J ) gLJ LU ML,4 1.02 _4 L 121 L1 Balance Sheet Current assets 544.1 629.5 1,016.7 784.0 1.385.3 1,134,8 2,437.1 1,543.2 3,260.0 1,804.7 3,794.4 Net long-term portfol io 594.0 1,110.0 1,588.6 1,800.4 2,423.4 2,324.7 3,782.5 2,ogY.5 5,309.0 3,031.1 5,870.6 Other assets 6.7 103 0 16.1 104.1 21.6 104.4 484 7 104.7 1,430.0 105.0 1,501.0 Total Assets 1,144.8 1,j 2j71,4 2d8.j I-SWA L,58. 6,- 4,348.4 9,999.0 4,9.8. 11-g,. Current liabilities 81.1 54.8 46 6 78.4 S10.3 102.0 1,962.5 133.5 1,905.0 133.5 2,173.4 Net long-term debt 635.1 1,291.3 1,319.3 1,919.8 1.864.0 2,592.1 2,698.0 3,205.7 4,780.0 3,761.6 5,711.0 Other liabilities 0.0 0.0 199.8 0.0 95.1 0.0 534.1 0.0 1,624.0 0.0 1,536.0 Equity 428.6 497.2 1,005.7 690.3 1,360.6 89.8 1,512.8 1,000.2 1.690.0 1,045.7 1,748.6 Totae Liabilities A EA 1,1aul4ti' 1M 0. 2,51.~ g68, 834 3.gg 363A Lgg ,g0,4S4 ,4 9,2n,2 4,940 11Igg2 Liquidity and Performance Ration Current ratio (times) 6.7 11.5 21.6 10.0 2.7 11.1 1.2 11.6 1.7 13.5 1.7 Long-tere debt/equity (Wee) 1.5 2.6 1 3 2 8 1.4 3.0 1.8 3.2 2.6 3.6 3.3 Debt service coverage (%imes) 5.9 3.0 4 6 2.7 4.9 2.6 3.8 3.4 2.3 3.7 2.0 Return on assets (I) 1.5 1.6 2 3 1 6 2.5 0.8 1.1 0.8 0.8 0.6 1.3 Return on equity (3) 4.1 8 0 5 9 6 2 6.9 3.4 4.7 3.6 3.7 3.8 8.4 Proisions for bad debt. (1) 0.4 0.5 0 4 0 5 0.1 0.5 0.3 0.5 0.4 0.5 1.2 - 119 - LQWA 2434-*OM/CREDIT COM/CRIEDIT 1863-CHA PMOJET CO=LETION tEP1R1 Lisa of Sub.rolct. Under CIO 11 and III Sub- Amounta Aggregate Date Cr./ proj. Inc/Dec Sub- uo.m e A.er. to aouther.ed 4o. received Naee of eubproject Lh. no. (CR/US ( 0 ) B.anch sector raised questlons Approval aunt Staff (equivalent) - (1900) (Us'000) 1 10/30/84 No I Knitting Mill of Hu.ngehi C1491 A-001 1619 0 1,616.0 HLBE TEXT 11/02/64 1,616 SU 2 06/06/64 Shangh.. Alen.ue Fell Plant C1491 A-002 7,6.3 . 114HA4 LICH 11/06/64 9.616 HC 3 11/01/64 Chanshou Plastic Factory C491 -003 4 3700 LI 11/12/64 10,965 su 4 11/07/64 Tianjin Paper Leboratory C1491 4-004 1,823.1 1636.0 TIAN LICH 11/12/64 12,623 SU 5 11/07/84 Shanghai Synthetic Detergent F. C1491 A-00 ,43.7 3,400.0 HAN LICH 12/04/64 16,223 ET 6 10/10/84 W-hen No. 13 Pl.stic Factory C1491 A-001 2,2959 2,246.6 IM LICH 01/07/OS 16.470 0H 1 12/20/64 Linyi nitting Mill C1491 A-007 1.5" 0 190 0 SHD0 TEXT 01/09/65 19.990 Stu 0 12/20/84 Zhangiakou Cigarette Fatory C1491 A-QW9 ?'00 3 :.600 I MEBE LIGH 01/10/66 22,690 Ski 9 01/03/68 Tieny, Sock Factory C1491 A-010 1,209.8 1,160.0 Am TW 02/22/66 23,760 61. 10 11/07/64 Beijing Silk Mill C1491 A-011 2,663.6 2,500.0 BEI. TEXT 02/06/65 26,260 S1 11 11/09/64 Tianjin Synthetic Detergent Factory C1491 A-012 4,614.4 4,600 0 TIAN LICH 02/06/5 30,750 El 12 12/16/84 Yid Radio Transformer Factory C1491 A-013 1,664.2 1.531.0 SHOO ELEC 02/11/66 32,2ei ET 13 06/15/64 Chins Yochus Olas" Company C1491 A-014 3,200 7 3,100.0 HERE aUL. 02/19/66 35.361 Sk) 14 03/29/85 Huainen No. I Rubber Factory C1491 A-020 636.6 630.0 AHJ LICH 04/03/66 36.911 su 16 03/29/65 Henon Zhocheng Alusipot Plant C1491 A*030 0.0 0.0 (conc*11l501 H0 LICH 04/03/66 36,911 ski 16 10/22/84 Jisngdu Wire Factor- C1491 8-001 707 3 700.0 02/24/66) JISL ELC 10/22/64 36.611 HC 17 10/23/84 Wusi No. 5 Radio F_,tory C1491 0-002 962.2 966.9 4131 SC 10/26/64 37,s99 HC 18 10/23/64 aeodingHoe.ry Hill C1491 0-003 364.2 363.0 HEEE TEXT 10/29/64 37.962 IC 19 10/31/64 Fushou Wriet.at.h Factory C1491 6-004 321.9 324.0 FUJI LICH 11/06/64 36.266 ski 20 11/01/64 No 2 Xinhus Printing Factory C1491 6-005 993.3 1,000.0 IEBF LICH 11/06/64 39.286 SU 21 11/07/84 ShOng-si harble FactoryC49 00 21 11/0/4Soaa lri atr C1491 6-006 236.8 241 7 FUJI4 BLD0G 11/06/64 39.526 IC 22 11/01/84 North Chin. Phareaceuticel Corp. C1491 6-007 496.9 600.0 HEE PHAR 11/12/84 40,026 SU 23 11/07/84 Suhou Tale, eion Set Factory C1491 8-006 596.2 600.0 ISU ELEC 11/14/64 40.628 SU 24 11/07/84 Fuji.n O-.reZs Ch. Wiralees Factory C1491 6-009 41.6 660.0 FUJI FC 11/15/84 41,678 SU 25 11/20/64 Yangthou Woollen Blanket ill C1491 6-010 698.4 700.( .161 TEXT 11/21/64 42.278 6U 26 11/20/84 Shanghai No I Printing Dyeing Mill C1491 8-011 1.487.3 1,660.0 SHAN TEXT 11/26/64 43. w 14 27 11/21/64 Hbe, Ne. Type Bldg Netarial. F. C1491 0-012 62.4 624. HIJBIE 81.0 11/26/64 44.682 Siv 29 12/03/64 Tianjin Bohel Radio Factory C1491 6-013 1,609.6 1,600.0 TAN SAC 11/28/64 46,162 S1 29 12/03/64 Ji sfn Wool lon Mi ll C1493 6-014 374. 