China - Key Studies Development Project

Document of The World Bank FOR OFFICIAL USE ONLY CiI) -ZZE / O - C Report No. P-5192-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 92.9 MILLION (US$131.2 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A KEY STUDIES DEVELOPMENT PROJECT JANUARY 29, 1991 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 (as of November 1990) Currency name - Renminbi (RMB) Currency unit Yuan (Y) 100 Fen Y1.00 US$0.19 US$1.00 Y5.22 ABBREVIATIONS CAS - Chinese Academy of Sciences NCFC - National Computer and Network Facility NSFC - National Natural Science Foundation of China PAG - Program Advisory Group PhD - Doctor of Philosophy PLMP - Pilot Laboratory Management Program R&D - Research and Development SEdC - State Education Commission SKL - State Key Laboratory SL - Special Laboratory SOE - Statement of Expenses SPC - State Planning Commission S&T - Science and Technology UNDP - United Nations Development Programme FISCAL YEAR January 1 - December 31 ACADEMIC YEAR September 1 - August 31  FOR OFFICIAL USE ONLY CHINA KEY STUDIES DEVELOPMENT PROJECT Credit and Project Summary Borrower: People's Republic of China Beneficiaries: Universities, Chinese Academy of Sciences Credit Amount: SDR 92.9 million (US$131.2 million equivalent) Terms: Standard, with 35 years maturity Onlending Terms: Credit proceeds will be onlent to universities and research institutes at an annual interest rate of 1.5%, repayable over a period of 15 years, including 5 years of grace. The foreign exchange risk would be borne by the repaying institutions. Financing Plan: Government US$105.8 million IDA US$131.2 million UNDP US$ 1.6 million Total USS238.6 million Economic Rate of Return: Not applicable Staff Appraisal Report: Report No. 8206-CHA IBRD No. 21935 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 92.9 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A KEY STUDIES DEVELOPMENT PROJECT 1. The fo?lowing memorandum and recommendation on a proposed development credit to the People's Republic of China for SDR 92.9 million (US$131.2 million equivalent) is submitted for approval. The proposed project would be on standard IDA terms with 35 years maturity and would help finance a key studies development project. The project is expected to be cofinanced by the United Nations Development Programme (UNDP) with a grant of US$1.6 million. 2. Background. Racognizing the importance of science and technology (S&T) to economic development, and the concomitant requirement to strengthen the pool of skilled S&T personnel, China in ;985 issued a decision on Reform of the Science and Technology Management System, which calls for vigorously promoting technology development; redoubling efforts in applied research; ensuring steady, continuous progress in basic research; strengthening programs to train scientific researchers; and reforming S&T personnel administration. The decision grants increased decision-making power and financial responsibility to research units and their directors; announces the formation of Science Foundations to support basic and some applied research and the awarding of research, grants through peer review; advocates promoting S&T personnel on the basis of performance; encourages labor mobility of scientists and engineers; and strengthens links between researchers and production units. In short, the decision lays the groundwork for a reformed and revitalized S&T sector in China, thus providing a strong base for the research-to-technology-to-production continuum necessary for accelerated economic growth. 3. In the early 1980s the State Planning Commission initiated the State Key Laboratories (SKL) program, which concentrates scarce resources on existing laboratories affiliated with universities and institutes of the Chinese Academy of Sciences (CAS) that: (a) work on priority specialties of economic and social relevance; (b) excel in research output, staff and facilities; (c) demonstrate links with industry; (d) play a significant role in educating graduate students; and (e) as open laboratories, provide opportunities for Chinese researchers from other labs as well as foreign researchers to work collaboratively on projects of national and international importance. China has now begun to bring to bear on SKLs the directives announced in the 1985 decision, a process which is the central focus of the proposed project. 