| Economic
Achievements and Current Challenges
Since initiating the reforms and open policy, China has achieved tremendous success. Growth of about 9% per annum since the late 1970s has helped to lift several hundred million people out of absolute poverty, with the result that China alone accounted for over 75% of poverty reduction in the developing world over the last 20 years. Between 1990 and 2000 the number of people living on a dollar per day fell by 170 million, while total population rose by over 125 million. Besides raising incomes, China's market-oriented reforms over the last two decades also dramatically improved the dynamism of both the rural and urban economies and resulted in substantial improvements in human development indicators. Official estimates of the adult illiteracy rate fell by more than half, from 37% in 1978 to less than 5% in 2002, and, indicative of health indices, the infant mortality rate fell from 41 per 1,000 live births in 1978 to 30 in 2002.
Nevertheless, substantial challenges remain. More than 160 million Chinese, many in remote and resource-poor areas in the western and interior regions, still have consumption levels below a dollar per day, often without access to clean water, arable land, or adequate health and education services. /1 The rate of poverty reduction has fallen since the mid-1990s, as the country tackles remaining, and often more intractable, sources of poverty, including poverty concentrated in geographically disadvantaged regions and the emergence of increasing urban poverty. China also faces ongoing and emerging challenges related to its continued rapid growth – growing income inequality, economically lagging western and northeast regions, unsustainable resource exploitation, and issues related to growing regional and global economic integration. Many of these challenges require action on complex systemic issues—like the financial sector and the state-owned enterprises (SOEs)—in order to spur greater efficiency and innovation while maintaining macroeconomic balances. Addressing disparities in human development between regions and particular counties will also require better targeted and higher quality service delivery. Further, while China's environmental program has had notable successes, for example, in reducing industrial air and water pollutant emissions and reversing deforestation, two decades of phenomenal growth have taken a serious toll on the rural natural resource base and the urban environment. China's rapidly growing and industrializing economy has increasing implications for the region and the globe, including China's export competitiveness, expanding trade integration, ability to attract foreign direct investment (FDI), and demand for imports of commodities and energy.
China's 10th Five Year Plan (2001-2005) forms the current basis for the Government's economic and social development efforts. It aims in part at economic growth, restructuring and reform by developing three related areas: (i) encouraging the spread of market forces, especially through reforms of SOEs, the financial system, agricultural output and labor markets, and pricing of natural resources; (ii) supporting market development through building the legal, social, human, physical and institutional infrastructure needed to spur private investment and rapid growth; and (iii) moving forward with broad-ranging initiatives for its integration with the world economy, building on its success in gaining WTO membership. In parallel with its agenda for economic reform and growth, the Tenth Plan incorporates a Western Region Development strategy to assist the 12 western and inland provinces where per capita income is less than half of that of the more developed coastal provinces, where illiteracy is higher, and where the largest proportion of China's poor reside. It also emphasizes environmental protection and sustainable development as intrinsic to goals for both economic development and poverty reduction, recognizing rural and urban linkages between poverty and environmental degradation. The 11th Five-year Plan, which will take effect in 2006, is currently under preparation.
World Bank Assistance to China
In accordance with the policy direction of China's 10th Five Year Plan, the World Bank's current assistance program is designed to help China:
? - Improve the business environment and help accelerate China's transition to a market economy, mostly through an array of knowledge transfer activities;
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- Address the needs of the poorer and disadvantaged people and regions, through investment lending in rural development, transport and social sectors, as well as Analytical and Advisory Activities (AAA) including distance learning; and
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- Facilitate an environmentally sustainable development process, through investment lending in water resource management, watershed rehabilitation and wastewater treatment, energy, global environment projects supported by the Global Environment Facility and Montreal Protocol, and policy work.
In support of these objectives, the Bank's program is carried out through three main instruments: loans for physical investments; loans and grants—often provided by bilateral partners and administered by the World Bank—for technical assistance; and non-financial services in the form of analytical reports, policy advice, workshops and training. These instruments are used singly or in combination as appropriate to the specific objective.