370.0 zWJ TEXT 12/04/84 4,632 El 30 12/03/84 Tianjin He Ping Pharmaceutical F. C1491 8-015 1,672.1 1,852.1 TIAN FHAR 12/04/64 48.354 ET 31 12/04/84 Shenyang Cable Works C1491 6-0 1,000.7 990.0 LIAO MACH 12/04/64 49.374 ET 32 12/07/84 She Shi City Magnetic Material* C1491 6-017 916.6 907.0 HIJBS EEC 12/04/84 60.261 Er 33 12/12/84 Shenyang No. I Woollen Mill C1491 9-016 414.9 460.0 LIAO TEXT 12/13/64 60,761 E 34 12/12/84 Shanghai Dacron Works No. 2 C1401 8-019 707.0 700.0 SHAN C04 12/13/84 51,461 ET 36 12/13/84 Beijing Organic Chemical Factory C1491 8-020 360.4 350.0 BE1J 0HE 12/13/64 61,611 Er 36 12/19/84 Wuhan Rubber Products Factory C1491 0-021 262.7 280.0 HIM LIQH 12/19/84 62,061 ET 37 12/19/84 Shenyang No. 4 Rubber Process F. C1491 8-022 6.3 600.0 LIA C H00 12/16/64 62,661 Er 30 12/18/64 Fushun Electronic Industry Co. C1491 6-023 707.4 700.0 LIAO EEC 1216/64 63.261 ET 39 12/18/84 Changthou Manaion C1491 8-024 660.0 660.0 .11W 5IR 12/10/64 54,211 El 40 42/10/04 No. I Knitting Hill. Yichang C1491 0-025 966.2 976.0 NUDE TEXT 1211/64 66.166 El 41 12/19/04 Sheang No 3 Robber Factory C1491 8-026 0.0 0.0 icar.c;I; LIAO T 12/19/64 66,166 CT 42 01/03/65 Chenaghou Rubber Factory C1491 8-027 471.6 460.0 22. 250 1 J LION 01/04/85 65.648 Er 43 12/16/64 Hubei Auto. Steering Wheal Plant C1491 8-029 677.2 6.0 06/16/66) HIE MACH 01/04/85 58,209 ET 44 01/03/66 Techueling Hotel of Yichang C1491 B-030 616.1 600.0 H4,BE Sfiv 01/04/6 66,609 Er 46 12/27/84 Wuhu Clothing Factory C1491 8-031 256.3 260.0 At*RJ TEXT 01/04/66 67.069 ET 46 12/27/84 Dalien Ocean Fishery Company C1491 8-032 676.6 660.0 LIAO ACRI 01/04/66 67.719 Er 47 01/03/65 Changthou Pharmaceuticl Factory C1491 B-033 62.1 600 0 JIU PH4R 01/04/66 68.619 ET 48 01/03/66 Wuxi Information Record Paper C1491 8-034 1,014.9 990.0 ilstj r1EC 01/04/66 59.609 CT 49 09/27/84 Tianjin Storage Bettery Factory C1491 8-036 948.1 620.0 TIAN MACH 01/09/as 60.429 IC 60 01/10/66 Changhou Electronic Instrument P. C1491 8-036 1,003.6 976.0 4151 ELEC 01/11/66 61,406 E 51 01/10/85 Jien I County Doen Carment Factory C1491 6-037 163.6 160.0 "JOE Tor 01/11/66 61.568 ET 52 01/15/86 Lisoning Electric Aluminum Foil C1491 0*034 481. 40.0 L8A8 ELEC 01/26/66 62,00e IC 53 02/01/85 Yichan6 County Knithing Mill C1491 B-039 281.0 274.0 HIM TEXT 02/04/66 62,282 IC 64 02/01/68 Haenchn County Knitting Mill C1491 6-040 181.6 146.0 HUSE TEXT 02/04/66 62,430 IC 65 02/19/85 Beijing Yongdingean Oranary C1491 6-041 29.3 260.6 6E.1 FOOD 02/11/66 62,711 KT 56 02/05/85 Liu An Alankeng Foode Process P. C1491 8-042 761.1 760.0 ANHIJ FOOD 02/16/86 63.461 IC 57 02/03/8 Makou Caroent* Factory C1491 6-0 131.4 126.1 8H03 TEXT 02/15/6 63.587 HC S6 03/28/85 Chanahou Sock Mill C1491 8-044 839.1 30.0 .151 TEXT 03/28/66 63,617 CT 69 02/21/66 Nanj1ng Special Sealconductor F. C1491 0-048 161.6 160.0 JISU SLC 04/01/8 64,097 6. G0 03/29/68 Alangasn Warp Klniting Factory C1491 6-053 309.6 810.0 HIM TEXT 04/16/86 84,407 Stj 61 02/10/67 Fushun Hardware Products Factory C1491 a-106 199.4 220.0 LIAO LICH 02/03/66 64.627 CT 62 02/18/67 Wwaho May First Pleatic Factory C1401 0-107 102.7 130.0 *At LION 02/18/67 64.757 ZK 63 03/25/67 Guilin Phsasceutical Factory C1491 6-100 216.1 260.0 GlA PKAR 03/30/67 66.037 KS 64 12/21/84 Tonglilo Woollen Mill .2434 A-015 1.700.0 Kim TEXT 02/22/66 66,737 CH 6 01/10/66 Ouanging Silk Mill L2434 A-016 2,760.0 8ISU TEXT 03/04/66 69,487 ET O6 03/06/65 Changshou Owneral Bicycle Factory L2434 A-017 1,600.0 .161 LIO 03/13/66 70,687 ET 67 07/16/68 Xinchang Woollen Hill L2434 A-010 1,661.0 8MEJ TEXT 03/14/66 72.648 ET 66 12/20/66 Jis.ln Silk Mill L2434 A-019 t,480.0 ZHEJ TEXT 04/03/66 74,096 ET 69 03/01/85 Dafong Cen. Bicycle Free-wheel F. L2434 A-021 1,660.0 J11. LICH 04/09/66 76,748 CT 70 02/11/85 Dagu Chemical Plant L2434 A-022 6,000.0 TIAN 004 0/66 83.748 CT 71 04/23/68 Shanghai Xifye Printing A Dyeing F. L2434 A-023 1,100.0 SHAN TEXT 03/16/66 64,646 KS 72 04/26/66 Chengdu City Paper Mfg. Corp. L2434 A-024 600.0 BICH PACK 03/24/6 88.448 KS 73 01/03/04 Fushou let Plastic Factory L2434 A-026 1,620.0 (6) FUJI LICH 03/10/65 87,068 ET 74 04/10/8 Yanghou Machinery Factory L2434 A-020 