4. Rationale for IBRD/IDA Involvement. The changing economy of China requires a corresponding strengthening in the country's science and technology capacity. The proposed project contributes towards this purpose. A key to this effort is strengthening the institutional mechanisms through which scientific research and training of future scientists are conducted. The Bank has been involved in projects in such countries as China, Brazil and Korea, assisting governments in improving  - 2 - their higher education subsectors, :n particular the science and engineering disciplines. This is particularly the case in China where the proposed project would continue the support for development in science education begun under several previous projects. More than half of the laboratories to be strengthened by the present project are in universities that were earlier recipients of support through two Bank/IDA-financed higher education projects. There are now large ntumbers of Chinese science and engineering graduates who are well qualified to undertake postgraduate education, and significant numbers of young PhDs trained overseas, ready to propel scientific R&D in China to a worldwide level. 5. Project Objectives: The objectives of the project are: (i) to improve the output of scientific researchers trained to international standards through master, doctoral and post-doctoral programs; (ii) to enhance the quality and productivity of research in selected areas relevant to long-term economic and social development; (iii) to strengthen the management of scientific research at both the national and laboratory level; (iv) to provide a modern scientific infrastructure for scientists trained at home and abroad; and (v) to encourage scientific cooperation across institutional and national boundaries. 6. Project Description: To achieve its objectives, the project would support the following components: (a) Research and Training in State Key Laboratories (,KL) and Special Laboratories (SL). (i) Establishment or expansion of about 133 SKLs and SLs, all with appropriate management structures and equipment. (ii) Provision of facilities, equipment, books and educational materials, training and specialist services and funding for other direct costs of research and graduate education to SKLs and SLs. (b) Pilot Laboratory Management Program. (i) Provision of support to seven SKLs and SLs in undertaking experimental initiatives in the management and administration of scientific research and graduate education, including technology transfer, internal and external communications, personnel management as well as financial and laboratory safety management. (ii) Provision of technical assistance and training by means of workshops, study tours, specialist services and equipment for laboratory management. (c) National Scientific Computer and Network Facility NCFC). Establishment of a national educational and scientific computer center located at Zhongguancun, Beijing, and a network facility  - 3 - equipped with a communications system linking said center to CAS institutes, Qinghua and Beijing Universities. (d) rrogram Advisory Mechanism. Provision of assistance in Project advisory activities through support to a Project Advisory Group and other technical assistance. 7. The proposed project would be carried out over five years. The total project cost is estimated at US$238.5 million equivalent, with a foreign exchan:ge cumponent of US$132.8 million (56%). A breakdown of costs and financing plan are shown in Schedule A. There is a provision for retroaccive financing. Amounts and methods of procurement and a disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in China are given in Schedules C and D, respectively. A map (IBRD No. 21935) showing the location of project laboratories is attached. The Staff Appraisal Report, dated January 29, 1991, is being distributed separately. 