China - Technology Development Project

Document of The World Bank Report No: 25493 IMPLEMENTATION COMPLETION REPORT (SCPD-3847S; CPL-38470; SCL-3847A) ON A LOAN IN THE AMOUNT OF US$ 200 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A TECHNOLOGY DEVELOPMENT PROJECT June 9, 2003 Private Sector Development Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective May 2003) Currency Unit = Chinese Yuan (Y) Y1 = US$ 0.12 US$ 1 = 8.28 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAD Computer Aided Design CAS Country Assistance Strategy ERC Engineering Research Center FEPS Final Executive Project Summary GCC Golden China Corporation GDP Gross Domestic Product HRD Human Resource Development ICR Implementation Completion Report IPR Intellectual Property Right JV Joint Venture LLC Limited Liability Corporation MEIO Mechanical, Electrical Import/Export Office MOF Ministry of Finance MOFTEC Ministry of Foreign Trade and Economic Cooperation NIM National Institute of Metrology PC Productivity Center PO Project Office PRC People's Republic of China RMB Renminbi (Chinese Currency) R&D Research and Development SAR Staff Appraisal Report SDPC State Development & Planning Commission SLC Stock Limited Corporation SOE State Owned Enterprise SPC State Planning Commission STIC Science and Technology Corporation UK United Kingdom US United States VAT Value Added Tax WB World Bank WTO World Trade Organization Vice President: Jemal-ud-din (Jamil) Kassum Country Director: Yukon Huang Sector Director: Homi Kharas Task Team Leader: Lily Uy Hale  CHINA TECHNOLOGY DEVELOPMENT PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 3 5. Major Factors Affecting Implementation and Outcome 6 6. Sustainability 7 7. Bank and Borrower Performance 8 8. Lessons Learned 9 9. Partner Comments 11 10. Additional Information 16 Annex 1. Key Performance Indicators/Log Frame Matrix 17 Annex 2. Project Costs and Financing 22 Annex 3. Economic Costs and Benefits 26 Annex 4. Bank Inputs 27 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 29 Annex 6. Ratings of Bank and Borrower Performance 30 Annex 7. List of Supporting Documents 31  Project ID: P003600 Project Name: CN-TECHNOLOGY DEVELOPMENT Team Leader: Lily Uy Hale TL Unit: EASPS ICR Type: Core ICR Report Date: June 9, 2003 1. Project Data Name: CN-TECHNOLOGY DEVELOPMENT L/C/TF Number: SCPD-3847S; CPL-38470; SCL-3847A Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: Other industry (67%); General energy sector (15%); General information and communications sector (15%); Central government administration (3%) Theme: Other financial and private sector development (P); Technology diffusion (P); State enterprise/bank restructuring and privatization (P); Climate change (S); Pollution management and environmental health (S) KEY DATES Original Revised/Actual PCD: 05/15/1992 Effective: 02/12/1996 Appraisal: 11/11/1993 MTR: 06/15/1999 Approval: 02/28/1995 Closing: 12/31/2002 Borrower/Implementing Agency: PRC/State Development & Planning Commission (SDPC) Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din (Jamil) Kassum Gautam Kaji Country Director: Yukon Huang Nicholas Hope Sector Manager: Homi Kharas Richard Newfarmer Team Leader at ICR: Lily Uy Hale Walter Vergara ICR Primary Author(s): Lily Uy Hale; Jacques Yenny 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome:S Sustainability:L Institutional Development Impact:M Bank Performance:S Borrower Performance:S QAG (if available) ICR Quality at Entry: Project at Risk at Any Time: No  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The objective of the project is to support the Government's continuing reforms in technology policy and institutions so as to promote the development and/or adoption of cleaner, productivity-enhancing technologies in China's industries. The project is designed to accelerate diffusion and adaptation of technologies in China and abroad through the deepening of technology markets and through institutional initiatives. The objective was consistent with the Bank's 1995 Country Assistance Strategy (CAS), which emphasized the assistance to the key challenges facing the government over the medium term, i.e. sustainable growth within a stable macroeconomic environment, and poverty reduction, human resource development (HRD), and improving the distribution of income, both across the urban-rural divide and among the different strata of Chinese society. The project addressed these challenges through its support in the following two areas: (a) the transformation of a segment of university laboratories and research institutes into market-oriented technology development corporations; and (b) the strengthening of public services for norms and standards, necessary for technology development, including the modernization of the National Institute of Metrology (NIM) and technical assistance and training. The first area led to furthering the market orientation with the associated increased competitive pressures of these transformed institutions. These undertakings are in tandem with the Government's SOE reforms which formed part and parcel of the economic sustainability packages. The project has in fact deepened its reform objectives by focusing on deepening the technology markets via policy incentives for various technology subsectors. The project also encouraged the promotion and adoption of environmental friendly technologies which contributed to the Government's effort in curbing the spread of environmental problems amidst rapid urbanization and the flurry of development activities. The objectives of the project were clear and important for the country. The project responded to the Government's strategy for economic development outlined in a State Council Resolution on Technology issued in 1988, and summarized in the document submitted to the Bank by the State Planning Commission (SPC) in 1992, regarding the rationale for the project. Therefore, the project was clearly demand driven. The project also supported the Bank's efforts to promote efficient industrial growth in China. The enterprise and financial reforms of the 1980s created strong pressure for firms to reduce costs and make more efficient use of energy and materials. This requires productivity improvements and better environmental performance. This project assisted the transfer of research results to industrial applications. 3.2 Revised Objective: The project objectives were not revised. 