Document of The World Bank Public Disclosure Authorized
Report No.12814-CHA.
STAFF APPRAISAL REPORT Public Disclosure Authorized
CHINA
TECHNOLOGYDEVELOPMENT PROJECT Public Disclosure Authorized
JANUARY 18, 1995
Public Disclosure Authorized Industry and Energy Operations Division China and Mongolia Department East Asia & Pacific Regional Office CURRENCY EQUIVALENTS (As of December 31, 1994)
Currency Name = Renminbi (RMB) Currency Unit = Yuan (Y) 1 Yuan = 100 fen Y 1.00 = US$0.12
US$1.00 = Y 8.5
PRINCIPAL ABBREVIATIONS AND ACRONYMS USED
CAS - Chinese Academy of Sciences DFI - Direct Foreign Investment ERC - Engineering Research Center GATT - General Agreement on Trade and Tariffs GCC - Golden China Corporation GOC - Government of China ICB - International Competitive Bidding IPR - Intellectual Property Rights ISO - International Standards Organization LCB - Local Competitive Bidding LIB - Limited International Bidding LLC - Limited Liability Corporation MOF - Ministry of Finance MOFTEC - Ministry of Foreign Trade and Economic Cooperation NIM - National Institute of Metrology OED - Operations Evaluation Department PC - Productivity Centers PCR - Project Completion Report PO - Project Office R&D - Research and Development SA - Special Account SBTS - State Bureau of Technology and Standards SOE - Statement of Expenditures SPC - State Planning Commission SSTC - State Science and Technology Commission TD - Technology Development TDS - Technology Diffusion Stations TSC - Technology Service Center UCC - United Copyright Convention WIPO - World Intellectual Property Organization WTO - World Trade Organization
FISCAL YEAR
January 1 - December 31 CHINA
TECHNOLOGYDEVELOPMENT PROJECT
LOAN AND PROJECTSUMMARY
Borrower: People's Republicof China
Executing Afency: State Planning Commission(SPC)
Beneficiaries: ParticipatingEngineering Research Centers (ERCs), NationalInstitute of Metrology (NIM), and a ProductivityCenter.
Loan Amount: US$200million equivalent Terms: Repaymentin 20 years, includingfive years of grace, with interest at the Bank's standard variable rate.
Onlending Terms: For the investmentcomponent, the Governmentwill pass on US$194.3million of the loan proceeds through SPC to eligible sub-borrowersin the form of sub-loans, with the Golden China Corporation acting on its behalf as a financial agent. For most ERCs, sixty per-centof the proceeds of each sub-loanwill becomeequity investments at the time of conversion of the ERCs into LLCs. The balance will bear the same interest rate as the Bank loan, and have a maturityof up to 20 years inclusiveof up to five years of grace. For ERCs that have already been constitutedas corporations by the time of loan effectiveness,the entire sub-loans will have a maturity of up to 20 years inclusiveof up to five years of grace. The loans will be provided in foreign currency and the exchangerate risk will be borne by the ERCs.
Project Description: The objective of the project is to support the Government's continuingreforms in technology policy and institutions so as to promote the development of clean, productivity-enhancingtechnologies in China's industries. The project is designed to acceleratediffusion and adaptationof technologiesin China and abroad through the deepeningof technologymarkets and throughinstitutional initiatives. The project will consist of two components. The first componentis designedto assist in transforming part of the research and development (R&D) establishmentinto market-responsive technology development corporations. This component would hive off the most dynamic technologydevelopment and service-orientedelements of existing research institutions to create -- through a competitive selection process -- new, market- orientedentities, called EngineeringResearch Centers (ERCs).
The second component comprises complementary investments in improving technologypublic services, including: ti) the modernizationof the National Institute of Metrologyand (ii) a technicalassistance program for a ProductivityCenter as well as for several training activities.
Beneflts: The project will play a significant role in the development and adaptation of technology to Chinese conditions, and in the broad diffusion of productivity- enhancingand environmentallysustainable technologies. The project will support a new institutionalinitiative designed to increase the productivityof R&D assets and their effectivedeployment, linking the R&D systemswith foreign as well as domestic sources of know-howand with the emergingmarket for technology. Strengthening of technology-relatedpublic services will improve the quality and performance of Chinese products and services. During project preparation, the technologypolicy framework was reviewed and found supportiveof the project objectives.
Risks: Because of the uncertainty of results associated with the process of technology development,investments in technologydevelopment corporations necessarilyentail high risk. To minimizethis risk, the project establishesclear market incentives for the ERCs, their managementand owners; the ERCs will be subject to hard budget constraints, and will not receive operating subsidies. This risk has also been minimizedthrough the preparation and review of feasibility studies for each ERC, with special emphasis on the projected market demand, access to domestic and foreign sources of technologyand managerialcompetence. The Bank will give final approval of all ERC investmentproposals. A further risk is that the ERCs would competewith potentialprivate investments. This risk has been offset by investingin areas warrantingpublic sector involvementin R&D, and by ensuringthat future entry into those areas is unrestricted, either through new private entry or import competition.
EstimatedCost: Local Foreign Total ... .. (US$ million).
Investment 196.0 194.3 390.3
Public Services 6.0 5.7 11.7
Total 202.0 200.0 402.0
FinancingPlan:
Governmrent 6.0 -- 6.0
Project Sponsors 196.0 -- 196.0
IBRD -- 200.0 200.0
Total 202.0 200.0 402.0
EstimatedDisbursement:
Bank FY 1996 1997 1998 1999 2000 2001 2002 ...... US$ million.
Annual 6.0 13.9 56.0 56.0 50.0 12.0 6.1 Cumulative 6.0 19.9 75.9 131.9 181.9 193.9 200.0
Rate of return: All ERC subprojectswill be required to demonstrate an economic rate of return of at least 12%.
Poverty Categorv: Not applicable CHINA
TECHNOLOGY DEVELOPMENT PROJECT
STAFF APPRAISAL REPORT
Table of Contents Page No.
1. INTRODUCTION ...... 1
2. TECHNOLOGY POLICY AND ECONOMIC DEVELOPMENT ...... 2 A. Historical Evolution of the Policy Environment ...... 2 B. Access to Foreign Technology ...... 2 C. Reform of the R&D Institutional Regime ...... 4 D. Legal Framework for Technology Development ...... 6 E. Assimilation and Diffusion of Technology ...... 8 F. Future Reform Agenda ...... 9 G. Government Strategy ...... 10
3. BANK ROLE AND LENDING STRATEGY ...... 12 A. Rationale for Bank Assistance in Industrial Technology ...... 12 B. Industrial Technology Development in Bank Lending ...... 12 C. Technology Development in Industrial Sector Lending in China ...... 13 D. Government Ownership and Commitment to the Project ...... 14
4. THE PROJECT ...... 15 A. Project Objectives ...... 15 B. Project Description ...... 15 C. Engineering Research Centers -- Investment Component ...... 15 D. Technology Public Services Component ...... 19 E. Project Costs ...... 20 F. Project Financing ...... 22 G. Environmental Aspects ...... 23
5. PROJECT IMPLEMENTATION ...... 24 A. Management ...... 24 B. Implementation Schedule ...... 24 C. Procurement ...... 24 D. Disbursement ...... 26 E. Monitoring, Evaluation and Reporting ...... 27 F. Accounts and Audit ...... 27
6. IMPLEMENTING AGENCIES ...... 28 A. The State Planning Commission ...... 28 B. The Project Office (PO) of the SPC ...... 28 C. Golden China Corporation ...... 28
7. BENEFITS AND RISKS ...... 30 A. Project Benefits ...... 30 B. Project Risks ...... 30
8. AGREEMENTS REACHED AND RECOMMENDATION ...... 31
This report is based on the findings of an appraisal mission undertaken in December 1993. The report was prepared by: W. Vergara with the assistance of: C. Dahlman, D. Mozes, N. Hadjitarkhani, S. Trindade, G. Heaton, C. Frischtak, T. Uchida, 0. Sananikone, N. Lu, and A. Brown. The peer reviewers are H. Beemer (EA2HR), K. Siraj (ASTTP), Z. Khan (EA21E) and F. Najmabadi (OED). The Division Chief is R. Newfarmer and the Department Director is N. Hope. - iv -
FIGURE: The Pace of Reform of TechnologyPolicy in China ...... 3
ANNEXES...... 32
2.1 StatisticsRelated to General TechnologyPolicy Environment.33 2.2 Sources of Science& TechnologyFinancing .36 2.3 Informationon ERCs Already in Operationand Not Part of the Proposed Project .38 2.4 Statementon TechnologyPolicy .40
3.1 State CouncilRegulations on DeepeningScience and TechnologySystem Reform . .. 47 3.2 SPC Statementon the TechnologyDevelopment Project .50 3.3 Survey of Industrial TechnologyDevelopment Operations Funded by the Bank .58
4.1 Criteria for Technicaland Financial Fundingof ERCs.64 4.2 Outline for ERC FeasibilityStudies 65 4.3 Panel of Experts for ERC Proposal Reviews.67 4.4 Terms of Referencefor Training Activities.68 4.5 Descriptionof the Proposed ProductivityCenter .75 4.6 Descriptionof ERC Proposals.78 4.7 Example of Proposed ERC FinancialPlan .173 4.8 SummaryTable of ERC Proposals.194 4.9 Proceduresfor Appraisaland Approvalof ERCs .203
5.1 ImplementationSchedule .204 5.2 DisbursementSchedule .205
6.1 Organizationof the PO and Charter of Gold China Corporation.206
7.1 Documentsin the Project Files .212 7.2 Outline of Contentsof Quarterly Progress Report.216 7.3 SupervisionPlan .217 - 1 -
CHINA
TECHNOLOGYDEVELOPMENT PROJECT
1. INTRODUCTION
1.1 Industry is a leading sector in China, accountingfor 48% of the country's gross domestic product, employing17% of the labor force, and producing80% of total exports. Over the past ten years, the gross value of industrialoutput has increasedrapidly, averaging12.6% per year. In 1994, industrial output continuedto grow at an average annual rate of nearly 14%. Most of this growth has been fueled by investmentin fixed capital and increaseduse of natural resources. While gains in productivity have made some contributionto growth, productivitygrowth in state-ownedenterprises (SOEs)-- which form the backbone of China's industrial sector -- has been relatively slow. As a result, the fast pace of industrializationrequired a greater savings rate than would have otherwisebeen necessaryto achievethe same rate of growth. Greater use of capital and natural resourceshas also placed demands on a limited resource base that are unsustainablein the long term. On a per capita basis, arable land in China is one third of the correspondingworld average, renewablewater resources one fourth of the world average, and fossil fuel reserves one half. With a populationprojected to reach 1.2 billion during 1994, resource- intensivegrowth would place additionalpressures on the country's ability to achieveeconomic progress. To maintain growth on a sustainable basis, China is now refocusing its industrial strategy on improvementsin productivity,husbandry of its natural resources,and sound environmentalmanagement.
1.2 Technology innovation is a key contributor to productivity growth, and to sustainable expansion in national income and wealth. Prior to 1980, three problems prevented rapid technology innovationin China. On the demand side, enterprises were not subject to market forces, did not enjoy decision-makingautonomy, and had no incentive to adopt new technology. On the supply side, the command economy invested heavily in university and research laboratories, but their results were not oriented to commercialpurposes. Finally, some aspects of the policy frameworkconstrained absorption of technologyfrom abroad, offered littleprotection to owners and investorsin technology,and provided few incentivesfor the diffusionof technology.
1.3 During the 1980s, progressive reforms in enterprisegovernance increased the demand for technology. Price liberalization increased competitionand put pressure on firms to become more efficient. Adoption of the New Operating Mechanismfor state enterprises (1992) empowered firms to make their own business decisions; this autonomy, coupled with the reductionin subsidiesas financial sector reform proceeds, provides strong incentives for firms to adopt modem technologies. Simultaneously,reforms in the overallpolicy frameworkremoved impedimentsto technologyacquisition from abroad and improved incentivesfor the diffusionof technology. -2 -
2. TECHNOLOGYPOLICY AND ECONOMIC DEVELOPMENT
A. Historical Evolutionof the Policy Environment
2.1 Between 1950 and 1980, the institutionalstructure for science and technology (S&T) development in China was patterned after the Soviet model, characterizedby heavy state control, lack of competitionand inflexibility. Research activitieswere conductedmainly in centralized,academically- oriented institutions in isolation from the productivesector. Research priorities were determined by central planners, rather than being based on market and economicneeds. Funding allocationshad, for the most part, little to do with effectivenessand market relevance of the proposed developments. The system stifled innovationand creativity. Since knowledgewas regarded as a "free" good, researchers had few incentivesto engage in innovativeresearch.
2.2 Although significant technological achievementswere made, these frequently failed to translate into more efficient production methods and better products for the vast majority of industrial enterprises. Mechanismsto diffusetechnological information from research institutesto productionunits were inadequate. It is estimated that less than 10 percent of R&D results were put into production in the 1970s. The free flow of informationcritical to scientificand technologicaldevelopment was hampered by government control as well as by an underdevelopedprinted and electronic media. Likewise, researchers had limited institutionalmobility.
2.3 In the late 1970s, an examinationof the state of the economy, and in particular of the industrial sector, led the Governmentto conclude that the country was in need of major overhauls to upgrade technology. This conclusionwas prompted by dissatisfactionwith low levels of productivity, inefficientuse of resources, inadequateproduct qualityand poor environmentalperformance. Since then, the policy and regulatory framework for the S&T system has been progressively reformed by: (i) liberalizing access to foreign technology;(ii) reforming the domestic R&D institutionalnetwork to be more responsiveto market signals; (iii) developingthe legal and regulatory framework for technology development(TD); and (iv) promotingdiffusion and assimilationof technologyinto the economy. These reforms are briefly described below.
2.4 The pace of reform toward an S&T system that relies on competitiveforces (from both domestic and foreign sources), that is based on internationalnorms and that is more decentralized,has quickened in recent years (Figure 1). These reforms are briefly described below. The result is that, today, China's S&T systemis vastly improved from what prevailed a decadeearlier. Still, further S&T policy improvementsare necessary, and the authorities have set out a blueprint for future S&T system reform.
B. Access to Foreign Technologv
2.5 Access to advancedforeign technologyand know-howhas been a criticalelement of China's Open Door policy (openingof the economy). Its objectiveswere to help China meet its goal of economic modernizationand achieve a high level of sustained growth. Toward this end, in the early 1980s, a massive program was initiated to acquire technology from abroad (mostly capital goods), primarily through direct foreign investment(DFI), technologyimports, licensing, and overseas studies.
2.6 China's main objective in attracting DFI was not only to increase capital investment, but more importantly to gain greater access to advanced technology, modern management skills, and international marketing channels. To attract foreign investment, a basic framework of laws and regulations providing incentives and protection for foreign investors was enacted from 1979 through 1982. The result was a dramatic increase in DFI inflows into China: annual foreign direct investment rose from US$1.7 billion in 1980 to US$25 billion in 1993 (US Departmentof Commerce, 1994). Although DFI has made importantcontributions to China's economicdevelopment, it has not led to the transfer of modern technologiesto the extent originallyexpected by the Government. The bulk of DFI has come from neighboring Hong Kong and Taiwan, and remains concentrated in labor-intensive assembly operations for export markets. Until recently, DFI from developedcountries in technology- intensiveindustries had been relativelylimited, due to foreign investors' concerns about access to local raw materials and inputs, lack of adequate intellectualproperty rights legislation, shortage of skilled technicalworkers, and limited infrastructure. Technologytransfer has been also limited by inadequate investmentin building capabilitiesfor technologyadaptation.
The Pace of Reform of Technology Policy in China Arbitraton mechanisms& Reformof technology Administratve contracts Autonomy& Revisionof Financial Trademark Responsibility Law
ContratCentral Govt Fair ResConsibility supportto R&D Competition System systemfalls to 45% Law of totalbudget
1970 78 82 84 88 89 90 91 92 93 94
R&Dsystem GidlnsolPaiis Certification T New nds ~~~~~~Gtiderinesof Intellectual systemfor CopyngMlaw Cornipany depends mlbrmprocess ~~~~PropertyRights sytmqualityfoCoyitlw La GOCsbudget eneTreaty standas Corference PatentLaw IPRCourt established
Accessionto BerneConvention Revisionof PatentLaw Regutationof InternationalCopynght Treaties Memberof WIPO
Figure 1
2.7 Importsof Technology. The openingof the Chineseeconomy has transformedChina's trade relationsand led to rapid increases in the volumesof importsand exports. After agriculture, trade is the area where reforms have been most successfullyintroduced and contributedsignificantly to industrial progress. If, as expected, China becomes a member of the World Trade Organization (WTO), the ensuing open trade regime promises to play an even larger role as a source of technology transfer. Technologyimports are currently regulatedby the Ministryof ForeignTrade and EconomicCooperation (MOFTEC)for some transactions. However,there are no restrictionson actual remittancesor qualitative restrictionson the import of technology.
2.8 One of the distinguishingfeatures of China's foreign trade over the past decade has been massive imports of machineryand equipment,particularly of entire productionlines. In the late 1980s, completesets of equipmentwere the most frequent form of technologyimports, accountingfor more than 87 percent of the total value of technologyimports in 1989. In 1991, China imported US$3.4 billion worth of technology. Of this, 74 percent consisted of complete sets of equipment; 14 percent were technologylicenses; and 9.6 percentwere key pieces of process hardware, with consultingand technical services accountingfor the balance (Annex 2.1, Table 1). In recent years, however, the Government -4 - has realized that it needs to refocus its attention on improvingthe effectivenessof technologytransfer. A significant share of the imported machinery had gone under-utilizeddue to the shortage of skilled operating personnel, lack of spare parts or maintenanceprocedures, and inadequateintegration of new equipment into the production structure of enterprises. AlthoughChina continues to rely on equipment imports as the primary vehicle for technology modernization,its approach to technology transfer is evolvingtoward a focus on technologyacquisition, complemented by efforts at diffusingand assimilating technology. This is being achievedby reformingthe managementof the scienceand technologysystem, emphasizingtraining of technicalpersonnel, and developinga domestictechnology market.
2.9 Overseas Studies and Exchanges. In the early days of China's economic modernization, access to foreign scientific and educationalinstitutions (particularly those of the industrializedWest) became an importantshortcut for acquiringtechnological knowledge. During the 1980s,the Government aimed to send as many students and scholars to foreign universitiesand research institutionsas Chinese fundingand foreignscholarships would allow. It has since tried to attract these studentshome by offering various incentives such as high salaries, improved working conditions,and other preferentialtreatment but limitedability to deliver on these promises in the past has deterred many Chinese overseas students from returning.
C. Reform of the R&D InstitutionalRegime
2.10 The organizationalstructure of S&T in China includes R&D organizations,education and training institutionsand service organizations,such as the standardsand norms institutes(see Annex2.2, Table 3). S&T organizationsmay be subordinateto governmentalorganizations such as those directly responsibleto the State Council, various line ministriesor the Chinese Academyof Sciences (CAS), as well as institutionsof higher education. Alternativelythey may be subordinate to institutionsat the provincial or municipal level. Some are responsibleto nonprofit groups such as professional societies or social welfare organizations,and a substantialamount of R&D is carried out by the military. An increasing number of S&T organizationshave affiliated commercial units which manufacture or sell products directly or indirectly related to their focus of research.
2.11 Major responsibilityfor policy formulationrests with the State Science and Technology Commission(SSTC) established in 1958. SSTCcomprises about twelve departmentsand employs nearly 400 staff at the central level. In addition to planning and policy formulation, the SSTC and its local governmentcounterparts provide certificationof technicalpersonnel, assess research achievementsand promote technologyinformation exchanges domesticallyand internationally. SSTC has also launched developmentprograms in priority areas includinghigh technology(for examplethe TORCH program to support small high-tech firms) and the applicationof S&T to rural developmentthrough the SPARK program, as well as collaborated with SPC and CAS in the strengthening of R&D infrastructure, programs and human resources in designatedlaboratories.
2.12 To provide a better linkagebetween the supplyand demand for technology,the Government undertook in the mid-1980smajor efforts to transform the highly centralizedand isolatedR&D system into one that is linked to the economy and serves the needs of the productive sector more effectively. The first step was taken in 1978, with the "Draft Outline Program for National Scientific and TechnologicalDevelopment (1978-85)" by SSTC. The main purpose of the draft was to reassure the S&T communityof the priority accordedto scienceand technology. That same year, SSTC called for a National Science Conference to discuss the scope of reform, which gathered approximately6,000 scientists, technicians, and administrators. In 1985, the Government released its "Resolution on the Reform of the Scienceand TechnologySystem", which signalledthe beginning of an explicit attempt at integrating the S&T system into economicdevelopment. This was followed in 1986 by a White Paper establishing,the role of scienceand technologyin the contextof the Seventh Five-YearPlan.
_~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ------2.13 The first objective of the reform was to improve managementof the R&D system. The Government soughtto further rationalizeR&D efforts by establishingthe National Research Center for Scientific and Technological Development under joint control of SSTC and the State Planning Commission(SPC) to coordinateplanning and priority-settingfor science and technologydevelopment. In addition, a measure of transparency was brought into the system through peer review of proposed projects and institutionalperformance. The second objectivewas to integrate the S&T system into the economy by introducingflexible operationalmechanisms designed to support the new orientationtoward a market-led economy, with the hope that these mechanismswould stimulate productivity, increase efficiency of use of natural resources and improve product quality. Toward that end, the Government granted R&D institutesgreater administrativeautonomy and financialresponsibility but, at the same time, forced them to respond to the needs of the market by cutting direct budget support. Hence, R&D instituteswere required to supplementstate fundingwith contract work for enterprises. This signaled a fundamental change from the concept of scientific and technologicalknowledge as a free good to a productivecommodity, tradable in the market. As a result, China's S&T financingin recent years has come increasinglyfrom non-statesources. In 1991, for example,only 33 percentof China's S&T budget was supportedby central governmentgrants (down from 45 percent in 1988 and nearly 100 percent in the early 1970s),while 38 percentcame from industrialenterprises and 16 percent from short term loans. In 1989, some 706 R&D institutes out of an estimated total of nearly 5,000 institutes reportedly had contract research arrangementswith large- or medium-sizedenterprises. Some institutes have become shareholdersof joint ventures and yet others have taken the lead to form high technologyenterprises.
2.14 Recent reform efforts have focused further on the creation of an incentive regime for researchers, emphasizingmarket-based incentives, innovationand mobility. The contract responsibility system (enacted in 1982) enabled researchers to enter into contractualarrangements with enterprises, providing greater material incentivesand improvingthe mechanismsto support mobilityof scientificand technicalpersonnel. The Governmenthas tried to reinforcethe incentiveregime through salary increases and promotions on the basis of performance, as well as regular awards to researchers, to encourage innovativeand high payoff projects. A growing numberof research institutionsand individualscientists, engineers, and technicians, have entered into contractswith industrialenterprises. The result has been a dramatic expansionof domestictrade in technologydevelopment. In 1991, over 200,000 technology contracts valued at RMB 9.4 billion were signed, an increase of 30 percent (in value) from 1988. Of these, 63 percent consisted of R&D services, 15 percent developmentcontracts, 12.5 percent consulting services, and 9.5 percenttechnology transfer (Annex2.2, Tables 1, 2, and 3). China's technologytrade has been characterizedby the proliferationof organizationsaimed at managingthe commercializationand industrializationof R&D results. In 1991 alone, 989 technologymarket managementorganizations and 1,019 agenciesfor technologycontract approval had been established. By the end of 1991, about 21,000 technologytrade associationsemploying some 531,000 workers had been set up.
2.15 General administrativereform introducedin 1992 acceleratedthe final phase of separation of R&D institutions and staff, among other service institutions,from their parent governmentalbodies to becomeautonomous cost centers responsiblefor their own financingand businessdecisions, and facing increasingly hard budget constraints. While still dependantfor income in many cases on negotiated service contractswith their former parents, these nascent forerunnersof so-calledEngineering Research Centers (ERCs) have been propelledinto the market and must seek business opportunitiescompetitively on the basis of marketprices at the margin where it counts. ERCs were conceptualizedin 1987 and the first experimentsbegan in 1988 to develop a sound organizationalbasis for technologytransfer services to industry based on market principles(Annex 2.3). Initial results provided the basis to strengthenand develop the ERC concept broadly and assist a large scale pilot program of suitable, potential ERCs to become fully independent, competitiveentities. This initiative has given rise to the proposed project described in Chapter 4. In parallel, while still under reform, the necessary legal and commercial environmenthas been evolving to permit an increasinglyopen market for R&D services to flourish. -6 -
D. Legal Frameworkfor TechnologvDevelopment
2.16 Technologydevelopment is affectedby a country's laws, legal systemand institutions. The interactionbetween law and technologymanifests itself most clearly in three principal areas: (i) policies intended to affect new technology directly, such as intellectual property rights, laws pertaining to technology-basedcontracts, and regulations on new products and processes; (ii) policies that set the incentive system within which technologyis developed, such as taxation, rules governing investment, contract and enterprise law, etc; and (iii) the efficiencyand predictabilityof legal enforcementstructures.
2.17 In recentyears, as an essentialcomponent of the reform of the S&T system, China has made importantstrides in promulgatinglaws and regulationsconsistent with sound internationalpractices. It has also made efforts to strengthenthe professionalcapabilities of entitiescharged with administeringthe legislation,and improved access to informationon the legal framework for intellectualproperty rights, both at home and abroad. Any discussionof the legal frameworkfor technologydevelopment must begin with the Science and TechnologyLaw, passed in 1993. While general in its provisions, the Law evidencesthe nationalcommitment to technologydevelopment and providesfor local measuresto promote it. The Law also regulates the existing structure of research institutes. Key elements of the legal structure for technologydevelopment are described below.
2.18 The Patent Law (enacted in 1984, revised in 1992) exemplifiesongoing efforts to construct a legal system conduciveto efficienttechnology development. With the recent revisionsof the patent law and its regulations,there is now in place a body of legal and administrativeenactments generally in line with internationalstandards. The main purpose for enactinga patent law was to providepatent protection for new technologyin order to facilitate the transfer of patentedtechnology to Chinese enterprises. The revised law has been strengthenedthrough: (i) extension of the patent term to 20 years, consistentwith internationalpractice; (ii) expansion of patentable subject matter; (iii) improvementsin the rights of patenteesby severelylimiting compulsory licensing; and (iv) revampingof patentexamination procedures, making them more expedientand regulatingthe revocationprocess. However, several importantissues remain to be addressed:(a) the need for an effectivemechanism to provide for specializedand consistent resolution of disputes; and (b) developmentof a system for dealing with the assignmentof rights and obligationsof employersand employeeinventors. A dedicatedcourt system that consolidatespatent and intellectualproperty adjudication,as exemplifiedby the BeijingMunicipal Courts, is a step in improving the effectivenessof the enforcementsystem.
2.19 Reflecting the emerging awareness of intellectual property rights in China, patent applicationshave increased over the past several years. Between 1985 and 1991, more than 217,000 patent applicationswere received, of which84 percentwent to domesticrecipients. There are three types of patents: inventions, utility models, and industrial designs. The Patent Office is trying to increase awarenessabout patents and intellectualproperty rights in general by holding patent knowledgecontests and providing training courses.
2.20 A CopyrightLaw was enacted in 1990 and became effective in 1991. The law specifies substantiveareas of protection and procedures and grants authority to the State Council to promulgate implementingregulations, in particular for computer software. These regulations are now in effect. However, even after enactment of the law, the copyright situation did not conform to international practices. To address these deficiencies,China has acceded to the Berne and Geneva Conventionson protection of artistic and literary works and phonograms, and, in September 1992, the State Council implementedthe substantiveprovisions of both conventions. Regulationshave also been enacted to protect computersoftware, and programsare being consideredto give literary works copyrightprotection for 25 years plus one-time renewal. Judicial standards for enforcementare being developed, and the concept of fair use is now accepted. The registration of copyrights is now in conformity with internationalnorms. In conjunctionwith China's accessionto the Berne Conventionand the Universal - 7 -
CopyrightConvention (UCC) in 1992, the ChineseGovernment issued regulationson the Implementation of International Copyright Treaties. This set of regulationsprovided that where Chinese Law was inconsistentwith the treaties, the latter would prevail.
2.21 The current Trademarkstatute was enacted in 1982 and was revised in 1992. By then, about 360,000 trademarks were valid, of which 15 percent had been registered by foreigners. Trademarksare protected for ten years and are renewableindefinitely. The trademarklaw was modeled after that of Japan and the United States, with the specific purpose of bringing Chinese parties into consistency with internationaltrademark conventions. China is a member of the World Intellectual PropertyOrganization (WIPO) and of the Paris and Vienna Conventionsgoverning trademarks, industrial property, products and services. The basic principles in the trademark law are in conformity with internationalpractice. The main issue in the trademark area is enforcement. China has recently (July 1, 1993) amendedthe trademark law to provide considerablystronger penalties.
2.22 The major improvement introduced was the extension of exclusive trademark rights to services; previously, only products could be covered. What this means is that service industries, such as advertising, insurance, bankingor transportation,can now register their trademarks. The new law is also more specific about requiring prosecution of infringers, in cases where the violation falls under criminal law. Criminal law penalties for counterfeitinghave been raised from three to seven years. However, some experts are concernedthat the law does not go as far as expected in certain areas, for example, in recognizingthe rights of any company to obtain any trademark provided it files first, in China. This is clearly of concern to foreign companies.
2.23 Trade Secrets and Fair Competition are essentialelements in intellectualproperty rights in industrial countries, broadly defined as "elementsof commercialvalue, uncovered with effort, kept secret, used in trade and of indefinite duration." The mechanisms for trade secrets protection are confidentiality agreements with employees and between companies, as well as court enforcement. Althoughthe concept of trade secrets is known in Chineselaw, its developmentand codificationare not advanced. Basicbut limitedprotection for trade secrets is providedfor in the anti-unfaircompetition law enacted in 1993. This law sets the frameworkfor fair competitionamong enterprises.
2.24 The basic conceptof technologycontracts is commonin developingnations but unfamiliar in many industrial countries. Technology contract laws are widely used in developing countries as vehicles to promote technologydevelopment and regulatedomestic, as well as internationaltechnology transfer. However, they tend to lose much of their importanceover time as developingcountries become integrated into the internationaleconomic system. The legal system affecting technologycontracts in China is a complexand cumbersomestructure that integrateselements of the contract and property laws and establishes a two-tier system for domestic and foreign transactions. Domestictechnology contracts and foreigntechnology contracts each have a separatelegal basis and administrativestructure. Regarding domestictechnology contracts, the TechnologyContract Law regulatestransactions and establishes rules for ownership and rights and responsibilitiesof inventors. Foreign technologycontracts fall under the Foreign Economic Contract Law and the Regulationsfor the Administrationof Technology Import Contracts. The contract law unification, now under discussionin China, could lead to a common system applicable to both types of contracts, and would represent an important step in efforts to increase transparencyand effectivenessof the legal framework. There seemsto be support for this reform, whose implementationis expectedin the next two years.