8. Agreed Actions. The Government has agreed on the following: (a) proceeds of the credit would be made available to project laboratories through the State Education Commission (SEdC) or CAS on terms and conditions satisfactory to the Association; (b) the availability of research funds would be monitored throughout the life of the project and, in the case of shortfalls, the causes would be identified and remedied by the implementing agencies; (c) the Foreign Investment Loan Office of SEdC and the External Financing Office of CAS will be designated and maintained as the project implementation units throughout project implementation; (d) the PAG will be established and ma:ntained throughout project implementation according to selection procedures and terms of reference agreed with the Association; (e) a mid-term review of implementation progress will be conducted in mid-1993 with representatives of the Association, UNDP, SPC, SEdC, CAS, NSFC, PAG and NCFC; and (f) an annual audit report, including separate opinions on the SOEs, will be furnished to the Association within eight months of the end of each fiscal year. 9. Benefits. By the end of the project completion in 1995, it is expected that: (a) the physical infrastructure of 133 major scientific laboratories around China will have been significantly upgraded through thp acquisition of state-of-the-art scientific equipment, updated lib,aries and other infrastructure improvements; (b) practical low-cost approaches to the improvement of research management and laboratory administrition will have been developed and tested in seven key laboratories and a significant start made in introducing similar measures in other SKL and SI laboratories; (c) an advanced scientific computing facility will be functioning and a prototype computer network will connect leading scientific research centers in Beijing, providing greatly enhanced computational capacity and expanded opportunities for cooperative research and exchange of data among the three institutions; and (d) a large number of Chinese scientists will have been provided with additional education and research experience in China and abroad, and international contacts will have expanded through study tours and international exchange programs. The beneficiaries of the project will  - 4 - be Chinese science students and researchers at the masters, doctoral and post-doctoral levels, who will be provided with the necessary inputs to utilize their talents fully and upgrade the quality of their research. The research laboratories included in the project will benefit through better equipment and better managed research programs. 10. Risks. The project faces two risks. First, difficulties ir. managing the project may arise, given its complexity. The project includes a large number of laboratories which conduct research in many diverse fields, and several different implementing agencies. However, this risk can be mitigated by means of strong leadership and coordination, which the Government recognizes and has agreed to furnish. Staffing and structure of the major implementing agencies have been greed and a project steering co;nmittee has been appointed to provide oversight. The second risk arises because the competitive mechanisms that will be used to allocate research funds to individu-Al laboratories is newly established, and may not function as expected to provide sufficient research funds to project laboratories. This risk would be mitigated by the project's proposed improvement of the mechanism for monitoring the availability of research funds, and by the agreement of the Government to take appropriate action when necessary. 11. