Technical Assistance Report

Project Number: 54037-001 Knowledge and Support Technical Assistance (KSTA) November 2020

People’s Republic of : Innovation-Driven Green Economic Diversification for Resource- Exhausted Cities in

This document is being disclosed to the public in accordance with ADB's Access to Information Policy.

CURRENCY EQUIVALENTS (as of 14 September 2020)

Currency unit – yuan (CNY) CNY1.00 = $0.1463 $1.00 = CNY6.8344

ABBREVIATIONS

ADB – Asian Development Bank HPFD – Heilongjiang Provincial Finance Department PRC – People's Republic of China SMEs – small and medium-sized enterprises TA – technical assistance

NOTE

In this report, “$” refers to United States dollars.

Vice-President Ahmed M. Saeed, Operations 2 Director General James P. Lynch, East Asia Department (EARD) Deputy Director General M. Teresa Kho, EARD Director Sangay Penjor, Urban and Social Sectors Division (EASS), EARD

Team leader Jie Bai, Urban Development Specialist, EASS, EARD Team members Maricelle David, Associate Project Analyst, EASS, EARD Yi Jiang, Principal Economist, Economic Analysis and Operational Support Division, Economic Research and Regional Cooperation Department Heekyung Nam, Counsel, Office of the General Counsel Stefan Rau, Senior Urban Development Specialist, EASS, EARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page KNOWLEDGE AND SUPPORT TECHNICAL ASSISTANCE AT A GLANCE I. INTRODUCTION 1 II. ISSUES 1 III. THE TECHNICAL ASSISTANCE 2 A. Impact and Outcome 2 B. Outputs, Methods, and Activities 3 C. Cost and Financing 3 D. Implementation Arrangements 4 IV. THE PRESIDENT'S DECISION 4

APPENDIXES 1. Design and Monitoring Framework 5 2. Cost Estimates and Financing Plan 8 3. List of Linked Documents 9

Project Classification Information Status: Complete

KNOWLEDGE AND SUPPORT TECHNICAL ASSISTANCE AT A GLANCE 1. Basic Data Project Number: 54037-001 Project Name Innovation-Driven Green Economic Department/Division EARD/EASS Diversification for Resource-Exhausted Cities in Heilongjiang Nature of Activity Research and Development Executing Agency Heilongjiang Provincial Finance Modality Regular Department Country China, People's Republic of

2. Sector Subsector(s) ADB Financing ($ million) Water and other urban Urban policy, institutional and capacity development 0.40 infrastructure and services Total 0.40 qq 3. Operational Priorities Climate Change Information Addressing remaining poverty and reducing inequalities GHG Reductions (tons per annum) 0 Climate Change impact on the Project Low Making cities more livable Strengthening governance and institutional capacity ADB Financing Adaptation ($ million) 0.00 Mitigation ($ million) 0.00

Cofinancing Adaptation ($ million) 0.00 Mitigation ($ million) 0.00 Sustainable Development Goals Gender Equity and Mainstreaming SDG 10.1 No gender elements (NGE) SDG 11.b Poverty Targeting General Intervention on Poverty 4. Risk Categorization Low Qq 5. Safeguard Categorization Safeguard Policy Statement does not apply qq 6. Financing Modality and Sources Amount ($ million) ADB 0.40 Knowledge and Support technical assistance: Technical Assistance 0.40 Special Fund Cofinancing 0.00 None 0.00 Counterpart 0.00 None 0.00 Total 0.40

Currency of ADB Financing: US Dollar q

Source: Asian Development Bank This document must only be generated in eOps. 07102020191040265844 Generated Date: 07-Oct-2020 19:10:49 PM

I. INTRODUCTION

1. The Government of the People’s Republic of China (PRC) has requested knowledge and support technical assistance (TA) from the Asian Development Bank (ADB) on innovation-driven green economic diversification for resource-exhausted cities in Heilongjiang Province. The TA will build on previous ADB projects in the northeast of the PRC and provide support in research, strategic planning, policy recommendations, and knowledge dissemination to advance innovation as part of a comprehensive strategy to enable green economic diversification.