2.25 Rules and incentives for technology-basedinvestments have also been streamlined to recognize the role of technologyin industrialization. In this context, the newly enacted Company Law allows intangibleproperty, such as patents and know-how,to be acceptedas capital contributions. This change has a potentiallylarge impact in technologytransactions and shouldfoster the trade in technology between domestic partners and with overseaspartners. - 8 -
2.26 The enactment of the first nationwide company law provides a legal basis for more autonomous forms of technology development entities as well as for different parties to become shareholders in limited liability or shareholdingtechnology companies. Corporate bonds and share trading are among the forms of investment in such companies that are permitted under the new legislation. Securities and banking laws to govern share and bond markets, as well as lending by financial institutions,are also under preparation.
2.27 Taxation. The Chinese incometax structure is generous in the exemptionof income from technologycontracts. A structural aspect that will bear on the establishmentof new technology-based ventures is the tax treatmentof capital gains vs. dividends. Dividendsare not subject to taxation, which tends to favor distributionof profits to shareholders,whereas capital gains resulting from reinvestment of retained earnings are currently taxed as regular income. The fact that capital gains are fully taxed should be re-examinedby Chinese authorities.
E. Assimilationand Diffusion of Technology 2.28 The Government's initial focus on technologydevelopment and acquisition, particularly throughbasic research, DFI and technologyimports, meantthat diffusionand disseminationof technology were not given the attention they deserved. A critical gap became evident, when massive imports of machinerywere not matched by parallel efforts at developingindigenous capability to use the imported technologyefficiently or to adapt it to local conditions. Consequently,the Government has started a program of technologydiffusion and assimilation. As part of this effort, the Government, through the State Trade and EconomicCommission (STEC) and provincialgovernments, has establishedTechnology DiffusionStations (TDS). This program is under implementationwith 53 TDS already in operationor at the planning stage. The main focus of TDS is to promote the disseminationof informationon domestic technology innovationsat the level of large- and medium-scaleenterprises. Technicaldissemination centers also encourage cooperation among research institutes, universitiesand enterprises, to develop technology, and sponsor technologyfairs and awards for technologyinnovations. About half of the operational budget for TDS comes from fees and the balance from governmentsupport. Productivity Centers also have been set up through the sponsorship of the SSTC. The objective is to promote measures at the enterprise level that would enable productivity gains, such as improved materials handling, better communicationand informationsystems, and more efficient managementtechniques. Ten such centers were establishedin 1992.
2.29 The diffusionof technologyto rural areas where 75 percent of China's populationstill lives in villages and small towns, many of which, especially in coastal provinces, are the site of small- to medium-scaleTownship and Village Enterprises(TVE) now responsiblefor some 33 percent of China's total industrialoutput. The Governmentis therefore also actively engaged in developingand diffusing appropriate technologiesin the countryside. The aim is not only to support the developmentof local economiesbut also to create a more balanced developmentbetween urban and rural areas. The best known example of these efforts is the SPARK program, which was launchedby the SSTC in 1985 to upgrade the technicaland manageriallevel of non-stateenterprises in rural areas. The SPARKprogram is being assisted by the Bank in Jiangsu Province and Shanghai (Ln. 3274/Cr. 2186). However, the transfer of technologyfrom R&D institutesto the productivesector is still inadequatein either rural or urban areas. Technologyassets in the R&D systemremain under-utilized,and their more effective use could bring major gains to industries in energy and materials efficiency, operational safety and environmentalperformance.
2.30 Norms and Standards. Conformitywith national and internationalstandards is a basic requirement of industrial technology development. Standards and measurements enable domestic industries to competeon an equal basis with overseas manufacturers. In China, the NationalInstitute of Metrology(NIM) of the State Bureauof TechnicalSupervision (SBTS) has responsibilityfor maintaining an accurate standard measurement base, for developing quality and safety standards for industrial -9- products, and for calibratingmeasurement instruments at provincialstandards institutes, universities, and research institutes of sectoral ministries and enterprises. NIM consists of about 68 laboratories in 12 fields. About two-thirdsof its revenuescome from the state, and the remaining one-third from service fees. In recent years, NIM has played a more active role in providingservices to industrybecause it can now contract with enterprises directly and freely. NIM also plays an important role in quality improvementof industrialproducts. SBTS has started a certificationsystem of voluntary standardsfor productswhich were introducedin 1989. Initially,all standardswere compulsory;today, only 40 percent of standards are compulsory. NIM has also assisted in the diffusionand adoption of ISO 9000 series, which are internationallyrecognized quality standards. NIM is also participating in the consultations regarding eventual adoption of ISO 14000 series, which deal with environmentalstandards. The main weaknessesof NIM are associatedwith the lack of modem measurementequipment in areas of critical importance for the industrial sector. The Governmentis committedto modernizationof norms and standardsas a tool to facilitate the introductionof new products and services as well as to improve the quality of industrialproducts.
2.31 Gap BetweenR&D and Industry. Despitethese Government-sponsoredinitiatives, there remain important gaps in the range of services that research institutescan provide to industry. Given their traditional separation from the productive sector, many R&D institutes can only implementthe results of their research at the laboratorylevel. They do not have the facilitiesto carry out work needed to scale up the results to a pilot plant size, or to test at a semi-commerciallevel developments in manufacturing processes. Similarly, few enterprises in China possess the capacity to carry out engineering developmentdue to lack of personnel, facilities, or experience. As a result, technology diffusion remains limited, with most industrialtechnology either inadequateor under-utilized.
F. Future Reform Agenda
2.32 As the discussionabove indicates, over the past decade, the Government has undertaken significant reforms in the areas of: (i) creating a more competitive S&T system, including greater domesticcompetition and opennessto foreign technology;(ii) rationalizingthe R&D institutionalregime; (iii) strengtheningthe legal framework; and (iv) providing mechanismsfor greater assimilation and diffusionof technology. Taken togetherthese reformshave createdan environmentconducive to effective developmentand diffusionof technology. 2.33 However, the authoritieshave articulated the need for additional progress in several key areas. To signal its intentionto address the issues identifiedabove, the ChineseGovernment has issued a Policy Statement(Annex 2.4) and continuesto pursue the restructuringof the S&T system throughthe proposed establishmentof independent,market-oriented ERCs from existingR&D assets. In summary, the Policy Statementindicates the intentionof the Governmentto continuethe process of reform through further efforts to: (i) continueto improve the intellectualproperty rights system; (ii) continuereform of the legal system governingcontracts, particularlycontract law regimes pertainingto technologytransfer; and (iii) undertakeadministrative reforms, to remove multipleapproval systems and continuemovement toward policy guidancerather than administrativeapproval in the regimes of technologyimports and, in general, in the mechanismsfor technologytransfer.
2.34 Other longer-term goals addressed in the Policy Statement, which are part of China's broader economic reform but also facilitate technologydiffusion, include: (i) continue the tax reform process to promote the developmentof conditionsthat will enable the emergence of venture capital in China; (ii) deepen capital markets, includingfacilitating the flow of capital; and (iii) undertake various reforms intended to develop a social security system, and thus also facilitate mobility of technical personnel. The Policy Statementprovides a general statementof objectivesand measures, and lays the basis for a framework for continueddialogue with the Bank. - 10 -
2.35 The remainingchallenges for the Governmentcan be summarizedas follows:
(a) Intellectualpropertv riehts enforcement. The key concern is how effectively intellectual property legislationis and will be enforced. The key tasks ahead involve raising awareness of intellectualproperty rights, among users and providers of technology, fostering the further professionalizationof enforcement personnel, and ensuring that these rights are adequatelypursued. A nationwideprofessional court system is needed, exemplifiedby the recently created Intellectual Property Courts dedicated to enforcing the IPR regime. Educationand disseminationseem to be key to improved enforcementin the short run.
(b) The complexitvof the system of technologycontracts. As noted in para. 2.24, there are several overlapping types of contracts (economic, technology, and foreign technology contracts), each with a different and complexlegal and administrativesystems of approval and incentives. These should be unified in the medium term. The Government is in the process of reviewing the relevant legislationto simplifythe approval requirements.
(c) Taxing technologycompanies and capital gains. Taxingcapital gainsas regular incomemay create a bias against reinvestingearnings in general, and certainly inhibitsthe development of venture capital financingfor high-technologystart-up companies. Given the potentialfor high-technologyspin-offs from universitiesand research institutes, and market failures in the availability of finance, it would be necessary to re-examine the fiscal and regulatory regime for venture capital financing,with a view to developingthis source of finance for technologyprojects. Revisions to the tax code are being examined in the context of the current tax reform.
(d) Improving the mobility of scientific and technicalpersonnel. A large percentage of S&T personnel in China is employedin state-ownedR&D institutesrather than in the productive sector. While S&T personnel in Government-ownedresearch instituteshave been allowed to contract out to economic entities, their physical mobility remains limited because housing, health insurance, education benefits and pensions are tied to the place of employment. Housing assignmentskeyed to work units are the most obviousand largest deterrent to changingjobs. Pension rights and the lack of "movable"pensions present another impediment. These issuesare being addressedin the contextof enterpriseand legal reform frameworks, and their resolution in favor of increasedmobility of S&T personnel would have a positive impact on China's technologydevelopment efforts.
G. GovernmentStrategy
2.36 While the recent developmentof a technologymarket is a positivesign of the new linkages between the supply and demand for technology, there is concern about the effectiveness of the mechanisms for transferring R&D results to the productive sector. Research institutes have been encouragedto link up with industry. However,the large majoritystill do not have the necessaryfacilities and experiencedpersonnel to undertakeapplied development and engineeringwork that can be put to use in productionunits. The R&D systemhas lackedboth the resourcesand incentivesto set up pilot projects or prototypesor to conduct the detailedengineering necessary to adapt foreign technologyto specificlocal conditions. Consequently,although the regulatoryand incentiveregimes have changed, the transfer of new technologyto the productivesector has not occurred at the desired pace.
2.37 In this context, the Government'sstrategy involvesthree elements. The first is promotion of a more efficient use of existing technology assets by restructuring R&D institutions into more commercially-orientedentities. With the introduction and dissemination of new and/or improved technologies,Chinese enterprises would be able to expandthe rangeof goods and servicesbeing produced more efficientlyand cheaply, leading to improvementsin productivityand efficiency in the industrial - 11 - sector and raising the competitivenessof Chinese firms. The second is promotion of the development and diffusion of environmentally-soundtechnologies and cleaner means of production, which would contribute to the more efficient use of natural resourcesand to improved environmentalperformance by the industrialsector. The third is support to the general process of market-orientedindustrialization by financing the development and marketing of productivity-enhancingtechnologies to industry. The proposed project facilitatesthe implementationof this strategy. - 12 -
3. BANK ROLE AND LENDINGSTRATEGY
A. Rationalefor Bank Assistancein Industrial Technology
3.1 The proposed project addresses some of the institutional needs of S&T development, complementingthe very dynamicS&T policy environmentnow prevailing in China. As such, the project responds to the Government's strategy for economic development as outlined in the State Council Resolutionson Technologyissued in 1988 (Annex3.1), and summarizedin the documentaddressed to the World Bank by the State PlanningCommission (SPC) in 1992 regarding the rationale for the project and the Policy Summaryprepared in August 1993 (Annex 3.2). The Government's economicstrategy calls for the "use of science and technology to promote economic development" and to "integrate technologydevelopment efforts with the productivesectors". More recently, the landmark 1993 Third Plenary Session of the 14thCentral Committeeof the CommunistParty endorsedthe continuationof the market-orientedreform of the science, technologyand educationalsystems in its "Decision of the SPC Central Committeeon some issues concerningthe establishmentof a socialist marketeconomic system." The project would support these objectivesby providingtechnical assistance, financingmarket-oriented, internationallytested mechanismsfor efficient developmentand transfer of technologyto industry and, throughoutthe project period, continuinga policy dialogueon outstandingS&T issues.
3.2 The project also supports the Bank's efforts to promote efficient industrialgrowth in China, whichto date have focusedon enterpriseand financialsector reforms. These reformsare creating strong pressures for firms to reduce costs, and make efficient use of energy and materials. Such pressures in turn constitutea driving force for productivityimprovements and better environmentalperformance. The Bank has supported the Government'senterprise reform strategy with policy-focuseddialogue, built on a program of economicsector work and lending. In the industrialsector, the Bank has made 14 loans supporting the restructuringof selected industries and adoption of appropriate modern technologies. Complementing these activities, the Bank has worked with the Government on its program for developmentof related markets, notably financeand technology. The proposed projectgrew out of these efforts and supports the current reform of the S&T system with the aim of developing technology markets.
B. IndustrialTechnologv Development in Bank Lending
3.3 During the last 20 years, the Bank has been involved in technologydevelopment operations worldwide. The first project financedby the Bank on industrialtechnology development was presented to the Board in 1975 on behalf of the Governmentof Israel. Since then, eleven industrial technology developmentoperations have been approvedby the Board, with a total investmentof US$2.2 billion, out of which the Bank directly financedUS$0.7 billion (Annex3.3). The projects approved have soughtto: (i) develop the institutionalinfrastructure for technologydevelopment, includingtraining; (ii) finance technologydevelopment institutions; (iii) financeinformation services, includingthe organizationof data bases, informationnetworks, and access to patentsand other sources of technologyinformation and know- how; (iv) support the developmentof patent servicesand of intellectualproperty regimes;and (v) support the developmentof risk capital tools and financialmechanisms for the acquisitionof technologyproducts and services. 3.4 Out of the eleven projects, four have been completed. A review of Bank lending in Industrial TechnologyDevelopment has also been recently completedby the Operationsand Evaluation Department(OED, 1993). The objectiveof the review was to assess the impactof Bank lending for TD on the industrialsector of borrowing countries. The study concentratedon the experience of projects in six countries:Korea, India, Indonesia,Mexico, Spainand Hungary. A review of the PCRs and the OED report offers the following conclusions: (i) the impact of a technologyproject on TD hinges on the existenceof a clearly defined and articulatedstrategy, where TD is seen as part of the overall process of industrialization;(ii) the frameworkof incentivesis a crucial determinantof success. In addition to - 13 -
a sound macroeconomic environment, trade, industrial and technology policies play a decisive role in TD; (iii) the strengthening of industrial technology capabilities may need interventions to promote local research and development activities. Exposure to international competition may not by itself be sufficient; (iv) involvement in technology development projects has resulted not merely in the development of institutions and financing mechanisms, but more importantly, in the reform of technology policy; (v) successful development of institutions and mechanisms has critically hinged on the creation of solid management, with administrative and monitoring capabilities built in as an integral part of the technology functions. Thus, institutions supported or set up for technology development should have clear economic and comnmercialcriteria against which their success or failure can be properly judged; (vi) the Bank's role has been critical when the success of the project depends on a sustained commitment in areas where financial returns are difficult to quantify or limited in the short term, and where business failures are a necessary part of the innovation process; and (vii) technology policy as it relates to industry has a major role in determining competitiveness and productivity and therefore cannot be seen in isolation from macro-economic, trade, industrial and regulatory policies. The OED report endorses the need to promote and encourage the strengthening of technology development capabilities as a condition for industrialization in developing countries. The design of the project has taken these lessons into consideration. Specifically, the project has been designed in the context of an overall strategy, as expressed in the official policy statement. It concentrates on bolstering local capabilities and on the development of market-oriented technology transfer institutions in the context of an improving policy and regulatory framework.
C. Technology Development in Industrial Sector Lending in China
3.5 During the last decade, the Bank has approved US$1.3 billion in projects with technology components in China. These projects have sought to modernize industrial sub-sectors, promote the adoption of appropriate technology in rural enterprises, and assist in the strengthening of higher education and the development of human resources. Within the industrial sector, the Bank's efforts on technology modernization have included support for rural technology developments (the Spark program, Ln. 3274/Cr. 2186), industrial diversification and modernization (for example, the Gansu Provincial Development, Cr. 1793, Tianjin Light Industry, Ln. 3022, Tianjin Industry II, Ln. 3572, Projects) and technology modernization in small and medium scale industry.
3.6 Within the education sector, the Bank has sought to support the strengthening of higher education and research in the fields of science and engineering (University Development I and II), expand and upgrade the technical educational system (Vocational and Technical Education), and reform the management of science and technology programs through the Key Studies project. The proposed project benefits in particular from some of the initiatives sponsored under the Key Studies project, including among others the development of well endowed Research Institutions with an outreach capacity toward the industrial sector, some of which have become sponsors for several of the proposed ERCs. Further, the satisfactory SPC role in the Key Studies project makes its involvement in the proposed project appropriate and desirable. In this context, the proposed project is an extension of and a complement to some of the efforts sponsored by the Bank in the education sector.
3.7 The implementation of most Bank-financed industrial projects in China, including those with significant technology components, proceeded generally on schedule until the initiation of the economic austerity program in 1989, when local funding shortages resulted in implementation delays in several projects. For the last two years, however, project implementation has been expedited, and commitments and disbursements have improved. Most industrial projects under implementation are now generally satisfactory. The few with significant implementation difficulties are being addressed through intensive supervision and, when required, restructuring. - 14 -
D. GovernmentOwnership and Commitmentto the Project
3.8 The Government has continually promoted the proposed project and its institutional dimensions. It first approachedthe Bank in 1990 with a preliminary project concept, while it enacted many importantreforms that have moved the policy regimetoward greater opennessand competitiveness. With its own resources, the Governmenthas launchedearly versions of the institutionalstructure to be supported under the project, and has tried to introduce market mechanismsinto the S&T system by steadily reducing subsidiesto selected R&D institutes. The Bank's project involvementbegan in 1992, and the ensuing dialogue has led to changes in the incentivesfacing institutionsthat have helped to introducefurther market forcesinto technologydiffusion. Finally,the Governmenthas already requested a follow-up project, tentatively based solely on environmentaltechnologies, though the Bank and the Governmenthave agreed to assess progress under the proposed project before committingto anything further. - 15 -
4. THE PROJECT
A. Project Objectives
4.1 The objective of the proposed project is to support the Government's continuingreforms in technology policy and institutions so as to promote the developmentand/or adaptation of clean, productivity-enhancingtechnologies in China's industries. The project is designedto acceleratediffusion and adaptation of technologiesin China and abroad through the deepeningof technologymarkets and through institutional initiatives. Its institutionalreforms are designed to speed diffusion by making China's R&D assets more market-responsivethrough the transformationof a segment of university laboratories and research institutes into market-oriented technology development corporations. Furthermore, to support ongoingmarket-based policy reforms, the projectwill strengthenpublic services, such as those for norms and standards, necessaryfor technologydevelopment. In the course of project implementation,it is intended that continuationof our dialogue with the Government will support its progress in further reforming the S&T policy environment(para. 2.33).
B. Project Description
4.2 The project will: (i) support an institutionalinitiative to restructurethe R&D establishment through the reorganizationof some of its assets into market-responsivecorporations, whose purpose is to identify, adapt or develop international and domestic technology to meet the needs of Chinese industries; and (ii) support the strengtheningof technology-relatedpublic services, including those for norms and standards, information disseminationabout worldwide technologies, and human resource development in administrationand enforcement of technology regulations. The loan would finance primarily the foreign exchangecosts of process lines and production equipment, testing equipmentand instruments,and computers, as well as related licenses and intellectualproperty rights, expert services, materials and other consumables, spare parts and maintenancethat would be required to conduct the business of the ERCs and NIM.
C. Engineering Research Centers -- Investment Component
4.3 The first componentwill assistin restructuringpart of China's large R&D establishmentinto market-responsivecorporations. It is intendedto attract the most dynamicand service-orientedelements of the existing research institutionsto create, on the basis of a competitiveprocess, corporations called Engineering Research Centers (ERCs). The ERCs would be market-orientedindependent limited liability companies(LLCs) under Chinese law, with the objective of adapting,developing and diffusing technologies,in particular those that have positiveenvironmental impacts. The ERCswill produce under contract equipment and systems designs, prototypes and customized products and services that adapt foreign and domestic technology to local inputs, scales of production, and other market conditions. Domestic and foreign enterprises, as well as managementand staff, will be allowed to participate in the ownershipof the ERCs. At their creation, the ERCs will be supportedwith equity and loan financefrom the Governmentand other sources, but governmentsupport would be limitedto this front-endinvestment. The ERCs would be subject to market forces and operate within the provisions of the anti-unfair competitionlaw (para. 2.23). The Bank will finance US$194.3million equivalent of the Government's contributionin the ERCs (US$177 million equivalent in fixed assets and US$17.3 million in technical assistance). 4.4 The ERC program is a pilot effort to support differenttypes of partnershipsacross a wide range of sectors between R&D institutes, industrial enterprises, and foreign firms. Based on this experiment, the sponsors plan to learn from the success and failure of differenttypes of ERCs to further expand the reform program of cutting direct state support to the research infrastructureand increasing its reliance on the market. - 16 -
Rationalefor Public Sector Support
4.5 Since the project is designed to redefine the role of the public sector in technologyand widen the scope for market forces in technologydevelopment, funding of ERC investmentsunder the project will be restricted to those that warrantpublic investmentand cannot otherwisebe supplied by the market.' Investmentwould thereforebe limitedto ERCs developingtechnologies that: (i) would address environmentalexternalities, for example, by increasingenergy efficiency, reducing waste and pollution, and lowering material consumption(e.g., the Clean Coal CombustionERC, described in Annex 4.6); and (ii) have substantialproductivity impact that downstreamusers are unable to develop on an individual basis because of the economiesof scale and high risks involved (e.g., the PerformnanceAlloys ERC, described in Annex4.6). This arrangementis intendedto offsetthe high transactioncosts of coordination and information that cooperation among producers would entail. Applying these public investment criteria ensures that investmentsunder the project will not preempt the emerging non-state sector, but rather complementthem and indeed spur new investments. Incentivesand BusinessOrganization of the ERCs
4.6 To ensure market-responsiveness,the incentivesand business structure of the ERCs will reflect commercialpurposes. They will be subjectto marketcompetition, compelled to make a profit and allowedto reinvestearnings, enjoy the financialand decision-makingautonomy granted other enterprises, and face a hard budget constraint.
4.7 Corporatizationof the ERCs. The ERCsto be supportedunder the projectwill be market- oriented, for-profit technologydevelopment corporations. They will be constitutedas limited liability corporations, with clear ownership(established through shares), assets and liabilities. Besidesthe sponsor organization, the shareholdersof the ERCs may include all other qualified sponsors eligible under the existinglaws. The shareholderinterest in the ERCswill be proportionateto their share of the total equity. The State Assets ManagementBureau (SAMB)will represent the Governmentin the governanceof the ERCs. Corporatizingthe ERCs will take time becauseof the limitedexperience with the CompanyLaw passed in 1994. The Government has proposed to manage all ERCs as if they were LLCs from the moment they are constituted;and, to actually incorporateall ERCs gradually, within a period of up to five years from the time the program is approved. As part of the ERC appraisalprocess, each ERC will include a plan of conversion to an LLC within five years, which would be approved by the Bank; thereafter, the ERCs would be required to implementthe approved conversionplan under the sub-loan contract with the GCC. Assurances to this effect were obtained from the Government during negotiations. It is anticipatedthat over 75% of the ERCs (by number and value of investment)will be corporatizedby the third year of operationof the project.
4.8 No subsidies. The governmentsupport will be limitedto initial investmentin the form of convertible loans, and no subsidieswill be provided after establishmentof the ERCs. Thus the ERCs will, from the start, operate under a hard-budgetconstraint with clear ownership, assets and liabilities, income and profit and loss statements. During the interim period before the ERCs are constituted as LLCs, the ERCs will be independentlegal persons in the form of State Owned Enterprises. After initial establishmentof an ERC, no subsidieswill be provided.
I In modern market economies, public sector support for technology development is justified when the production and diffusion of technology is characterizedby: (i) social benefits that justify pooling of risks that individuaLproducers couLd not otherwisetake; (ii) the inabilityof producersto fully appropriatereturns from R&D investments,even in the presence of a strong inteLlectualproperty regime; and (iii) increasing returns to scale associated with R&D, engineering,drafting of norms and standards,and other technological activities. Items (i) and (ii) are cases of externalities;item (iii) is a form of market imperfection associatedwith high transactioncosts or coordination. Taken together, these factors would, in the absence of a public sector role even in a modern market economy, Lead to systematic under-investmentin technology development and diffusion. - 17 -
4.9 Free Entry. ERC markets will enjoy no marketprotections, nor will potential competitors be preventedfrom entering the market. ERCs have been very forthcomingin establishingcollaborative arrangementswith foreign partners. Several proposals alreadyapproved have documentedcollaborative strategiesthrough a variety of arrangements,depending on the productsto be developedand the markets to be reached.
4.10 Exit and Bankruptcy. Once established,ERCs would be entirelyresponsible for their own development and survival in the marketplace. No restrictions will be placed on the emergence of competitors. All ERC activities would be remunerated on a competitivebasis through the sale of services. There is a risk that some ERCs will fail due to the experimentalnature of the program and/or market changes. For that reason, the institutionalset-up being proposed is deliberately flexible and provides clear exit mechanismsfor ERCs. The ERCS that fail are expected to be sold to other new competitorsor downstreamcustomers to becometheir in-houseR&D facilities,or go bankrupt, in which case their assets would be sold to interestedbuyers.
Subproiect SelectionProcess
4.11 The ERC selection process has proceededas follows: (i) the SPC has advertised in the nationalmedia an invitationto R&D institutions,universities and enterpriseswhich may want to sponsor an ERC; (ii) the SPC has organized a two-tiered ERC Evaluation Commnitteeto review the ERC feasibility studies submitted; the Committee is made up of academicians, senior industrial experts, researchersand scientists(Annex 4.3). It reviewsall proposals and ranks them accordingto their merits, followingthe establishedselection criteria, includingthe public investmentcriteria; (iii) the best proposals are submittedto the Bank for review and, if warranted, final approval;(iv) the proposalis then submitted to the financing agent through the ImplementingAgency (para. 6.2) for funding. All ERC proposals submittedto the Bank have been approvedby the Committeeand includea descriptionof the expenditures proposed to be financed, proposed terms and conditions of the subloan, including an amortization schedule, and a plan for conversion of the ERC to an LLC within five years. The Bank has already endorsed46 ERC proposals, representingabout 95 % of the proposed Bankloan, and review of additional proposals is proceeding. A summarytable of all proposals already approved is includedin Annex 4.8. Details of procedures for appraisaland approval of the ERCs are shown in Annex4.9. The remainder will be approved on a timely basis. At negotiations. assuranceswere obtained that ERCs would be selected in accordance with technical and financial criteria accentable to the Bank and that all ERC proposals would be submittedto the Bank for final approval.
FeasibilityStudies
4.12 The ERC feasibilitystudies contain informationon: (i) public investmentrationale for the establishmentof the ERC; (ii) an analysis of the market for the services to be provided, includingan assessmentof competitionfrom other providers and demand from prospectiveusers; (iii) a description of the mechanismsand tools to be used in the disseminationof the developmentsand services to be provided by the ERCs; (iv) a discussionof intendedcooperation with foreign and domestic suppliersof technology; (v) organization and management structure; (vi) a cost and financing plan; (vii) implementationschedule; (viii) list of equipmentand facilitiesto be financed;(ix) a corporateand project financial analysis; and (x) an assessmentof risk and benefits. Criteria for subprojectselection are given in Annex 4.1, and the outline of required feasibilitystudies is described in Annex 4.2.
4.13 Analysisof Markets for ServicesProposed. The proposalsalready approvedhave specified the markets for the productsand servicesto be offered. The documentationincludes market assessments, agreementsfor purchase of future services, and proposals for collaborativedevelopments with domestic and foreign partners. For example, in the case of the ERC for distillationtechnology (Annex 4.6), a business plan has been prepared which provides a solid assessment of the distillation market, an evaluationthat is quite satisfactory. There are about 8,000 or so petroleumchemical factories in China. - 18 -
Small and medium-sizedcompanies comprise 90% of the 35,000 operatingdistillation facilities, and are responsible for higher levels of energy consumptionand lower levels of separation efficiency of these plants, with an increase in distillation yields carrying significant cost reduction to producers. It is estimated that about 50-60% of energy loss is due to technical failures and the rest to management problems. The proponentshave outlined a time-tableto capture 30% of this market by the year 2000. The detailed analysis of demand strongly suggests that the proposed ERC will be able to successfully implementits marketinggoals and overall strategy.
4.14 DiffusionStrategies. In terms of diffusionstrategies, different channels and tools have been proposed or alreadydeveloped by the proponentsof ERCs. The objectiveof these mechanismsand tools is to reach the largest number of potential users of the developmentsor services to be provided. For example, the proposal for laser technology (Annex 4.6) foresees the setting up of three special departmentsfor applicationsdemonstration, consulting services, and marketing. They will continually train their employeesand clientsas well as strengthenties with professionalassociations and professional groups. The ERC for manufacturingautomation technologies proposes a diffusionstrategy based on: (i) transferringtechnologies to the associatedproducers, which will manufactureERC designedproducts and sell them to end-users;(ii) selectingtypical clientsto serve as demonstrationunits; (iii) establishingagents in major markets to disseminateautomation technologies and products; (iv) utilizingtrade organizations and professional associations to disseminate the technologiesdeveloped or adapted by the ERC; (v) organizingclient meetingsand seminars to disseminateand demonstratetechnologies and products; and (vi) providing training and exchangesof personnel.
4.15 Arrangements for Foreign Collaboration. Proposals already approved have documented collaborativestrategies through a varietyof arrangements,depending on the productsto be developedand the markets to be reached. Many of these arrangementsare firm while others need yet to be confirmed as the ERCs are in a process of approval and many collaboratingarrangements are contingent on the approval of the specificERC. For example, the proponentsfor the ERC on distillationtechnology have a strategy for foreign collaborationthat has been carefully outlinedwith foreign companiesaccording to existingtechnological gaps. The distillationERC as in the case of many other proposedERCs will piggy- back off not only its sponsor's long-standingrelationship with foreign entities but also its industrial customers. This ERC has been engaged in on-goingtalks regarding specificjoint ventures with foreign companiesin Switzerlandand Japan. Once the ERC is established,a detailed collaborationagreement can be concluded, as most companiesobviously will not enter into a joint venture with an entity yet to be officially established. The ERC will match foreign collaborators with new technology to the appropriatedomestic users in need of that technologyand assist in its transfer and adoption. The plan is to purchase know-howand licenses, high-techinstruments and devices; to invite foreign partners for joint R&D; to exchangeinformation and personnel;and to establishjoint ventures. Concerningpersonnel exchanges, arrangementshave also been discussedwith potentialpartners in the U.S. and Britain. This ERC is in the process of finalizing several of these arrangements, some of which are contingent on approval of the ERC under the project.