1,300.0 JISU MACH 06/11/85 $8.38 CT 75 02/01/85 G.angdonq Electrical Factory L2434 A-027 2,650.0 am MACH 06/14/86 91,018 CT 76 12/18/86 Zhenya Silk Mill .2434 A-026 4,129.0 JSU TEXT 06/14/66 66,147 CT 77 06/17/85 Dandong Relay Factory L2434 A-029 2,280.0 LIAO ELEC 06/14/66 67.397 CT 78 04/23/685 andan City No. 9 Plastice Factory L2434 A*031 1,690.0 HEBE LIC 06/28/68 66,267 61 79 04/10/685 Shenyang Olass Sottle Factory L2484 A-032 5,170.0 LIAO LIQH 06/27/66 104,487 04 80 06/17/05 Nantong No. 2 Cotton Hill L2434 A-088 1,990.0 J61 TEXT 04/27/66 106.447 6IJ 61 05/02/85 Miao Qlae Industry Co. L2434 A-034 1,66.0 JIad LICH 06/26/68 106,116 6U 62 06/26/65 Anhul Silk Factory L2434 A-0385 2,600.0 ANHI TEXT 07/01/66 110,6 61 83 06/10/85 Changthou Petroleum Chemical Plant L2484 A-030 2,600.0 418k8 0H4 07/26/66 113,716 CH 84 07/03/68 Cisi County No. 2 Cotton Hil l L2434 A-037 2,002.0 ZHEJ TEXT 07/03/66 116,718 CH as 06/04/85 Ningho Hair Interlining Factory L2434 A-03 1,0.0 ZHEJ 0H4 07/03/66 117,096 CH 66 07/03/65 Yental Olae. Factory L2434 A-039 2,661.0 GHDO LICH 07/06/66 116,729 04 87 06/26/85 Beijing Preex Foodmill L2484 A-040 1,830.0 DE1J 4C 07/12/68 121,059 S1 as 07/19/685 Changanoy Packing Embeliehlng P. L2434 A-041 2,400.0 4194 PACK 07/29/66 123,459 04 66 06111/06/115 Chantahl W.Wng Kochino Fao7y 42434 A-042 2,000.0 SHAN LIH 03/14/66 125.459 614 - 120 -." 1, Sub- Amiount Inf Aregate Date Cr./ proj. Inc/Dec Sub- e6 Anet te authorisexi do. rec.ived Nees of abproject Ln. no. (CRU (S ) Branch meator elmad quebsione Approval amount Staff (4041.alent) - ('9) (USS'000) 90 07/26/411 ain Paper Beg Pactory 12434 A-043 1,000,0 51CM PAO( 01/14/4 126,459 Co 91 00/16/n Sichuan Sh i-ang Pre. L2434 A-044 485.0 SICH LICH 01/1611 121,944 HC 92 08/27/5 Yangxhou Wyl Food Factory L2434 A.046 1,200.0 JISU POO 10/04/U 126,144 SU 93 08/19/85 Wi-1 Wirel. Factory L2434 A-040 1.550 0 JlSU ELEC 10/07/6 129.694 ET 94 07/25/85 GBeijing Cmpl*t. Fi s Feed Mill L2434 A-047 11700.0 851 AORT 10/09/45 131.394 o1 95 05/04/45 W., Capacitor Factory 12434 A-048 2,170 0 JISU ELEC 01/00111 135,544 ET 94 05/02/65 Day. Steel Works L2434 A-049 970.0 HUE META 01/09/4 134, 34 Er 97 04/20/68 Jiangou Jiang Yin let Chemical F. L2434 A-080 1,897 4 JIS. CHEl 01/03/4 135,931 5. 96 12/06/85 Jsing Silk Dyeine A Printing MlII L2434 A-051 1,330.0 ZHEJ TEKT 01/03/ 137.261 ET 99 12/05/65 Jinzhou Plastic Indus.rial Co. 12434 A-052 0.0 (concolG66 LIAO LIGH 01/03/ 137,261 El 100 00/0/85 Wualsi No. 6 Component Factory L2434 A-063 2,540.0 06/22/6k) JISU ELE 01/04/46 159,641 ET 101 03/29/Ut Nonii Kinoscope Factory L2434 6-048 160.0 .ISU EC 04/01/U 140,021 ET 102 03/29/66 Nanjing Power Capacitor Factory .2434 6-047 900.0 JISU ELEC 04/02/1 J41,001 IO 103 04/10/6 Hefel Machine Lalding 12434 8-048 1,000.0 NO MACH 04/10/65 142,001 11 104 04/10/5 Xie.;n Wool Sp innin Dyeing lenI L2434 6-049 920.0 .13. TEXT 04/10/U 142.921 Er 106 04/16/85 Shanghai Daere,a Work* No. 1 12434 8-080 1,000.0 SHAN CHEN 0416/U 143.921 El 100 04/16/65 Shanghai Coop l. PI*soic Prod. Plant L2434 0-051 550.0 SHAN 1.1H 04/15/65 £44,471 15 107 04/1/5 Liaoning Fuhun Catering Company L2434 5-052 140.0 LIAO L1C4 04/161U 144.612 El 106 04/24/8U Wux S.eater Factory L2434 B-05 650 0 JISU TEXT 04/24/4 145,262 ski l09 04/24/5 Days Steel Work L2454 8-054 460 4 "J.E META 04/24/U 145,742 S1 110 06/15/85 Doqing Chemical Fibre Factory L2434 6-057 480.0 ZHEJ TSXT 06/22/66 144,222 KS 111 05/19/6 Yishan Transformer Factory L2434 8-086 360.0 JIS. ELEC 00/22/65 14,60 KS 112 05/19/5 Jing Jiang Decoration Fabric Factory L2434 0-059 500.0 it151 TEXT 06/22/6. 147,102 KS it 06/30/5 Hubei Ste*I Plant L2434 8-060 990.5 lUBF META 05/24/68 148.093 KS 114 04/24/5 Cullin Pharmac-utical L2434 B-041 412 0 AX PHAR 06/10/65 146.50M El 115 05/13/85 Dong Gow County Aquatic Product L2434 8-062 800.0 LIAO AGRI 00/10/85 149.306 El 116 05/29/65 Shenyang Knitting Yarn Mill 12434 8-063 437 0 LIAO TEXT 06/14/65 149.Z42 FT 17 04/14/85 Wuhan Radio Antenna Factory L2434 8-044 967.0 HJUE ELEC 04/17/85 150,709 SU 116 04/17/85 Tianjin Hechanind Constr. Corp. L2434 8-065 500.0 TIAN 8100 04/185 151.209 3. 