2. The TA is included in the list of projects agreed between ADB and the Government of the PRC on 22 January 2020. 1 The TA is in line with ADB’s Strategy 2030, which supports the operational priority on making cities more livable; the corresponding operational plan; and ADB’s country partnership strategy for the PRC, 2016–2020.2

II. ISSUES

3. Economic development of resource-dependent cities relies on the extraction and basic processing of natural resources. Cities with declining resource-dependent development and accumulative recovered reserves exceeding 70% of recoverable reserves are defined as resource-exhausted cities and are facing more urgent needs for economic diversification. Heilongjiang Province is part of the northeast of the PRC and has a population of 37.73 million in 2019.3 With resource-dependent industry as one of its economic pillars, the province has been losing its growth momentum since the late 1990s, going through economic recession and population outflow.4 The province has 10 officially listed resource-exhausted cities, or 14% of the total number in the PRC.5 Heilongjiang’s resource-exhausted cities face development challenges, including economic underperformance, business failures, rising unemployment, decreased tax revenue, and difficulty in making new investments. The cities’ gross domestic product and per capita disposable income are below the province’s average. 6 They also suffer from severe environmental degradation caused by extraction of natural resources, high energy consumption, and highly polluting industrial emissions.

4. The PRC’s new urbanization and ecological civilization agenda recognizes that the economic transformation and sustainable development of resource-exhausted cities is an important strategy (footnote 6). The national government and the Heilongjiang Provincial Government have formulated development plans to transform their singular and resource- dependent economy towards a more diverse, high-value, and low-carbon development.7 Guided by these plans, the governments of these resource-exhausted cities have identified their target

1 The TA title, originally "Industrial Structure Transformation and Upgrading of Resource-Exhausted Cities," was adjusted to better reflect the scope of the TA. 2 ADB. Strategy 2030 Operational Plan for Priority 4: Making Cities More Livable, 2019–2024; and ADB. Country Partnership Strategy: Transforming Partnership: People’s Republic of China and Asian Development Bank, 2016– 2020. The TA first appeared in the business opportunities section of ADB’s website on 16 September 2020. 3 Heilongjiang Bureau of Statistics. 2019 Heilongjiang Statistical Yearbook (accessed 24 July 2020). 4 The gross domestic product average annual growth rate of Heilongjiang from 2016 to 2018 is 2.5%, which is below the national rate of 6.7%. The average annual population growth rate in Heilongjiang from 2016 to 2018 is –0.34%. 5 The 10 resource-exhausted cities in Heilongjiang Province are Aihui, Daxinganling, , Jiameng, , , , Wudalianchi, Xunke, and Yichun. 6 Government of the PRC. 2013. Sustainable Development Plan for Resource-Dependent Cities in China, 2013–2020. . 7 Government of the PRC. 2016. Thirteenth Five-Year Northeastern Revitalization Plan, 2016–2020. Beijing; Heilongjiang Provincial Government. 2014. Transformation Development Planning of Coal Cities in Heilongjiang Province, 2014–2020. ; and footnote 6.

2 pillar industries, including advanced equipment and technological equipment manufacturing, new raw material industry, modern agriculture, and modern services. Initial progress has been made in urban infrastructure improvement, reconstruction of shantytowns and industrial and mining areas, and environmental remediation. However, much remains to be done. Because the validity period of current development plans ends in 2020, Heilongjiang Province is preparing new plans to continue to guide the long and comprehensive diversification process, i.e., through the Fourteenth Five-Year Plan, 2021–2025 and beyond.

5. Current development plans recognize innovation as one of the key drivers of green economic diversification, but the innovation capacity of the resource-exhausted cities is still relatively low. This has constrained effective technology transfer, entrepreneurial activities, and competitive business models and financial instruments, which are needed for the key diversification tasks of developing small and medium-sized enterprises (SMEs) and high-value green industries (such as green food processing and tourism). The long-standing insular economy and dominance of large state-owned enterprises in Heilongjiang have dampened the spirit of innovation in local society. The lack of awareness and weak incentive mechanism for human capital retention has led to a shortage of innovative human capital, including entrepreneurs, managers, and technical professionals. Although innovation facilities and platforms have been developed in Heilongjiang, the innovation systems remain weak in terms of inter-organizational cooperation, intermediary services, and other regulatory frameworks. 8 Heilongjiang Province needs to comprehensively address these gaps from social, human capital development, and institutional aspects in the new development plans for resource-exhausted cities, placing innovation-enabling systems and institutions at the forefront.