4.16 Organizationand ManagementStructure. The ERCs will be agents of technologytransfer and developmentrather than manufacturingenterprises. However, they may fall into two categories. First, most ERCs are expected to develop into independenttechnology corporations, not engaging in manufacturing;this is the intendedgoal of the program. However, when appropriate, ERCs may yield spin-off or start up manufacturingor service companiesto commercializedevelopments originally pursued by themselvesor in collaborationwith other parties. Second, some ERCs may develop into technology corporations, with R&D and manufacturingactivities. In terms of management,the ERCs are intended to be close to the market and to sources of knowledge,domestic and foreign. These features require that ERCs adopt a managementand operationalstructure which facilitatesintimate interaction with markets and builds competenceto develop the products and services that respond to industry needs. Modern managementapproaches, such as cluster management,will be utilized to blend market awarenesswith capacityto deliver technology. Staff in the ERC from differentdisciplines would work together, handling - 19 - administrativefunctions, developingtheir own expertise,oriented to meet the needs of customers and to facilitate decision-making.Management training will be pursued vigorously and on an on-going basis, to improve the probability of success of the ERCs. All the ERC proposals reflect a strong commitment to training and human resource developmentindicating that they are fully aware of the importanceof training to attain their goals.
4.17 ImplementationPlan and List of Equipmentand Facilitiesto be Procured. Each feasibility study includes a five-year implementationplan and provides a detailed list of facilities, equipmentand consultingservices to be procured under the project.
4.18 FinancialAnalysis and Assessmentof Risksand Benefits. A financial analysisof the ERCs has been conducted, by each proponent, for all proposals received by the Bank. A sample financial analysis has been included as Annex 4.7. The financial analysis methodologywas developed with assistance from the Bank during project preparation. An assessmentof risks and benefits has also been conductedby each proponent, identifyingthe risks faced in the implementationof the proposals and the actions that will be taken to minimizethese risks.
D. TechnologvPublic ServicesComponent
4.19 The second project component comprises complementary investments in improving technologypublic services, through:
(a) the modernizationof the NIM (US$5 million from the loan proceeds). This component would finance: (a) the upgradingof measurementand testingequipment for the maintenance and improvementof primary standards;and (b) the trainingand consultingservices required to identifyand address demand for emergingservices in the area of measurementstandards and quality control, resulting from the rapid pace of industrializationin the country;
(b) a technical assistance program (US$0.7 million from the loan proceeds). Under this program, financing will be provided for: (a) supporting technology diffusion, including productivitycenters, and a series of training activitiesrelated to technologydiffusion and technologytransfer; and (b) funding of several training activities. 4.20 The strengtheningof the NIM is intended to result in the modernizationof norms and standardsto facilitatethe introductionof new products and services and thus is an importantelement of the technologydevelopment activities sponsored by the Government. Improvedmetrology services should also result in better qualityof industrialproducts.
4.21 The technicalassistance activities are intendedto support a pilot program of complementary investments in technology transfer and disseminationmechanisms. The proposal for funding of the metrology activities has been prepared by the NIM and has been reviewed by a Panel of Experts organizedby the Governmentand the Bank. A copy of the proposal has been filed in the project files (Document I). The Technical Assistancecomponent will consist of:
(a) Support to the program of Productivity Centers (PC). The projectwill also support the program of activitiesto diffuseproductivity-enhancing innovations at productivitycenters. The funds would be utilized to financeactivities geared to disseminatethose improvements and techniquesaimed at improvingproductivity in industrialoperations, as well as for the design and establishmentof data banks on technologyinnovations. The cost of information material, handbooks, seminars, and news releases would also be eligible for financing. About US$200,000 from the loan proceeds would be allocated to this activity. The productivity centers will complement the activities of ERCs involved in productivity enhancing technologies by disseminating the results of those activities in industrial - 20 -
enterprises. The center receivingthe assistancehas been selectedon a competitivebasis. A descriptionof the proposal for the fundingof a productivitycenter is includedin Annex 4.5; and
(b) Training. Funding would be earmarked to financetraining activities for personnel from enterprises, producersand users of technologyproducts, and governmentofficials. Eligible expenditures would include: (a) study, research, and/or training on issues of critical importance for the development of ERCs, such as, the constitution, operation, and managementof Limited Liability Corporations(LLCs) and the protection of intellectual property; (b) organizationof seminarsand training courses to train managementpersonnel on the operation of market-orientedtechnology-based enterprises; (c) training in areas of direct relevance for the operationof the Golden China Corporation (GCC, see para. 6.2) which will be responsible for project management and may eventually evolve into a technology-financinginstitution; (d) consultingservices and study tours in financing and managementof technologyenterprises. About US$500,000from the loan proceeds would be allocatedto this activity. A general framework for the project training programs and technical assistance is summarizedin Annex 4.4. Detailed programs will be designed in the course of project implementationwhen the actual needs of the still nascent ERCs can be defined. In addition to these activities, the ERCs are expected to invest up to US$17.3 million equivalent of their budgets in services, includingtraining and technicalassistance services.
E. Proiect Costs
4.22 The estimated project cost is US$402.0 million equivalent, includingphysical and price contingencies. Direct and indirect foreign exchangecosts accountfor about US$200.0million equivalent or about 50% of the total cost. The project costs are expressedin August 1994prices, based on a sample of 46 feasibility studies for the ERCs (para. 4.10) and the proposal for the NIM, and therefore subject to revision pending completionof the feasibility reports presently under preparation. Project costs by componentare presented in Table 4.1. - 21 -
Table 4.1: Project Costs a/
Project Local Foreign Total Local Foreign Total Foreltn Component ____u__ Investment ------Rmb million------US$ million ---- Equipment 544.9 1220.6 1765.5 64.1 143.6 207.7
Facilities 315.3 -- 315.4 37.1 -- 37.1 Technical 37.4 138.6 175.9 4.4 16.3 20.7 Assistance
Existing 233.7 -- 233.7 27.5 -- 27.5 Assets Base Costs 1131.3 1359.2 2490.5 133.1 159.9 293.0 54.6 Contingencies Physical 160.7 180.2 340.9 18.9 21.2 40.1 Price 56.1 71.4 127.5 6.6 8.4 15.0 Installed 1348.1 1610.8 2958.9 158.6 189.5 348.1 54.2 Costs Working 222.7 0.9 223.6 26.2 0.1 26.3 Capital Pre-operation 38.2 20.4 58.7 4.5 2.4 6.9 Financing Requirements 1609.0 1632.0 3241.1 189.3 192.0 381.3 50.1 for 46 ERCs b/ Others 57.0 19.6 76.5 6.7 2.3 9.0 Total Investment 1666.0 1651.6 3317.6 196.0 194.3 390.3 49.7 Public Services NIM 42.5 42.5 85.0 5.0 5.0 10.0 PC 4.2 1.7 5.9 0.5 0.2 0.7 Training 4.2 4.3 8.5 0.5 0.5 1.0 Subtotal 51.0 48.5 99.5 6.0 5.7 11.7 4817 TOTAL 1717.0 1700.0 3417.0 202.0 200.0 402.0 5 A a) Excludes taxes and duties estimated at US$68.4 million; b) Investment component reflects data for 46 ERCs officially appraised by the Bank. Additional proposals have been received by the Bank and are being reviewed.
4.23 The total cost of the investment component is estimated at US$390.3 million equivalent, corresponding to the total cost of equipment, facilities, and technical assistance for ERCs, including physical and price contingencies. Base costs were estimated from detailed lists of projected equipment and associated requirements derived from the above-mentioned available feasibility studies using unit prices of similar imported or locally available items. Technical assistance, training and expert services costs are based on previous experience. Physical contingencies have been estimated at between 10% and 15% of the base costs depending on the type of equipment, and are judged adequate for scientific and engineering research hardware. Price contingencies for costs expressed in local currency have been - 22 - estimated according to the followingprojected local inflation rates: 9% in 1995, 8% in 1996, 7.2% in 1997, 6.5% in 1988-1999,and 6% per year thereafter. The price contingenciesfor costs expressed in US dollars equivalentare calculatedat the anticipatedinternational price escalationof 2.5 % per year from 1994 onward. F. Project Financing
4.24 The proposed Bank loan for US$200 million equivalentwould finance 50% of the project costs. The GCC under contract with the SPC will act as the financial agent in the intermediationof the Bank loan and the matching funds provided by the Government. The overall financing plan for the project is presented in Table 4.2.
4.25 InvestmentComponent. Financing of the investmentcomponent will be made through a US$390.3million equivalent allocation to cover the costs of equipment,facilities, and technicalassistance at the ERCs. Half of the costs will be covered from the proceeds of the Bank loan, the balance will be provided in the form of facilities, existing equipment, domestic loans and cash provided as equity investment by the sponsoring institutions. The sponsoring institutionsinclude existing research and developmentinstitutes, design institutesand enterprises. The costs of operating the ERCs will be met through the sale of services, license and contract fees to clients of the ERCs. Bank funds will mainly finance the procurementof importedequipment. Local equipment, working capital, and facilities will be financedthrough equity and other loans secured by the sponsoringinstitutions.
Table 4.2 ProjectFinancing Plan (in US$ million) Component IBRD Sponsors GOC Total
Investment (ERCs) 194.3 196.0 -- 390.3
Public Service
NIM 5.0 -- 5.0 10.0
T.A. 0.7 -- 1.0 1.7
TOTAL 200.0 196.0 6.0 402.0
4.26 Public Services Component. Financing of the public services componentwill be made through a US$11.7 million equivalentallocation. Ten million dollars equivalent will be earmarked to financethe modernizationof the NIM, with half of the costs covered from the proceeds of the Bank loan and the balance provided as a budgetary allocation from the Government. Financing of the other technicalassistance activities will be made through a US$1.7 million equivalentallocation. These funds will be provided as follows: (i) US$5.7 millionequivalent will be covered from the proceeds of the Bank loan, administeredby SPC; (ii) the balance will be providedas a budgetaryallocation by the Government. - 23 -
On-lendingTerms and Conditions
4.27 Assuranceswere obtainedduring negotiationsthat the proposed Bank loan would be on-lent as follows: (a) For the investmentcomponent, the Governmentwill pass on US$194.3million of the loan proceeds through SPC, which will act as the implementationagency, to eligible sub- borrowers in the form of sub-loans. The GoldenChina Corporation(GCC) will act on its behalf as a financialagent. For most ERCs, sixty per-centof the proceeds of each sub-loan will become equity investmentsat the time of conversion of the ERCs into LLCs. The balance will bear the same interest rate as the Bank loan, and have a maturity of up to 20 years inclusiveof up to five years of grace. For ERCs that have already been constituted as corporations by the time of loan effectiveness,the entire sub-loans will have a maturity of up to 20 years inclusive of up to five years of grace. The loans will be provided in foreign currency and the exchangerate risk will be borne by the ERCs. The Government will be responsiblefor the credit risk. The administrationcosts incurred by SPC will be covered through a service fee of 0.85% of the loan amount, charged to the beneficiariesof the sub-loans(para. 6.7).
(b) For the public services component,the Governmentwill pass on US$5 million of the loan proceeds to NIM; US$0.1 millionto GoldenChina Corporationfor financingof its training activities; and through SPC, US$0.6 million to the beneficiariesof the technical assistance component.
G. EnvironmentalAspects 4.28 Most ERCs will be engaged in technology developmentswith positive environmental impacts. For example, two ERCswill be working in the area of clean coal combustion,cooperating with foreign suppliers to adapt internationallyavailable know-how to the particular technical conditions prevailing in China. Low-grade coal combustiontechnology is the norm throughoutthe country, and China suffers from serious environmentalproblems such as air pollutionand acid rain. The Government has attributed great importanceto the developmentand diffusionof clean coal combustiontechnology, in view of China's high rates of economic growth and growing pressures on energy supply and the environment. The ERCs working on clean coal combustionwould supply technologiesthat increase energy efficiency, reducewaste and pollution,and improvecoal consumption. SeventeenERCs approved by the Bank have been the subject of a thorough environmentalimpact assessment which identified potential negative environmentalimpacts and proposed action plans to ameliorate these impacts. The sponsors have alreadyincorporated these suggestionsinto revisedproposals. A copyof the environmental impact assessmenthas been filed as DocumentIII in the project files. - 24 -
5. PROJECT IMPLEMENTATION
A. Management
5.1 The State Planning Commission(SPC) will be responsible for overall managementand implementationof the project, providing monitoring, coordinationand financial services for project activities (see paras. 6.2-6.7). The SPC has organized a Project Office (PO) which will be directly responsible for implementationof the project. The PO will contract with specialized agencies the financial and procurementservices as required.
5.2 For the investment component, the PO will coordinatethe activities of the beneficiary ERCs. The PO will contract with GoldenChina Corporation (GCC, para 6.3) the financial appraisal, disbursement and collection services for the ERC sub-loans. Likewise, the PO will contract project procurement services through GCC to be undertakenin accordancewith the arrangementsshown and procedures described below (Table 5.1). Each ERC will be responsible for timely and efficient implementationof the ERC investmentand will coordinatewith the PO for all activitiesthat are commnon to other ERCs. 5.3 ERCs will be responsiblefor preparing detailedprocurement plans in consultationwith the PO, includingequipment lists and technicalspecifications, in accordancewith their respectivefeasibility studies. The procurement agent will provide bid documentation,supervision of the bidding process, evaluationand executionservices, includingobtention of clearances from the Bank. ERCs will submit their procurement requirements together with a list of potential suppliers to PO which will arrange through the procurement agent for the packaging, as appropriate, of groups of compatible items for competitivebidding purposes. Packagingfor the first ERC proposals has already been completed, was discussedwith the Bankduring project appraisaland at negotiationsand constitutesthe basis for the costs shown in Table 4.1.
5.4 The SPC throughthe PO will also coordinateactivities under the technologypublic services component, which will support the modernizationof NIM and the implementationof other technical assistanceactivities, includingtraining under the project. During negotiations,assurances were obtained from the GOC that trainingwould be carried out in accordancewith a training program acceptableto the Bank, and any studies would be carried out in accordancewith terms of reference and timing acceptable to the Bank.
B. ImplementationSchedule
5.5 The project will be implementedover a period of six years. Project completionis expected by December 31, 2000 with loan closing by June 30, 2001. Sub-loansto the ERCs are expected to be committedin three years and disbursed in six years. An implementationschedule is given in Annex5.1.
C. Procurement
5.6 Procurementarrangements are summarizedin Table 5.1.
5.7 Eguipment and Materials. Contracts exceeding a value of US$250,000 for equipment destined for both NIM and ERCs will be procured under international competitive bidding (ICB) procedures. The Bank's standardbidding documents would be used. For all ICBcontracts for equipment and materials, domesticmanufacturers will be given a margin of 15% of the cif price of importedgoods, or the prevailing customs duties and import taxes, whichever is lower, for purposes of bid evaluation. Most pieces of equipment fall into the following categories: (i) analytical instrumentsfor physics, chemistryand biology; (ii) measurementand testingequipment; (iii) laser and electronicsequipment; (iv) computers and software; (v) communicationequipment; and (vi) process reactors and ancillaries. - 25 -
Table 5.1: AnticipatedProcurement Methods (US$ million) a/ ProcurementMethod ICB LCB OTHER c/ NBF TOTAL
ERC Investments Equipment 148.3 23.0 5.7 37.0 214.0 (148.3) (23.0) (5.7) -- (177.0)
Civil Works - - - 106.0 106.0
Tech. b/ - - 12.3 33.0 45.3 Services - - (12.3) -- (12.3)
Consultant - - 5.0 20.0 25.0 Services & - - (5.0) - (5.0) Training
Subtotal 148.3 23.0 23.0 196.0 390.3 (148.3) (23.0) (23.0) (194.3)
Public Services Equipment 3.7 1.0 - 3.4 8.1 (3.7) (1.0) - (4.7)
Tech. b/ - - 0.5 2.6 3.1 Services - - (0.5) (0.5)
Consultant - - 0.5 - 0.5 Services & - - (0.5) - (0.5) Training
Subtotal 3.7 1.0 1.0 6.0 11.7 (3.7) (1.0) (1.0) (5.7)
TOTAL 152.0 24.0 24.0 202.0 402.0 (152.0) (24.0) (24.0) (200.0) EJ Figures in parenthesisare the respectiveamounts financed by the Bank. Anticipatedprocurement methods are basedor a sampleof 46 ERCs. b/ Includesspecialized software, patents, licenses. Odter procurementincludes LIB, local shopping,direct contracting,and consultantservices NF: Not BankFinanced.
5.8 Contracts valued between US$50,000to US$250,000,and up to an aggregate amount of US$24.0 million will be procured under establishedlocal competitivebidding (LCB) procedures which are acceptableto the Bank. Contracts below US$50,000,up to an aggregate value of US$14.0 million, will be procured under local shoppingby obtainingquotations from at least three qualifiedsuppliers. The - 26 - nature of the activitiesto be financedunder the investmentcomponent requires that allowancesbe made for limited internationalbidding (LIB) and direct contractingof technicalservices. Typical items to be procured under these arrangements include: patents, licenses, know-how,basic engineeringpackages, proprietary software and hardware. An estimated total of US$9 million equivalent will be used for procurement of proprietary items. Employmentof consultants will follow the "Guidelinesfor Use of Consultantsby World Bank Borrowers."
5.9 The thresholdfor prior reviewfor contractsfor consultantswould be US$100,000equivalent for firms and US$50,000equivalent for individualcontracts. The threshold for prior review for goods and services would be US$250,000equivalent. An estimated 80% of the Bank-financedcontract value for goods and services would be subject to prior review.
5.10 Civil Works. Civil works under the project to expand ERC facilitieswould be financed locally by each beneficiary.
D. Disbursement
5.11 Disbursementswill be made on the basis of the percentages shown in Table 5.2. An estimated disbursementschedule is given in Annex 5.2.
Table 5.2: Allocationand Disbursementof the Loan (US$ million)
Categorv Amount % ExpRenditures to be financed 1. Part A (Investment Component) a. Goods 177.0 100F/100LE/75L b. TechnicalServices 12.3 100F/100LE/75L c. ConsultantServices 5.0 100 and Training 2. Part B (Public Services) a. Goods 4.7 100F/100LE/75L b. TechnicalServices 0.5 100F/100LE/75L c. ConsultantServices 0.5 100 and Training TOTAL 200.0
F means foreign expenditures;LE refers to Local ex-factoryand L refers to items procured LocaLLy.
5.12 Disbursementswould be made against statementsof expenditure(SOEs) for: (i) contracts for equipmentcosting less than US$250,000equivalent; (ii) contractsfor consultingservices costing less than US$100,000 equivalent for firms and US$50,000 equivalent for individuals; and (iii) training. Supportingdocuments for disbursementsbased on SOEs would be kept by PO for review by external auditors and Bank supervisionmissions. Disbursementsfor all other expenditureswould be based on full - 27 - documentation. To facilitate timely payment of project expenditures, a dollar-denominatedSpecial Account(SA) for the loan amountingto US$10.0million equivalent(calculated as the IBRDshare of the estimated four month average of expenditures), will be established in an interest eaming account. Applicationsfor replenishmentto the SA will be submittedto the Bank on a monthlybasis or whenever 50% of the initial deposit has been utilized.
5.13 Retroactivefinancing of up to US$5.0million is recommendedto cover eligibleexpenditures incurred after March 31, 1994, but prior to loan signing. This provision is important to maintain the momentumalready gathered in the constitutionof the ERCs and other project activities.
E. Monitoring. Evaluationand Reporting 5.14 Success of the ERCs will ultimatelybe measured by their ability to remain in the market and be profitable, which in turn will measure the effectivedelivery of services to end users (new ideas, products and processes). For each ERC, key performance indicators to be assessed during implementationwould include: financial and economicrate of return, number of contracts signed with end users, number of start-up and spin-off companiesin related technologies,environmental impact of new technologiessuccessfully diffused, ability to involve partners from abroad, success of diffusion activities, productivitygrowth in industrialusers of ERC services, and training of staff. The project's overall success will be judged by the survivabilityratio of the ERCs in the commercialmarket at the end of the project period, and their effectivenessin adaptingand diffusingtechnology. Performanceof ERCs and the program at large will be closely monitoredby the Governmentand the Bank through supervision activities. A schedule of proposed Bank supervisionis given in Annex 7.3. In addition, a mid-term review will be conducted to assess project progress and make mid-term corrections as necessary. Assurances were obtained during negotiations that the Government will undertake a review of the progress of and prospects for implementationof the proiect with the Bank no later than December30. 1997. 5.15 A projectmonitoring and supervisionsystem will be introducedin the ERCsto enable them to track their progress accordingto targets set in their FinancialPlans (Annex4.7). These Plans have been formulatedspecifying outputs and implementationmilestones, which are reflectedin the performance indicators. Data from each ERC will be collectedby the PO, which will maintain close contact with all ERCs to facilitate communicationsand prompt response to any eventualities. 5.16 Given the novelty of the actions sponsored, it is important to obtain early evaluation of critical aspects of the project in order to adjust implementationand assist successfulcompletion. Areas of concern are progress in the selection of ERCs, the establishmentof ownership and management arrangements, and progress in the actual set up of the ERCs. To address these issues, semi-annual reports will be prepared by the PO and submitted to the Bank for information. Compliance with eligibilitycriteria will be the responsibilityof the PO, and the Bankwill, during the course of supervision activities, review the applicationof criteria. A projectcompletion report will also be prepared by the PO within four months of loan closing.
F. Accountsand Audit
5.17 The PO will keep detailed accountsfor the project. These accountswill be auditedannually by an independentauditor acceptableto the Bank in conformitywith the Bank's requirements, within six months of the close of the Government's fiscal year. Audited SOEs and Statements for the Special Account will also be submittedwithin six months of the close of each fiscal year. During negotiations. assuranceswere obtainedfrom the Governmenton the annual audit of project accountsby an independent auditor acceptableto the Bank. The State AuditingBureau is an independentauditor acceptable to the Bank. - 28 -
6. IMPLEMENTINGAGENCIES
A. The State PlanningCommission
6.1 The SPC, the government'schief planningagency and responsibleto develop the interface between the Government's technologypolicy and its overall economic strategy, conceptualized and designed the ERC program and submittedthe project proposal to the Bank. In consultationwith the Ministry of Finance (MOF), it later issued the strategic objectives and managementmodalities of the project (DocumentV in project files). It also coordinatedproject preparation activities, organized review committeesfor selection of ERC proposals, and prepared the Policy Statement. The SPC through the PO will have overall responsibilityfor implementationof the project.
B. The Proiect Office (PO) of the SPC
6.2 The PO is a recently establishedoffice at the SPC. The PO consistsof two teams, headed by experiencedpersonnel, one in the areas of financial management,technical assistanceand training; the secondin procurement. Each team is made up of experiencedpersonnel with appropriateskills. The PO will have 12 permanent staff, some of whom have already been involved in procurement, disbursement and monitoring activities under other Bank-supportedprojects in China. Details of the organizational structure of the PO and its functions are included in Annex 6.1. At negotiations, assuranceswere obtainedthat in carrying out its implementationresponsibilities, PO will be assistedby Golden China Corporation acting under contract as a financial agent.
C. Golden China Corporation
6.3 The Golden China Corporation (GCC) is a recently establishedcompany owned by the Government. It will be controlledSPC. A draft charter for the GCC has been reviewed and commented on by the Bank, and suggestionsfor its revision have been made which have been incorporatedinto the charter. Details of the current charter and functionsof the GCC are includedin Annex 6.1.
6.4 GCC's agreed responsibilitiesunder the project are as follows:
(a) disbursement,collection, and repaymentof the Bank loan funds;
(b) procurementof goods and services through a contract with a specializedagency;
(c) implementationof the technicalassistance program;
(d) applicationwithdrawals through the MOF; and
(e) assistingthe auditing bureau to audit the project.
6.5 The GCC will act as a financing agent under the project and will take no credit risks. Under the current climateof change in the financialframework in China, SPC and the Bank have agreed that it is better for the project to use a financial agent rather than a risk-takingfinancial intermediary. This decision was taken after a long consultationprocess in China and in the Bank which concludedthat because the beneficiarieshave been pre-identifiedthrough the ERC selectionprocess, the intermnediary could not be asked to assume the credit risk. In addition, the newly formed GCC could not be expected to have the necessaryexpertise to evaluatethe ERCs. Existinggovernment-owned financial institutions also do not have this expertise. It was also decided that developingthe necessaryappraisal skills for financial intermediation -- and in the highest-risk end of the commercial market -- would add to the complexityof the project and increase its risks. The GCC will, however, be involved in the financial appraisals of ERCs in a supportingcapacity, but will not be responsiblefor their selection. - 29 -
6.6 The experience gained by GCC as a financial agent may create a capability worth preserving. Therefore, in the long run, and dependingon the successfuldevelopment of its tasks, SPC and the Bank have agreed that it may be beneficialfor the GCC to eventually evolve into a financial intermediary. Some of the activities envisionedunder the technicalassistance component address this issue. However, eventual evolutionof the GCC into a financialintermediary is beyond the scope of the proposed project.
6.7 Assurances were obtained at negotiationsfrom the borrower that it would enter into a financialagency agreement with GCC under which GCC would be responsiblefor facilitatingsub-loans. and sub-loan disbursementand repayment. The signing of the financial agent agreement is a condition of effectivenessof the proposed loan. - 30 -
7. BENEFITSAND RISKS
A. Project Benefits
7.1 The project will support the ongoingprocess of reform in the technologypolicy framework and the developmentof technologymarkets. It will help finance a new institutionalinitiative designed to increasethe productivityof R&D assets and their effectivedeployment, linking the R&Dsystems with foreign as well as domestic sources of know-how and with the emerging market for technology. Additionally,the strengtheningof technology-relatedpublic servicesunder the project will help improve the quality and lower the cost of Chinese productsand services. The project will thus play a significant role in the development and adaptation of technologyto Chinese conditions, and in the diffusion of cleaner technologies. Subprojectsto be fundedunder the project are expectedto have rates of return of at least 12%.
7.2 Technologyinnovations and diffusion in the economy will result in improvementsin the productivity and efficiency of the industrial sector, and in improved environmental performance. Ultimately, the project is expected to contributeto the sustainabilityof the process of industrialization. By providing technicalsupport for training and for the developmentof consultingservices, the project is expectedto contributeto the acquisitionof skills required for the marketingof technologyproducts and managementof technology-basedcompanies, as well as other skills required in a transitionto a market- based environmentfor technologydevelopment.
B. Proiect Risks
7.3 Technical. Because of the uncertainty of results associatedwith the process of technology development, investments in technology development corporations necessarily entail high risk. To minimizethis risk the project establishesclear market incentivesfor the ERCs, their managementand owners; the ERCs will be subject to hard budget constraints, and will receive no operating subsidies. This risk has also been minimizedthrough the preparationand review of feasibilitystudies for each ERC, prior to fundingdecisions being made. All ERC proposals will also be reviewed and finally approved by the Bank. A further risk is that the ERCs would compete with potential private investments. This risk has been off-setby investingin areas warrantingpublic sector involvementin R&D, and by ensuring that future entry into those areas is unrestricted,either throughnew private entry or importcompetition.
7.4 Institutional. The ERCs and the GCC are new institutionalstructures. However, the ERC institutionalset-up being proposed is not rigid and consists of share-holdingcompanies with provision for adaptationto technologyand market changes and termination. The GCC may also fail to reach the required level of managerialand technicalcompetence. Care has been taken in selecting qualified and experiencedstaff and in includingin the design of the project adequatetechnical assistance and training.
7.5 Financial. GCC may also experiencedifficulties in collectingon its loans from ERCs that fail to reach the necessarylevel of revenue. However, the high percentageof equity funds out of the total investment,and the value of the assets boughtby the ERCs suggest a low level of default. Finally, under the project, the GCC will act as an agent and will not carry the risk of default by ERCs.
7.6 Success of the project will in the long run depend on the success of the economic reforms already started by the Government. This is a risk difficultto evaluate. However, the Government and technologypolicy-makers in China are stronglycommitted to the objectivesof the technologypolicy goals and to the pursuit of a sustainableindustrial development strategy. Althougha high-riskoperation, the project is justified because of the very high potential benefits resulting from efficient technology innovationsto an emergingeconomy. - 31 -
8. AGREEMENTSREACHED AND RECOMMENDATION
8.1 During negotiations,agreements were reachedwith the Borrower that:
(a) as part of the ERC appraisalprocess, each ERC will include a plan of conversion to an LLC within five years, which will be approvedby the Bank; thereafter, the ERC will be required to implementthe approved conversionplan under its sub-loancontract with the GCC (para. 4.7);
(b) all project ERCs will be selected in accordance with technical and financial criteria acceptable to the Bank and all ERC proposals will be submitted to the Bank for final approval (para. 4.11);
(c) project sub-loanswill be on terms and conditionssatisfactory to the Bank (para. 4.27);
(d) project training will be carried out in accordancewith a training program acceptableto the Bank, and any projectstudies will be carried out in accordancewith terms of referenceand timing acceptableto the Bank (para. 5.4);
(e) a mid-term review of the project will be carried out by December30, 1997 (para. 5.14);
(f) project accounts will be auditedannually by an independentauditor acceptableto the Bank (para. 5.17); and
(g) the Borrower will enter into a financial agency agreement with GCC, on terms and conditionssatisfactory to the Bank (para. 6.7).
8.2 The following will be a conditionof effectivenessof the proposed loan: signing of the financial agency agreement between the Borrower and GCC (para. 6.7); and approval of the Loan Agreementby the Borrower's State Council.