119 06/17/5 Banding No. 2 SIlk Fabric Mill L2434 8-068 110.0 TEXT 04/19/55 £51,319 St1 120 06/17/85 Yidu Hydraulic Elemens L2434 8-067 428.8 SHOO E.E5 04/21/U 151,746 SU 121 04/25/65 Chanlhow Elect. Motors Appl. F. L2434 8-068 510.0 J5w ELOC 06/11/U 152.258 SU 122 0?/01/65 sod*in Pao., Boa Mill L2434 6-069 110.0 lM PACK 07/02/U 152,36 SU 123 07/01/85 lHandan Decoration Priealng Hous. L2434 8-070 450.0 HEOE LICH 07/03/8 152.618 S. 124 07/02/85 Chan9hou Organic Chemical Plant L2434 8-071 171.0 JISU CHE4 07/00/U £52,949 1U 123 07/02/85 Shi4saahmang Xinhus Phara. F. L2434 8-072 120.0 H4BE PHAR 07/04/U 152,109 SU 126 07/04/85 Shii s.hung Paper Mill L2434 8-073 250.0 HEOS LIGH 07/09/6 155.359 31 127 07/04/U5 Chanpthou qong Fang Plastic. Factory L2434 8-074 332 0 15U LICH 07/09/65 153.69£ ski 128 04/20/85 Maning No. 2 Tranoistor Factory L2434 8-075 120.0 JlSU EC 07/10/U 153.611 SU 129 07/11/85 Shijiaxhuang No. 2 Cotton Mill L2434 8-076 300.0 TEXf 0715 £54,111 SU 130 07/11/85 No.1 Werp Knitting Mill SMiji.shuang 12434 8-077 298.2 HEK TEXT 07/15/U 154.409 S1 131 07/17/85 Dandong Rubber Factory 12434 9-078 300 0 LIAO 1.1H 07/19/65 154.709 S. 132 07/17/86 Shiuiathuang uangh.a Chemical Work. 12434 6-079 500.0 HEBE 014 07/22/U 55,209 SU 133 07/18/85 Lisoning Fushun Foodstuff Corp. 12434 8-080 260.0 L.A13 FOOD 07/22/U 155,469 SU 134 07/19/85 People's Printing House of Tangahan L2434 8-061 950.0 MEBE 1.1H 07/23/85 156.419 Si 13S 07/19/85 Jiang*. Teilhoi Meet Processing F. L2434 9-062 980.0 1511 FOOD 07/25/U 157,379 S£ 135 07/26/85 Shijiashusag Xinhue Knitting Mill L2434 8-083 400.0 lEBE TEXT 07/26/U 157,779 P1 137 07/25/65 Wuxi Liong Paper Hill L2434 8-084 820 0 JIS. LICH 07/25/U 58.599 3t 138 07/30/85 Daishan Ziopr Factory L2434 B-085 500.0 zHEJ L1GH 07/31/85 159,099 S. 139 07/25/85 Shiji.ahuang Woolen Hill L2434 8-06 970.0 HEBE TEXT 06/01/65 160,069 SU 140 07/25/85 Shandong Linyi Engineering Mach. F. L2434 8-087 910.0 SHDO MACH 00/07/U 160.979 S1 £4l 07/0/85 Liaoning Jintho,i Pisatic Prod. Plant L2434 8-080 350.0 LIAO LI04 oe/0o/es 1329 Sul 142 07/01/05 Hebel Changahou No. I Platic L2434 8-069 500.0 14BE LICH 08/05/85 181.829 3U Product,s Plant 143 07/0/85 Zhnpj i abou nra I Rubber Worke L2434 8-090 820.0 lEOE LIC4 04/04/U 162.149 SU 144 07/06/05 Beijing Dongjiso Flour Product* L2434 8-091 971.0 8E1J FOOD 08/09/65 163.120 51 145 06/01/85 Anhui Xinhua Printing House L2454 0-092 300.0 ANHU LICH 08/13/85 185.420 3U t46 08/07/85 Tangshan No. 5 Plastice Factory L2434 B-093 220.0 HEBE 1IOH 08/15/85 163.640 3U 147 00/07/5 Wuchan County Printing Plant L2434 8-094 302.0 HUSE L.O0 06/14/U 163,942 P1 £46 00/07/85 Shanghai No. 27 Radio Factory L2454 0-095 350.0 3118 E1.5 06/14/65 164.292 P1 149 08/12/85 Taolusling Hotal of Vichang L2434 8-09 300.0 HUIB saw 05/15/85 164,592 Sk 150 06/09/85 Zhejiang Packing Material Factory L2434 8-097 490.0 ZHEJ PACK 10/01/65 165,002 3. t51 08/20/85 Hebei Cangshan Food Factory L2434 B-098 570.0 HESE FOOD 10/01/85 165,832 31 152 00/13/05 Zhejiang Daishan Polyertr Fiber F. L2434 8-099 980.0 ZHEJ TEXT 10/02/85 1662 SU 183 10/03/8 Fushou Cngahan Haongin Radio F. L2434 8-100 650.0 FUJI E1EC 10/04/6 £67,252 El 154 08/09/U6 Zloejang Deqing Silk Carmnt F. L2434 B-101 0.0 ancel;280; ZH5J TEXT 10/04/65 167.282 ET £55 10/21/85 Nnchong Silk Factory L2454 0-102 600.0 05/11/87) JISU TNT 10/22/85 167,86 51 LO 10/21/85 Shanghai Truck o** Mill L2454 8-103 150.0 SHAN MACH 10/22/65 164.012 KS 157 10/21/G5 Shanghai No. I Motor Acces. Plant L2434 0-104 105.0 31AN MACH 10/22/65 161.517 KS 156 01/20/5 Wuxi Zhenqi,u Wool 0arments Factory L2434 8-105 950.0 .13. TEXT 01/15/66 169.007 31 £59 04/16/87 Futhou Wire Factory L2454 0-109 68.5 FUI .AC 04/24/87 169.735 KS 160 10/14/87 Sushou Silk Dyeing HilI 12434 8-110 228.6 11. TEXT 10/21/67 169.964 HC 161 11/02/80 Foshan 3rd Oomestic F C1491 A-64 234.4 322.0 *.4O LICH 06/17/46 142 05/22/67 Day. Stal Plant C1491 A-57 220.8 285.7 MJOE a" 09/10/67 163 12/50/87 Qingdao Flann*Ietta P. C1491 A-U 94.1 156.1 144 01/26/85 finghangdso Shipbuilding F. C1491 A-O1 164.4 168.1 HV 0THE 03/06/66 185 05/22/8U Quanghou Teti I Co. CI491 A-62 53.5 62.0 0.I0 TEXT 06/23/U 168 10/00/88 Shenyang No. Knitt C1491 8-111 14.7 20.0 LIAO LICH 03/30/69 £67 10/0/Oo Shenyang Or*a F. C1491 8-113 0.6 10.0 LIAO LION 06/09/66 148 11/02/88 Nantong Cannery F. C1491 6-144 50.8 00.1 41S1 LICH 08/25/8 169 