6. Lessons learned. ADB has been helping Heilongjiang Province diversify its resource- dependent economy towards more green and sustainable development. These projects have identified the need to move to high-value green economic activities and to develop the private sector and SMEs.9 Of these projects, the two ongoing loans have (i) formulated comprehensive economic diversification strategies and a road map for four coal-rich cities; and (ii) supported implementation of the road map, including SME financing, urban infrastructure investments, and remediation and environmental cleanup from mining impacts. This TA will build on lessons learned from these and other relevant projects and will focus on advancing innovation to further enable green economic diversification.

III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

7. The TA is aligned with the following impact: sustainable development of resource- dependent cities enabled (footnote 6). The TA will have the following outcome: innovation-driven green economic diversification development planning for resource-exhausted cities in Heilongjiang strengthened.10

8 The organizations in the innovation ecosystem include universities, research institutes, companies and related government agencies, and civil society organizations. The intermediary services refer to finance, tax, and legal services that will enable innovation. 9 ADB. Provincial Development Strategies for Two Northeastern Provinces; ADB. Heilongjiang Green Urban and Economic Revitalization Project; and ADB. Additional Financing: Heilongjiang Green Urban and Economic Revitalization Project. 10 The design and monitoring framework is in Appendix 1.

3

B. Outputs, Methods, and Activities

8. Output 1: Research on innovation-driven green economic diversification for resource-exhausted cities produced. Output 1 will analyze international and national best practices of cities that have successfully improved their innovation capacity and transformed their resource-dependent economy, with the aim of drawing lessons in effective innovative human capital retention and innovation ecosystem strengthening. The TA consultants will facilitate an international study tour for the executing and implementing agencies to survey successful practices and gain practical knowledge in strategic planning and policy making to strengthen the innovation-enabling environment. Output 1 will also design a simulation model to gauge the innovation level of the resource-exhausted cities in Heilongjiang and analyze the impact of necessary conditions or determinants of innovation.11 The TA consultants will collect baseline data of the 10 resource-exhausted cities and conduct a diagnostic study to identify the constraints, challenges, and opportunities for innovation-driven green economic diversification.

9. Output 2: Innovation-driven green economic diversification strategy and policy framework for resource-exhausted cities proposed. In response to the findings of the diagnostic study, Output 2 will recommend a strategy and road map to foster the innovation- enabling environment that will support the development of the private sector, SMEs, and designated high-value green industries in the resource-exhausted cities. The strategy and road map will focus on strengthening (i) the incentive mechanism for innovative human capital retention; (ii) inter-organizational networking and collaboration (footnote 8); and (iii) intermediary services in finance, tax, legal, and other regulatory frameworks. The TA consultants will consult with government agencies on the recommended strategy and road map. To underpin the achievement of the strategic objectives, Output 2 will prepare a policy framework providing guidance towards sound policy design, formulation, implementation, and evaluation. Key policy recommendations will be identified through the facilitation of the simulation model.

10. Output 3: Knowledge on innovation-driven green economic diversification for resource-exhausted cities enhanced. Output 3 will deliver two workshops and a final conference to discuss and disseminate TA findings and policy recommendations. The TA consultants will prepare a bilingual knowledge product on innovation-driven green economic diversification for resource-exhausted cities and will submit a TA final report to Heilongjiang Provincial Finance Department (HPFD) and ADB. The TA consultants will disseminate the knowledge product to policy makers and practitioners through HPFD. The TA consultants will hand over the simulation model to an institution that will continue to support policy making processes to create an innovation-enabling environment in Heilongjiang Province.

C. Cost and Financing

11. The TA is estimated to cost $500,000, of which $400,000 will be financed on a grant basis by ADB’s Technical Assistance Special Fund (TASF-other sources). The key expenditure items are listed in Appendix 2.

12. The government will provide counterpart support in the form of provision for office accommodation, venues for meetings, counterpart staff and allowances, miscellaneous administration expenses, and other in-kind contributions.

11 Simulation technologies, such as system dynamics, are methodological and mathematical modeling techniques to frame, understand, and discuss complex issues and problems; they are being used in the public and private sectors for policy analysis and design.

4

D. Implementation Arrangements

13. ADB will administer the TA. HPFD will be the executing agency and its Finance Division will be the implementing agency.