8.3 Based on the above agreements, the project constitutes a suitable basis for a loan of US$200.0 million equivalentto the People's Republicof China. The loan will be at the Bank's standard variable interest rate with a 20-year repaymentperiod inclusiveof five years of grace. - 32 -
ANNEXES - 33 - Annex 2.1j Page 1 of 3
CHIN
TECHNOLOGY DEVELOPMENT PROJECT
Statistics Related to General Technology Policy Environment
Table 1: Acquiring Foreign Technology: imports (Value in US$ billion)
Total Complete Licensing Consulting Technical Cooper- Main Sets of Services Services ative Equipment Other Equipment Production
1988 Number 437. 137. 169. 19. 27. 10. 71. 4.
Value 3. 2. 0. 0.01 0.02 0.01 0.1 0.00
1989 Number 32 15 9 1 1 1 3
_ alue 2. 2. 0.1 0.00 0.0 0.00 0.1 0.0
1990 umber 23 7 10 1 3
Value 1. 0.3 0.2 0.00 0.00 0.5 0.1 0.00
1991 Number 35 8 11 1 12
Value 3. 2. 0.4 0.00 0.0 0.0 0.3 0.00
ZgUrff: China S&T Indicators 1992, p. 130. - 34 - Annex 2.1 Page 2 of 3
Table 2: Chinese Studentu Studying Abroad on Goverrment Scholarships and Returning Students
Year Students Studying Abroad Returning Students
1980 2124 162
1981 2922 1143
1982 2326 2116
1983 2633 2303
1984 3073 2920
1985 4888 1424
1986 4676 1388
1987 4703 1605
1988 3786 3000
1989 3329 1753
1990 2950 1593
1991 2900 2069
Source: China Statistical Yearbook 1992, p. 659.
Table 3: Sources of S&T Financing (Value in billion yuan)
Sources 1988 1989 1990 1991
State 11.80 12.80 13.90 15.60
Enterprises 10.20 14.70 17.40 18.10
Bank loans 4.90 4.10 5.20 7.50
Other 1.30 4.10 5.50 6.10
Total 28. 20 35.70 42.10 47.40
Sourc: China S&T Indicators 1992. - 35 - Annex 2.1 Page 3 of 3
Table 4 Forms of Economic Linkages with EnterpriBes and Economic Entities
Total Number Subordinated to: of Institutions Local Ministries Chinese Departments under State Academy of above Council Sciences County Level
Total 2821 1928 892 77
1. En t^C***bmy **z 361 225 136 10 medium sized enterprises 2. Leading or contracting 345 255 90 6 medium and small-sized enterprises 3. Joining or becoming 317 200 117 10 technology development centers 4. Merging with designing 170 79 91 5 and engineering entities to form contractor companies for technology projects 5. Developing technology 1060 756 304 30 jointly with others
6. Others 568 413 155 16
4nUXrc: White Paper on Science and Technology No. 4, 1989, p. 332. - 36 - AnnAX 2.2 Page 1 of 2
CHIN
TECHINOLOGY DEVLOPMET PROJECT
Sourc-a of Science and Technology Financing
Table 1: Domectic Technology Trade (Value in billion yuan)
Item 1988 1989 1990 1991
Number of 265,017 262,161 206,748 208,098 contracts
Value 7.2 8.1 7.5 9.4
Table 2: Domentic Technology Trade by Buyer (Value in million yuan)
Buyer 1988 1989 1990 1991
Number Value Number Value Number Value Number Value
Industry 179945 500829 181099 477818 136549 498611 131985 605430
Research NA NA NA NA 10626 59495 13341 71869 Institutes
Government 56686 172341 28406 185349 11214 55359 13774 91078 Ministries
Technical 4682 15622 10040 37513 3754 15519 6341 26169 Trade Associations
Private NA NA NA NA 5625 6204 2971 4693
thers 20273 31100 321183 106056 23672 98844 24139 103213 - 37 - ne . Page 2 of 2
Table 3: Domestic Technology Trade by Seller (Value in million yuan)
Seller 1988 1989 1990 1991
Number Value Number Value Number Value Number Value
Research 72416 275215 NA 411099 59235 268184 63213 444762 institutes
Colleges & 23828 39378 NA 43729 13475 66104 11912 68323 universities
Industrial 39018 153265 NA 152028 31563 144279 27112 124148 enterprises
Technical 67940 157728 NA 33386 61841 151561 67794 195204 trade associations
Private 10106 11734 NA 48414 6403 13256 7588 13902 Others 48288 82499 j NA j 118080 | 18923 90648 14992 | 56113
Sourc: China S&T Indicators 1992, p. 127. - 38 - Annex2. Page 1 of 2
CHINA
TEC DEVELOPMENTVOLOGY PROJECT
Information on NRCs Already in Operation jnd Not Part of the Proposed Project
1. SPC initiated a pilot program of ERCs (PERCs) in early 1990, with actual institutional arrangements starting in 1992. As of early 1994, there were 11 ERCs in operation and one under planning. During project appraisal, a data base was created for the compilation of information regarding the performance of these PERCs. A summary of the data collected is presented in Table 1.
2. The data shows that most PERCs were set up in 1992. However, these were developed before the selection criteria and the framework of incentives (now in effect) were in place. In addition, the PERCs have not been set up as independent institutes and their budgets are linked to the budgets of the sponsoring organizations. For these reasons, as well as the very short period of operation, it is not yet possible to make an economic assessment of their performance.
3. Most PERCs have yet to produce a profit, and those that already show a profit owe a significant fraction of it to the sales of products rather than income due from royalties or services. However, these results, need to be interpreted with caution as their experience is not necessarily applicable to the ERC program. Significant differences exist between the two sets of institutions. For example:
(i) Incentives Framework. The framework of incentives, under which the Bank has supported the ERCs is market-oriented, with a corporate structure and will use limited liability corporations. The PERCs are adjoint institutes to the sponsoring institution and work under the R&D incentive framework.
(ii) Selection Criteria. The selection, defined under the incentive framework has been carefully designed to promote market orientation & clear ownership; the PERCs were not selected under the same standards.
(iii)Monitoring and Evaluation. The 12 PERCs reviewed do not have clear performance criteria to measure success or failure. - 39 - Annex 2. Page 2 of 2
|BRCs | Year | Activities I Observations |______| Founded | Engineering Plastics 11/93 4 joint ventures in north Staff/60; ongoing training east China, and 2 planned activities with plans to (founded 11/93) for the south west. focus on SMEs to gain 60% of market. News Processing & 12/93 Engaged in joint R&D; Staff/45; ongoing training lectronic Publishing joint marketing; and cross activities. licensing. (founded 12/93)
Industrial Automation 3/92 Developed the SUPCON JX- Staff/40; considerable funds 100 Distributed Control allocated for training; System, and other looking to spin-off technologies; most income companies; and increase from services and market share from 2-20%. by products. 1997.
Fiber-Optic 1992 Joint R&D; cooperative Staff/530; solid training Communication & development; and most budget; focus on SMEs; and, Engineering income from services, targeting 20% of market royalties, and products. share.
Computer Software 12/93 Joint R&D; joint Staff/40 (by end of 1994); marketing; cross weak training budget; focus shareholding; and most on marketing 3 new systems. profits from services, royalties, and products. RobotTechnique 11/93 Joint R&D; cross share- Staff/125; focus on holding; and most income assembling, maintaining and from sale of products. training function of new technologies introduced in market. Shanghai 1994 Focus on joint R&D, cross No information provided. Microelectronics (target shareholding; and cross date) licensing. Optoelectronic Devices 1992 Joint R&D; joint Staff/72; marketing visible marketing; and most lasers which account for 80% prof its come from products of ERC's income; small and services. training budget.
High-End CNC 5/93 oint R&D and joint Staff/41; no training budget marketing; and most listed; targeting 10-15% of profits from services & market. products (10-15% market share for high-end CNC systems. VLSI CAD 1992 Aiming for 30% of domestic No information provided. (ongoing) market share 1995.
Semiconductor Material 1992 Joint R&D and joint Staff/204; training budget Engineering marketing. listed.
estuff 1995 Joint R&D; cross Staff/220; profits expected licensing; and purchase of in 3 years. atents. - 40 - Aexx2A4 Page 1 of 7
CHIA
TECNOLOGY DEVELOPMEN PROJECT
Statement on Technology Policy
February 1, 1994
This statement on technology policy by the government of China has been developed in the context of the proposed China Technology Development Project of the World Bank. It has been drafted by the State Planning Commission through a process of consultation with other relevant government organizations, including the States 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 MOFTEC (Ministry of Foreign Trade and Economic Cooperation).
I. Overview of China's Science and Technology Policy
The Chinese government's policy on the promotion of science and technology has been carried out since 1978 by making economic development its central purpose. The essence of this policy is to cast the aims, levels, priorities and tasks of science and technology development in terms of economic development strategy and objectives. At the same time, technology policy analyzes development trends in other countries and works out corresponding policies, strategies and organizational structure adjustments suited to China's national conditions so that technology promotes economic development within the constraints of limited resources and financing.
From the mid-1990s to 2000, the Chinese government's technology policy will be improved by deepening ongoing reform and widening its scope, applying reforms stably and sustainable under the general framework of a Chinese socialist theory and socialist market economy. Those technology policies and laws which were drafted and have proved effective over the past 14 years will continue to be implemented.
The foundations of science and technology policies are found in three documents: "Decisions on Policies of Science and Technology System by the Central Committee of the Chinese Communist Party" (1985); "Decisions on Some Issues of Establishing a Socialist Market Economy System by the Central Committee of the Chinese Communist Party" (1993); and the "Law of Science and Technology Progress of the People's Republic of China" (1993). All these policies and laws reflect major reforms from different stages of the period since 1978. The key points of the three documents are as followings:
a) The general strategy for technology development is to accelerate the process of transforming science and technology into an economically productive force. Therefore, economic development is dependent on science and technology, and progress in science and technology must be oriented toward economic development.
b) The State pursues the policy of "let a hundred flowers blossom and a hundred schools of thought content" in science and technology - 41 - Page 2 of 7
research, and encourages all kinds of scientific innovation and invention in order to benefit human beings.
c) The State and society as a whole should respect knowledge, talent and the creative work accomplished by scientific and technical labor, and protect intellectual property rights.
d) The State encourages collaborations and exchanges with foreign countries in order to promote technology transfer and the widespread dissemination of scientific knowledge.
e) The State will seek to integrate science and technology with the economy and actively promote the unity of the economy with science and technology.
f) The management mechanism in state owned enterprises should be transformed into a modern company system, and enterprises will gradually become the main entities of technology development.
g) The State will establish laws and regulations for smooth implementation of the above tasks.
II. Scope of this Technology Policy Statement
The development of a network of engineering research centers (ERCs) throughout China with support from the World Bank constitutes an integral part of China's overall science and technology policy. ERCs represent a new kind of institutional mechanism for linking the research and commercial sectors in technology development activities. This policy statement is intended to specify, the reforms in the four areas are most processing. A separate Annex elaborates on the implementation and timing of the actions discussed herein.
III. Greater Respect for Knowledge, Talent, and More Effective Protection of Intellectual Property Rights
ERCs and the institutions they serve will be deeply involved in the creation of new technology. Without a strong system of protection for inventors' property rights in this technology, it will not be commercialized rapidly. Throughout the 1980s and early 1990s, several new laws regarding intellectual property were put in place. In the 1990s, the main tasks in this regard will be the implementation of the enacted laws, policies and regulations on protection of intellectual property. To accomplish this, the following efforts are necessary:
a) Increase public understanding of intellectual property rights.
Public understanding and respect for the system of intellectual property rights is an important pillar for technology development. This is a long-term goal toward which China continues to work. A more focused strategy in this regard concentrates on the group of involved in technology development engineers, scientists, industrialists and government officials. More particularly still, the members of the ERC community-ERC engineers, collaborators in industry, university and research institute personnel-need to improve their knowledge of the system of intellectual property rights. This target group will be the focus of training and technical assistance programs developed in the context of the ERC program and implemented over the next few years. - 42 - Annex 2.4 Page 3 of 7
b) Provide training programs for judges, lawyers and others dealing with technology transfer to further acquaint them with the laws in China and standard international practice.
Each year, China's Patent Office, together with local patent administrations, holds various training courses and seminars many times. Participants in the courses include patent agents, patent workers, managers, scientific and technical labor from enterprises, judges from courts, and university students and tethers. In 1991 alone, patent administrations at all levels provided 31 offerings of various training courses for 2,292 participants. Last year, after the Amendment to the Patent Law was approved, the director of the Patent Office brought key operations members of extensive promotion and explanation of the law, and in the meantime, clearly proposed the development aims of "letting the public learn about patents and letting patents serve for the whole society". China's Patent Office plans in 1994 and the future to put even more law to let the patent concept grow roots in the hearts of people. It will further encourage scientific and technical labor to make better use of patents, while at the same time raise their general levels of understanding of the law.
At present, the examination for patent agents is held once every two years, and those who pass are awarded the "Qualification Certificate of Patent Agent". As a result of increases in the level of science and technology and in the number of patent applications, the number of patent agents is expanding rapidly. There are now more than 500 patent agency firms in China, and the number of patent agents exceeds 4000.
Institutions involved in external business are playing a major role in acting on behalf of foreigners and foreign enterprises for patent applications. There are now five patent agencies involved in external business in China, and this type of institution will expand in numbers.
c) Based on principles of a socialist market economy, establish relevant supervision and enforcement systems to complete the system of intellectual property protection.
On March 19, 1985, China joined the "Paris Treaty on protecting Industrial Property Rights" to promote the system of protecting intellectual property rights towards standard international practice.
In cases of patent infringement, the injured party may directly sue in the People's Courts; or ask for arbitration from the patent administration. If the arbitration is not satisfactory, the injured party may appeal to the People's Courts. The China Patent Office in 1989 drafted and then enacted "Methods of Patent Administration in Dealing with Patent Disputes". Its implementation is well underlay, and the Office is now making further amendment to perfect it.
To protect the intellectual property rights more effectively, People's Senior and Intermediate Court in Beijing has set up a special court on protecting intellectual property rights since 1992. At the past time, cases of intellectual property rights infringement were usually tried by economic court (in charge of industrial property rights) and civil court (in charge of other intellectual property rights) at all levels. Setting up two special courts on intellectual property rights in Beijing district is to suit the needs of the rapidly developing economy and the increasing cases of intellectual property - 43 - AnnAx 2.4 Page 4 of 7 rights infringements. The Supreme Court of the People's Republic of China has recently decided to experimentally construct a court on intellectual property rights in the Senior Court of such area along the coast with developed economy as Fujian, Shanghai, Guangdong, Hainan province in order to ensure effectively these areas opening to the outside and protecting the intellectual property rights. Chinese government will widen the experimental scope based on the need of market and the experimental results.
For the sake of having laws to base in the cases of charging technology contract infringements, China enacted "Arbitrating Principles of Arbitration Mechanism on Technology Contracts" on June 25, 1991.
The revised patent law (enacted in 1992) provides patent administrative authorities of dealing with counterfeit patents. To carry out the "Patent Law of the People's Republic of China" more effectively, Chinese government prepares to enact recently the "Temporary Provisions on the Activities of the Administrative Authority Dealing with Counterfeit Patents" to let all the authorities who enforce, supervise and administrate laws have laws to based on. Some provinces have developed methods of dealing with counterfeit patents.
Within the past two to three years, China has devoted much attention to the protection of trade secrets, with great legislative progress. The "Law of Unfair Competition of the People's Republic of China", approved at the third meeting of the Eighth National People's Congress (effective on Dec 1, 1993), specifically lists infringement of trade secrets among the rules against unfair competitive behaviors.
The trade secrets is defined as: "the technical and/or business information which is, while unknown to the public, able to bring economic profits to its holders and subject to its holders' protective measures". Infringers of trade secrets will be subject to civil and administrative remedies. In addition, legislation is planned, in due course, to clearly define the legal responsibility for criminal acts of infringement of trade secrets as a supplement to the "Criminal Law".
These recent and pending developments in trade secret law will bring China's legal framework to a point that is consistent with standard international practice. However, the question of public understanding and enforcement of these laws also deserves attention. In most countries, trade secrets are enforced through private contracts and confidentiality agreements. China will promote understanding of trade secret law among the public and the administrative and judicial system to move toward standard international practice in this regard. Chinese officials will not, in principle, initiate investigations or administrative proceedings on trade secret infringement until a law suit is commenced by an injured party.
IV. Strengthen the Channels of Technology Transfer on the Basis of a Sound Legal Framework for Economic Contracts.
In 1981, China enacted the "Economic Contract Law Concerning External Business of The People's Republic of China". In 1985, the Economic Contract Law Concerning External Business" was enacted, and the "Technology Contract Law of The People's Republic of China" in 1987. These three related statutes currently constitute the system of China's economic laws.
China is now at the stage of transforming its old system into a new one. The old system was premised on a relatively backward level of science and - 44 - Annex_Z2A Page 5 of 7 technology, in which legal protection for technology transfer did not operate well. Therefore, the coexistence of "Technology Contract Law for the People's Republic of China" and "Economic Contract Law Concerning External Business of the People's Republic of China" was necessary during this period. With the development of the economy, China will draw up a unity law on contracts.
As for administrative controls on technology transfer internal and external to China, the Chinese government believes that, making import and export policy and establishing protection institutes for technology transfer should be in accordance with the principle of freedom, fair, equality, and mutual benefits.
With regard to the domestic examination and approval of technology contracts and the system for technology import and export, the Chinese government will, on the basis of successful past reforms further coordinate domestic procedures to avoid double examination and approvals. In addition, it will gradually make the transition from a system in which project examination and approvals was the major approach to one based on "policy guidance".
An industry policy drafted by SPC and promulgated after approved by the State Council is a major style for government officials processing policy guidance.
V. Improve the Taxation Climate for Technology Development
A. Taxation
The "Decisions on Some Issues of Establishing Socialist Market Economy System by the Central Committee of the Chinese Communist Party" in principle formulated policies regarding future taxation reform in China. The principles are: uniform tax, fair tax burden, simple tax, rationally divided power, smooth distributive relation, standardize distributive structure.
With the socialist market economy system being established, the enterprises and institutes are urgent the new taxation system to ensure their vitality in competition. In 1993, the State Council enacted, "Temporary Regulations of Increment Taxation of the People's Republic of China", "Temporary Regulations of Expense Increment Taxation of the People's Republic of China" and others total five new regulations. These regulations have been put into effect since January 1, 1994.
Taxation reform being the leader of the whole economy system reforms shows that the Chinese government put the taxation reform on the key position of the whole economy system reforms. The new regulations of taxation reform encourage and favorite enterprises and institutes (including ERCs) to engage in technology transfer, for example, increment taxation will be freed if the departments above import apparatus and equipment to engage in science research and technology transfer. Therefore, China provides a good taxation environment for technology transfer though circulation and diversion taxation reform with fully practicing increment taxation as its major contents and though income taxation reform with unifying and standardizing domestic enterprises income taxation as its major contents and through other taxation reforms forming a complete set with the above reforms.
China will from now on integrate decision-making on reform more firmly with that on legislation, and to guide, carry forward and secure the course of reform smoothly. - 4b - AnTiex 2. 4 Page 6 of 7
B. Risk Capital
The market for risk capital in China is still at its beginning stage, and there is thus a major need to accelerate the development of a risk investment system if technology development and transfer are to thrive. Many diverse actions are necessary. New channels of funds from the central and local government, from large state-owned enterprises and from overseas, including Hong Kong and Taiwan. Different forms of investment encouragement will be tried, including subsidize projects, favorable or no interest loans and shareholder-based private enterprise.
The investment environment for foreign enterprises will be improved, leading to a situation of free entry and exit for foreign capital. Since January 1, 1994, China has carried out floating rate which is single, administrative and market-based. The Chinese currency RMB is scheduled to become fully convertible to foreign currency under a single market-based exchange rate over a long period of effort.
The principal government agencies which have direct relationship with the risk-capital are MOF, MOFTEC, SPC and the People's Bank of China, etc. Increased coordination of their various relevant policies will be developed.
China has determined to apply gradually the shareholding system to high technology companies and 100 enterprises will be selected pilot to transform their management mechanism to modern company system.
It should be noted that the ERC program itself should provide a prototype of the system that can mobilize different sources of capital and focus them on particular technology development needs with the promise of significant returns.
VI. Establish Skilled Labor Market to Promote Optimal Labor Allocation and Mobility in Line with the Principles of a Socialist Market Economy
Since 1978, China has begun gradually to develop a labor market, and the majority of university graduates are going to companies demonstrates the rational and scientific nature of the Chinese government's policy in this regard. In the future China will address the following:
a) the urgency of establishing a social security system suitable to the socialist market economy With the establishment and development of a socialist market economy, competition is forming, and the establishment of social security system and agencies is therefore urgently required. We believed that the establishment of a social security system in the future should be accomplished by means of legislating, policy making, setting up multi-level social security regime (social insurance, social relief, social welfare, special care and arrangement, mutual assistance and individual saving accumulation security), reforming medical care system, and building housing funds and pension system, etc.
In fact, a new social security system have already been established in some state-owned enterprises.
b) Encouraging the science and education people flowing into the production areas - 46 - Annex 2.4 Page 7 of 7
We believe that the education is the foundation of the nation's development and at any time and under any circumstances, the education system should retain high quality talent. However, given the relative surplus of talent in the higher education system in China recently, the Chinese government is therefore encouraging some of these individuals to move to other sectors in order to promote economic development.
c) labor allocation The Chinese government is going to integrate skilled labor training with proper utilization, set up qualification and recruitment standards for various occupation, employ academic certificate and vocational qualification system, and gradually practice recruitment and equal competition to promote rational mobilization of labor. Furthermore, it will implement a policy of "support studying overseas, encourage coming back and allow going out and coming back freely", and in multiple ways urge Chinese abroad to serve their motherland.
VII. Conclusion
The statement on technology policy above state clearly that China has possessed the fairly good conditions which can completely pledge that the science and technology projects of the World Bank will be carried out smoothly and effectively.
Signed by (Wang Chunzheng)
Vice Minister State Planning Commission - 47 - Annex 3.1 Page 1 of 3
CHINLA
TECENOLOGY DEVELOPMENT PROJECT
State Council Regulation. on Deep&ning Science and Technology Syst R-fonm January 10, 1987
Background
1. Since the central government decided to reform the science and technology system more than one year ago, a number of measures have been adopted to reform the method of allocating fund for science and technology, to develop technology market, to expand the autonomy of research institutions, to promote the liaison between scientific research and production, to strengthen the enterprise's capability of absorbing and developing new technology, and to reform the management system of specialized technical talents. These measures are aimed at implementing the central government's policy of basing economic initial results to the satisfaction of the large numbers of people in the scientific and technological fields and the society as a whole.
2. However, it must be pointed out that the fundamental problem of science and technology being disconnected from production has remained unresolved. The organizational structure of science and technology has not been changed. It is still a closed-up system. Major research institutions are still attached to administrative bodies and they do not have an interdependent research institutions belonging to line ministries and universities, whereas there is a severe shortage of research personnel in light industry, textiles, and commercial fields as well as in localities and rural areas. Since there are not effective measures and policies to promote the marriage of research institutions with enterprises, many research institutions continue to strive for self-reliance and they seldom develop close relationship with enterprises. On the other hand, research institutions developed by enterprises continue to try to de-link themselves from parent factories. Particularly after the restructuring of line ministries and the decentralization of enterprises, the line ministries have been trying to strengthen their control over research institutions.
3. Now the economic system reform is deepening and the reform on the state administrative system has begun. Therefore, the 1987 science and technology system must make new progress on the basis of reform measures that have been issued by the State Council so as to meet the needs of new developments. To achieve this objective, the following regulations are formulated.
4. Further loosen controls over research institutions, promote multi-tier and various forms of horizontal linkage between research and production, forge close links between the development of science and technology and national economy. - 48 - Annwex 3-.1 Page 2 of 3
(i) All line ministries under the State Council must separate administration from research functions. They must streamline administration, decentralize decision-making power and gradually hand down research institutions to enterprises, conglomerates, sectors and central cities. The state should change its management over research institutions from direct control into indirect control, i.e., giving instructive leadership and providing coordination service.
(ii) The majority of research institutions that are engaged in technology development, particularly those in the field of product development, must gradually enter enterprises and conglomerates or develop close relations with them. The provision of their research fund should gradually shifted to retainment from total sales revenue of enterprises and enterprise groups.
(iii) Other technology development research institutions can adopt various forms to link themselves with economic construction. A small number of institutions that have a major impact on sectors can become technology development centers for their sectors. Some can open their services to small and medium enterprises and TVEs and become their technology development centers and regional technology centers. Some can cooperate with designing and construction units to form technology engineering companies. Some can take over enterprises to become technology-oriented conglomerates or research- production type of enterprises. Research funds for these institutions will mainly depend on revenue of enterprises and social services.
(iv) Institutions must streamline their administration bodies. In the next few years, no new institutions will be established and existing institutions will not be expanded. Readjustment will be conducted on existing research force. Some people will leave while new forces will be recruited so as to improve the competence of the research force.
(v) Accelerate the reduction of research expenditure. The retention rate of bonus fund of research institutions and the quota limits of bonus issuing will be linked with the reduction rate of research expenditure. After the implementation of wage reform, wage increase out of self retention can be deducted from revenue. Enterprises must take measures to facilitate the stable development of research branches and encourage scientific and technical talents to join enterprises.
(vi) Implement the director responsibility system. The director will be responsible for both the operational and administrative management of the research institution. For those institutions that have made marked achievements in reform, whose economic and social benefit rates are high or have become self-sufficient in research funds, the income of - 49 - Anne 3.1 Page 3 of 3
their directors and vice directors can be two to three times as high as ordinary employees.
(vii) To gradually separate the ownership and management rights of research institutions is an important policy for deepening structural reform of research institutions and strengthening their capability of serve economic development. Smaller technology development and research institutions can experiment with contracting. Those poorly managed and inefficient institutions can also be contracted out. Large comprehensive research institutions should also actively explore new management models in the course of reform, such as dividing the institution into a number of units with independent accounting, or let these units be attached to enterprises and enterprise groups, or contract their management to collectives or individuals. Under the prerequisite of abiding by state regulations, contractors should be guaranteed their right of self-determination in management and their legitimate interests stipulated in the contract.
Human Resource Development
5. Further reform the personnel management system for research institutions, adopt more flexible policies for science workers and create a favorable social environment to allow them to fully display their talents.
6. Departments concerned should organize or encourage some science workers to get out of the institutions, universities or government departments and work with enterprises in urban and rural areas. They can leave in various forms such as job transfer, maintaining employment without pay and resign. They can either sign contracts with the enterprises to take over management, provide technical and consultation service, or establish small and medium joint ventures and joint stock companies. They should be allowed to obtain legitimate income for their services. Technical stock shares are also entitled to dividend sharing. Those science workers who can help others become rich should be allowed to get rich themselves. governments at various levels should give more flexible policies on wage, welfare, academic title, residence registration and organizational relationship for science workers. And they should also support scientific undertakings in the provisions of credit and loan, risk investment, fund raising through issuing stocks and taxation.
7. To loosen restrictions on science workers will accelerate to be commercialization of scientific and technological research results, promote the development of technology and create a new generation of enterprises and industrialists who can make valuable contributions to the development of socialist commodity economy and the country's scientific and technological undertakings.
8. Line ministries under the State Council and various localities formulate implementation details to resolutely deepen the science and technology system reform in accordance with these regulations and local conditions. - 5u Annex 3.2 Page 1 of 8
gNA
TECHNOLOGY DEVELOPMKNT PROJECT
SPC Statement on the Technology Development Project August 1993
1. BackFground The Chinese Government, by implementing the Technology Development Project to be financed by the World Bank, aims at helping the Chinese enterprises, research institutions and universities, based on their respective comparative advantages, to accelerate the transfer of scientific and technological results into industrial sectors for mass production in a comprehensive way, and thus providing good opportunities of development for them. Under this project, 40 to 50 Engineering Research Centers (ERCs) will be established with potential for the development of Chinese industries. This model will be a great improvement upon the existing ones in terms of guiding principle, aim, operational mechanism and policy environments. It is expected to be an impetus to the improvement of the Chinese industrial structures, the rationalization of resource allocation and the protection of the environment. It is also hoped that through the implementation of the project a sound policy framework will be put in place to promote the integration of science and technology with economic development and to improve the market system.
1. Refoms The Technology Development Project is logically called for by the system aimed at reforming the Chinese Economy. The Reform and opening of the Chinese economy first initiated in the rural areas over the past decade has achieved great success, laying solid basis for further reforming the overall economic system of the Country. The rural reform started with the implementation of the Household Contract Responsibility System linking Remuneration to Output which has successfully addressed the issue of ownership and management in rural areas. Secondly, great emphasis was put on the development of the shareholding township and village enterprises (TVEs) which have now become an important part of the national economy, accounting for more that 1/3 of the industrial output. The TVE's success can be well explained by a flexible operation mechanism and an income distribution patten consistent with the market economy.
2. The urban economic system reform has also made great progress in the recent 10 years. However, a lot of difficulties have been encountered. Among them are the widespread lack of vitality of SOEs, the far-less-than-perfect rules and regulations for market competition, the lag of the government institutional reform behind the rapidly changing situations. These have served to highlight the necessity and importance of further acceleration of the pace of economic reform. The enterprise reform is at the core of the urban reform and is the key to the success of the overall reform efforts. The success of the SOE reform depends on the systematic reforms. The ownership of SOEs must be clarified, and the relationship between government and SOEs be rationalized. In this connection the successful TVE experience is highly relevant to SOEs in the sense that all the enterprises must be transformed into true legal entities and agents under market competition, which are autonomously managed, self- disciplined, responsible for their own profits and losses, and responsible for their own development. The priority of the current reform agenda is to transform the operational mechanism of the enterprises in order for them to - 51 - Annex3. Page 2 of 8 compete in the market. But given the fact that the majority of the Chinese enterprises have for long been isolated from research institutions due to the systematic reasons, they are not equipped with adequate R&D capacity. Many of them do not have their own R&D institutions, and can merely manage to run their own production lines. At the same time, however, their demand for technology has been ever increasing because of the pressures from market competition and the development incentives they have. Therefore, the issue of integrating enterprises and research institutions must be addressed systematically and their own operational mechanism be transformed if they are to survive the market competition and transform their own operation mechanism.
3. On the other hand, the existing huge research capacity, which has evolved to become isolated from the enterprises due to historical reasons, can no longer meet the need of an emerging market economy and has proved to be impeding the transfer of scientific and technological results to productive sectors. Despite the progress made in this regard during the recent decade, further efforts are yet to be made to effectively integrate the research institutions, which are still operating in an isolated way, with the enterprises and productive sectors. In this respect, the pace must also be quickened, and their operational mechanism be transformed in response to the development in the market. The integration of the research institutions and the enterprises in accordance with market principles is exactly what the proposed project strives for.