3.3 Original Components: Component I: Engineering Research Centers (ERCs), US$390,300,000 The design of this component is to assist in restructuring part of China's large R&D institutions into market-responsive corporations with the objective of adapting, developing and diffusing technologies, in particular those that have positive environmental impacts. At the same time, the ERCs will also produce prototypes and customized products and services that adopt foreign and domestic technologies. The implementation of these objectives has stimulated other entities in China's economy to behave more - 2 -  responsively to market forces. Laws and regulations have been changing and consolidating in support of market transformation. A number of relevant policy changes which supported the project objectives of the ERCs and further promoted liberalization of the market are listed in Annex 1. As the ERC program covered a wide range of sectors between R&D institutes, industrial enterprises, and foreign firms, their achievement and implementation experience also varied. The differences in their stage of restructuring, the relationship with their parent company and the nature of their research work led to the varied levels of administrative management capacity and the financial results of the companies. Component II: Technology Public Services, US$11,700,000 The design of the project was well related to achieving its objectives. The project took into account the Bank's experience with technology development in China's industrial sector obtained through its industrial and education projects. Previous industrial projects included support for rural technology development; industrial diversification and modernization; and technology modernization in small and medium scale industry. Within the education sector, the bank supported higher education and research in the fields of science and engineering; expansion and upgrading of the technical education system; and reform of the management of science and technology programs. This project benefits in particular from the development, under previous projects, of well-endowed research institutions capable to reach out to the industrial sector. Some of these institutions have become sponsors for several ERCs supported by this project. 3.4 Revised Components: The components were not revised. 3.5 Quality at Entry: Quality at entry was satisfactory. The objectives of the project were consistent with the objectives of the CAS and clearly reflected Government priorities. Preparation was fairly lengthy and the dialogue led to the preparation of a Statement on Technology Policy by the Government. The statement was drafted by SPC in consultation with the State Science and Technology Commission, the State Education Commission, the State Asset Management Bureau, the State Economic and Trade Commission, the China Patent Office, the State Taxation Bureau, the Ministry of Personnel, and the Ministry of Foreign Trade and Economic Cooperation (MOFTEC). The interaction with the Bank during preparation also led to a more market oriented approach to technology diffusion than originally planned. There was no Quality Assurance Group Assessment of this project. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The objectives of the project were generally achieved. First, the transformation of university laboratories and research institutes into market oriented technology development corporations, was very successful. The reform process in China accelerated during the past ten years, when the project was prepared and implemented. The 15th National Congress adopted additional measures to promote further liberalization of markets (ownership of companies, reform of State Owned Companies (SOEs), and adoption of new laws and regulations). In March 1999, the State Council issued regulations for the commercialization of scientific and technological advances, with the overall objective to further enable and promote the market for technology. Contract, patent copyright and competition laws to protect intellectual property and promote competition have been passed. For instance, in 1999, the - 3 -  Company Law has been amended to strengthen provisions regarding fraud prevention and promotion and protection of contracting mechanisms (see details in Annex 4). At the enterprise level, the central government decided to transform 1,000 R&D institutes under ten National Industrial Bureaus into corporate technology companies, demonstrating the seriousness of the Government science and technology policy reform process. Furthermore, one third of the R&D entities in sectors such as medicine, pharmaceuticals, agriculture and forestry, which were left out of the 1,000 institutes, will be encouraged to convert to corporate structure. The business transformation of many research institutes involved many environmental activities, including the improvement in industrial waste treatment, paper industrial pollution control technology, clean coal combustion technology, urban waste treatment technology, etc. Many of these institutes were able to acquire patents for these technological breakthroughs and contributed greatly to the industrial applications of these patented technologies. All these developments have significantly improved the prospects for technology markets in the country and thus contributed to the achievements of the project development objective. The project impact can be summarized as follows: a) it assisted the national transition program for research institutes, through the process of commercialization of assets from the R&D system and their reorganization into technology companies (ERCs); b) it promoted the policy dialogue on marketing of technology assets, issues which are now better understood and reflected in new regulations; and c) it was instrumental in the adoption of fiscal incentives for the industrialization of R&D at a national level. The second objective to strengthen technology related public services was also met successfully with the strengthening of the National Institute of Metrology (NIM) and the Productivity Center (PC). The NIM has made significant progress in improving standards of measurement and calibration and the PC has provided services to many enterprises as well as training courses (further details are in section 4.2). 4.2 Outputs by components: (a) Engineering Research Centers