11/02/68 Xingta Tannery F. C1491 8-115 58.2 00.0 lESE LI10 07/01/U 170 11/02/8U Yiyang People's Or@ae C1491 8-116 69.1 95.0 Hm LICH 04/01/U 171 11/02/66 Baotou Fur Fac. C1491 8-117 16.1 32.1 NEIM LICH 07/11/88 172 11/02/88 Xinxiang Printing Co. C1491 8-118 48.8 71.0 ME41 LIC0 00/24/6 173 04/11/87 Xinji Fur Co. C1491 0-121 40.6 01.3 HESE L.1H 04/26/69 174 09/29/87 Ningbo Granite F. C1491 5-122 38.5 49.0 ZHEJ SLO 09/24/67 l75 10/26/67 Glaes Factory of She C1491 8-123 37.9 50.0 ANHU LICH 10/29/87 £76 11/16/87 qiyang Mastting F. C1491 8-124 35.3 48.0 AHH1J LIG0 11/19/87 177 06/31/88 Shanghai No. 6 Works 12434 8-119 - 90.0 SHAN TDXT 06/10/6 170 07/19/0 Shanghai No. 10 Factory L2434 8-120 - 90.5 SHAM ACH 06/08/U 1 00/30/85 Shan4ons Jinan Steal Works C163 A-01 1,019.0 1,900.0 S1OO META 07/10/5 1.900 KS 2 04/16/86 Talyuan Wood Furniture Factory C1863 A-02 258.0 440.0 SHAX LI1H 07/10/6 2,360 KS 9 04/29/46 Ganga Guilin No. 8 Radio Factory C1683 A-03 650.0 771 2 JXI EL15C 07/10/88 3.151 KS 4 04/21/ Hailongjiang Artificial Fur Factory C1663 A-04 772.0 1,545.0 HEIL 1.50 06/10/65 03/20/U 07/10/86 4,498 St 5 07/05/66 Wuni TV Factory C1663 A-06 1,444.3 1,700.0 JISU ELEC 07/18 6.196 To 0 05/04/8U Changthou Radio Materials Factory C1O8 A-01 2,427.3 2,950.0 4IS1 ELEC 04/19/U 9.146 a) 7 07/01/8U Yochum Oloa* Company C1683 A-09 2,089.5 2,498.0 MEDE 8LDO 05/07/U 07/29/86 09/51/86 11,644 No 6 04/09/67 Dandong Electronic Tuner Factory C1U A-30 1,822.3 2,352.0 LIAO ELEC 05/0/67 07/30/67 09/17/67 53,996 IC 9 10/13/67 Jining Radio Component Factory C16 A-32 015.0 804.0 HEl f 1 7 10/27/87 14,000 HC t0 07/15/85 Hebei Changlhou Platinum Factory C1663 0-01 429.0 000.0 HEBS META1 07/10/86 07/23/06 07/10/8U 15.600 S1 - 121 - liub- Amount Aggate Oats Cr./ proj. Inc/Doc Sub- (ostiono Answer. to author, ad 0.. received Nea of subproject L1 no. (%11) Branch sector raised queetlohe Approval amount Staff (squ-lin) -(148'000) I 04/21/84 Shiiishuang Dacron Fiber M,il CL43 8-02 322 0 000.0 HEBE TEXT 07/10/8O 16.200 KS 12 04/21/68 Sensing Flocking Cloth Factory CtS03 8-03 301.0 560.0 FUJI TEXT 07/10/66 18,760 KS 13 05/01/88 Tianjin Dashongho Rubber Factory C1843 6-04 590.0 1,100 0 TIAN LIM 07/10/U 17,660 KS 14 05/13/06 Tongiing No 2 Radia Factory C1683 8-08 2100 5400 Ar*AJ ELEC 07/10/88 18,400 KS IS 0/13/61 Tianjin Paaerbo.rd Factor C14113 0-06 242 0 460.0 TIAN PACK 07/10/6 $8650 KS 16 07/10/64 Jng.han Cos"nt Product. ;actory C1663 8-07 161.0 350.0 HUSE 8LDQ 07/10/66 19,200 KS 17 07/06/64 Hebei Chend* Printing Factory C1843 8-06 451 0 840.0 HESE LICH 07/10/68 20.040 KS 16 07/10/68 No 12 PIstic Factory Tianjin C143 8-13 694 7 700 0 TIAN 110 07/15/6* 20,740 KS 19 37/10/66 Tianjin Wood and Plastic Case F. C1613 8-14 1,456.7 1,717 0 TIAN PACK 07/161/ 22.457 KS 20 07/28/84 Moshnan lN. I Radio Factory C1863 8-16 0 0 0.0 (concel; AttM ELEC 06/13/88 22,457 KS 21 07/23/66 ang Su Hachine Tool Factory C1883 8-17 31!i.0 300.0 612 0/900) AMWth MACH 04/06/88 22,037 ZK 22 06/26/84 Shashi Leather and Rubber Factory C163 0-22 279 6 340 0 H4,lE LICH 09/0i/68 23,177 ZK 23 10/14/0 Baijing Tannery C1663 6-27 270 6 3300 9FIJ LIGH 10/16/86 23,507 ZK 24 10/2916 Hang Zhou Lin Ping Wood Screws F. C1663 6-30 690 2 630.0 ZMEJ MACH 10/81/U 24,337 ZK 25 11/12/06 Zhanjiang Photo Elec. Element F. CI863 8-35 64 9 00 0 JISU ELEC 11/17/68 25,137 2 26 11/14/64 Jilin Wooden Furniture Factory C1883 8-38 306.4 376.0 JILI LIC 12/13/6U 01/05/67 01/07/87 25,513 TS 27 01/27/87 Hunan Hong Yang Tannry Factory C1663 8-39 165.4 235.0 H4NA LICH 02/02/67 25,748 Z( 28 02/18/67 Cong0ou Count Plastic Factory CtS43 0-40 91 5 116 2 LIA0 LIH 03/18/67 25,864 KS 29 05/04/87 Wand*ng E#6roidery Factory C1663 8-44 2'6.2 363 0 900 TEXT 05/08/67 26,227 ZK 30 04/16/8 Shanhaigan Foodstuff* Factory 1.2159 A-0S 3,045.6 H0 FOOD 07/07/18 29,273 S1 31 07/22/68 Hbal Yichang Paper Mill 12119 A-07 2,520.0 HtJAE PAOC 06/16/88 31,793 SU 32 09/06/64 Chanochn Nonferrous Metal Work. F. L2859 A-10 3,799.6 JILE META 09/1/66 35,593 SU. 33 06/2$/66 Yan9hou Printin Factory L2659 A-11 2,200.0 JISU LICH 10/16/88 10/25/86 09/18/66 37.673 CH 34 06/28/66 Hunan Storas satery L2659 A-12 1,200.0 ANR4h MACH 09/25/46 39.078 Mc 35 06/21/84 IHbei Xangtn Art Paper Mill L2659 A-13 2,030 3 HLRE LIC4 09/26/66 41,103 