4. Economic Development Technological advancements and efficiency improvement of the national economy as a whole are crucial considerations under the proposed project. The rapid development of the world economy during the past four decades can be attributed, to a large extent, to the increasingly eminent role of science and technology. In developed countries, technological advancement is accounting for 60 to 80% of economic growth. In China science and technology have also become a crucial factor contributing to the development of the national economy, accounting for 30% of growth as compared with 20% in the past. For the recent 30 years, the pace of transfer of scientific and technological results to industrial sectors has been greatly quickened, and the time-span increasingly reduced.
5. Role of Science and Technology The role, importance and necessity of science and technology in economic development have testified that the economic competition in today's world is in fact the one related to the pace of transfer of scientific and technological results to industrial mass production. At present the development of the Chinese industries is still of an extensive pattern, driven mainly by financial inputs and the consumption of physical and human resources. The rapid development of TVEs and medium-and-small-sized enterprises further necessitates the adjustment and optimization of the Chinese industries. Today in China, the inadequacy of financial resources needed for development, the per capita energy consumption higher than the world average, the per capita labor productivity as low as only several per cent of that in developed countries, and the per capita possession of natural resources far from being rich have all made it impossible for China to continue the current extensive pattern of development which relies exclusively on the consumption of natural, financial and human resources for simple reproduction. Such a development pattern cannot but result in imbalanced industrial structures, duplication of enterprise development, serious waste of resources and worsening environmental pollution. The Chinese economy must rely - 52 - Arnnx 3.2 Page 3 of 8 more on scientific and technological advancements, especially on their transfer to industrial production, if it is to develop in the future.
6. ERCs Aiming at accelerating the transfer of scientific and technological results into production, the Engineering Research Centers (ERC) to be established under the proposed project will focus on the engineering and systematic integration. Enabling environment and necessary pre-conditions are already in place after 14 years of successful Chinese reform process. Great achievements have been made in various areas since China embarked on the reform and opening program 14 years ago. It has been made very clear that China will establish the socialist market economy as the goal for reform, and the pace of reform has been further quickened since last year. The market system and the various policies, laws and regulations are being set up and perfected. All the foregoing has provided a sound external environment for the establishment of the ERCs under the Technology Development Project. Through reform and opening, more and more enterprises and research institutions have regained their vitality. With 120,000 scientific and technological results waiting to be transferred into productive sectors, the Chinese enterprises and research institutions have prepared themselves for the establishment of market economic system both conceptually and physically. Moreover the policies and guiding principles clearly defined by the Chinese government in its effort to build the socialist market economy will minimize the potential risks to be faced by the project.
7. A widespread consensus has been achieved as the basis of the Technology Development Project. ERC's were first conceptualized in 1987 at a seminar on the transfer of university research products and began to be experimented by the Government in 1988 on a case by case basis. Several years of experience have proved the effect of the ERCs in accelerating the technological transfers. The ERCs are of the following features:
* market orientation; * close integration with enterprises; * sound operational mechanism (responsible for their own development and survival through market competition); * engagement in technological transfers.
8. In 1989 a series of studies and discussions about ERCs were conducted by the Chinese government and the various parties concerned. In 1990 a basic agreement was reached by the Chinese government and the World Bank on establishing the ERCs as a new model for optimizing the Chinese industrial structures and improving the competition capacity of the Chinese industries. At the same time, many research institutions, universities and enterprises showed great interest and submitted one after another their proposals for setting up ERCs. During the period, many countries like US, UK and Australia were taking active measures to transfer scientific and technological results to productive sectors. The growing consensus in this respect is the rationale for the proposed Technology Development Project.
9. The Policy Framework of the Technology Development Project The policy framework concerning the proposed project covers the two major categories: policy system and legal system. The policy system of the Technology Development Project is mainly based on "The Decision of the Central Committee of the Chinese Communist Party to Reform the Economic System" promulgated in 1984, "The Opinion of the CCCP on Accelerating Reform, Widening - 53 - Annex 3.2 Page 4 of 8
Opening and Upgrading Economic Development" promulgated in 1992 and other related technological and economic policies. The Decision is the major policy of the 1980s which recognizes the fact that the Chinese economy is the planned commodity economy and that the enterprises are independent producers and managers of commodities. It sets the direction for, spells out the aims of, and provided strong policy support to the Chinese economic reform in 1980s. The Opinion declares the necessity and practicality of developing market economy in China. It acknowledges that the socialist market economy is the goal of system reform in 1990s and that the transformation of the enterprises' operational mechanism must be accelerated. It provides the crucial policy support to the economic development in the years ahead as well as the theoretic support to the implementation of the proposed project. There are also other special policies which are indispensable for the project. Among them are "The CCCP Decision to Reform the Scientific and Technological System" and "The Decrees Regarding the Transformation of the Operational Mechanism of the State Owned Enterprises".
10. The above-mentioned policy system can be further divided into 2 major types. The first type pertains to the economic system reform and includes four sub-types covering macroeconomy, microeconomy, finance and enterprise reform. The second type pertains to the scientific and technological system reform and also includes four sub-types covering macro science and technology, research institutions, enterprise technology, and personnel mobility and the corresponding financial reform. The Chinese government will continue to formulate a series of macroeconomic policies to address some special issues with a view to ensuring that the socialist market economy be established in a smooth manner.
11. Legal Framework Being responsible for their own management, development, profits and losses, ERCs must operate within the existing legal framework which includes 3 major types as follows:
* the laws which ERCs must abide by as an economic entity, especially the Enterprise Law; * the laws which ERCs must abide by as a R&D entity, especially the Scientific and Technological Advancement law; * the laws represented by those on protection of intellectual property rights (e.g. Technological Contract Law and Patent Law), which ERCs must abide by as entities engaged in technological transfers under the market principles.
12. Moreover, the legislative branch of the Chinese government plans to promulgate 60 economic laws in 1993 and 1994 which can be divided into two categories. The first category refers to those laws which are required to be submitted for approval on schedule. Some are currently being reviewed and expected to be approved by the National People's Congress by the end of this year. These include Corporate Law, Fair Competition Law (revised), Real Estate Law, Law of Protection of Consumers' Interest, Individual Income Tax Law (revised), Accounting Law (revised), Certificate Public Accountant Law, National Compensation Law. Besides 15 laws are expected to be reviewed by NPC in 1994, including Banking Law, Bills Law, Advertisement Law, Arbitration Law, Mortgage Law, Auditing Law, Insurance Law, Publication Law, National People's Congress Organization Law (revised), Rules of Procedures of the Standing Committee of the national People's Congress (revised), Election Law (revised), Local Organization Law (revised), Court Organization Law (revised) and Procuratorial Organization Law (revised). - 54 - Annex 3.2 Page 5 of 8
13. The second category refers to 32 laws which should be submitted for approval as soon as possible if circumstances permit. These include Township and Village Enterprise Law, Trust Law, Labor Law, Civil Aviation Law, Energy Conservation Law, Highway Law, Telecommunications Law, Law of Defense Research and Production, law of Protecting Equal Rights of Dispersed Ethnic Minorities, Association Law, Policy Law, Prison Law, Birth Control Protection law, Rules of Judges, Martial Law, Lawyers' Law, Education Law.
In terms of aim and function, the above-mentioned laws can be divided in to four types:
* laws designed to discipline the market agents like Corporate Law; * laws aiming at upholding fair competition and adjusting relations between market agents like Fair Competition Law; * laws aiming at strengthening macroeconomic regulation and promoting coordinated development of the national economy, like Budget Law; * laws to establish and improve the social security system, like Labor Law and Insurance Law.
14. According to the authoritative sources, the pace of legislation will be greatly quickened under these arrangements. And an economic and legal framework of the socialist market economy is expected to be put in place by the National People's Congress within the next five years. The legal and institutional development of China has lagged behind the developments in other areas, since it had been neglected for long until the late 1970s. Currently speaking, great emphasis should be placed on overcoming the difficulties in supervising and enforcing the laws which have already been promulgated. To sum up, the Technology Development Project will be implemented within the policy and legal frameworks described above. Along with the progress of reform and opening up, the Chinese government will further formulate and improve a series of laws and policies to ensure that the market competition be conducted in a fair and disciplined manner.
15. Policies The orientation by SPC in its transformation of Macro economic management is to make macro economic programs, coordination, to disseminate information, and to make necessary supervision and render services. SPC has decided to reduce its administrative intervention and by formulating industrial, technology development policies to influence the industrial development. On the other hand, SPC intends to help create an appropriate environment conducive to the goals for enterprises to be autonomous in their management and operation, to be responsible for their own losses and profits, and their viable long term development. And by all these measures, to establish a macro economic management system consistent with the fundamentals of market economy. In this context, SOC is of the view, regarding the proposed Technology Development Project, that in order to accelerate economic development, continued efforts toward policy adjustment must be made so that the proposed ERCs and operate as independent agents under a market economy. The major measures at the moment are centered on execution and enforcement of the relevant laws and regulations.
16. It is necessary for the government to make guidance to the proposed Technology Development Project, mainly in policy dimensions, in order to facilitate the development of ERCs along the line of market economy. And such guidelines must be made with new operational mechanism. Instead of the - 55 - Annex 3.2 Page 6 of 8
administrative means as practiced previously, such new mechanism shall be market based, aimed at linking between productive firms and research institutes. By experience and practice over the past, shareholding companies shall be one of the appropriate forms in making such linkage. Shareholding companies may able to combine firms and research institutes in terms of their respective rights, responsibilities, and benefits, based on the market economy principles. If such experiment proves to be successful, it is going to provide with a large number of productive firms and about 5,000 large-scale research institutes a good model for the systematic transformation. It is therefore believed that the execution of the proposed project will likely contribute to the healthy development of the Chinese firms and research institutes in terms of policy changes. However, many issues still remain unresolved in establishing shareholding system with ERCs, and very likely a transitional mechanism (ex: management Committee, instead of Board) is to be required in establishment of shareholding system for ERCs, but it is evident that shareholding system sheds a very positive light in ERCs' orientation.
17. Investment It is still very necessary for the government, at this stage, to provide assistance in investment into research and enterprises for this purpose. China, being a developing country, spends merely 0.7% of its GNP on science and technology, and lags behind not only industrial countries such as US and Japan, but also the newly industrialized countries. And such gap is both in absolute and relative terms. At present, the investment by the Chinese enterprises and research institutes in the commercial transformation of scientific and technological research results remains very little, due to the high risks to them. China is now in the transformation from the planned commodity economy into socialist market economy, and to reach this goal, enterprises and research institutes must transform themselves into the driving forces under the market system, however, to encourage them to take more risks in undertaking commercialization of the innovations, the government is still needed to provide some assistance and guidance. In the process of transformation, the government shall not only make efforts to have enterprises more market oriented, but also, more importantly, to help them to expand their business in the new environment of competition. This, together with appropriate policy in place, also requires government's input to create necessary conditions, so that enterprises and research institutes are able to compete both in domestic and international markets. In this context, some investments by the government into technology development, particularly into the chain of commercialization toward industrial production, are of high necessity. Since China's expenditure in science and technology still remains government dominated, therefore, from the governments' point of view, additional expenditure into commercialization of innovation is of priority. And in a sense, this is aimed to encourage enterprises and research institutes alike to develop on this path, and at providing the better conditions for them to face competitions. And eventually, with policy and investment, guide enterprises to be the major forces in investment into technology development.
18. Based on foregoing, Chinese government believes that the proposed Technology Development Project, under the policy framework as referred to, shall influence the systematic changes the government intends to see, in terms of the policies, operating mechanism, and the working conditions affecting enterprises and research institutes. Further more, SPC is in charge of formulating and implementing industrial policy. Therefore, to integrate the proposed project into the implementation of industrial policy, undoubtedly will add importance to the project. Under the completed regulations on ERCs last - 56 - Annex 3.2 Page 7 of 8
year by SPC, the industrial policy is emphasized. For instance, the Guideline regarding ERCs Establishment during Eighth Five-Year Plan (91-95), which we previously discussed with the World Bank, was publicized nationwide via media, also stress the importance of industrial policy.
19. ERC Eligibility ERC candidates, to be eligible for the financing under the proposed project, in addition to the policy and legal framework, and the proposed shareholding system or an alternative transitional system toward shareholding system, must take note of the following aspects:
(a) Domestic and World markets shall be seen as integrated. This may be ignored by many chinese enterprises and research institutes due to the fact that Chinese economy has long been in a protected domestic market. Along with open-up policy and gradually transforming toward market economy, in essence, world market is the same as domestic market. Therefore ERC candidates, in formulating their strategy,must be market oriented, and particularly world market oriented.
(b) External Advanced Technologies shall be an important source for ERCs in their efforts toward commercialization. This shall be adequately emphasized to make ERCs competitive over long term. Some successful cases can be applied among the ERC candidates. A candidate under China Academy of Sciences, bought patents from GE, USA and a Japanese firm, and made successful commercialization. As a result, the entity has experienced rapid development in sales both in a domestic and international markets. A research institute in Shanghai, jointly with two local firms purchased from a US firm production technology, and with process of commercialization, achieved good results.
(c) ERCs shall be an economic agent in the market, and make profits. However, the government shall have clear policy guidance for them so that their viable development be technology transfer and new project development oriented in materializing their profits. This shall help establish a large number of technology transfer centers in China, not merely some productive enterprises. Otherwise the rationale for ERC establishment and development will no longer be there, and the proposed Technology Development Project, in terms of its objectives, will not have the significant potentials over the long term economic development. The ERCs already in experimental operation, are all profitable. It is the government's intention, with policy guidance, that ERCs shall develop themselves mainly in cooperation with the industries of commercialized technology, not themselves into large- scale production units. Of course, we do not rule out the possibility that some ERCs, particularly those engaged in high technology development, will evolve into high-tech production enterprises themselves.
20. Long-term Possibilities of ERCs There may be at least three development patterns for ERCs in future, under the present policy framework:
(a) Some ERCs may eventually be merged into large enterprises/enterprise groups, and function as their own R&D department, and these - 5*7 - Annex 3. 2 Page 8 of 8
enterprises may be hopefully evolving to be multinationals themselves.
(b) Some ERCs may develop themselves into new technology development corporations. It is more likely that those engaged in high-tech development may be able to do so, and with such forms, R&D, production and marketing will be integrated under one firm.
(c) Still more ERCs may develop into independent technology transfer centers, and they themselves do not undertake large-scale production.
Given these possibilities, the government is of the view that under the present policy framework, the proposed Technology Development Project has a very good prospect for success. However, we need to continue addressing the problems and issues as they arise in our efforts to establish and develop ERCs, and some correct additional policy and regulation may be required to be formulated, so as to ensure that the proposed project achieve the objectives set by the Chinese government and the World Bank.
21. Conclusions: (i) policy adjustment and reforms by many countries; (ii) rapid development in the World Trade and international division of labors; (iii) increased technology transfers into large-scale industrial production. The proposed project, in such context, shall address, in China's environment, both policy changes and adjustments, and the challenges of technology development and transfer. These objectives shall be seen in the present situation of transformation in China from a planned commodity economy into a market economy, as well as based on the requirements that Chinese industries must shift their structures from high energy consumption, low efficiency, into technology-driven, productivity-oriented ones. In essence, the proposed project is aimed at trying to develop new mechanisms and new modules in terms of policy and investment, to enhancing and accelerating technology transfer into industries, and eventually, achieving the task of industrial structural changes, improving productivity, and protecting environment. The proposed project, as we believe, under the represent policy framework, in China and possible better policy environment in future, will move forward. However, it is anticipated that during the course of its implementation, efforts shall be intensified to address the new problems and issues, to start new experiments, particularly in the areas of making ERCs viable entities in the market competition, through their advances in technology development and transfer. In this regard, we expect a large amount of work needs to be done, and all the measures to be taken shall be market oriented. - 58- Annex 3.3 Page 1 of 6
CzNA
TECHNOLOGY DEVELOPMENT PROJECT
Survey of Industrial Technology D-velopment Operation. Fundad by the Bank
Backgound
1. A survey has been conducted of the Bank's financed Industrial Technology Development projects. The results of the survey are expected to document the past institutional experience with the financing of projects of this nature and to summarize the main lessons learned from our involvement in the field.
2. Industrial technology development projects have generally been characterized as those aiming to promote linkages between R&D, the productive sector and the market place. By their very nature, the scope of technology projects extends far beyond the technology sector. Market imperfections, legal, fiscal and capital market reforms are areas often addressed by industrial technology development projects. Therefore, industrial technology development projects offer the Bank an avenue for initiating a broad-based dialogue on many of these issues affecting the domestic industrial sectors.
3. The first project financed by the Bank was presented to the Board during FY 1975, for a loan amount of $5 million to finance an Industrial Development Operation in Israel. Key components of this project dealt with support of research and development (R&D) and technical training. Since then, a total of 11 industrial projects, which can be characterized as Industrial Technology Development Operations have been appraised and approved by the Board. The total cost of these projects exceeds $2.2 billion and has involved Bank lending equivalent to $0.7 billion. A list of these operations is attached in Table 1.
4. The activities sponsored by these projects have included:
(a) support for the organization, set up and development of institutional infrastructure for technology development, including training;
(b) financing of technology development programs involving support to R&D institutions and application centers;
(c) financing of information services, including the organization of data bases, information-networks and access to patents and other sources of foreign technology and know-how;
(d) financing of venture capital funds.
status of Projects
5. Out of the eleven projects approved by the Board, four have been completed for which Project Completion Reports (PCRs) are available, while 59 - - Annex 1. Page 2 of 6 seven are at various stages of implementation. The most recent operation was approved by the Board in FY 1991 and involves a Technology Development Project in Turkey.
6. Out of the list of eleven projects, five are thought to be potentially instructive to the operation under development in China, because of the similarity of issues encountered during their preparation and based on the specific objectives sought though their implementation. The particular projects that fall into these category include: a) the three Korea Technology Development Project, approved in FY 1982, for $50 million; FY 1985, for $50 million; FY 1988, for $50 million; b) the Spain, Industrial Research Development and Engineering Project, approved in FY 1990. The scope of the activities supported through these operations resemble the closest the activities envisioned under the proposed project in China. further, the Korean and Spanish projects have been characterized by OED as "instructive" and "influencing future project design". The project in India was characterized by IENIM as "most innovative".
7. A summary of the most relevant issues faced during preparation of these projects and the lessons described in the PCRs for the first two Korean projects are presented below. While no perfect project design exists and technology policy should be geared towards the specific needs and situation of a country, the Bank's experience does provide a set of common themes which could guide future industrial technology development projects.
8. Some Issues faced during project preparation:
(a) Technology Policy as it relates to industry has a major role in determining competitiveness and productivity; therefore it cannot be seen in isolation from issues such as macroeconomic policy, trade, protection, licensing procedures, and exit policies. The combined effect of these factors in determining the competitive advantage of the domestic industry in a country needs to be understood and properly addressed. Therefore, a review of the general policies affecting competitiveness and productivity needs to be undertaken at the time technology policy is being examined.
(b) Institutional Development. The Bank's role has been most critical when the success of a project depends on a sustained commitment to institutional development in areas where financial returns are hard to quantify and where business failures are a necessary part of the innovation process. Failures may dissuade an individual firm from investing despite the fact that industrial technology development benefits the society at large. Investing for the long- term has justified Bank involvement in supporting the infrastructure for technology development.
(c) Human Resource Development. Although the technology development projects selected for review are not directly involved with higher education, or other aspects involved in the development of the human resources indispensable for successful R&D, a few lessons have been obtained in the area of training and skills development:
(i) First, the Bank's involvement in technology development has often resulted in the setting up of new and complex - 60 - Annex 31 Page 3 of 6
institutional arrangements which can have a combined educational and applied research agenda. The need to have a solid management, administrative and monitoring capability built into the scientific function is essential in these cases. For example, institutions set up and supported through technology development projects should have clear commercial criteria against which their success or failure can be judged. The commercial and economic rationale for the day-to-day functioning of these institutions needs to be clearly laid down, for which proper management and operational skills are essential;
(ii) Also, the Bank's role has been far greater than merely setting up a suitable infrastructure to establish the direction of technology development. The Bank has been involved in training and support of monitoring and evaluating technology development activities.
(d) Market Signals. Proper technological choices are only possible when markets can operate freely and effectively. Rational pricing of resources and outputs to guide decision-makers, both private and public have been found essential to guarantee that the investments in technology development are used in an optimal manner. Long-term sustainability and quality performance are concerns that have been addressed through greater involvement in setting up the proper incentives.
(e) Regimes for Protecting Intellectual Rights. Financial incentives given to firms to innovate will give the desired results only if the legal and fiscal infrastructure for that particular incentive is in place (as an example Venture Capital Funds set up in India were accompanied by suitable fiscal and legal changes). Inadequacies in the legal protection afforded to technical knowledge not only limit opportunities for domestic innovation but also severely constrain cross-border technology flows (one of the Bank's latest projects, i.e., Mexico Science and Infrastructure Project includes funding for an agency set up to implement the intellectual property laws already in place).
(f) Role of the Public Sector. Private sector firms in OECD countries have been extremely useful in inducing innovation processes. Government efforts to correct imperfections in factor markets will generate maximum social returns when the government concentrates its efforts to build a partnership between the public and private sectors (strengthening the capacity of public institutions to deliver measurements, standards and quality control services to the private sector; promoting and providing training to technical personnel and; setting up risk-sharing mechanisms) while recognizing that the private sector should take the lead in the actual development of new products and services.
(g) Access to information. The development of technology is anchored in the availability of information, not necessarily the information generated at the local R&D institutions but from all suitable sources. A wealth of information is continuously been - 61 - Annex 3.3 Page 4 of 6
made available from industrial countries, which is accessible through patent offices or through technology transfer mechanisms. Cost effectiveness in the development of new products and services, requires the efficient use of these resources.
(h) Role of Standards and Methods. Future advances in most high technology areas inevitably require refinements in measurement techniques and agreed standards. Therefore, a component of industrial technology development projects usually involves the strengthening of the measurement, standards, norms and quality control functions. The training of the workforce that makes these systems operative is essential.
(i) Appropriate timing is important in technology development projects. The ability of a country to go to a more technology intensive level depends on the general level of industrialization and the availability of technical manpower to absorb and diffuse the new knowledge.
9. Lessons learned from project completion analysis and supervision reports.
(a) Financing industrial research and development as a component in ITD projects is very difficult if institutions and mechanisms for bringing about the commercialization of R&D results do not exist. The necessity of creating new financial institutions and/or establishing links with existing financial intermediaries explored from the start in order to avoid costly delays, and in some cases failure, in the development of new products and processes.
(b) Technology Development Corporations such as CDTI in Spain and KTDC in Korea learned only with time to function more like venture capital companies. The Bank's guidance and monitoring is important because most borrowers are experimenting with risk-sharing financial mechanisms for the first time.
(c) Stress on financial strength and collateral of sub-borrowers hinders the advancement of truly innovative technologies. Individual entrepreneurs and the establishment of dynamic firms is thus inhibited. Technology development corporations and funds should be made to support software intensive growth oriented companies, involving a high degree of risk and long-term returns. This was true with KTDC in Korea and CDTI in Spain.
(d) Greater Bank help in devising financial instruments should be provided to industrial technology development funds set up in borrower countries.
(e) With the passage of time successful ITD institutions generally change from institutions of ITD to more demand-driven institutions with greater autonomy.
(f) Technology development projects should be flexible in their organizational structure and approach to reflect the heterogenous nature of technology development issues. The Bank, it was felt was - 62 -
Page 5 of 6
justifiable flexible in procurement and disbursement procedures in the Spain Technology Development Project.
10. The findings and lessons learnt described in this memo represent only a partial account of the institutional experience gained through the preparation of Industrial Technology Development Projects in the Bank. The documents on which the current analysis has been based, have been filed in the project files for further use. These constitute a valuable data base for the proposed project in China. - 63 - Annex 3. 3 Page 6 of 6
Table 1. INDUSTRIAL TECHNOLOGY DEVELOPMENT PROJECTS (Bank Financed).
Country Ln/Cr Scope LnlCr Akt yar StatisA ($ million approved
Israel 1116 Subcomponents of Industrial 1975 C Development Project - Research Development 5 - Technical Training 5
Spain 1425 Support of RD&E for new products 18 1977 C and processes in Industry
Korea 2112 Provision of finance for R&D, tech- 50 1982 C nology import and institutional development of KTDC. Provision of risk-sharing finance training and institutional development. 2473 50 1984 C 2913 50 1988 I
Mexico 2747 Review measures designed to encour- 48 1986 I age ITD, strengthen technology infrastructure and improve special- ized technology finance.
Sri Lanka 1948 Cr Technology development 24 1988 I
Hungary 2966 Strengthen R&D infrastructure, de- 30 1988 I velop institutional and financing mechanisms for ITD. Increase effi- ciency and applicability of R&D.
India 3119 Ln Financing technology innovation by 145+55 1989 I 2064 Cr setting up four VCFs, promoting collaboration between industry and R&D institutions and, support to technology imports.
China 3274 Rural Industrial Technology 110.7 1990 I Enterprise modernization through introduction of upgraded technology, training of managers, provision of risk-sharing finance and industrial development and technology informa- tion.
Turkey 3296 Supporting firm level productivity 100 1991 I growth, investing in standards and metrology, funding R&D to catalyze private sector investment in ITD and venture capital institutions.
C: Closed I: Under Implementation - 64 - Page 1 of 1
CEIINA
TECHNOLOGY DEVELOPMENT PROJECT
Crite d Financi ding of NRC.
TICHN1CAL: Criteria for technical funding is based on the:
ti) relevance of the proposed technology development program to meet the technical and engineering needs of the Chinese industrial sector; (ii) scope of work and its concentration on technical and consultative services to the industry; (iii)adequate sponsorship regarding the qualifications of the proponent institution in terms of its excellence in its industrial sector and proximity to the market; (iv) efficient and autonomous management structure conducive to independent decision making; (v) qualifications of the proposed staff and a program of technical training and human resource development; and (vi) efficient use of the existing technical infrastructure.
FINANCIAL: Criteria for financial funding is based on the:
(i) adequate sponsorship regarding the financial support from enterprises, regardless of ownership and size, and the expertise and potential to cater to a large number of industries; (ii) sound financial management structure reflected in the overall operation that stress a commitment to a market- oriented management style; (iii)sources and mechanisms proposed for the acquisition and assimilation of technology including linkages both foreign and domestic that will drive the diffusion strategy required for the dissemination of services, new products, and processes responsive to the market; (iv) satisfactory market analysis and business plan; and (v) minimum 12% economic rate of return. - 65 - AnnHx 4.2 Page 1 of 2
CHINA
TECHNOLOG DEVELOPMENT PROJECT
Outline for 8RC Feasibility Studiss
Surmnary
1. A one-page statement outlining the proposal and business plan.
Objectives and Scone
2. A description of the short-and long-term objectives and scope of the activities proposed for the ERC and an analysis of the importance of these developments in the context of the process of industrialization of the country. Brief mention of the general situation of the field in China, problems and gaps in competitiveness, environmental soundness, technology and productivity; sources and limitations of information.
Background of the Sponsor Organization
3. An indication of the nature, strengths and weaknesses of the proponent; its human resource base; its research and development activities; its performance in contract research; its past experience with technology development and transfer; its network of connections, commercial and technological, within China and in the outside world.
Rationale for the Establishment of the ERC
4. An elaboration of the need to establish the proposed ERC, based on gaps in the competitive provision of technological services and products from Chinese sources, and on externalities. Indication of the matching of the scope of work with market demands, skills, experience and resources of the proponents, potential profitability and externalities.
Market Demand
5. An assessment of the demand for the activities of the proposed ERC, including an analysis of the client systems to be served and the competition (and potential collaboration) from other providers of the same services and products, in China dna abroad. Indication of how long will it take for the ERC to develop marketable activities.
Diffusion Strategy
6. A description of the mechanisms and tools to be used in the dissemination of the output of the ERC. For each market area selected, an indication of the specific strategy proposed for market penetration of the services and products of the ERC, considering the following, as appropriate:
(a) training of client staff; - 66 - Annex 4.2 Page 2 of 2
(b) exchange of staff with clients or potential clients; (c) utilization of the network provided by the relevant industry associations; (d) annual conference with client system; (e) newsletter distributed to the client system, etc.
Collaboration Strategy
7. A discussion of the intended partnerships with foreign or domestic suppliers of technology. For each market area selected, an indication of the specific collaboration strategy regarding sources of technology in China dna abroad, in the form of joint developments and international technology transfer, for the Chinese and external markets.
Organization and Management Structure
8. A presentation of the organizational structure fitting the specific requirements of the ERC, as market oriented organizations, including organizational chart, with special emphasis on the structure and approach of the marketing and sales functions; recruitment procedures; benefits offered to staff; general description of responsibilities of key personnel, with a summary of their experience and background. Description of the functions, responsibilities, tasks and composition of the Management Council or Board of Directors; the Advisory Committee; the ERC Director and his immediate cluster of associates.
Prolect Description and Implementation Schedule
9. Description of the capital structure of the ERC, mentioning shareholders and their respective equity share; the equipment, buildings, land, facilities, intellectual property rights, facilities and capabilities acquired through the project, together with the implementation schedule.
Financial and Risk Analysis
10. A financial analysis of the proposed ERC project, preferably using the standard financial software package already employed in the analysis of the original batch of proposals. Also a qualitative assessment of benefits and risks associated with the proposal.