14. Implementation arrangements are summarized in the table.

Implementation Arrangements Aspects Arrangements Indicative implementation period November 2020–November 2022 Executing agency Heilongjiang Provincial Finance Department Implementing agency Finance Division, Heilongjiang Provincial Finance Department Consultants To be selected and engaged by ADB Individual: Individual International innovation-driven $68,000 consultant selection growth specialist (3 person- months) Individual: Individual National economic diversification $62,000 consultant selection specialist/team leader (6 person- months) Individual: Individual National innovation-driven $33,500 consultant selection growth specialist (3.5 person- months) Individual: Individual National innovation-enabling $42,500 consultant selection policy and institution specialist (4.5 person-months) Individual: Individual National simulation specialist $19,000 consultant selection (2.0 person-months) Disbursement Disbursement of TA resources will follow ADB's Technical Assistance Disbursement Handbook (2020, as amended from time to time). ADB = Asian Development Bank, TA = technical assistance. Source: ADB.

15. Consulting services. ADB will engage the consultants following the ADB Procurement Policy (2017, as amended from time to time) and its associated procurement staff instructions.12 To deliver the expected outputs, the TA will require a total of 3 person-months (international) and 16 person-months (national) of inputs from consultants with expertise in economic diversification, innovation-driven growth, innovation-enabling policy and institution, and simulation. The TA may engage two resource persons with expertise in the fields of innovation-driven growth and innovation-enabling policy and institution.

IV. THE PRESIDENT'S DECISION

16. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $400,000 on a grant basis to the Government of the People's Republic of China for Innovation-Driven Green Economic Diversification for Resource-Exhausted Cities in Heilongjiang, and hereby reports this action to the Board.

12 Terms of Reference for Consultants (accessible from the list of linked documents in Appendix 3).

Appendix 1 5

DESIGN AND MONITORING FRAMEWORK

Impact the TA is Aligned with Sustainable development of resource-dependent cities enabled (Sustainable Development Plan for Resource-Dependent Cities in China, 2013–2020)a Data Sources and Risks and Critical Results Chain Performance Indicators Reporting Mechanisms Assumptions Outcome By 2023 Innovation-driven a. Innovation-driven green a. Heilongjiang’s R: Reduced green economic economic diversification provincial-level coordination among diversification policy recommendations for development plans government development resource-exhausted cities bodies planning for developed under the TA resource-exhausted adopted in at least one R: Readjusted cities in provincial-level development government Heilongjiang plan (2020 baseline: NA) development priorities strengthened (OP 1.2.2; OP 4.2.1) Outputs By 2022 1. Research on 1a. A research report that 1a.–c. ADB TA interim R: Baseline data for innovation-driven documents international and report some resource- green economic national experience on exhausted cities not diversification for innovation-driven green likely available or resource-exhausted economic diversification accessible cities produced prepared (2020 baseline: NA)

1b. A simulation model to

gauge the innovation level of

the resource-exhausted cities and analyze the impact of necessary conditions or determinants of innovation designed (2020 baseline: NA) 1c. A diagnostic study report to identify the constraints, challenges, and opportunities for innovation- driven green economic diversification prepared (2020 baseline: NA) 2. Innovation-driven 2a. Innovation-driven green 2a.–b. ADB TA final report green economic economic diversification diversification development strategy and strategy and policy road map for resource- framework for exhausted cities resource-exhausted recommended (2020 cities proposed baseline: No strategy or road map) 2b. Policy framework to underpin the recommended strategy and road map prepared (2020 baseline: No policy framework)