SU 36 09/03/64 Liuan Livstock Product. L2659 A-14 1,967.6 ANM4J AGRI 10/30/66 43.061 SU 37 07/31/86 Yichang Sho-.i,s Porcelain Factory 12659 A-15 1,910 0 RMBE BLDQ 10/24/8 44,971 Mc 38 09/12/08 Xuxhou Synthetic Deter9ent Flant L2659 A-16 2,000 0 JISU H10 09/18/88 10/29/84 11/12/4 46,971 SU 39 07/31/85 Hang Zhou Artif icis Fibre Factory L2659 A-17 4,847.0 ZHEJ LICH 09/27/86 10/19/68 11/13/86 51,816 KS 40 11/04/87 Fe-.iin Woolien Mill L2669 A-18 1,046.0 9100 TEXT 11/26/68 53,664 2K 41 09/09/88 Suahou Refrigarator Factory L2659 A-19 10,310 0 JISU LICH 03/10/86 03/14/87 11/26/8 03,974 ZK 42 11/03/86 Now Type Building Materisls Plant L2659 A-20 2,980.0 NEIM at.LD 11/15/86 12/24/6 01/07/67 68,954 ZK 43 04/16/68 Shashi No. I Refrigerator Parts F. L2659 A-21 1,4600.0 HUOE LICH 01/15/87 68,414 HC 44 12/23/86 S..hou TV Factory L2659 A-22 1,849.0 JISU ELEC 01/16/67 70.463 ZK 45 01/15/87 Cuilan No. 3 Radio Factory L2659 A-23 2,985.0 0JxI EL-EC 02/04/67 73.448 TS 46 11/25/88 Fushun Chemical lndtrst Plastic F. L2659 A-24 2,500 0 LIA0 LIG1 01/06/87 03/19/87 03/24/87 75,948 TS 47 03/18/87 Wuhv Pharmaceutical Factory L2659 A-25 3,127.0 A""t) PHAR 03/30/67 79,075 H9N 48 11/28/86 Dandong Cen S.aicond. Devic. F. 12659 A-26 2,469 7 LIA0 ELEC 12/10/8 04/06/87 04/16/87 81,545 HC 49 04/07/67 Jianop Rubber Factory L2659 A-27 440.0 JIxl LI0 04/21/87 81,985 HC S0 04/06/81 Traditions Chines Hedicine Work. 12659 A-28 481.0 SHAX PMAR 04/27/87 07/07/87 04/27/87 82.466 ZK 51 03/31/87 Chan0ihou Can waksushold Applances 12659 A-29 1,700.0 JISU LI0 04/26/87 06/09/87 06/12/67 84,186 YC 52 06/09/87 Wui Elactrical Fen Factory L2659 A-31 1,300.0 JISU LIGH 10/13/87 65,486 HC 53 05/01/88 Tianin No. 6 Radio Factor L2659 0-09 700.0 TIAN ELEC 08/06/87 86,168 KS 54 05/21/86 Sensing Ch... Enginrg. Mac inary 12459 1-11 892.0 FUJI HACH 07/07/aa 87,058 NS 55 07/23/85 Tianjin 0icorative Fabric Factory L2659 8-15 840.0 TIAN TEXT 04/06/66 67,898 K 58 06/04/88 Shonyona Eabroidery Factory L2859 6-18 340.0 LIAO TEXT 08/07/66 88,258 ZK 57 08/04/86 Dandong Condeneor Factory L2859 B-19 600.0 LIA0 ELEC 07/08/86 68.758 2K 5 07/31/86 Xiaoshan Gonaral Lae Factory 126859 8-20 00.0 ZEJ TEXT 07/08/U 89,258 K5 59 07/31/85 Hubei Vehicle A.el Plant L2659 8-21 500.0 HBE MACH 08/08/88 89,758 KS 60 09/03/88 Shanghai No I Spectacles Factory L2559 a-23 600.0 SHAN LIGH 09/04/865 90.358 SU 61 09/03/86 Shanghai Bsojiu La.p Factory L2659 8-24 210.0 SMN LIGH 04/04/86 90,868 SU 62 09/09/88 Beng Bu Air Comprasor Plant 1259 8-25 1,000.0 A"e4J MACl 09/11/86 91,568 SU 63 10/14/88 Shaoe Paper Mill L2859 8-28 370.0 RIJI LIH 10/1S/65 91.938 ZK 64 10/14/8d Yichang Socks Factory L2659 0-29 396.0 PIJBE TEXT 10/16/6 92.338 ZK 85 10/27/88 Yichang City Snack Food Factory L2659 0-31 463.0 HISE FOOD 10/31/6 92.799 ZK 66 11/03/66 Shanghai Bao Ji Shoe Factory L2859 0-32 400.0 SHAN LIGH 11/03/86 93,199 ZK 67 11/03/84 Shandong Wifang Bad Shest Factory L2889 8-33 0.0 (cancl600; SHDO TEXT 11/03/65 93,199 ZK 66 11/03/6 Beijino Donqfsag Tannery L2659 8-34 276.0 04/06/87) BEIJ LI0 11/03/88 93:474 ZK 69 11/14/86 Saijlng HMdical Radiology Factory L2659 8-38 592.0 BEIJ MACH 11/17/88 94.068 2K 70 11/21/68 C-anghou Lithogons Factory L2659 8-37 1,000.0 GLU CHEM 11/25/8U 95,086 2K 71 03/24/87 Shashi Flannelten Factory L2659 8-41 450.0 1JBE TEXT 03/24/67 95.16 KS 72 03/24/87 Huanghi Cotton ..t. APrint. Mill L2659 8-42 430.3 HtJBE TEXT 03/24/87 95,946 KS 73 03/25/87 Jiang.en Cotton Mill L2659 8-43 550.0 OUU TEXT 03/30/87 96,496 KS 74 05/28/87 No. I Chinese Medicine Works 12859 8-45 950.0 SMH PHAR 06/10/67 97,446 2 75 06/09/87 Laiyano Embroidery Factory L2659 0-46 130.0 SHO TEXT 0/10/B7 97.676 ZK 76 10/20/87 Suitea Machine Tools Factory L2659 8-47 285.4 HEIL MACH 11/09/87 97,861 HC lote: A-0, Yiheo Nonferrone Metal Factory, under Cr 1491 was transferred to Cr1818. A-30, on 05/27/85). 