Business Plan
11. The Business Plan of the proposed ERC is composed of the following elements of the outline above: market demand; diffusion strategy; collaboration strategy; financial and risk analysis. The Business Plan should emphasize the expected share of the services and products of the ERC. - 67 - Annex 4.3 Page 1 of 1
TECHROLOY D LOPMENT PROJECT
Pan-l of Lcpertu for ZRC Proposal Reviews
Group Leader: Shi Changxu, Natural Science Fund Commission of the State, Academician, Researcher
Deputy Group Leader: Zhang Deyun, Xi'an Communications University, Professor
Yie Peida, Beijing Institute of Posts and Telecommunications, Academician, Professor
Min Enze, Petrolic Academy, Academician, Professor
Chen Junliang, Beijing Institute of Posts and Telecommunications, Academician, Professor
Fan Hongeai, Science and Technology Commission of Ministry of Mechanic and Electronic, Industry Researcher Senior Engineer
Ni Weidou, Qing Hua University, Professor
Sun Yu, The 54th Research Institute of Ministry of Mechanic and Electronic Industry, Research Senior Engineer
Yin Shitai, Beijing Telecommunication Administration, Senior Engineer
Yan Liemin, The Academy of Posts and Telecommunications, Senior Engineer
Wu Zhimei, The Software Research Institute of the Academy of China, Vice-Researcher
Liu Zengji, Xi'an Electronic Science and Technology University, Professor - 68 -ex 4.4 Page 1 of 7
TECH1OLGY-DEVELOPMENT-PROJECT
Terms of Reference for Training Activities
1. The training activities will be coordinated by the Project Office (PO). The PO will serve as a focal point for training of ERC staff, industrial users, policy makers, and academia. The objective is to deliver high-quality training programs in technology commercialization to ensure that the ERCs have a substantial impact not only on industry, but also on the labor market as it prepares workers to be more technologically literate in a rapidly expanding economy that will ultimately require technology to maximize efficient use of its resources to be competitive in a global economy. The training activities will focus on four areas that will strengthen the institutional and technical capacity of the ERCs:
A. Issues of Critical Importance Such am Operation and Management of LLCs, and Intellectual Property Rights
Operation and Management of LLCs
2. The ERCs will have to prove to outside industries and investors that they are a solid engineering research center with highly skilled staff who possess competent financial and managerial skills. Advanced and continuing education and training should be on-going and delivered through seminars, conferences, technical exchanges, and workshops. The training activities should be managed through a human resource department equipped with a computer-based human resource management system that will track training activities including needs assessment, costs, and benefits. Areas that would benefit ERC staff are not only the traditional management areas but must include areas which are particular to innovation management and technology development. Those areas are:
* human resource development * MIS management systems * procurement * program management * financial management * strategic planning * marketing * institutional development * financing of spin-off companies * legal issues * intellectual property * contractual agreements * sunset provisions - exit strategy
3. With the assistance of PO, the ERCs are expected to establish a network with other ERCs to share programs, costs, and best practices from training activities. PO might publish a monthly newsletter for ERCs and its users on human resource development (HRD) activities. In addition, PO, in - 69 -
Page 2 of 7 collaboration with the ERCs, could further the HRD discipline by working within the university system to develop a curriculum that responds to the needs of the science and technology community.
Leaal Aspects of Technology Transfer/Intellectual Property
4. Given the importance to intellectual property rights in technology development, and the revision of the patent law in 1992, it is essential that ERC staff, shareholders, contractors, policy makers, etc. fully understand intellectual property rights both domestically and internationally. The ERCs will work with the Patent Office to assess legal concerns as they relate to intellectual property. The issue of who owns the patent is critical to buyers of technological innovation and can become a major barrier to technology transfer if these issues are not worked out ahead of time. Industry will not wait for legal matters to be sorted out, they will shop elsewhere for technology. Issues that should be addressed by the ERCs are:
* current status and legislation of Chinese law;
* trading patterns with U.S., Europe, and Asia;
* impact of legislation and trade on intellectual property; and
* patent types (inventions; utility models; industrial designs; patent marking and patent pending; trademark; copyrights; trade secrets; patentable matter; and products occurring in nature.
5. It might be advisable for the legal department of the ERCs to establish boiler plate agreements to facilitate collaboration with industry. A speedy response is needed to negotiate cooperative research agreements with the private sector. The literature available concerning this topic suggests that agreements should not take more than 4-8 weeks. A slow lag time in acquiring the patents could hinder and even prevent an opportunity to do business.
6. A user-friendly electronic information retrieval system such as a bulletin board could be designed to announce new technologies available for licensing and other technology transfer opportunities. A directory of people and resources in the ERCs might also be made public to facilitate easy access through the ERC network.
7. In addition to working within the patent system, it is recommended that the training activities include developing or revising a curriculum for lawyers required to be knowledgeable in intellectual property. This could be integrated in the university system. - 70 -
Page 3 of 7
B. Training of Management Personnel on the Operation of Market-Oriented Technology Driven Enterprises
8. As a marketing department will be set up in all the ERCs (as indicated in their proposals), an emphasis must be placed on the integration of marketing throughout every department of the ERC. Marketing must be linked to all parts of the company - from product design to finance, as it is a function of planning, which is a function of management itself. While the labs offer technologies and technical expertise, they must not overlook service. ERCs are not only market oriented but technology driven. Devices are made in the labs, products driven by the marketing department. An economic analysis unit might be established to provide input to marketing. Education and training in marketing will begin in the university system, and not only undertaken by the ERC managers.
9. Areas of training will include:
Market research and planning with the objective of creating a marketing strategy.
a). Analysis and evaluation of market (input from economic analysis unit) includes identifying market barriers (international, regional, and domestic).
b). Market management - planning, advertising, customer service and support.
c). Customized approach for small and medium sized businesses.
d). Selection of technologies to market - which devices to be transferred, identify needs, and concentrate on what has highest return and where?
e). Allocation of resources - are there enough resources to implement plan?
f). Analysis of industrial sector development
g). Value added services - knowledge transfer, consulting, etc.
h). Evaluation - has to be on-going, and refined.
Mechanisms for promoting technology transfer.
* contract research - ERCs contract with industry
* cooperative research - projects where ERC engineers and industrial engineer work cooperatively on projects of mutual interest
* workshops/seminars - put on by ERCs to disseminate information on new or emerging technologies with possible applications to industry
* licensing (exclusive or non-exclusive) - 71 - Annex 4.i Page 4 of 7
* sponsored research: industry reimburses the labs for work done at the ERC
* technical consultation
* employee exchange (industry and ERC staff)
* individual lab visits: by industry technical personnel to labs to share information and discuss technical problems
* information dissemination to gain access to technical resources - through publications, newsletters, and technical papers, etc.
* publishing a guidebook for technology transfer managers of evaluation)
C. Training for th- Operation and Management of GCC
10. GCC is responsible for financial management, ERC supervision, and the monitoring and evaluation of the ERCs. The evolution of GCC to a technology financing institution will be a function of the interdependency between the ERCs, industry, government, and the science and technology community who make up the technology transfer chain as seen in the experience of the industrialized countries. Concerning the operation and management of GCC, the training activities as described in be of While GCC is expected to evaluate and monitor the ERCs, it should not be presumed that a ready-made evaluation and monitoring system exists to measure technology development. As the technology transfer literature clearly indicates, no such methodology has yet been established that the science and technology community have accepted. Due to uncertainties in the field of technology transfer, a different approach for evaluation has to be taken because very often one cannot know exactly what input is responsible for which output. Technology commercialization, like R&D does not lend itself to a neat benefit/cost matrix. Macroeconomic models tend to be poorly adapted to the R&D environment. Case study approaches have proven to be the best measure (to date) as much depends on where the tech transfer function lies in the process of commercialization, and the programs specific mission or goals. Of course, certain guidelines must be established for monitoring and evaluation, and it is highly recommended that GCC study what other financial technology institutions have done in the industrialized countries to determine the "best practices" available and adapt what is applicable to them.
11. "Best Practices" guides for GCC's training program:
(i) Based on the technology transfer mission assigned to the ERCs, GCC will monitor the resources provided in both human and financial terms.
(ii) Assess the progress by identifying and quantifying input to the program.
(iii)List a description of activities with some assessment of the quality of activities such as patents, research agreements, and even less formal activities like the number of incoming request documented. - 72 - Annex 4.4 Page 5 of 7
(iv) Products - output such as books, publications, and new processes and products.
One should be very careful not to put too much emphasis on tangible economic payoffs (eg. royalties) as measure of success. There is a huge value to "access to state-of-art knowledge" that small businesses will receive from the ERCs and which will increase their profits, and not necessarily the ERCs. There is a high value offering in less tangible payoffs (at least in the short-term), and GCC's will have an important role in promoting incentives to encourage cooperative (risk-sharing) research projects in addition to commercialization as the only desired outcome. It should also be stated here that consensus in the technology transfer literature indicates that 10-15 years is a realistic time frame to measure any real success.
12. Using the benchmarking approach to best practices that lead to most effective transfer of technology use methods based on behavioral science to collect data that identifies technology transfer factors and their relationships. Case studies in technology development organizations, unlike industry's approach to benchmarking cannot always use quantitative measures. (Highest process yields, fewest customer complaints, etc.) GCC might do well to choose (6) core practices of the ERCs (market assessment, management, communicating knowledge of technological capabilities, etc.) and monitor the ERCs through surveys issued on a yearly basis and updated accordingly. The survey would allow for standard questions as well as statements which allow for individual responses to be "benchmarked". Some suggested examples:
(i) policy and guidelines of the ERC and for users - Statement: In order to play an effective role a tech transfer intermediary should limit the range of technical areas in which it is active, to those fields in which it has an in-house technical expertise.
(ii) management - Statement: Because of the lag time between the licensing of intellectual property and the receipt of royalties, ERCs must be prepared to provide an appropriate, consistent level of resources to offset the overhead cost of their tech transfer offices, which may not turn profitable for years.
(iii)communication - Statement: Public sector institutions and labs must be conscious that companies will show little interest in licensing their technologies unless the technology translates into a profitable product or process with an economic benefit.
13. Project Tracking and Assessment System: In context of individual contracts (with one or more company) project tracking should be done through the life of a project and used as a key indicator as to when to revise or terminate projects. Assessments should be done at the project level, program level, and reviewed at the executive level. There are useful outputs of evaluation to be considered such as:
* budget information * incoming requests * royalties * cash awards * research agreements - 73 - Annex 4.4 Page 6 of 7
* number of inventions disclosed * patents * exclusive or nonexclusive licenses * spin-off companies formed.
There are other tools that are less evident but should also be monitored such as: papers, articles, professional meetings, technical exchanges, and awards which may actually add more to the economy than actual licenses. The literature indicates that publications have a huge impact on technology dissemination yet the impact is difficult to measure. Also, much technology is not patented or patentable but can have a huge impact.
14. In order to best support the management and operation of GCC, it is recommended that they follow very similar training activities as mentioned in 1.1 Operation and Management of LLCs Those activities will greatly enhance the institutional strength of GCC. GCC would benefit by learning about mechanisms and incentives for technology transfer applied in other countries such as:
e tax incentives and loan guarantees for industrial users/buyers, especially small and medium size enterprises.
e interagency governmental agreements (eg. with NIM for standards).
* international agreements between governments for joint research or data swaps.
* automated technology catalogue (ATC) - includes technologies in all stages of development, and is a user-friendly computerized catalogue system.
* economic analysis unit to assess financial and economic information as it pertains to ERCs and industrial users.
* computerized records keeping system to document and control activities.
D. Consulting Services and Study Tours on Financing and Management of IRCs
15. PO would coordinate all of the above activities mentioned in points 1, 2, and 3. It is suggested that PO set up a clearinghouse of training programs, seminars, exchanges, etc. to manage the requests of the ERCs, as well as GCC. Consulting services are already being considered, and one example is a proposal from the U.S. National Technical Information Service (NTIS) for setting up a technical service information system for individual ERCs as well as clusters. Study tours have already been proposed to visit foreign technology transfer centers to address many of the above mentioned issues critical to the management and operation of ERCs. Consulting services to properly address human resource development will also be considered so that staff will be able to adapt their skills to emerging technologies as well as the managerial demands required in a market economy. Technology development calls for high-performance jobs to support industrial clients, and emphasis should be placed on the three selected fields particular to the ERCs: electronics/informatics; chemicals/advanced materials; and energy/environmental systems. Study tours will be segmented to address the specifics of those three sectors as well as - 74 - Page 7 of 7 areas that support technology development and services in management assistance, financial assistance, and technical assistance. Tours will concentrate on visiting both the private sector and public sector organizations involved in commercializing technology such as:
* private industries (large and small) * spin-off companies * government agencies and laboratories * economic development agencies * manufacturing extension centers * engineering research centers * university industrial liaison programs, * other technology development intermediaries - 75 Annex 4 -5. Page 1 of 3
TECEHNOLOGYDEVELOPMENT PROJECT
Description of the Proposed Productivity Center
1. Productivity Centers
Productivity centers are an integral part of the national support infrastructure for industrial technology development. This support infrastructure generally includes specialized research institutes to improve existing technologies or develop new technologies; technology information centers to disseminate the results of R&D; a system of metrology, norms and standards to ensure that products conform to nationally and internationally recognized standards; special financial and fiscal incentives aimed at promoting investments in technology; and productivity centers.
The main function of productivity centers is to provide services at the enterprise level with the aim of improving industrial productivity through a variety of means, including new and/or more capital equipment, enterprise organization and management, product design and engineering, conformity to national and international standards, marketing, and training and education. At a broad level, the objectives of productivity centers are to raise awareness of the importance of productivity improvement and to increase the level of industrial productivity through the dissemination of the most modern and/or most efficient manufacturing, management, and information systems.
2. Productivity Centers and ERCs
Within the context of the proposed project, a productivity center would provide direct services to users on how to improve productivity through the effective use of the technologies that are developed or introduced by ERCs. Its role would be to promote at the enterprise level productivity-enhancing techniques and methods in industrial operations, and is therefore complementary of ERCs' activities. The establishment of a productivity center would help ensure that the types of technologies that are developed or introduced by ERCs (productivity-enhancing and environmentally sustainable) are properly used and applied throughout industry.
3. The Proposod Machinery Productivity Information and Training Center (MPITC)
Since the implementation of reform and opening of the economy in 1978, Chinese small and medium-sized enterprises (including township enterprises) have achieved significant growth. The industrial output of township enterprises increased from 49.3 billion RMB Yuan in 1978 to 1,760 billion RMB Yuan in 1992, equivalent to half of the national economy. The machinery industry alone generates an output equivalent to one-third of the total output value of the whole industry. - 76 - Annex 4.A Page 2 of 3
Despite this growth in output, township enterprises remain constrained by lack of qualified labor, low productivity, outdated machinery and equipment, low-level products, and poor environmental conditions. As the Chinese economy becomes increasingly integrated in world markets, and in expectation of China's accession to the GATT, township enterprises must quickly meet the demands for qualified technical personnel, modern production technology, advanced management techniques, and market information.
As a complement to ERCs' activities and in order to enhance the productivity and competitiveness of the machinery industry, the Machinery Productivity Center (MPC) is seeking to establish the Machinery Productivity Information and Training Center (MPITC). The MPITC would function as an intermediary between research institutes, ERCs, and universities on the one side, and small and medium-sized (township) enterprises on the other side. The main objectives of the MPITC would be to raise the technical and management skills of small and medium-sized enterprises and townships by: (i) transferring the results of R&D to the machinery industry and promoting the technological development of small and medium-sized enterprises in the machinery industry; (ii) providing technical training and information services; (iii) providing market information and international technical exchange services; and (iv) assisting firms in formulating a development strategy.
The supporting institute for the proposed center, MPC, was founded in 1992 and was among the first productivity centers to be established in the country. MPC is sponsored by the Research Institute of Machinery Science and Technology (RIMST), which is recognized as one of the leading R&D institutes in the fields of basic technology as well as high technology for the machinery industry. RIMST was founded in 1956 and is headquartered in Beijing with 12 research institutes, 108 R&D departments, and more than 300 laboratories throughout the country. It has about 6,700 employees, including more than 4,300 technical professionals, of whom 700 are senior engineers. In addition, the institute has produced more than 3,000 R&D results, holds 96 patents, and has won many national and state awards for its research achievements. RIMST maintains close ties with 60 research institutes, including many at the local level. In addition, horizontal contacts with enterprises account for about 851 of the institute's activities. The institute's strong technical background in the machinery industry would have a positive impact on the overall support of the MPITC, as well as the overall MPCERC project.
There is a strong rationale for supporting the MPIC given the broad impact of the machinery industry on China's industry and the importance of enhancing productivity in the machinery sector. Given the large scope of technology transfer and training activities in this industrial sector, SMEs and township enterprises would greatly benefit from the products and services of the MPITC. In cooperation with the MPC, there are considerable coordination and information costs that the center alone would not be able to absorb initially. The ability to piggy-back off of the MPC would allow the MPITC to address the training and information needs of users on a widespread scale. By supporting the MPITC through the MPC and the RIMST, the Bank would be lending to an existing strong and experienced institution to strengthen its base in - *77 - Annex 4.5 Page 3 of 3 becoming more operational and competitive in the field of industrial machinery.
The construction plan for the MPITC has been clearly presented with respect to the use of the existing facilities and available resources of the supporting institutions as well as those of other institutions. In order not to duplicate the construction of new laboratories, the MPITC will operate within RIMST and will consist of an information center and a training center.
(i) The Information Center will provide technology and market information to small and medium-sized enterprises, and by the same token, will relay feedback from SMEs to research institutes, ERCs, and universities, thus enabling the latter to learn more about the actual needs of industry and to link their R&D projects with market demands. The direct services provided by the center will include dissemination of R&D results, enterprise diagnosis, market analysis, technical advice, evaluation of assets, and personnel training. The information system of the MPC will be linked up to the MPC network as well as that of other information centers. The funding will pay for items such as a computer service network system, multi-media computer system, software, training, and teaching materials.
(ii) The Training Center will train all levels of personnel from small and medium-sized enterprises, with the objectives of improving product quality, enterprise management, and popularizing the results of R&D. Training will be provided in the following areas: computer application, quality control, pollution control, investment analysis, enterprise management, new technologies/materials/products, investment analysis, assets evaluation, and assessment of ISO 9000.
The proposed investment for the construction of the Machinery Productivity Information and Training Center is as follows:
World Bank ...... 200,000 US$ Domestic investment ...... 1,200,000 RMB Yuan - 78 - Annex 4.6 Page 1 of 95
CHINA
TECHNOLOGY DEVELOPMENT PROJECT
Description of ZRC ProDosals
1. Engineering Research center for High Performance Homogenized Alloys 2. Engineering Research Center for Laser Processing 3. Engineering Research Center for Distillation Technology 4. Engineering Research Center for Clean Coal Combustion Technology and Industrial Domestic Boilers. 5. Engineering Research Center for Shipping Control System 6. Engineering Research Center for Petroleum Refining Technology and Catalyst 7. Powder Metallurgy Engineering Research Center 8. Clean Coal Combustion Technology Engineering Research Center 9. Fluid Machinery and Compressor Engineering Research Center 10. Engineering Research Center for Net Shape Manufacturing 11. The State Engineering Center for Audio/Video & Technical Diffusion 12. Engineering Research Center for Industrial Environmental Protection 13. Engineering Research Center for the Integrated Development of High Performance Polyolefin Materials. 14. Urban Pollution Control Engineering Research Center 15. Mobile Communication Engineering Research Center 16. Advanced Educational Technology and Equipment Project Engineering Research Center 17. Engineering Research Center for Converter Technology 18. Engineering Research Center for Process Automation 19. Engineering Research Center for Power Electronics 20. Engineering Research Center for Optical Disks & Applications 21. Engineering Research Center for Shipping Design Technology 22. Engineering Research Center for Energy Savings in Power Systems 23. Engineering Research Center for Rare Metal Processing 24. Engineering Research Center for Industrial Textiles 25. Engineering Research Center for Manufacturing Automation 26. Engineering Research Center for Transducers 27. Engineering Research Center for Software 28. Engineering Research Center for New Welding Technology of High Efficiency and High Quality 29. Engineering Research Center for High Efficiency Rolling Technology 30. Engineering Research Center for Advanced Polymer Processing Technology 31. Engineering Research Center for Communication Software and Application Specific Integrated Circuit 32. Engineering Research Center for Magnetic Materials 33. Engineering Research Center for Effective Utilization of Natural Gas 34. Engineering Research Center for Paper Technology and Pollution Control 35. Engineering Research Center for Fine Petrochemicals 36. Engineering Research Center for Power System Automation 37. Engineering Research Center for Applied Power Electronics 38. Engineering Research Center for Advanced Power Sources Technology 39. Engineering Research Center for Digital Cordless Telephone System 40. Engineering Research Center for Synthesis of Novel Rubber and Plastics Materials 41. Engineering Research Center for Ultra-fine Powder Production Technology 42. Engineering Research Center for Surfactant Technology 43. Engineering Research Center for Rare Earth Metals 44. Engineering Research Center for Die and Mold Cad Engineering 45. Engineering Research Center for Clean Extraction and Energy Saving in Non- ferrous Metallurgy 46. Engineering Research Center for Telecommunications Switching - 79 - Annex 4.6 Page 2 of 95
NATIONAL ENGINEERING RESEARCHCENTER FOR HIGH PERFORMANCE HOMOGENIZED ALLOYS 1. The development and application of high-performance metallic materials will bring important economic gains to China. Technological progress in this interdisciplinary field moves along a trajectory of increased homogeneity and reduction of solidification segregation of the alloys (by controlling the content and distribution of trace elements) . The development of new alloys with superior price-performance characteristics will have major applications in the oil, chemical, petrochemical and other energy intensive-industries. Examples of such applications are pumps and key parts, special valves and mechanical sealing parts, precision and heat -exchanger pipes, materials for low-temperature, and hydrogen-environment storage.
2. The Institute of Metal Research (IMR), Chinese Academy of Sciences is the sponsoring institution for the National Engineering Research Center for High Performance Homogenized Alloys (NBRC HPHA). Founded in 1953, the institute has an excellent reputation and an impressive record of research, development, and technology transfer achievements in materials science. The IMR, with 1180 employees (830 are academic and technical), has four State and academy key laboratories, one state commodity inspection laboratory, thirteen laboratories for applied R&D, three departments of technological development with pilot bases, eight test and analysis laboratories, and one attached plant. In the short and medium term, the ERC will concentrate on engineering and dissemination of applied research results, including the provision of engineering testing, consultation and training services. For the long-term, technical transfers will be combined with development work.
3. The rationale for public sector support in this area would be based on: (i) the broad impact of disseminating information, standards, designs, engineering results on high performance homogenized alloys technology to producers of capital goods, and their end users in the chemical, petrochemical and other major industries in China, with associated price-performance gains on inputs being translated into productivity gains on the output side; and (iii) the positive environmental impact from the adoption of high performance alloys technology, fundamental in terms of improved energy efficiencies (as in the case of thermal efficiency of generators using high service temperature alloys), and increased operational safety of oil, chemical and petrochemical industry systems. 4. The NERC HPHA has advanced an integrated collaborative strategy organized around upstream research units and downstream batch production units. The center will establish long-term collaboration agreements with foreign research institutions, universities and firms (an agreement with Amoco in the US has been signed) to exchange research results which can be further developed and transferred downstream to producers of intermediate inputs and capital goods. These producers, who have already committed to become cooperative partners of the ERC, will be the link to mass manufacturers and end users. The IMR itself, has engaged in long-term collaborations with 22 major foreign institutions and universities, as well as industries such as metallurgy, chemical engineering, oil, and machinery. 5. The diffusion strategy adopted by the NERC HPHA is built around a creative and well-thought dissemination/extension mechanism of combined research, production and trade entity, formed by the Center including relevant universities, scientific research institutions and enterprises. two parts, (i) the materials engineering research (technical development and innovation) and (ii) technical diffusion and technology transfer. It will function as an outreach engineering service center engaged in testing, consultation services, trouble- shooting, as well as provide market-oriented information on new materials, technologies and processes. In addition, the center will establish a data-base to guide the design, production and utilization of high performance alloys. A strong management structure has been identified in the proposal as well as a business plan to support the diffusion and marketing strategies. - 80 - Annex 4.6 Page 3 of 95
6. The market for high performance alloys is growing as replacement materials are needed to produce products that are lighter in weight, resist corrosion, and are better conductors of heat. Industries which will benefit by the diffusion of this R&D are: (i) chemical; (ii) automotive and other transportation sectors (iii) metallurgy; (iv) non-ferrous metals; (v) petrochemicals; (vi) textiles; (vii) medicine; and (viii) environmental. As the IMR recognizes the importance of marketing, the ERC will stress cooperation in the development and transfer of technologies with enterprises who are competitive in the global market place.
7. Total funding for the NRC HPHA is US$9,166,000. The breakdown is as follows:
Us thousand
World Bank ...... 4,000 Other Bank loans...... 1 ,507 Equity ...... 3,659 - 81 - Annex 4.6 Page 4 of 95
ZRC FOR LASER PROCESSING
1. Laser processing is a generic, complex technology used for welding, cutting and treating surfaces, among numerous other applications. The diffusion of this technology would bring large productivity and product quality gains to many industrial sectors such as: (i) automotive; (ii) electronics; (iii) material processing; (iv) machine building; (v) metallurgical; (vi) ship-building; (vii) aviation; and (viii) light industries. 2. Huazhong University of Science and Technology, (HUST) with a 20 year history of R&D of laser processing has proposed the establishment of The Engineering Research Center for Laser Processing (NERCLP). HUST has achieved numerous patented research results in laser technology and transferred many of its research achievements to industrial users. It is the site not only of the Laser Processing Test Center (created in 1987), and the National Laboratory of Laser Technology, but of a "trial" ERC established in 1991. The short-term objectives of the NERCLP are to disseminate the application of laser technology throughout the industrial sectors with special emphasis on those segments where it would have the greatest impact. Over the longer term, the NERCLP will continue to broaden the scope of applications to other industries as well as further develop new processing technologies. 3. The proposal establishes a clear role for public sector involvement in this area, by focusing on the broad diffusion of this technology. This includes dissemination of information concerning laser applications, setting standards and norms of laser processing equipment, and their safe and efficient operation. An additional justification for public sector involvement are the gains that the diffusion of laser processing techniques that would bring from decreased X-ray pollution at the workplace (in the case of welding techniques), improved material savings (from the introduction of laser cutting techniques), and increased safety (particularly for laser cladding of valves of nuclear reactors). 4. The strategy for foreign collaboration and tapping international sources of technology through joint ventures and related arrangements is well defined by HUST. In areas where they are weakest, they will seek opportunities for technology transfer, import advanced technology and equipment, purchase patents, and engage in joint ventures for international cooperation. The ERCLP already has cooperative ties with many foreign companies and institutions, and have identified potential international partners to help them achieve their goals and objectives. In addition, they expect to recruit highly trained Chinese nationals and foreign specialists to work at their ERC. 5. The dissemination strategy, including the mechanisms through which the NERCLP will reach large number s of producers is clearly spelled out. In implementing this strategy, the ERCLP will set up will set up three special departments for applications demonstration, consulting services, and marketing. They will continually train their employees and clients as well as strengthen ties with professional associations and societies. The NERCLP expects to make two to three laser processing technologies commercially available every one to two years.
6. The market demand for laser processing technology is potentially very large due to the benefits obtained by firms from raising production efficiency and product quality, lowering energy consumption and saving raw materials. The market will be larger in sub-sectors where China has targeted for accelerated expansion or that are export-oriented. Those areas include automotive, electronics/electrical, and material processing.
7. Total funding for the ERCLP is US$7,900,000. The breakdown is as follows: - 82 - Annex 4.6 Page 5 of 95
Us Thousand World Bank 4,000 Other bank loans 1,977 Equity 1,923 - 83 - Annex 4.6 Page 6 of 95
ZRC FOR DISTILLATION TECHNOLOGY
1. The chemical industry in China is one of the country's fastest growing industries. Separation is a key process for the industry, playing a fundamental role in the preparation of raw materials, product purification, and pollution control. Distillation accounts for 951 of the separation processes in the petroleum refinery and chemical industries. Investment in distillation devices takes up approximately 50-80% of total plant investment, and these devices are responsible for more than 40% of the entire unit energy consumption. China's distillation technology is outdated and needs to be significantly upgraded for reduced energy consumption and improved pollution control.
2. The sponsoring organizations for the Distillation Technique Engineering Center (DTERC) are Tianjin University, the oldest engineering college in China with a top rated chemical engineering department, and the China Petroleum Chemical Corp. (SINOPEC). The DTERC will be based upon the Tianjin Center for Petrochemical Technology (PCTRDC), which has extensive experience in contract research. The DTERC will be instrumental in improving energy efficiency and decreasing environmental hazards, with a focus on improving existing distillation processes by retrofitting, training, disseminating information, and other complementary actions, while also engaging in the development of new distillation devices and technologies.
3. The rationale underlying the involvement of the public sector in this area is related to (i) the environmental benefits from enhancing separation and thermodynamic efficiency, reducing energy consumption, and thereby the levels of pollution for the chemical industry; (ii) the productivity gains of a very large number of industrial users that will benefit from diagnosing, troubleshooting, and diffusion of optimization and control techniques for existing distillation processes and devices; and (iii) the dissemination of information and industry- specific norms and standards, and the training of professionals. 4. The strategy for foreign collaboration has been carefully outlined with foreign companies tagged according to the DTERC's technological gaps. They will match foreign collaborators with new technology to the appropriate domestic users of that technology and assist in its transfer and adoption. Their plan is to purchase know-how and licenses; high-tech instruments and devices; invite foreign partners for joint R&D; exchange information and personnel; and establish joint ventures. This ERC has identified specific foreign companies for technologies in: (i) packing (Swiss firm); (ii) distillation techniques and devices (Japanese and US firms); (iii) control technology (US firm); and other examples of short and long term foreign potential partners.
5. A number of channels and tools have been defined to implement the DTERC's diffusion strategy. The DTERC will work closely with its industrial partners, The Beijing Petrochemical Engineering Co., a major design and construction firm; and local representatives and agents (established in areas with major concentration of chemical plants and refineries in China). To facilitate dissemination, the DTERC will use a number of tools including training programs, joint research programs with clients; information exchange mechanisms (newsletters and database), the latter to be made available through the wide area network in China, and model projects to demonstrate new technology and devices. 6. Along with their business plan which provides a solid assessment of the distillation market, the market evaluation is quite satisfactory. There are 8,000 or so petroleum chemical factories in China. Small and medium-sized companies comprise 90% of the 35,000 operating distillation columns, and are responsible for higher levels of energy consumption and lower levels of separation efficiency of these plants, with an increase in distillation yields carrying significant cost reduction to producers. It is estimated that about 50- 60% of energy loss is due to technical failures and the rest to management problems. The DTERC has outlined a time-table to capture 30% of the market in distillation by the year 2000. - 84 - Annex 4.6 Page 7 of 95
7. Total funding for the DTERC is US$10,190,000. The breakdown is as follows:
us Thousand World Bank 5,000 Other bank loan 1,301 Equity 3,889 - 85 - Annex 4.6 Page 8 of 95
ENGINEERING RESEARCH CENTER OF CLEAN COAL COMBUSTION TECHNOLOGY AND INDUSTRIAL DOMESTIC BOILERS 1. China is rich in coal reserves with an annual raw coal production of over one billion tons, making China the largest raw coal producer in the world. Coal constitutes 76% of total energy consumption, with about 0.9 billion tons burned directly. Industrial boilers, industrial kilns, and commercial boilers account for 45% of total coal consumption in China. Coal utilization in China is very inefficient. Low-grade coal combustion technology is the norm throughout the country, and China suffers from serious environmental problems such as air pollution and acid rain in almost all the major cities. Energy losses from industrial boilers reached 27%, estimated to be equivalent to 100 million tons of coal per year. In addition, 23 million tons of particulates and 18 million tons of SOx and NOx are emitted into the air yearly, of which 73%, 87% and 67% are from coal combustion. GOC has attributed great importance to the development and diffusion of clean coal combustion technology in view of China's high rates of economic growth and growing pressures on energy supply and the environment.