6 Appendix 1

Data Sources and Risks and Critical Results Chain Performance Indicators Reporting Mechanisms Assumptions 3. Knowledge on 3a. One knowledge product 3a. ADB published innovation-driven prepared (2020 baseline: 0) knowledge product green economic 3b. At least 80 people in 3b. ADB TA dissemination diversification for one conference report conference report resource-exhausted improved awareness and cities enhanced understanding of innovation- driven green economic diversification for resource- exhausted cities (2020 baseline: 0) Key Activities with Milestones 1. Research on innovation-driven green economic diversification for resource-exhausted cities produced 1.1 Conduct consultation with and information dissemination to stakeholders by Q2 2021. 1.2 Undertake the review of case studies and prepare a study report by Q2 2021. 1.3 Design a simulation model to gauge the innovation level of the resource-exhausted cities and analyze the impact of necessary conditions or determinants of innovation by Q3 2021. 1.4 Collect baseline data of the 10 resource-exhausted cities by Q3 2021. 1.5 Prepare a diagnostic report to identify constraints, challenges, and opportunities for innovation-driven green economic diversification by Q3 2021. 2. Innovation-driven green economic diversification strategy and policy framework for resource- exhausted cities proposed 2.1 Collect and review national and provincial development plans by Q2 2021. 2.2 Conduct consultation with concerned government agencies by Q3 2021. 2.3 Recommend innovation-driven green economic diversification strategy and road map for resource- exhausted cities by Q3 2021. 2.4 Prepare a policy framework to underpin the recommended strategy and road map by Q4 2021. 2.5 Prepare a TA interim report and conduct interim workshop by Q4 2021. 3. Knowledge on innovation-driven green economic diversification for resource-exhausted cities enhanced 3.1 Prepare a draft TA final report and conduct a final workshop by Q2 2022. 3.2 Prepare a bilingual knowledge product on innovation-driven green economic diversification for resource-exhausted cities in Heilongjiang Province and associated dissemination plan by Q3 2022. 3.3 Hold a final conference on dissemination of TA outputs and policy recommendations by Q3 2022. 3.4 Submit a final knowledge product and TA final report by Q3 2022. 3.5 Hand over the simulation model to a pertinent institution by Q3 2022. TA Management Activities Mobilize a team of consultants by Q4 2020. Prepare a draft TA inception report with detailed work plan by Q1 2021. Prepare a draft TA interim report and conduct an interim workshop by Q4 2021. Prepare a draft TA final report and conduct a final workshop by Q2 2022. Prepare a draft knowledge product and conduct a TA dissemination conference by Q2 2022. Submit a final knowledge product and TA final report by Q3 2022.

Inputs ADB: $400,000 (TASF-other sources) Note: The government will provide counterpart support in the form of provision for office accommodation, venues for meetings, counterpart staff and allowances, miscellaneous administration expenses, and other in-kind contributions.

Appendix 1 7

ADB = Asian Development Bank, NA = not applicable, OP = operational priority, Q = quarter, R = risk, TA = technical assistance, TASF = technical assistance special fund. a Government of the People’s Republic of China. 2013. Sustainable Development Plan for Resource-Dependent Cities in China, 2013–2020. Beijing. Contribution to Strategy 2030 Operational Priorities: OP 1.2.2 Models for business development and financing established or improved (number). OP 4.2.1 Measures to improve regulatory, legal, and institutional environment for better planning supported in implementation (number). The expected values and methodological details for all OP indicators to which this TA will contribute results are detailed in Contribution to Strategy 2030 Operational Priorities (accessible from the list of linked documents in Appendix 3 of the TA report). In addition to the OP indicators tagged in the design and monitoring framework, this TA will contribute results for: OP 6.1.2 Measures supported in implementation to improve capacity of public organizations to promote the private sector and finance sector (number). Source: ADB.

8 Appendix 2

COST ESTIMATES AND FINANCING PLAN ($’000) Item Amount Asian Development Banka 1. Consultants a. Remuneration and per diem i. International consultants 60.0 ii. National consultants 150.0 b. Out-of-pocket expenditures i. International and local travel 10.0 ii. Reports and communications 5.0 2. Surveys and/or case studies 45.0 3. Seminars, workshops, and conferences i. International study tourb 80.0 ii. Workshops and conferencesc 30.0 4. Miscellaneous administration and support costs 10.0 5. Contingencies 10.0 Total 400.0 Note: The technical assistance (TA) is estimated to cost $500,000, of which contributions from the Asian Development Bank are presented in the table. The government will provide counterpart support in the form of provision for office accommodation, venues for meetings, counterpart staff and allowances, miscellaneous administration expenses, and other in-kind contributions. The value of the government contribution is estimated to account for 20% of the total TA cost. a Financed by the Asian Development Bank’s Technical Assistance Special Fund (TASF-other sources). b Study tours will be held in an Asian Development Bank member country where there are best practices in successfully improving their innovation capacity to transform the resource-dependent economy. c Including venue rental, participants’ travel and accommodation, interpretation, translation, honoraria and travel costs for resource persons, and other logistics. Specific budget and arrangements are subject to prior approval by the Asian Development Bank. Source: Asian Development Bank estimates.

Appendix 3 9

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/LinkedDocs/?id=54037-001-TAReport

1. Terms of Reference for Consultants 2. Contribution to Strategy 2030 Operational Priorities