8-20, Changahou Relay Factory, under Cr 1491. eas trani- ferred to Cr 1313, 0-20. on 03/27/86. - 123 - UORLDBA N T1HE LATTACHMENT Page 1 of 3 ZCZC CERP0921 RCA542 VW!1022 OEDB2 .TCP CF SCEDD2 COMMENTS RECEIVED FROM CIB WTEU CI CN 0146 27-07-91 15:18 MR. GEORGE C. HANIATIS ACTING DIVISION CHIEF. POLICY-PASED LENDING AND, INDUSTRY DIVISION, OPERATIONS EVALUATION DEPARTMENT THE UORLD U^!K DEAR SIR RE: DRAFT PROJECT PERFORMANCE AUDIT REPORT ON THE FIRST , SECOND AND THIRD INDUSTRIAL CREDIT PROJECTS OF CID. THANKS FOR YOUR LETTER OF JUNE 10,1991. WE ARE VERY PLEASED TO READ, THIS PROJECT PERFORMANCE AUDIT REPORT (PPA') UHICH WOULD BANK OFFICALS DRAFTED BY INVESTIGATING, STUlDYING AND AM4LY(ING SERIOUSLY WE THINK THAT THE EVALUATION ON THE FIRST, SECOYD AND THIRD INDUSTRIAL CREDIT PROJECTS OF CID IN THE REPORT IS OVERALL, IMPARTIAL AND OBJECTIVE. WE THANK YOU VERY MUCH FOR YOUR AFFIRMATION AND EVALUATION ON CIB'S ACHIEVEMENTS IN IMPLEMENTING CIB I. CIB II AND CIB III, AND SHALL STUDY CONSCIENTIOUSLY YOUR OPINIONS AND PROPOSALS AS WELL AS EXISTING PROBLEMS MENTIONEED IN THIS REPORT, AND MAKE SOME IMPROVEMENT IN OUR WORK ACCORDINGLY. THERE ARE SOME SUGGESTIONS FOR YOUR REFERENCE IN REVISING THE REPORT. I. BECAUSE OF THE DIFFERENCE BETWEEN TRADITIONAL EXPRESSION IN CHINESE AND ENGLISH, UE THINK IT UOULD BE BETTER TO MAKE SOME CHANGES AS FOLLOWS: 1. ARTICLE 1.03 STATES "...AND LOvERS OF PUREAUCRATIC CONTROL STIFLED INITIATIVE AND INTERFERED WITH THE EFFICIENT USE OF been modified. RESOURCES''. THE ABOVE SENTENCE WAS THCUGHT TO DE ''ECONOMIC CONTROL SYSTEM BEFORE REFORM RESTRAINED INITIATIVE AND INTERFERED WITH THE EFFICIENT USE OF RESOURCES". 2. ARTICLE 1.04 INDICATES ''...THE ACTIVE PURSUIT OF WHICH BEGAN IN 1979 ON A MODEST SCALE WITH THE PIECEMEAL DISSOLUTION OF ara. 1.04 ha COLLECTIVE AGRICULTURE". IT WOULD BE CONSIDERED AS ''...THE ACTIVE boifiaed. PURSUIT OF WHICH BEGIN IN 1979 ON A MODEST SCALE WITH THE GRADUALLY REFORMATION OF MANAGING PATTERN OF COLLECTIVE AGRICULTURE.'' 3. ARTICLE 1.12 RELATES ''...AND OFTEN RESULTED IN FAILURE TO REALIZE THE ECONOMIES OF SCALE AND THE BENEFILS OF THE DIVISION OF LABOR AND SPECIALIZATION.'' TflIS SENTENCE WULD BE ''...AND BROUGHT beo a ta SOME PHENOMENAN TO IGNORE THE SCALE ECONOMY AND THE BENEFITS OF THE para. 1.12. DIVISION OF LABOR AND SPECIALIZATION7 BUT CHINA GOVERNMENT HAS TAKEN MEASURES TO DISPEL AND AVOID THOSE NEGATIVE FACTORS OCCURING AGAIN.' II. WE THINK IT IS NECESSARY TO MAKE SOME MODIFICATIONS IN THE FOLLOWING. . - 124- ATTACHMENT Page 2 of 3 T7 'E THI!K ' 1S 'NCL'ITABL7 TQ 0' I' ':'" LUATTON CJ?MMARY 1... 1ITH T1E CHINA IN(CETENT F N (CIB), AE. LCo g -PNYE CO iY (DFC) CITAPL:SHED.... i.DFC CUSLD AT.ACT INIlIA'LY, rN THE A tett mTO MODERNIZATION AND/CR EXPk'SION OF XIETIN LL N EDIE-?IZET been added to LIGHT INDUSTRIAL ENTER PRISE FITTE IN .. ' AND C'CULD BE MODIFIE . p . TO W... ITH THE CHINA INVESTt NT, A SPECIALIZEL AN'UNG INSTITL'TION ESTABLISHED ... A SPECIALIZED PA! 'S INSTITUT:ON FTCUSS , AT LEAST INITIALLY, ON THE MOrERNIZATION AND/OR E ANSIO OF 3MALL AND MEDIUM-SIZEr PROJECTS CF EXISTINS IUSUTRIAL ENTE 7RISE FITTEI IN 2. AS MENTIONE!, IN EVAL'.'ATIO' SUMMARY 3.' ...AND EFFICIENT FINANCIAL INTERMEDIARY IN INDUSTRIAL FINANCE.' IT WOULD BE MOr:FIED TO BE ''...AND EFFICIENT FINANCIAL INSTITUTION IN IND:STIAL FINANCE." 3. AS MENTIONED IN ARTICLE 1.18 "EXPERIMENTS HAVE ALSO BEEN UNDERTAKEN WITH STOCK MARKETS WFICH NOW EXIST IN RUDIMENTARY FORM IN Pare. 1.18 bas OVER 50 CITIES ''IT SHOULD BE MODIFIED TO BE EXPERIMENTTS HAVE ALSO been modfied. BEEN UNDER TAKEN WITH SECUZITY MARKETS WHICH NOW EXIST IN RUDIMENTARY FORM IN OVER 50 CITIES.'' 4. AS MENTIONED IN ARTICLE 1.30 " A DEVELOPEMNT FINANCE COMPANY (DFC) WHICH FOCUSSED, AT LEAST INITIALLY, ON THE MODERNATIONS AND/OF A footnote baa EXPANSION OF EXISTING SMALL-AND MEDIUt-SIZED, LIGHT INDUSTRIAL a . 1.3o ENTERPRISES...'' IT SOULD BE MOIFIED TO BE ''A NEW SPECIALIZED BANKING INSTITUTION WHICH FOCUSSED7 AT LEAST INITIALLY, ON THE MODERNATIONS AND/OR EXPANSION OF EXISTING INDUSTRIAL ENTERPRISES...". 5. AS MENTIONED IN ARTICLE 1.35 " TO DO THIS, CID STAFF AND OTHER CHINESE OFFICIALS AND RESERCHERS, WITH SIGNIFICANT HELP FROM boou modified THE BANK, DRAFTED A PROJECT APPRAISAL MANUAL, THE FIRST SUCH MANUAL IN CHINA," IT WHOULD BE MODIFIED TO BE ''TO DO THIS, CI STAFF, WITH SIGNIFICANT HELP FROM THE PANK AND CONSULTATION FROM OTHER CHINESE OFFICIALS AND RESERCHERS, DRAFTED A PROJECT APPRAISAL MANUAL, THE FIRST SUCH MANUAL IN CHINA.'' 6. ART 2.06 SAYS'' CID WAS THEREFORE CFEATED IN LARGE MEASURE BY A footnote bag THE BANK...'