2. Tsinghua University, the sponsoring unit for this ERC is a leading applied research institution in the field of clean coal technologies, with strong connections to industry through boiler manufacturers, power stations and industrial users. The establishment of the National Engineering Research Center in conjunction with this university will enable the ERC to promote the development and application of new clean combustion technologies in China, and transfer and commercialize the innovations to improve the coal combustion industry. The objective of the NERC is to perform market-oriented engineering and development including: (i) the promotion and commercialization of fluidized bed boilers for industry; (ii) the dissemination of the new Tsinghua burners for pulverized coal-fired boilers; (iii) the engineering testing in demonstration plants and facilities of the 35-75 ton/hour of fluidized bed boilers; and (iv) the optimization of power and heat supply systems of cities and industrial districts. In the medium to longer term, the objectives are to complete the development of the 220 ton/hour CFCB boiler; to diffuse co-generation power plants with gas supply; and set up demo projects for deSOx and deNOx pulverized coal burners. 3. The rationale for public sector involvement is based on: (i) technologies, once developed and adapted to the Chinese conditions, and more importantly, disseminated throughout industry would have a very significant environmental impact increasing energy efficiency (in energy generation and use), reducing waste and pollution, and lowering specific coal consumption. In view of the critical dimension of energy-generation-and industrial production-related air, water and solid waste pollution in China (China will probably be throwing the largest volume of pollutants in the air by the end of the century-larger than the US and the EEC economies), and the well known wedge between private and social benefits of environmental protection, public sector support would be warranted for these activities; and (ii) the number of producers (utilities and industrial enterprises) that are potential users of the innovations or that would benefit from the productivity enhancing assistance of the ERC is very large (in the thousands.) Individually, these producers might have the incentives to improve the efficiency of their operations, they might not have the means to invest in the necessary R& D and engineering activities. Potentially, in cooperation with other producers and suppliers of capital goods, they might accomplish what the ERCs will set out to do, but there are considerable coordinating and information costs that no individual actor is willing to absorb. these high transactions on an industry wide basis. The failure of this market to exist generates the externality the ERC would be addressing by introducing technologies with widespread applicability. 4. The strategy for foreign collaboration is based on the advantage this ERC has in understanding the demand for new technologies and their ability to diffuse it, as well as their weaknesses in accessing new technology from abroad. Their plan is to continue the foreign collaboration already under way with Tsinghua University, and to target foreign partners for joint research, exchange Annex 4.6 Page 9 of 95 personnel, and management training. Foreign agreements already in negotiations are with: (i) ABB-CE in the US for steam-gas CFB; (ii) BMFT in Germany for new combined cycle methods; and (iii) InTeSol International Ltd. in the US for developing the largest CFB boiler in China. Similar collaborative talks are being pursued with the British, Japanese and the French. This ERC will actively pursue the purchasing of foreign licenses of new technology, and will have an important role in adapting it to the Chinese market.
5. The diffusion strategy will be based on the dissemination of information (including conferences that bring Chinese customers together with technology suppliers, and progress reports delivered to potential customers, and extensive training on new clean coal combustion technologies. In addition, the ERC will form dissemination subcenters in the form of joint venture companies between the ERC (with a technical partner if necessary), the capital goods producer (a venture capital investor in the first phase) and the first demonstration customer. One such venture (the Huan Ltd.) has already entered the market.
6. The market for clean coal combustion technology for industrial and domestic boilers is very large given that coal is the major source of energy in China, and its cost significantly lower than crude oil. Although large scale power plants supply most of the power, followed by the medium suppliers, there are still 450,000 small units operating at very low and inefficient capacities. These boilers are consuming 60% of the coal in China and generating most of the air pollution. In addition, environmental awareness and protection has emerged as important issues in China due to the scarcity of the energy supply. As of October 1993, The Chinese will impose a new S02 emission tax from all coal fired boilers without a desulphuring facility and this will stimulate the diffusion of CFB technology. The large market for CFB boilers is attracting potential partners and inducing them to transfer high-quality technology, including a provision of training which will open the market and make it more competitive. 7. Total funding for the ERC of Clean Coal Combustion Technology for Industrial and Domestic Boilers is UB$5,953,000. The breakdown is as follows:
uS Thousand World Bank 2,510 Other bank loans 2,777 Equity 676 - 87 - Annex 4.6 Page 10 of 95
ERC FOR SHIPPING CONTROL SYSTEM 1. Shipping control systems are critical components of safe and efficient shipping. They comprise two categories: single ship control systems (SSCS) and fleet control systems (FCS). There are 3,100 shipping companies in China of which 50 are large and medium scale. They operate 380,000 passenger ships and freighters, along 18,000 km of coastline and 110,000 km of navigable waterways, and carry 90-90% of foreign trade. In view of the size and importance of the shipping industry in China, improvements in the quality and safety of the industry operations, and a reduction in its costs will bring major economic and environmental gains.
2. The Shanghai Ship & Shipping Research Institute (SSSRI) of the Ministry of Communications is the sponsoring unit for the proposed Engineering Research Center for SCS (NERC SCS). The SSSRI has a thirty year history in the field of shipping control systems. The strength of the sponsoring institution is determined both by the quality of its facilities and staff, the superior quality of its research achievements, and the commercialization of technology directly into the market (over 90t). One reason for SSSRI's high standing and effective market penetration is related to its management structure. Having been a "pilot unit of scientific and technological reform" in 1984, the institution stopped receiving funds allocated by MOC in 1985. The focus of the ERC will be system integration and design, quality control and inspection technology, and production engineering verification for single ship and fleet control systems. For larger runs, equipment and systems will be generally produced under license from the ERC. For fleet control systems, the ERC will concentrate on system integration, the development of interface devices and system software, as most devices and equipment are available in the international market. 3. The rationale underlying the involvement of the public sector is based on: (i) the large positive externalities from the introductions of systems which greatly improve the safety of ship and fleet operations, particularly in coastal areas and navigable rivers; (ii) the presence of a substantial market failure related to the complexity of the R&D and engineering activities in ship and fleet control systems which require significant concentration of scientific engineering resources before any results appear. Spin-offs from technological assets of the research institutes would not, in this case, bring obvious gains. At the same time, the specifics of Chinese conditions impede a simple transposition of systems that exist in other countries. Thus, R&D, and engineering efforts in this area, particularly in terms of system integration and software development, would not be just a case of simply re-inventing the wheel. 4. The ERC SCS is being organized to transform market-valued research achievements and technologies into commercial products regardless of their origin, and through engineering, the ERC will provide complete sets of technologies for batch production. Through this procedure, it will engage in international cooperation and technical exchanges with the best companies in the field. Its strategy for foreign collaboration is to pursue a variety of arrangements depending on the product to be developed and the market to be reached. For example, in the case of one-man bridge systems, it will import technology alternatively from Sperry or Krupp-Atlas; and for cargo master systems, they will develop partnerships with Norcontrol and Consilium (from Norway and Sweden respectively). The SSSRI is currently engaged in four joint ventures with foreign firms. 5. The diffusion strategy proposed by the ERC SCS plans to closely link its R&D with practical applications, and promote its marketable results by (i) inviting clients to work with its engineers; (ii) introducing its achievements through a network of institutes and associations such as the Chinese Society of Navigation, Chinese Society of Automation, and others; (iii) assigning agents in major shipping companies; (iv) publishing a newsletter; and (v) holding an annual conference around the ERC's activities and new developments. 6. The ERC SCS has a sound business and management plan which will enable - 88 - Annex 4.6 Page 11 of 95 it to capture a substantial share of the market. Demand for its products appears to be well established. It is estimated that during the period of 1996-2000, two percent of MOC's ships will need to be retrofitted anpually with single ship control subsystems while 90 oceangoing and coastal ships will be built per year, totaling 170 sets per annum. Currently, on a price-performance basis, SSSRI built or integrated SCS subsystems are twice as competitive as those offered internationally, in addition to being configured to Chinese specifications. This suggests that the ERC SCS will not only be able to supply products with strong positive external effects, but also do it profitably. 7. Total funding for the ERC Shipping Control System is US$8,296,000. The breakdown is as follows:
Us Thousand World Bank 4,000 Other bank loans 1,068 Equity 3,228 - 89 - Annex 4.6 Page 12 of 95
ZRC FOR PETROLEUM REFINING TECHNOLOGYAND CATALYST
1. Gasoline is the most important product of the Chinese petroleum refining industry, with the output reaching 23 million tons in 1991, and increasing to 40 million tons by the year 2000. Internationally, oil companies and refineries are investing in R&D to increase productivity and improve gasoline quality. The Engineering R-search Center for Petroleum Refining Technology and Catalyst will focus on the development and dissemination of new processes based on catalytic cracking of heavy feedstock, characteristic of China's oil resources geared at the production of: (i) high quality (high octane, lead-free and reformulated) gasoline; (ii) lower carbon olefins; and (iii) related catalysts. The objective is to promote the application of MGG (maximum gas and gasoline production), and DCC (deep catalytic cracking) technologies. These applications are essential for reduction in vehicle-generated airborne pollutants, and to decrease the gasoline consumption through the use of higher-octane gasoline, as the Chinese revise emission standards and move towards stricter control by 1995. 2. The sponsor institution, the Research Institute of Petroleum Processing (RIPP), has an outstanding reputation for R&D achievements in the field of petroleum refining and petrochemical processing. Founded 36 years ago, RIPP has solid experience in training, technical consulting, technology transfer, and close ties with domestic and international firms in the industry. RIPP is the center for quality supervision and testing of petroleum products with more than 1300 technical personnel and over 500 senior engineers. RIPP has been responsible for the basic designs of 59 commercial units comprised of 23 petroleum refining and catalytic production facilities with capacity ranging from 1 to 600,000 tons annually for 37 different enterprises. In 1992, RIPP applied for 28 patents. RIPP's strengths lie in bench-scale and pilot testing of technology and catalyst research. The ERC activities would focus on the reformulation of light distillate blends (such as gasoline), including the development of technologies for manufacturers of gasoline oxygenates, geared at the reduction of airborne pollutants. The lead times to develop and adapt such processes to Chinese conditions calls for support of this initiative. 3. The rationale underlying the involvement of the public sector in this area is related to: (i) the environmental benefits from the use of cleaner fuels and reduction of toxic emissions; and (ii) the productivity gains from the dissemination of productivity increasing technologies such as MGG. In view of the importance of air pollution in China, and the well-known wedge between private and social benefits of environmental protection, public sector support would be warranted for these activities. In addition, producers might have the incentives to improve the efficiency of their operations individually, they might not have the means to invest in the necessary R&D and engineering activities. Potentially, in cooperation with other producers and suppliers of capital goods, they might accomplish what this ERC will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. In particular, resolving technical problems of engineering scale-up involve a wide range of expertise, and research activities require close and consistent coordination. These high transaction costs disallow the formation of a market to supply the innovations on an industry wide basis. The failure of this market to exist generates the externality the ERC would be addressing by introducing technologies with widespread applicability. 4. In terms of foreign collaboration, this ERC will take advantage of RIPP's relationship with numerous firms (including two companies in Venezuela) for joint development, technical cooperation, and cross-licensing of technologies as well as joint marketing arrangements of their technologies in the areas of catalysts and processes (as in the case of DCC). The ERC will operate international cooperative ventures through a Marketing and Licensing Division and emphasize joint marketing of catalysts and high-quality gasoline in Asia. 5. The diffusion strategy will be based on: (i) the provision of field services to clients in the form of technical advice including training and exchange of personnel; (ii) utilizing professional associations to promote the - 90 - Annex 4.6 Page 13 of 95 applications of technologies developed or adapted by the ERC; and (iii) disseminating information through seminars and newsletters on new developments. RIPP's well established network of enterprises with whom they have long-term cooperative links will facilitate the implementation of this strategy.
6. The market prospects for the ERC's products are quite promising. Gasoline demand in China is expected to increase sharply with the growth in the automotive vehicle population. The composition of demand will progressively shift towards high-octane (as motor compression ratios become greater), and lead-free and reformulated gas (as new regulations are mandated for the reduction of lead and emission of toxic substances). Moreover, major gasoline export markets, such as the US, will be demanding increasing quantities of reformulated gasoline and other clean fuels in the future. Equally important will be the demand shift towards light olefins. These are areas where the ERC will concentrate its efforts in terms of scale-up technologies for commercial trial production and marketing of patented research achievements.
7. Total funding for the ERC Petroleum Refininf Technology Catalyst is US$15,612,000. The breakdown is as follows:
Us Thousand World Bank 6,800 Other bank loans 697 Equity 8,115 - 91 - Annex 4.6 Page 14 of 95
NATIONAL ENGINEERING RESEARCH CENTER FOR POWDER METALLURGY 1. Powder metallurgy (p/m) is an important industrial sector with products that have broad applications in subsectors as diverse as automotive; machinery; chemical; aircraft; and electrical/electronics. The use of p/m technology has a major impact on energy and material conservation. Compared to conventional technology, p/m usually brings up to 50t saving of energy and 40% of raw materials. The p/m field in China is growing at a relatively fast rate of 6-10% yearly, in response to the expansion of demand of downstream industries. Nonetheless, an assessment of this sector in China in four major areas - metallic powders, p/m structural parts, p/m friction and antifriction materials and cemented carbides - shows that the country lags in product variety, quantity, quality, and application field and processing equipment, due to insufficient human and financial resources allocated to the transfer of research achievements to production.
2. The sponsoring institution, Central South University of Technology (CUST), is one of China's major engineering universities, with a distinguished record in the metallurgy field. It is also the site of the Powder Metallurgy Research Institute (PMRI), the National Key Laboratory for Powder Metallurgy and the Center of Quality Supervision and Testing for Powder Metallurgy Products. PMRI's research achievements are quite significant, and the institution was granted 21 patents in p/m processing technology and equipment in 1981. The Powder Metallurgy Engineering Research Center (PMERC) will focus on the development, pilot production and transfer of technology of p/m powders and cement carbides, p/m products (automobile and aircraft breaking materials, and structural parts) and processing equipment.
3. The subproject is fundamentally sound from a public sector involvement standpoint. First, the dissemination of p/m technologies would have a very significant environmental impact by increasing energy efficiency, and reducing material consumption and waste, and related pollution. In view of the critical dimension of energy-related air, water and solid waste pollution in china, and the well-known wedge between private and social benefits of environmental protection, public sector support would be warranted for these activities. Second, the number of users of p/m products and processes that would benefit from the cost-reducing, energy-saving assistance of the ERC would be extremely large. While individually, these users might have the incentives to improve the efficiency of their operations, they probably would not have the means to invest in the necessary R&D and engineering activities. Potentially, in cooperation with other producers and suppliers of capital goods, they might accomplish what the NERCPM will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transaction costs disallow the formation of a market to supply the innovations on an industry wide basis. The failure of this market to exist generates the externality the NERCPM would be addressing by introducing p/m technologies with widespread applicability. In addition, the NERCPM will be involved in other activities with large external effects such as training of technical personnel and information dissemination.
4. The NERCPM has a well delineated collaboration strategy. Domestically, it will make use of the network that PMRI has established, working with 55 large and medium-scale enterprises in 20 provinces to co-develop new products and transfer technology. In terms of foreign collaboration, the strategy to be pursued by the NERCPM is for the entity to become an effective interface between foreign suppliers of technology including those which are planning co-development activities for the Chinese market. this can be seen in the examples of Bendix, Goodrich and Degussa (of the US, France, and Germany, respectively) for friction materials and civil aviation.)
5. The diffusion strategy for the dissemination of techniques and products of the NERCPM will be based on the network established by CSUT. It will be composed of professional associations, and industrial clients, and will publish newsletters, provide training workshops, domestic and international - 92 - Annex 4.6 Page 15 of 95 seminars, and exchange personnel with clients. The NERCPM will also set up a marketing service system supported by the establishment of an information center staffed with highly qualified experts in the field of technology dissemination. The focus of the NERCPM diffusion activities will be five segments chosen on the basis of their large potential demand for p/m technologies and their products and NERCPM's comparative advantage: (i) aircraft brake materials; (ii) automobile brake materials; (iii) metal powder; (iv) structural parts; and (v) cemented carbides and tungsten products.
6. The proposal presents a detailed analysis of the market demand for p/m products in China, and the specific areas/partners for the marketing activities of the ERC. With a potential demand of 8.5 billion yuan and an actual demand of 4.45 billion yuan, with 25% of the latter supplied domestically, the NERCPM and its network of partner firms have a significant growth potential, as they attempt to expand new market coverage with new and more economical products. In the short term, the NERCPM can transfer to industrial (mass) production over 100 R&D items, for which demand is well established, and production partners identified, such as braking and antifriction materials, high performance structural parts, cements carbides, ultrahard materials, and special advanced processing equipment (such as horizontal vacuum sintering furnace.) 7. Total funding for The National Engineering Research Center for Powder Metallurgy is US$10,260,000. The breakdown is as follows:
us
Thousand World Bank 4,500 Other bank loans 366 Equity 5,394 4,540 - 93 - Annex 4.6 Page 16 of 95
CLEAN COAL COMBUSTION TECHNOLOGY ZNGINEZRING RESEARCH CZNTER
1. Coal constitutes the main energy source in China with an annual raw coal production of over one billion tons, making it the largest in the world. Power utilities account for 25' of total coal consumption in China, and by the year 2000, the share of coal consumption for power generation will reach 40% with the development of urban gas pipe network and district heating. Currently, 23 million tons of particulates and 18 million tons of S02 and NOx are emitted into the air yearly, of which respectively 73%, 87%, and 67% are from coal combustion. It is estimated that the economic loss caused by acid rain alone amounts to RMB 16 billion annually in China. Southern China provinces are now considered the third most affected in the world. Power utilities are considered the major source of coal-related air pollution insofar as they burn large quantities of coal in a concentrated way. This sub-project is expected to have an important impact on the development and diffusion of clean coal combustion technology (CCCT).
2. The sponsor organization, Xi'an Thermal Power Research Institute (TPRI), has a forty year history of transferring research results to power utilities in addition to providing technical support for efficient plant operations. TPRI has conducted commissioning, performance and acceptance tests in more than 90% of the imported large capacity power generating units in China. More recently, it has also been supporting boiler and industrial power plants. This institute has commercialized 58 products manufactured in over 20 plants and is without question closely linked to the potential users of this proposed CLEAN COAL COMBUSTION TECHNOLOGY ENGINBZRING RESZARCHCENTER. The priorities of this ERC are clearly stated. It will focus on utility power plants, prior to industrial boilers, and on the reduction of S02, and then NOx. The objectives include the development of large-capacity CFCB boilers, desulphurization processes for conventional boilers (including through limestone direct injection into furnace with a retrofit project for a 100-200 MW demonstration unit planned by 1995, and dust collector with extra desulphurization and de-nitration effects), and of high performance coal-burners. In addition to conducting development and engineering of integrated gasification combined cycle, an industrial demonstration plant will be built with imported technology which will then be absorbed and adapted to Chinese conditions enabling the broad dissemination of this superior technology. 3. The sub-project is fundamentally sound from a public sector involvement standpoint. First, the technologies once developed and adapted to Chinese conditions, and more importantly disseminated throughout industry, would have a very significant environmental impact by increasing energy efficiency (in power generation), reducing waste and pollution, and lowering specific coal consumption. In view of the critical dimension of energy-generation related air, water and solid waste pollution in China, and given that China will probably be throwing the largest volume of pollutants in the air by the end of the century, (larger than the US and EEC economies), and the well-known wedge between private and social benefits of environmental protection, public sector support would be warranted for these activities. Second, the number of producers (basically utilities) that are potential users of the innovations or that would benefit from the productivity enhancing assistance of the ERC is in the hundreds, making its use very large. While individually these producers might have the incentives to improve the efficiency of their operations, they might not have the means to invest in the necessary R&D and engineering activities. Potentially, in cooperation with other producers and suppliers of capital goods, they might accomplish what the ERCs will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transaction costs disallow the formation of a market to supply the innovations on an industry wide basis. The failure of this market to exist generates the externality the ERC would be addressing by introducing technologies with widespread applicability.
4. In terms of foreign collaboration, the strategy to be pursued by the ERC is for the institution to become an effective interface between imported technologies, or those co-developed with foreign partners, and the Chinese market - 94 - Annex 4.6 Page 17 of 95
(as in the case of retrofitting existing power plants for desulphurization undertaken with Steag of Germany). The ERC expects foreign firms to take equity positions by capitalizing their technologies, especially for FGD processes. The ERC will be heavily involved in applied engineering research to adapt such technologies to specific coal characteristics and site conditions to ensure their wide diffusion in China. The features of CCCT requires that they be verified through direct testing on real boilers in large capacity testing installations near industrial sites. Moreover, local conditions require manufacturers, power utilities, and design institutes to be effectively involved in the engineering research. Thus the importance of involving top-rated Chinese partners in transferring foreign technologies to Chinese conditions. 5. The ERC's diffusion strategy will be based on the full use of an established network of institutions and companies, including power utilities to which TPRI provides technical services (70% of newly erected plants are assisted by TPRI), and the extensive relationship with most large and medium-sized manufacturers of power equipment. Departments will be set up to manage and operate the diffusion strategy. Internally, the Marketing and Sales, and the Information and Training Center departments will be charged with diffusing technologies while externally, the ERC will establish a "cooperative enterprise group for CCCT", and coordinate with industry associations, academic organizations and the proven network of TRPI. The proposal includes "special measures" outlined for the dissemination of projects which are of great economic benefit but too large in scope (from the financial investment side) and will offer it as a shared project to industry instead of directly selling the technology. The ERC will attempt to organize joint research projects to share the risks when appropriate. 6. Given the need for China to save energy, operate high-efficiency power plants, and reduce pollution, the market for CCCT will develop along with China's economy. Already along the coastal provinces and large urban areas where the economies are developing at a rapid rate, they have started to use CCCT to control pollutant emissions according to their own environmental requirements. The demand for desulphurization processes and low NOx combustion technology will be widened as stricter environmental laws are passed and enforced by 1996. Fossil fuel-fired power plants will need to reduce 5.45 million tons of S02 emissions between now and the year 2000 in order to stabilize emission at the 1990 level. The recently passed plan to impose duties on S02 emissions will give a further spur to the desulphurization market. 7. Total funding for the Engineering Research Center Clean Coal Combustion Technology is US$9,172,000.
US Thousand
World Bank ...... 4,000 Other bank loans ...... 1,194 Equity ...... 3,978
FLUID MACHINERY AND COMPRESSOR ERC CENTER
1. Fluid machinery and compressors represent the main equipment used in various industrial sectors such as: (i) petroleum; (ii) chemical; (iii) energy; (iv) metallurgy; (v) mining; (vi) transportation; (vii) refrigeration; and (vii) textile. Power consumption for such equipment is responsible for one third of China's energy's consumption, and generates significant air pollution directly Annex 4.6 Page 18 of 95
from leakage of freon (700 ton/year), and indirectly from the emission of SOx, NOx, and particulates into the air by coal-burning power utilities that supply energy to industry. The objective of the Fluid Machinery and Compressor Engineering Research Center (FMCZRC) is to improve the design, manufacturing, and operational efficiency, reliability and environmental impact of large and medium- sized compressors, pumps and fans. In particular, the FMCERC will focus on high- efficiency, energy-saving new profile techniques for compressors; the engineering of high-efficiency low noise fans; design and engineering of CFC substitute medium and matching compressors; and the design and engineering of energy saving systems (such as heat pumps, sewage disposal compressors, and fans).
2. The sponsoring organization, Xi'an Jiaotong University has the longest and most distinguished history of compressor and fluid machinery research in China with the earliest doctoral degree in fluid machinery and fluid power engineering. The FMCERC was established in 1991 on a pilot basis, and already has developed over 55 techniques and awarded 13 patents including design techniques for controllable 3-D impellers, centrifugal compressors, high-efficiency displacement compressors, scroll compressors and scroll pumps, high-efficiency low-noise fans, and monitoring and fault diagnosis systems for rotary machines. 3. The subproject is fundamentally sound from a public sector involvement standpoint. First, the fluid machinery and compressor technologies, once developed and adapted to Chinese conditions, and more importantly, disseminated throughout industry, would have a very significant environmental impact by increasing energy efficiency, reducing air and noise pollution, and reducing coal consumption. In view of the critical dimension of energy related air, water, and solid waste pollution in China, and the well-known wedge between private and social benefits of environmental protection, public sector support would be warranted for these activities. Second, the number of users of large compressors and fans that would benefit from the productivity enhancing, energy-saving and pollution -abating assistance of the FMCERC is very large (there are over 3000 large refrigerating units operating in China). While individually these might have the incentives to improve the efficiency of their operations, they probably would have the means to invest in the necessary R&D and engineering activities. Potentially, in cooperation with other producers and suppliers of capital goods, they might accomplish what the FMCERC will set out to do but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transaction costs disallow the formation of a market to supply the innovations on an industry-wide basis. The failure of the market to exist generates the externality the FMCERC would be addressing by introducing technologies with widespread applicability. In addition, the FMCERC will be involved in other activities with large external effects such as training of its technical personnel, as well as standardization (for the Chinese screw compressor industry, for example). The FMCERC will also support the establishment of a fluid machinery state level test center to introduce a quality licensing system.
4. In terms of foreign collaboration, the strategy to be pursued by the FMCERC is for the entity, in conjunction with its cooperative local partners (general capital goods producers) to become an effective interface between advanced imported technologies and equipment, or those co-developed with foreign partners and the Chinese market. Thus, for example, in cooperation Shenyang Blower Works, centrifugal compressor techniques from Italy and Japan (transferred from Novo Pignone and Hitachi, respectively) have been introduced. International cooperative research is being spearheaded with German and British compressor manufacturers that stand at the frontier of their product specialties (Demag, and Howden, respectively).
5. For the dissemination of techniques and products, the FMCERC's diffusion strategy will be based on a plan that involves over ten cooperative partners, particularly factories and workshops. In addition, the FMCERC will rely on the diffusion of information among users both domestic and international. To implement its comprehensive training to incorporate over 200,000 engineers and technicians, the ERC intends to set up six regional training subcenters. In - 96 - Annex 4.6 Page 19 of 95
5. For the dissemination of techniques and products, the FMCERC's diffusion strategy will be based on a plan that involves over ten cooperative partners, particularly factories and workshops. In addition, the FMCERC will rely on the diffusion of information among users both domestic and international. To implement its comprehensive training to incorporate over 200,000 engineers and technicians, the ERC intends to set up six regional training subcenters. In addition, centers will be set up in the petrochemical, metallurgical, and coal industries as well as in design institutes.
6. The FMCERC will focus on six major product areas in which there is significant demand for its technical services : (i) scroll compressor and pumps; (ii) large turbocompressors for fertilizer plants; (iii) monitoring and fault diagnosis systems; (iv) energy saving transformation of old products; (v) large fans and draft fans for coal mines and power stations; and (vi) sewage disposal compressors. The detailed analysis of demand and the network that has been established with the cooperative partners (mainly capital goods suppliers) and customers, strongly suggest that the FMCERC will be able to successfully implement its marketing goals and overall strategy.
7. Total funding for the Fluid Machinery and Compressor Engineering Research Center is US$6,447,000. The breakdown is as follows:
Us thousand
World Bank ...... 3,000 Other bank loans ...... 2,071 Equity ...... 1,376 - 97 - Annex 4.6 Page 20 of 95
THE NATIONAL ENGINEERING RESEARCH CENTER FOR NET SHAPE MANUFACTURING
1. Net shape manufacturing (NSM) is an important generic technology for metal forming. With respect to China, the country appears to be behind the world frontier by more than two decades in the processes of die making, and equipment automation. NSM combines the classical forging, stamping and heat equipment technologies with new materials and computer-based precise machining and measurement. NSM has broad applications in the production of parts, components, and other fabricated products. The manufacture of net shape or near net shape saves on materials and energy, reduces the amount of machining, and improves the quality and configuration of the products. The objectives of the NATIONAL ENGINEERING RESEARCH CENTER FOR NET SHAPE MANUFACTURING, (NERC/NSM) is to reach one of the highest levels of development in NSM technology within ten years, by focusing on fine blanking, precise forging, superplasticity, new types of forging machines, robots, and control systems.
2. The sponsoring institution, Beijing Research Institute of Mechanical & Electrical Technology (BRIMET) of the Ministry of Machinery and Electronics Industry, established in 1956, is a major research facility involved in the fields of metal forming and heat treatment processes, materials, dies and molds, superplastic technology of metals, and related equipment, BRIMET has about S00 staff, more than 500 engineers and technicians, and its research income has increased five times over the past six years while staff compensation increased six times since 1985. 3. The rationale underlying the involvement of the public sector in this area is related to: (i) the environmental benefits from the dissemination of this technology in terms of energy and material efficiency, in addition to a reduction in noise and other forms of pollution that affect the workplace. Some of the improvements associated with the diffusion of this technology would be privately appropriated while others would be external to the firm; and (ii) the large number of firms that would benefit from the productivity and quality gains due to the diffusion of net shape manufacturing technologies throughout the industrial sector. While individually, producers might have the incentives to improve the efficiency of their operations, they might not have the means to invest in the necessary R&D and engineering activities. Potentially, in cooperation with other producers and suppliers of capital goods, they might accomplish what this ERC will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transaction costs disallow the formation of a market to supply the innovations on an industry wide basis. The failure of this market to exist generates the externality the ERC would be addressing by introducing technologies with widespread applicability.
4. In terms of foreign collaboration, this ERC will seek to establish close ties with foreign institutes and firms with the purposes of acquiring technology through outright purchase, licensing agreements, personnel training and exchanges. Cooperative links have been established with the National Precision Forming Engineering Center at Ohio State University (USA), UCLA at Davis (USA), and Stuttgart University (Germany). In addition, joint development is planned with Alinco, (Japan), and joint marketing with Amada (Japan).
5. The diffusion strategy will be based on: (i) establishing close relations with mechanical design institutes and leading enterprises in order to disseminate information through the set-up of model production lines and advanced equipment; (ii) utilizing professional associations to promote the application of technologies developed by the ERC; (iii) disseminating information through seminars, exhibitions and magazines on the latest developments; and (iv) providing clients with technical advice in addition to training and exchange of personnel.