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Asscciation and recommend that the Executive Directors approve the proposed ced&.t. Barber B. Conable President Attachments Washington, D.C. January 29, 1991  -5- Schedule A CHINA KEY STUDIES DEVELOPMENT PROJECT Estimated Costs and Financing Plan Estimated Cost:'1 Local Foreign Total ------ (US$ million) ------ Research and Training in SKLs and SLs 81.8 106.4 188.2 Pilot Laboratory Management Program 0.1 0.8 0.9 National Computer and Network 1.0 4.3 5.3 Facility Program Advisory Mechanism 0.0 0.6 0.6 Total Base Cost 82.9 112.2 195.1 Physical contingencies 6.8 9.2 16.0 Price contingencies 16.0 11.4 27.4 Total Project Cost 105.7 132.8 238.5 Financing Plan: Local Foreign Total ------ (US$ million) ------ Government 105.8 0.0 105.8 IDA 0.0 131.2 131.2 UNDP 0.0 1.6 1.6 Total 105.8 132.8 238.6 a/ Project-financed goods are exempt from import duties and taxes. Note: Figures may not total exactly due to rounding.  -6- Schedule B Page 1 of 2 CHINA KEY STUDIES DEVELOPMENT PROJECT Procurement Method and Disbursementl Procurement Arrangements: Procurement method Total Category of Expenditure ICB LCB Otherb/ costc' (US$ million) Civil Works -- -- 21.7 21.7 Equipment 92.1 -- 101.2 193.3 (92.1) (24.5) (116.6) Books & educational materials -- -- 4.6 4.6 (2.8) (2.8) Training and specialist services -- -- 19.0 19.0 (11.8) (11.8) Total 92.1 -- 146.5 238.6 (92.1) (39.1) (131.2) a/ IDA disbursements in parentheses. b/ Other includeF direct purchase for proprietary items, or where justified by need of standardization, and international and local shopping for goods and services. C/ Totals represent total estimated costs per category including price and physical contingencies.  -7- Schedule B Page 2 of 2 Disbursements Amount % of Expenditures Category (US$ million) to be financed SEdC Goods 83.5 100% of foreign expenditures and 100% of local expenditures (ex-factory) and 75% of local expenditures for other items procured locally Training, consultants' services and fellowships 7.8 100% of total expenditures Goods 19.9 100% of foreig,: exp%rd tares and 100% of local expenditures (ex-factory) and 75% of local expenditures for other items procured locally Training, consultants' services and fellowships 2.4 100% of total expenditures Unallocated 17.6 Total 131.2 Estimated IDA Disbursements IDA FY 1991 1992 1993 1994 1995 ----------- (US$ million) --------- Annual 10.0 55.0 56.2 8.0 2.0 Cumulative 10.0 65.0 121.2 129.2 131.2  -8 Schedule C CHINA KEY STUDIES DEVELOPMENT PROJECT Timetable of Key Project Processing Events (a) Time taken to prepare 21 months (b) Prepared by State Planning Commission, State Education Commission and Chinese Academy of Sciences with IDA assistance (c) First IDA mission December 1987 (d) Departure of appraisal mission Septemb&r 1989 (e) Negotiations April 1990 (f) Planned date of effectiveness March 1391 (g) List of relevant PCRs and PPARs University Development Project (Loan 2021/Credit 1167-CHA) (PPAR dated December 30, 1988) (Report #7561)  -9- Schedule D STATUS OF BANK GROUP OPERATIONS IN THE PEOPLE'S REPUBLIC OF CHINA A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of December 31, 1990) Loan/ Amount (US$ millioal) Credit Bor- (net of cancellations) Number FY rower Purpose Bank IDA Undlsb. (a) Eight loans ard twelve credits have been fully disbursed. 714.7 633.9 - Of whiMh SECALt 2967 1932 88 PRC Rural Sector Adj. 200.0 100.0 - 2252 83 PRC Petroleum ItZhongyuan-Wenliu) 100.8 - 5.5 M IjW Un ivrsity 85.0 17.8 1411 84 PRC Pol technic/TV University - 10.0 0.8 1417 84 PRC RuEber Deve opment - 100.0 0.8 2382 84 PRC Lubuge Hydroelectric 145.4 - 24.3 2394 84 PRC Railway 220.0 - 1.0 1472 84 PRC Rural Health & Medical Educ. - 85.0 11.1 2426 84 PRC Petroleum iII (Karamay) 92.5 5.6 244411500 84 PRC Agricultural Education II 45.3 (23.5)(b) 6.1 1516 85 PRC Agricultural Research II - 5 5.1 1551 85 PRC University Development II - 145.0 19.1 2493 85 PRC Power II 117.0 - 15.9 2501 85 PRC Chan cun (Luan) Coal Mining 79.5 - 51.2 1578 85 PRC Rural Water Supply - 80.0 2.8 2539/1594 85 PRC Highway I 31.6 (30.0)(b) 2.0 2540 85 PRC RaIlway II 235.0 - 119.8 2541 85 PRC Fertillzer Rehab. & 97.0 - 0.7 Energy Saving 1605 85 PRC Forestry Development - 47.3 11.7 251791606 85 PRC PiShiHan -Chaohu Area Dev. 17.0 75.0 9.2 2580 85 PRC Weiyuan Gas Field Technical 25.0 - 8.0 Assistance 1642 86 PRC Rural Credit II - 90.0 1.1 265911663 86 PRC Industrial Credit III (CIB III) 75.0 25.0 9.7 1664 86 PRC Technical Cooperation Credit II - 20.0 19.3 1671 86 PRC Provincial Universities - 120.0 14.9 2678/1680 86 PRC Third Railway 160.0 