.. THE ABOVE SENTENCE WAS THOUSHT TO BE'' CIB WAS Pead to THEPCEFORE CREATED BY MOF AND PCBC UPON THE CHINIESE GOVERNMENT'S APPkVAL, CID WAS MUCH SUPPORTED AND ACSISTEAT BY THE PANK IN LARGE MEASURE DUnING THE COURSE OF CREATION.'' 7. WE HAVE DIPFERENT VIEWS ON THE STATEMENT OF ART 3.4P THAT" HOWEVER, CIB WAS SLOW TO BEGIN DIVERSIFYING ITS SOURCE, IN PART BECAUSE IT NEEDED GOVERNEMNT APPROVAL FOR ANY FOREIGN BORROWING AND IN PART, PERHAPE, BECAUSE IT BELIEVED THAT THE BANK WOULD SUPPLY eLL Footuo notins ITS NEEDS IN THIS REGARD. THIS BELIEF WAS NO DOUBT STRENGTHENED BY !the differoue THE EASE WITH WHICH IT RECEIVED THE THIRD BANK LOAN.'' IN OUR POINT -a2vews have OF VIEW, CID DID NOT SLOW DOWN THE PACE OT DIVESIFYIN ITS S!oRCE e to THOUGH IT WAS EASY IN THE METHOD AND PROCEDUrE TO RECEIVE THE THIRD graph cited. BANK LOAN WHICH WA. DESIGNATED AT THAT T'iE AS AN INTERIM OPERATION TO MEET THE URGENT NEED FOR NEW RESOURCES. INSTEAD, CID SUCCESSFULLY BORROWED FROM ABROAD A COMMERCIAL LOAN OF 10 PILLION JAPANESE YEN IN JUNE, THREE MONTHS LATER AFTER THE THIRD PANK LOAN WAS APPROVED IN MARCH,1986. THIS HAS FULLY PROVED THAT CID SPEEDED UP THE DIVERSIFICATION OF RESOURCE MOBILIZATION. THE SAME IS TRUE.ABOUT THE LAST SENTENCE OF THE STATEMENT OF ART.3.20 WHICH IS DEVIATED FROM THE FACTS, TOO. - 125 - ATTACHMENT Page 3 of 3 8. ART.4.C' AyS''I TtIE Ni,ts W'.Ev INTRUMENTAL N T i, lr SUCCESSF"JL ESTÅDLISI'MENT C" CIB AS Å SOU'T AND' EFFECTrIVE :FC...'' THE bee aU~c ABOVE SENTENCE WAE THO'OHT TO DE ''THE BA.NK WAS VERY INE2RUMTAL IN P*"01 THE SUCCESSFUL ESTABLISHENT OF CB AS A SOUND AND EFFECTIVE SPECIALIZED BANK.'' 9. THE STATEME5'T OF A'- .1.22 ADOUT T"E TAXAT:N AND PROFIT-REMITTANE OF CHINISE ~ANKS 3 INACCURATE. AT PrESENT, ALL THE SPECIAL1ZED BA1!S OF Cl!NÅ PAY THEIR TAXES TO T.E STATE, NCLUTING INCOME TAX, ADJUSTINC TAX AND OPERATING TAX. THEY ARE ALto pra. 1.22. SERPONSIBLE FOFP TFEIR PROITS ANri I ESEs THEE I 1N EX EPTIlN. m-r ALLOWED EXEMPTIO' 9F INCME TAX TO CI AT THE INITIAL ST -UP S ASE IN SUPPORT OF ITS FAST DEVELOPMNT, ' 1989-, CIB E<SA, THE PAYMENT F INCOME TAX AND ADJUSTING TAX AS CTHEr BANKS DID. 10. AS REQUESTED IN ART.3.5. ''OTHEr ASSETS'' CMPRISEa 'MANDATED LOANS'' AND ''OTHER .OG-TERM LIABELITIES' C51NTAIN een added to ''FUNDS OF MANDATEr' LANS ''. para. 3.15. 11. THERE IS A DISCREPANCY BýET'WEEN THE FACTE AND THE STATMENT OF ART.3.30 RESARRDING THAT ' 'INTEREST IS TAKEN INTO INCOME W-HEN IT IS DUE... AND CIP'S PROFIT HAS BEEN OVERSTATED TO YHE EXTENT...''. THERE Afootnote h* UERE FEW DIFFERENCES IN FIGURE BETUEEN flB'S INTEREST R TIE AND para. 3.30. INTEREST RECEIVABLE BEFORE 1980. CIB GRADUALLY TURNED TO INTEREST RECEIVED FROM 1929. 0, CIB'S PROFIT HAS NDT BEEN OVERSTATED. 12. HERE IS AN EXPLANATION'S CIB'S PROVISION FOR LOAN LOSS MENTIONED IN ART.3.34,. CIB'S FROVISION HAD BEEN SET AT 0.20/0 OF THE LOAN PORTFOLIO UHEN THERE WAS NO OFFICIAL RECULATION ON THE ALLOWABLE PROVISION FOR LOAN LOSS IN CHINA BEFORE 1988. THE STAE ESSTABLISHED . e THE ALLOWABLE PROVISION AT 20/0 OF THE LOAN PORTFOLIO APPLICABLE TO para. 3.34. ALL THE SPECIALIZED BANKS OF CHINA IN 19W, HAVINC BEEN GRANTED BY . MOF, CIB RAISEL' ITS PROVISION TO 40/0 o- THE LOAN PORTF9LIO AS REgUIRED BY THE WORLD BANK AND D5.-UGHT THE RATIO UP TO 120/0 AT THE END OF 1990, WHICH CAME INTE LINE OF THE BP:K'S RE2UIREMENT. THE STATEMENTS ABOUT CI'S STATUS, FUliCTICN AND SUTCINOMY IN OPERATION AND MANAGEMENT COULD BE FOUND IN THE BANK'S AUPITINS REPORT AND THE REPORT ON THE COMPLETION OF THE PROJECTS. THISE STATEMENTS ARE CONSIDERED AS A PIT UNREALISTIC. CIB WAS ESTADLISHED UNDER TTHE APPROVAL OF THE STATE COUNCIL. ALL THE PAID-IN CAPITAL OF CIB WAS ALLOCATED SUCCESSIVELY BY THE STATE (MINISTRY OF FINANCE). CIB IS BANK UNDER THE LEADERSHIF OF PCBC. IT OPERATES AS AN INDEPENDENT LEGAL PERSON AND EXERCISES INDEPENDENT ACCOUNTINO. BESIDES, CIP IS ONE OF FINANCIAL INSTITUTIONS AUTHORIZED BY THE CHINESE GOVERNMENT TO HADLE RESOURCE MOBILIZATION FROM OVERSEAS. BEST REGARDS LU XIANLIN PRESIDENT, CHINA INVESTMENT BIAN 248423 WORLDDANK 22537 CIB CN KKKKK =07270745 RCA542 UWB1022
Группа Всемирного банка · Project Performance Assessment Report
China - First, Second, and Third Industrial Credit (China Investment Bank) Projects
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