The World Bank's Board of Executive Directors discussed on December 19 the WB's new Country Assistance Strategy (CAS) for China covering the period 2003-2005, and endorsed its overall goal to support China in its two historic transitions -- from a rural, agricultural to an urban, industrial society, and from a centrally-planned to a more globally integrated market-based economy.

"The new CAS reflects the changing nature of the China-Bank Group relationship, particularly the potential gains to both sides, as China not only receives Bank assistance, but also shares lessons of its development experiences more broadly and contributes to thinking on global development issues of common concern," said World Bank Vice President for East Asia and Pacific Region Jemal-ud-din Kassum.

China's economic performance during 1997-2001 was among the best in the world, with annual GDP growth averaging 7-8 percent, and a much strengthened external position. Considerable progress has also been made in the broad structural reform agenda, and China's accession to the World Trade Organization (WTO), achieved in 2001, is providing major impetus to continued reforms. This progress is remarkable given the depth of the East Asian financial crisis and dislocations caused in the domestic economy due to policy initiatives pursued during this period in the enterprise and rural sectors.

Nevertheless, China faces major challenges, including the need to strengthen the Government's medium-term financial position, particularly at the sub-national level, to reshape institutions and the business environment in order to address key aspects of the national development agenda, and to deal with stresses on the natural environment that have accompanied rapid growth. Further, despite significant progress during the past decade in poverty reduction, more than 200 million people in Chinamostly in rural areas of the lagging inland provincesstill live on expenditures of less than US$1 a day. Trends in inequality and social indicators also suggest that urban-rural and coastal-inland disparities have widened in recent years.

The Bank Group's new assistance strategy aims to support China in addressing these challenges, specifically to help China:

7 Improve the business environment and help accelerate the transition to a market economy, mostly through an array of knowledge-transfer activities. Support is targeted to enhancing macroeconomic management at both the national and sub-national levels, assisting China's integration into the global economy, reforming the financial sector, promoting private sector development and enterprise reform, and strengthening governance in the public sector;

7 Address the needs of poorer and disadvantaged people and lagging regions, through lending for rural development, infrastructure and social sector projects, as well as analytical, advisory and training support. Specific aims are to increase employment and productivity off and on the farm, strengthen transport links within and to lagging regions, develop human resources, strengthen social protection, and improve targeted poverty reduction programs;

7 Facilitate an environmentally sustainable development process, through lending, policy support and institutional development. Projects would be supported in water resource management, watershed rehabilitation, wastewater treatment, clean energy, sustainable rural development and urban pollution abatement. Global environment projects supported by the Global Environment Facility and Montreal Protocol would be implemented by the Bank.

"This CAS coincides with major developments in China, including the shift in its reforms from the liberalization phase to the more difficult structural and institution-building phase," said World Bank China Country Director Yukon Huang.

In support of the three major objectives and, given the increased emphasis on knowledge-sharing in the China-Bank Group relationship, the new CAS contains a major Knowledge Agendacombining analytical and advisory services, research and trainingto facilitate policy discussions and underpin future lending. Through its lending program, IBRD loans of about US$1.2-1.3 billion will be provided annually, with about three quarters of proposed projects in poorer, inland provinces and many projects promoting innovation and change.

The program includes a more active role for the International Finance Corporation (IFC). "IFC will provide technical assistance to improve the business environment," said IFC's Director for East Asia and Pacific Javed Hamid. "And this would be complemented by investments to develop small and medium enterprises, the financial sector, the private sector in interior provinces, and private enterprises in infrastructure, social services, and environmental technology". Model transactions would set standards in areas like corporate governance while creating demonstration effects. The Multilateral Investment Guarantee Agency would address interest in guarantees and investment marketing arising out of China's post-WTO opening.

The Bank's continued collaboration with our development partners will promote knowledge sharing and enhanced results. This is exemplified by the innovative co-financing arrangements between Department for International Development (DfID), UK and IBRD for social and poverty reduction projects, such as the Tuberculosis Control Project. Other notable partnerships include the European Union (EU)on natural forest managementand Australian Agency for International Development (AusAid) in bringing the Bank's Global Development Learning Network to one of China's poorest western provinces. Additional partnerships with bilaterals on issues of mutual interest are also being nurtured. In tandem, collaboration will continue with the UN agencies, the International Monetary Fund, the Asian Development Bank and civil society organizations.

The CAS was prepared in close collaboration with the Government of China, and involved extensive consultations with the representatives of stakeholder groups including central and local governments, private sector, academia, the donor community and civil society.

"The 16th National Congress of the Communist Party set the national goal of achieving a "well-off society," said Chinese Vice Minister of Finance Jin Liqun. "The new CAS will help China to sustain growth without neglecting the quality of growth and all-round social progress. China's development strategy emphasizes entrepreneurship, increased private investment, closer integration with the world economy, and an improved legal system and stronger protection of property rights, as well as continued efforts to develop human resources, narrow social disparities, and reduce poverty. Environmental sustainability and the application of science and technology, particularly information and communications technology, to raise productivity and generate greater benefits are cornerstones of the strategy. With support from the World Bank, we expect to make good progress in all these areas."

(China.org.cn December 20, 2002)