The lending program addresses key Government priorities in infrastructure, rural poverty reduction, and natural resource management. As of December 31, 2004, total World Bank commitments to China totaled about US$38 billion (net of cancellations) for a total of about 260 projects. About 80 of these projects are still under implementation, making China's portfolio one of the largest in the Bank. World Bank-supported projects can be found in almost all parts of China and in many sector of the economy, with the portfolio concentrated in transportation (31 percent), urban development (25 percent), rural development (22 percent), energy (15 percent), and human development (6 percent). Transport projects focus on connecting the poorer inner provinces to the dynamic coast; urban projects focus on urban transport, sustainable water supply, and sanitation; and energy projects on meeting the economy's growing power needs. Lending in support of the social sectors and pro-poor rural development has grown through innovative blending of the Bank's International Bank of Reconstruction and Development (IBRD) resources with grants from Britain's Department of International Development (DFID) (see below). China is among the World Bank's best-performing member countries in terms of project implementation.
Knowledge sharing and transfer have become increasingly important in the China-Bank Group relationship—both through helping China to access global development experiences and knowledge and through supporting analysis and dissemination of China's own economic growth and poverty reduction experiences to other countries. Under the broad themes identified above, the Bank is supporting a broad range of AAA to assess specific China challenges in light of global experience, to facilitate national and global policy discussions, and to lay the groundwork for future development investments and other activities. The Bank is providing analytical work in support of the Government's upcoming 11th Five Year Plan and of China's increasing integration into international economic institutions including the WTO and G-20. The Bank provides analytical support to sustain effective macroeconomic management, reduce systemic risks in the financial system, and improve the environment for private sector development. The Bank is assisting in the assessment of underlying constraints – in the investment climate, the fiscal transfer system, social service delivery, social protection systems, urbanization, and other areas – that restrict growth and service delivery in lagging regions in western and northeastern China. The Bank is also providing analytical and advisory work to further improve the efficiency and sustainability of natural resource use. In addition, building on the May 2004 Shanghai Conference on Scaling-Up Poverty Reduction, the Bank is supporting China's efforts to develop innovative efforts to reach the extreme poor who have not benefited proportionally from dynamic economic growth.
Partnership with other donors has become increasingly important in the World Bank's China programming. As noted, DFID provides crucial financial resources as well as project design knowledge and experience that have been integrated with Bank assistance in preparing projects, co-financing, and undertaking analytical and advisory work. DFID's partnership has been particularly active in supporting the Bank's rural and human development lending programs. In these areas, DFID's grant resources reduce the cost of Bank assistance and help to enable projects targeting populations and regions that are less well off economically and socially. Such partnerships are particularly important given that China has not been able to borrow from the Bank on more concessionary IDA terms since it was graduated from IDA on July 1, 1999.
In the fiscal year ending June 2004, the Bank lent China about US$1.2 billion for nine projects. Four transport projects – Wuhan Urban Transport, Fourth Inland Waterways, Second National Railways and Hubei Shiman Highway – focused on enhancing the capacity, efficiency and safety of the road network, promoting development of an integrated and sustainable transport system, improving access for poor regions of southern China by upgrading navigation conditions, and improving railway services and upgrading the quality of track maintenance on heavily used portions of China Railways'network. Two rural development projects – Gansu/Xinjiang Pastoral Development and Jiangxi Integrated Agricultural Modernization - promote sustainable natural resource management through establishing improved livestock production and marketing systems to increase the income of herders and farmers in the project areas and improve the livelihood of rural households in Jiangxi Province through establishment of integrated, economically and environmentally sustainable, and market-driven agricultural production systems focusing on productivity and agricultural output of high quality and value. The Basic Education in Western Areas Project aims to support the universal completion of nine years of quality compulsory education for children in the western provinces. The objectives of the Zhejiang Urban Environment and Guangdong Pearl River Delta Urban Environment projects are to enhance the efficiency and equity of waste management, establish a model for conservation of cultural heritage in Chinese cities, and to assist in addressing the environmental problems of the Pearl River Delta in Guangdong Province and the South China Sea, through the improvement and rationalization of environmental service delivery based on a regional planning approach.
For fiscal years 2005-2006, Bank lending to China is expected to range from US$2.4 billion to US$2.8 billion for up to 25 projects.
/1 A number of methodologies exist for determining absolute poverty. One common international standard—income of US$1 a day—puts the number of income poor in China in 1999 at around 100 million. However, as a gauge of a household's standard of living, consumption is often a more telling indicator, and that is the approach used here.
For more information, please contact:
Beijing:
Ms. Li Li
Phone: (86-10) 5861-7850
Fax: (86-10) 5861-7800
Washington, D. C.:
Mr. Johannes Zutt
Phone: (202) 473-1262
Fax: (202) 614-1078
The World Bank China website has a wide range of up-to-date information on both the World Bank's activities in China and those of the wider development community. Recent World Bank documents are available in down-loadable format.
Updated in March 2005
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