70.0 129.6 2689 86 PRC Tianjin Port 130.0 - 77.2 1689 86 PRC Freshwater Fisheries - 60.0 2.0 2706 86 PRC Beilunganr Thermal Power 225.0 - 49.5 2717 86 PRC Yantan Hydroelectric 52.0 - 17.2 272311713 86 PRC Rural Health & Preventive Med. 15.0 65.0 54.3 1733 87 PRC Red Soils - 40.0 0.8 2775 87 PRC Shuikou H droelectric 140.0 - 56.8 278311763 87 PRC Industrial Credit IV (CIB IV) 250.0 50.0 86.3 2784 87 PRC Shanghai Machine Tools 100.0 - 55.5 17 4 87 PRC Xinjiang Agricultural Dev. - 70.0 30.8 279411779 87 PRC Shangha_ Sewerage 45.0 100.0 111.2 2811/1792 87 PRC Beijin -Tianjin-Tanggu Expressway 25.0 125.0 74.1 2812/1793 87 PRC Gansu Provincial Dev. 20.0 150.5 108.9 1835 87 PRC Planning SuRport & Special Studies - 20.7 17.1 2838 87 PRC Fertilizer Rationalization 97.4 - 50.5 2852 87 PRC Wujing Thermal Power 190.0 - 107.8 1871 88 PRC Rural Credit III - 170.0 27.8 2877/1845 88 PRC Huangpu Port 63.0 25.0 69.7 2907/1875 88 PRC Dalian Port 71.0 25.0 72.8 1885 88 PRC Northern Irrigation - 103.0 61.3 2924/1887 88 PRC Coastal Lands Dev. 40.0 60.0 39.1 1908 88 PRC Teacher Training - 50.0 29.0 2943 88 PRC Pharmaceuticals 127.0 - 77.1 2951 1917 88 PRC Sichuan Highway 75.0 50.0 109.8 29 2 88 PRC Shaanxi Highway 50.0 - 33.0 1918 88 PRC Daxing An Ling Forestry - 56.9 37.6 2955 88 PRC Beilungang II 165.0 - 97.2 2958 88 PRC Phosphate Dev. 62.7 - 61.1 2968 88 PRC Railway IV 200.0 - 129.8  - 10 - SchedUleD Page Z orT3 Loan/ Amount (US$ million Credit Bor- (net of cancellations Number FY rower Purpose Bank IDA Und sb. (a) 1984 89 PRC Jiangxi Provincial Highway - 61.0 49.5 1997 89 PRC Shaanxi ARricultural Dev. - 106.0 100.0 2006 89 PRC Textbook Development - 57.0 23.0 2009 89 PRC Integraced Reg. Health - 52.0 48.9 3006 89 PRC Ningbo & Shanghai Ports 76.4 - 47.1 3007 89 PRC Xiamen Port 36.0 - 33.0 3022 89 PRC Tian in Light Industry 154.0 - 147.1 3060/2014 89 PRC Inret Mongolia Railway 70.0 80.0 146.9 2017 89 PRC Shgndong Agriculture Dev. - 109.0 74.2 3066 89 PRC Hubei PIosphate 137.0 - 136.0 3073 2025 89 PRC Shandong Prov. Highway 60.0 50.0 101.2 30 5 89 PRC Fifth Industrial Credlt 300.0 - 221.9 2091 90 PRC N.China Earthquake Reconstr. - 30.0 9.4 2097 90 PRC Jianuxi Agric. Dev. - 60.0 57.4 2114 90 PRC Voca ionaI & Tech. Educ. - 50.0 54.1 2145 90 PRC National AffQrestation - 300.0 305.4 2159 90 PRC Hebei Agricultural Dev. - 150.0 154.6 2172 91 PRC Mid-Yan tze Acricultural Dev. - 64.0 68.2 3265/2182 91 PRC Rural Oiedit IV (c) 75.0 200.0 276.8 3274/2186 91 PRC Rural Industrial Tech (c) 50.0 64.3 113.3 Total 5257.3 4255.6 4405.5 of which has been repaid 296.5 0.0 Total now held by Bank and IDA 4960.8 4255.6 Amount sold: Of which repaid - - - Total Undisbursed 2451.3 1954.2 4405.5 (al As credits are denominaled in SDRs (since IDA Replenishment VI), undisbursed SDR credit balances are converted to dollars at the current exchan e rate between the dollar and the SDR. In some cases, therefore, the undisbursed balance indicates a dollar amount greater than the original principal credit amount expressed in dollars. (b) Credit fully disbursed. (c) Not yet effective.  - 11 - ~ ~ ~ ~ Scpdl fn Page 3 of B. STATEMENT OF IFC INVESTMENTS (As of December 31, 1990) Invest- Typeof Loan E ultx Total ment No. FY Obligor Business ------ (US$ Mil Uo.) ------- 813 85 Guangzhou and Peugeot Automobile 15.0 3.2 1862 974 87 China Investment Co. Investment 3 .0 0.0 3.G 1020 87 Shenzhen China Bicycle 5.0 - 5.0 B cycles Co. Ltd. Manufacture 1066 88 Crown Electronics Electronics 15.0 - 15.0 1119 89 Shenzhen Chronar Solar Solar 2.0 1.0 3.0 Energy Energy Total Gross Commitments 40.0 4.3 44.3 Less cancellations, terminations 3.1 - 3.1 repayment and sales Total Commitments now Held by IFC 36.9 4.3 41.2 Total Undisbursed 2.0 2.0 1/16/91 A 3CO  gv ) \ U.~~~~~~~~~~~~~~~~S. S. R. > I US.S.R. Y i > f \'dX~~~~I - U.9 S- Se R. e X S !' <7 A -B 2 6 *-- 6a 7=iE - . s\>X7D ''' \ NEPAL A % t D 0 s V . o J _~~~~~~ ~~ ~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Ja /sfpa CHINA / ur KEY STUDIES DEVELOPMENT PROJECT > ; Project Laboratories ]{ /fi t)0 0@ pG Oft P101 b00P S.or is s f V < @ 5 NK K O N G . 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