6. The market for the ERC's products is quite promising. The change in industrial composition in China will shift out the demand for NSM components. Their ratio in industries such as automobiles, electronics, instrumentation, and - 98 - Annex 4.6 Page 21 of 95 aerospace is considerably higher than the average, ranging from 65% in automobiles to 90% in electric instrumentation. While China is currently unable to provide high-level forging production equipment, it is expected, by the end of the decade, to produce 25 - 35* of all new forging equipment using techniques supplied by the ERC. The ERC will establish cooperative ties with capital goods producers (China National Machine Tool Corp., Heavy Machinery Corp., among others) to bid for large scale, complete production lines of NSM components.
7. Total funding for The National Engineering Research Center for Not Shape Manufacturing is US$10,123,000. The breakdown is as follows:
Us Thousand World Bank 5,000 Other bank loans 1,717 Equity 3,406 - 99 Annex 4.6 Page 22 of 95
THE STATE ENGINEERING RESEARCH CENTER FOR AUDIO/VIDEO & TECHNICAL DIFFUSION
1. In China there are about 900 manufacturing enterprises in the audio/video (a/v) field. It is estimated that only 201 are being run well while 15% are expected to exit as the market becomes more competitive. In addition, there are about 600 firms, generally small and medium, that could overcome their current difficulties with a concerted effort at modernization. These enterprises are characterized by low-quality output produced under inefficient conditions, due to outdated techniques, insufficient knowledge, poor management, and an undertrained staff. The State Engineering Research Center for Audio/Video & Technical Diffusion (SERC-AV) will focus on the production problems faced by these small and medium firms to improve their engineering capabilities and the level of training of their personnel, while stimulating the adoption of modern technical standards for a/v products. The objective will be to improve product quality and reliability, reduce costs, and increase market penetration. This ERC will offer technical consulting services, training, management tools for obtaining productivity gains, feasibility studies, all configured to the specific needs of the enterprise.
2. The sponsor institution, the Nanjing Radio Factory (NRF), is a leading enterprise of the Ministry of Electronics Industry, with experience in designing and manufacturing a/v and telecommunications products. NRF has over 2,800 technical staff including 496 senior engineers, and its 1993 sales were 2.7 billion RMB Yuan. NRF has strong engineering and standards development capabilities, and it is quite experienced in technical service and diffusion, having transferred design, production and management technology to nearly 50 a/v firms. NRF has strong international and domestic links, and has established joint ventures and other cooperative agreements with major international TV and audio producers, as well as domestic universities and research institutes.
3. The rationale underlying the involvement of the public sector in this area is related to the very large number of firms (primarily small and medium- sized), in villages and towns that would benefit from the productivity gains associated with the diffusion of manufacturing a/v technologies. While individually these producers might have the incentives to improve the efficiency of their operations, they might not have the means to invest in the necessary R&D and engineering activities. Potentially, in cooperation with other producers and suppliers of capital goods, they might accomplish what the ERCs will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transaction costs disallow the formation of a market to supply the innovations on an industry wide basis. The failure of this market to exist generates the externality the ERC would be addressing by introducing technologies with widespread applicability. 4. In terms of foreign collaboration, this ERC will take advantage of NRF's extensive links with numerous firms and technical experts to establish close ties with them. Their strategy will include technical and personnel exchanges in order to support the modernization of production and managerial methods of its clients. The ERC will, in particular, cooperate with Matsushita and Sharp with the purpose of raising the awareness and diffusing TQC techniques to domestic small and medium sized enterprises. The ERC will also appoint foreign experts as its consultants, including Stanford University professors and retired high ranking Phillips officials. 5. This ERC's diffusion strategy will be based on (i) dividing the country into six service areas, and providing support to sample enterprises in each area, progressively expanding the sample; (ii) making full use of existing information networks, as well as trade organization and professional associations to disseminate relevant technologies and information regarding the ERC's activities; (iii) organizing client meetings and seminars to diffuse information by holding a user's conference and an annual engineering achievement exhibition s well as inviting industry associations to interact with the ERC; and (iv) provide training and exchange of personnel with clients. - 100 - Annex 4.6 Page 23 of 95
6. Market demand for the ERC's products and services seem quite robust. Its clients will be the 600 or so small and medium sized enterprises that require technical services geared at improving quality and productivity. The ERC will furnish technical support and services including those necessary for the adoption of international standards (ISO 9000), reaching 50-80 firms per year. There will also be a demand for this ERC to transfer knowledge regarding the management of production with an estimated 50-60 projects per year, and provide market and technical information as well as training (particularly in total quality control). A detailed business plan is found in the revised proposal. On the basis of this (major) revision, the Bank should be ready to support the constitution of the SERC-AV. 7. Total funding for the State Engineering Research Center for Audio/Video and Technical Diffusion is US$11,157. The breakdown is as follows:
US Thousand World Bank 4,500 Other bank loans 2,376 Equity 4,281 - 101 - Annex 4.6 Page 24 of 95
THE ENGINEERING RESEARCH CENTER FOR INDUSTRIAL ENVIRONMENTAL PROTECTION
1. Despite recent efforts undertaken by the GOC, industrial pollution continues to be a major concern and a threat to the sustainability of economic development in the country. Current reports confirm that record amounts of airborne pollutants are being emitted by the industrial sector. For example, SOX emissions reached 14 million tons in 1989, and are projected to surpass 20 million tons by 1995 at current rates. Independent analysts have confirmed that China may become the largest source of airborne industrial pollutants by the year 2020. Similarly, industrial sources are a major contributor to water pollution in the country, and it is estimated that 70% of 35 billion tons of pollutants discharged in 1990 came from industry (only 50% were within the standards). About 600 million tons/year of solid waste are also released. Enforcement of environmental regulations is still weak in China but there seems to be a will on the part of the Chinese to improve compliance through tougher enforcement and application of stiffer penalties. The Engineering Research Center for Industrial Environmental Protection will focus on the development and transfer of technology in the areas of: (i) industrial wastewater treatment and recycle; (ii) industrial fume and emission control and associated energy recovery; and (iii) treatment and recovery of industrial solid wastes. These are areas that have the potential to alleviate serious environmental concerns throughout the industrial sector in China. The ERC will also provide other services such as monitoring and assessment. 2. The sponsor institution, the Environmental Protection Institute of the Central Research Organization of the Building and Construction Industry (CRIBC), has a long and distinguished history in the field of environmental protection. The sponsor has provided consulting services in the field to foreign clients, including the World Bank. The Institute holds 19 patents, and has developed design techniques for numerous pollution abatement devices, and has transferred those results into industrial practices. Some of these achievements include state-of-the-art developments in fuel gas cleaning and recovery, dry- cleaning and recovery of fluoride gas emissions. The Institute has a technical staff of 220 including 60 senior engineers and 100 other engineers. 3. The rationale underlying the involvement of the public sector in this area is related to the very large number of industrial firms that would benefit from the environmental gains associated with the diffusion of industrial pollution control technologies. Once developed and disseminated throughout the country, industry will have a very significant impact on the environmental performance of the sector, by reducing emissions of pollutants and increasing the efficiency of the use of materials and energy resources. In view of the importance of environmental protection in China, and the well known wedge between private and social benefits of environmental protection investments, public sector support is warranted for these activities. This is particularly necessary under the current climate of enforcement to enable appropriate long-term incentives to be developed to entice industry into compliance and thereby develop the markets for pollution control devices. 4. In terms of foreign collaboration, this ERC has proposed a strategy with the following elements: (i) cooperation with foreign parties in the development of pollution control systems for use in China; (ii) cooperation with foreign parties for the introduction of equipment ; (iii) direct acquisition of patents and licenses to penetrate the Chinese market; and (iv) a continuation of interchanges involving visiting staff from overseas research organizations. The ERC will borrow from the close ties its sponsor has with numerous foreign universities in Canada, Sweden, German, the US etc., and it will strengthen its ties with industrial firms such as Kimoto Electronic Corp. (Japan), Invertek International Corp. (Sweden), and British Environmental Resources Ltd. (Britain). 5. This ERC's diffusion strategy will be based on existing arrangements that have already served the parent institute well. The ERC will diffuse its research results into the market by selling licenses, offering consulting and - 102 - Annex 4.6 Page 25 of 95 technical services, and through collaborative production with users, and set up joint ventures with users of processes of know-how to commercialize the developments. A well-thought out and detailed diffusion strategy is outlined in the proposal. The ERC will also make full use of existing information networks, as well as trade organization and professional associations to disseminate relevant technologies and information regarding the ERC's activities. 6. Market demand for the ERC's products and services seem quite robust as more and more pollution will result from the rapid industrialization taking place in China. In 1990, the GOC spent 7.07 billion RMB yuan directly on environmental protection including: wastewater treatment, fume emission control, treatment of industrial solid wastes, noise control and more. It is estimated that by the year 2000, that figure will rise to 220 billion RMB yuan to meet the requirements needed for industrial pollution control. Further, enforcement of regulations and stricter environmental standards will cause greater compliance and strengthen the already vigorous demand for pollution control technologies and services. 7. Total funding for the Engineering Research Centor for Industrial Environmental Protection is US$6,900. The breakdown is as follows:
us Thousand World Bank 3,000 Other bank loans 2,000 Equity 1,900 - 1Ui - Ann6ex 4.6 Page 26 of 95
ENGINEERING RESEARCH CENTER FOR THE INTEGRATBD DEVELOPMENT OF HIGH PERFORMANCE POLYOLBFIN MATERIALS
1. The manufacturing, processing and application of high performance and environmentally acceptable polyolef ins depends on significant coordination among resin suppliers, plastic processors and end users. In China, the diffusion of such polyolef in materials has been handicapped, insofar as proper grades are not available; plastic processors lack the required production technology to process high-performance materials when supplied; and end users lack the knowledge to use products made of new materials in adequate ways. The Engine-ring Research Center for the Integrated Development of High Performance Polyolefin Materials will strengthen the links of the value-added chain by promoting the exchange of information and cooperation among manufacturers, processors and end users. In the short term, the ERC will focus on the transfer and application of technology of flame retardant PP; commercialization of UHMW PE production as well as technology among existing medium-sized PE plants; commercialization of bimodal PE technology among existing PE plants; transfer of manufacturing technology of powdered plants; transfer of proprietary production and application technology of radiation resistant PP to medial device and apparatus manufacturers; development of degradable polyolefin materials, and integrated development and application of HDPE pipes. The medium and long-term objectives include developing new alloying technology for high-performance polyolef ins, preparation and application of amorphous polyolefins, and recovery of waste polyolefins.
2. The proposal sponsor, The Beijing Research Institute of Chemical Industry (BRICI), is a comprehensive research institution focused on basic organic raw materials, fine and specialty chemicals, polymer synthesis, plastic processing and environment protection. Founded in 1958, BRICI maintains a technical staff of 1,000 of which 240 are senior engineers (478 additional engineers) of which 30% of the total is engaged in the R&D of polyolefins. BRICI'S strength in olefin polymerization and plastic processing is due to its integral research scope comprising purification of raw materials, polymer synthesis, polymer characterization, plastics processing performers evaluation and environmental protection.
3. The rationale underlying the involvement of the public sector in this area is related to the positive externalities from: (i) coordination and integration of activities of resin and compound manufacturers, processors and users, with the ERC acting as an interface, collecting and exchanging information, providing technical training, and promoting cooperative development, formulation of material and products standards; and (ii) the production and application of high-performance polyolefins and the associated environmental benefits.
4. In terms of foreign collaboration, the ERC will take advantage of BRICI 's experience with foreign partnerships, including : Montecatini and Enichem (Italy); Phillips (US); Buss (Switzerland); and W&P and Drossbar (Germany). The ERC plans to engage in extensive cooperative activities with foreign firms through joint R&D, contract research, technical consultation and the provision of technical services to foreign equipment and polymer producers to penetrate the Chinese market. The latter compels the ERC to act as a service center or demonstration production line. 5. The ERC's diffusion strategy will be based on (i) establishing an open, voluntary technical and economic cooperation committee composed of resin producers, plastic processors, and major users for exchange of information, especially information of a technical nature; (ii) establishment of an information station with a large-scale databank which will offer information services on performance and application data of every brand of polyolefin, product standards, equipment supply, as well as relevant information on foreign firms; (iii) establishment of a training section with five regionally distributed substations in Daqing, Chengdu, Jiangyn, Fuzhou, and Lanzhou; and (iv) the establishment of a technical service station with personnel undertaking extension work to support customers with technical consultation, maintenance, and start-up - 1U4 - Annex 4.6 Page 27 of 95 services.
6. There is a large market for high performance polyolefins in China. the demand for high-performance polyolefins for the manufacture of household appliances, the auto industry, and packaging material pipes is growing at very high rates, and will be the focus of the ERC's efforts. The ERC's short-term objectives is the related diffusion of seven kinds (almost 20 grades) of new materials and products to manufacturers and users. It is expected that the market share of products produced with BRICI/ERC'S technologies, such as UHMW and bimodulus PE, flame retardant PP, stronger autoplastics, modified PO compound, radiation resistant PP, and PE pipes, will be in the order of 50-100W, depending of the case.
7. Total funding for the Engineering Research Center for the Integrated Development of High Performance Polyolefin Materials is U8$11,586. The breakdown is as follows:
Us Thousand World Bank 5,500 Other bank loans 318 Equity 5,768 - 105 - Annex 4.6 Page 28 of 95
URBAN POLLUTION CONTROL ENGINEERING RESEARCH CENTZR 1. Economic growth in China is increasing 7-10% annually, and that growth is exacerbated by industrial and urban pollution placing severe pressures on China's natural resources. Environmental protection is critical to not only control urban pollution but to ensure sustainable development. The government has focused its concerns on water pollution and domestic solid waste (DSW) pollution, common to all cities in China. In short, China lacks effective and reliable facilities for pollution control as well as key technologies needed for wastewater treatment, collection of solid waste; vehicles for transport; incineration (recovery and utilization of waste, emission control, etc.); and composting (for DSW, fertilizer production, etc.). These technologies developed by the Urban Pollution Control Engineering Research Center (UPCERC) would lead to significant solutions regarding pollution problems, as well as policy measures supporting technological development of the environmental sanitation sector. 2. The sponsoring institution, Tongji University, and Shanghai Tongji Science & Technology Industry Co. Ltd. is the first university in China to establish an environmental engineering program working directly with the School of Mechanical Engineering and other disciplines involved in environmental sanitation, heat energy engineering, municipal engineering, automobile engineering, etc. The university also maintains an information network (ENSCIENCE/CHINA) to keep abreast of the latest R&D developments and has been developing technology since the early 70's. In addition, Tongji University has already successfully transferred 50 technologies/research results creating social, economical, and environmental benefits. The university is recognized as a leader in China in the field of municipal wastewater treatment and solid waste disposal. The UPCERC has received full support from the Planning Commission of Shanghai Municipal Government. In collaboration with the National Environmental Planning Administration (NEPA), the university runs a training center which has a positive impact on environmental engineering and technology transfer. Additional sponsorship comes form the Shanghai Tongji Science and Technology Industry Co. Ltd. With over 20 years of experience, this firm is involved in environmental products and services such as synthetic materials, infrared porcelain heaters, turn-key operations, construction of environmental facilities, electric machinery and equipment. The firms has established international ties with the U.K. France, Russia, Japan and UNEP. As a sponsor of this ERC, the firm will not only deal in the production of environmental technology and equipment but also relevant materials and other manufacturing products and processes. The firm has received numerous awards for "best available technology" from NEPA, central and local governments, and holds 27 patents. 3. The rational for public sector involvement of this UPCERC is completely justified given the broad environmental impact of transferring and disseminating research results in water pollution control and solid disposable waste critical to China's environmental protection. The technologies transferred will create enormous energy savings and reduce serious water and other related pollution in urban areas. While individual suppliers might have the incentives to improve the efficiency of treatment facilities and operations, they would not have the means to invest in the necessary R&D and engineering activities. Potentially, in cooperation with other producers and suppliers of environmental facilities and technologies they might accomplish what this ERC will set out to do, but there are considerable costs that no individual actor can absorb. These high transactions costs disallow the formation of a market to supply the innovations on an industry wide basis. Given that the UPCERC is also being sponsored by a private industrial firm, the Bank would be lending to an institution to strengthen its base and become more operational and market driven.
4. The strategy for foreign collaboration is based on international exchange and the introduction of foreign advanced techniques on municipal wastewater treatment and solid waste disposal. The ERC will purchase foreign patents, and strengthen its information exchange with foreign institutions. - 106 - Annex 4.6 Page 29 of 95
Foreign collaboration already exists with the University. of Bradford (U.K.); Lyonnaise des Eaux (France); der Technischen Hoschule Darmstadt (Germany); Moscow Construction Institute, (Russia); Q Source and Aepco Inc. (USA); UNEP; and WHO. Domestic ties are also strong with NEPA, manufacturers and users such as the Ministry of Construction, China Textile Machinery Corp., Shanghai Sifang Boiler Works, and Shanghai Municipal Planning Committee. 5. The diffusion strategy reflects a well-thought out plan designed to assist municipalities to prepare environmental planning, and strengthen environmental management in order to build wastewater treatment plants and solid waste disposal plants. The UPCERC will conduct seminars for government planners, manufacturers, and users in efforts to promote a strong environmental planning capacity in the urban areas. The ERC will also keep track of international and domestic trends, and provide technical training for users and operators of facilities. The UPCERC will set up cooperative development activities, and an information exchange with associations through conferences, newsletters, model demonstration projects, and a strong customer service system.
6. The market in China for urban pollution control is enormous given the rapid industrialization and growth of the cities which has resulted in increasingly large quantities of pollutants. Existing policies and regulations are a means to control the pollution. The market is dependent on environmental management to stimulate innovative solutions and the UPCERC will support environmental management by formulating specifications, standards, norms, expert systems, and software. It is estimated that only 5% of discharged domestic wastewater is treated leaving 9.5 billion tons untreated, and 26 billion Yuan RMB needed for construction of treatment facilities for this wastewater alone. Treatment of DSW has been increasing at the rate of 53% annually. With 478 cities in China producing 95 million tons of DSW each year at a growth rate of 10%, the investment cost is staggering. It is estimated that only 3% of DSW is being disposed of safely. In addition, the market for composting is also enormous as China traditionally uses that method for fertilizer creating a demand for increased production and improvement of soil to keep the ecological balance. The market for incineration for DSW is also great. It is estimated that 20% of solid waste can be disposed of using incineration technology. Figures suggest that 312 incineration plants with a capacity of 100 ton/day should be built. Lastly, the market for collecting and transporting DSW needs to be completely modernized and upgraded. The demand for transport vehicles with compressing mechanisms and other functions (road sweeper, snow sweeper, etc.) is very high. The diffusion strategy and business plan of this ERC clearly supports the marketing strategy which includes a realistic timetable.
7. Total funding for the Urban Pollution Control Engineering Research Center is US$ 4,948 million. The breakdown is as follows:
US Thousand World Bank 2,700 Other bank loans 188 Equity 2,060 - 107 - Annex 4.6 Page 30 of 95
MOBILE COMMUNICATION ENGINEERING RESEARCH CENTER
1. Telecommunication services in China are growing at an unparalleled pace, and since 1985, mobile communications has been expanding at a rate of 50% per annum. The expansion of telecom services and improvement of quality has become an important priority to the Chinese Government. The Mobile Communications Engineering Research Center will focus both on the production problems faced by the producers of mobile communications equipment, and in improving the network operations, solving compatibility problems between network systems, and equipment standards. The ERC will be engaged in the generation of network norms, standards, maintenance specifications, and will offer technical consulting and facility support services, and training for both producers and users. 2. The sponsoring institution, the Guangzhou Communication Institute of Ministry of Electronics Industry, (GCI) is a major research facility in the telecom field, and the unit responsible for research in mobile communications technology and systems development. Their work includes drafting specifications and standards; environmental test requirements; quality assessment procedures; measurement methods; trunking and decentralized systems schemes and procedures; among others. The institute which offers graduate work, has 800 technical staff, of which 105 are senior engineers. The mobile communications equipment systems developed by the Institute covers the total frequency range of current mobile communication gear (from 1.6 MHz-900 MHz), and it denotes relatively powerful integration and design capabilities. GCI has transferred mobile communications technology to some 20 firms in the last decade. 3. The rationale underlying the involvement of the public sector in this area is related to (i) the positive information and coordination externalities from drafting and disseminating norms, standards, specifications and protocols for both telecom equipment systems and networks; (ii) the very large number of users and manufacturers of mobile communications equipment, mostly small and medium-sized, that would benefit from the productivity and quality gains associated with the diffusion of these specifications and norms, in addition to the technical advice to improve operational efficiency. While individually producers and users might have the incentives to improve the efficiency of their operations, they might not have the means to invest in the necessary R&D, engineering and standards-developing activities. Potentially, in cooperation with other producers and suppliers of capital goods, they might accomplish what the ERC will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transaction costs disallow the formation of a market to supply the innovations on an industry wide basis. 4. In terms of foreign collaboration, this ERC will seek to establish close ties with four to six foreign firms and institutions. This will encourage participation in building the ERC, as well as creating joint developments, technology transfer, and information exchange. They will also offer technical training and advisory activities. In particular, this ERC will tap foreign technical management experts to lecture, and send local staff to lead corporations in the mobile telecom field to study and stimulate technical exchanges.
5. The diffusion strategy will be focused on timely collection of market information, dissemination of leading edge technologies, and transfer of R&D achievements. The strategy will be based on (i) the establishment of technical and advisory service centers in provinces and cities, linking up foreign manufacturers, and small and medium producers; (ii) dissemination of information through publications such as weekly "communication product market conditions", trade and professional associations; (iii) the training of both manufacturers and end users' personnel; (iv) the exchange of personnel with clients; and (v) the build-up of demonstration models such as flexible production pilot lines to verify the maturity of production technologies.
6. Market demand for this ERC's products and services appears to be quite - 108 - Annex 4.6 Page 31 of 95 robust, especially in terms of the provision of infrastructural conditions for the development of mobile communications equipment which involve standards, procedures, interface specifications, and testing methods. In addition, other services will include production procedures, technical advice, software support and engineering designs for users. 7. Total funding for the Mobile Communication Engineering Research Center is US$7,347 million. The breakdown is as follows:
Us Thousand World Bank 3,500 Other bank loans 1,405 Equity 2,442 - 109 - Annex 4.6 Page 32 of 95
ADVANCED EDUCATIONAL TECHNOLOGY AND EQUIPMENT PROJECT ENGINEERING RESEARCHCENTER 1. The Chinese government ranks education as a high priority as it is badly needed to increase the level of scientific education necessary for the country's economic development. With a huge population to educate and standards below the world average, China is faced with a monumental task of education its population. Farmers in the countryside have a low level of agricultural and scientific knowledge which is a hindrance to modern township enterprises. It is estimated that China will need to train 800 million farmers to keep up with the pace of modernization. In addition, approximately 80 million industrial workers are also in urgent need of vocational and technical training. In China, only one person out of 500 attends the university and unless this percentage increases, China will never meet the demands for trained workers in a market economy. In order to implement such a monumental educational project, China will not be able to rely on traditional methods but rather advanced educational technology and equipment. The main objectives for the Advanced Educational Technology and Equipment Project ERC include: (i) the improvement of the National Satellite Television Educational System; (ii) the setting of standards for educational facilities as well as national demonstration offices; and (iii) the assistance to provincial education departments and training centers of enterprises in Computer Aided Instruction (CAI). To successfully implement China's educational needs for advanced educational training, this ERC would take the lead in disseminating and managing the technology, the equipment, and the training which would lead to significant efficiency in creating a more educated work force ready to compete as China transitions to a more market economy.
2. The sponsoring institution, Tsinghua University is very strong in training of scientists and engineers, and is also recognized as one of the key universities under the State Education Commission for continuing education in science and technology. The university has established the Continuing Education College and the Computer-Aided Instruction Laboratory Center (CAI) whose research on modern educational technology and equipment began in the late 70's. The university has some 600 professors and 2000 associates, and maintains ties with over 100 universities worldwide as well as about 100 domestic enterprises. The university has an active outreach program for its CAI lab and is the responsible organization in China to coordinate with all other industrial and national institutes. In addition, the university has been successfully transferring satellite TV technology as well as other technologies, holds 436 patents with another 700 pending, and has won many national and provincial awards for its research achievements. The university's strong technical background in educational training will have a positive impact on the overall support of the Advanced Educational Technology and Equipment Project ERC. 3. The rational for public sector involvement of this ERC is completely justified given the broad impact of disseminating advanced technology and equipment in major educational centers nationwide pertinent to China's economic development and social progress. While individually, producers (of advanced educational technology and equipment) and trainers might have the incentives to improve the efficiency of their products and operations, they would not have the means to invest in the necessary R&D and training activities given the vast number of individuals who are in need of their products and services. Potentially, in cooperation with other suppliers, they might accomplish what this ERC will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transaction costs disallow the formation of a market to supply the educational innovations on a countrywide basis, and the failure of this market to exist generates the externality the ERC would be addressing by introducing technologies with widespread applications. 4. The strategy for foreign collaboration is based on international exchange and introduction of foreign advanced technology, teaching materials, and scientific management experience. Presently, the university has numerous ties with about 15 foreign universities including, M.I.T. Johns Hopkins, Harvard, and - 110 - Annex 4.6 Page 33 of 95
Stanford in the US; Imperial College of S&T in the U.K.; Osaka University in Japan; TELECOM Institute of France; and many others. The ERC will participate in international conferences held by ISO (International Standard Organization) in order to formulate standards in China and disseminate that information. The ERC will establish and strengthen its cooperation channels with the private sector such as those contacts in Hong Kong, the US, Japan, the Netherlands, and France. The ERC will be able to piggy-back on the university's strong international network with foreign universities and high-tech multinational firms.
5. The diffusion strategy has been clearly presented to reflect a well- thought out plan involving training centers throughout the country. In collaboration with the State Education Commission and other universities, this ERC plans to establish 23 modern educational technology and equipment training centers in Beijing, Shanghai, Wuhan, Xi'an, Guangzhou, and other cities. In addition to the training centers, demonstration projects will be set up in various fields such as: urban adult education; agricultural technology; application and maintenance of audio-visual teaching materials hard-ware; and operation management of CAI materials software. The ERC will transfer manufacturing technology of modern educational equipment to domestic enterprises such as: China Education Electronics Co.; Beijing Golden Disc Electronics Co.; Anhui Wanyan Electronic System Co;, and many other suitable firms. The ERC will disseminate information about their technologies and services to various industrial associations, training centers, regional and national education departments.
6. The market for modern educational technologies is enormous given China's population (1.2 billion) and its urgent need to modernize its educational and vocational training nationwide. Based on research and plans worked out by the government's educational departments, specific demands for this ERC's technologies and services have been identified. Out of the 23 items identified, some of the categories are for: (i) CAI software, courseware production standards, and multimedia teaching systems; (ii) CD-ROM systems, development tools and training software; (iii) Chinese terminals and operational support systems; (iv) technology for systems integration; (v) large capacity storage systems; (vi) children development tools; and (vii) technical support and specialized training to support all products and services. Six of the 23 demand items will have to come from foreign suppliers and this can be achieved through joint ventures with Chinese enterprises who can successfully transfer the technology for Chinese applications. The diffusion strategy, and the business plan supports the overall marketing strategy both domestically and internationally. 7. Total funding for the Advanced Educational Technology and Equipment Project Engineering Research Center is US$11,447. The breakdown is as follows: US Thousand
World Bank ...... 5,000 Other bank loans ...... 1,927 Equity ...... 4,520 - LII - Annex 4.6 Page 34 of 95
ENGINEERING RESEARCH CENTER FOR CONVERTOR TECHNOLOGY
1. Modern power electronics of advanced power semiconductor device and its application technologies. These technologies have been made a substantial change on not only high power electric equipment but also industrial, office, clinics, and home use equipment. The adoption of these technologies in a variety of fields has resulted in drastic reduction of electric power and material consumption. In addition, it has also contributed to low noise operations agreeable for human life. Convertor technology based on power semiconductor devices is an efficient means to rationalize electric power usage which makes sense in easing the pressure of energy consumption in China. Convertor technology will convert from AC to DC, while invertor will convert DC to AC. Modern convertor technology (using advanced power semiconductor devices) can be applied to electric locomotives, many industrial drives using AC motors, speed control for forklift trucks, nonstop power supplies for computers, etc. Chinese convertor technology is estimated to be fifteen years behind that same technology of developed countries in the same field. The Engineering Research Center for Convertor Technology (ERC-CT) will provide efficient production technologies to related enterprises by pursuing the application of newly developed power electronic devices, carry out engineering research on new electric drive systems, and elaborate modularization designing and production technology.
2. The sponsoring institution, Zhuzhou Electric Locomotive Research Institute (ZELRI) is supported by the Ministry of Railways. ZELRI, founded in 1959, has eight R&D departments and a large number of advanced labs employing close to 800 people including almost 500 engineers. The institute also serves as The Test and Examine Center of Electric Traction Equipment in China and other test sites for devices used on the railway system. ZERLI is also responsible for the national standards for railway standards for electric traction equipment. The institute has achieved over 170 research results of which 54 have been recognized by the Ministry or at the local level, and many have been transferred to industry. Significant technological achievements made are the 6400 kW electric locomotive including convertor and control system, ZTL-1 automatic train stopping device, and GTO (gate turn off) auxiliary convertors.
3. The subproject is fundamentally sound from a public sector involvement standpoint. Pressures from economic development, energy saving and environmental protection enormously enhance the necessity of advanced convertor technology. First, the dissemination of convertor technologies would have a very significant environmental impact as electric power shortage in China is very serious. The current capacity of domestic electric power generation is about 150 MkW, and the generated power in 1993 is about 800 Bk Wh (kilowatt hour) of which 2/3 is generated by power plants consuming 300 M tons of coal. An important electric power consuming equipment is a synchronous motor which consumes 26OBkWh/year corresponding to 30% of the generated power in China. If 1/3 of them are improved by 20t in their electric power consumption efficiency by adopting modern convertor technology, the electric power saved reaches 17 BkWh. In addition to the energy savings that will be reached, enormous gains will be made towards the efficiency of the electric railways system as the application of advanced AC drive technology using convertor technology will make substantial improvements in traction and braking forces. In view of the social benefits of environmental protection from the positive impact of energy savings devices for the electric power industry and transportation sector, public sector support would be warranted for these activities.
4. The ERC-CT has a well defined collaboration strategy as it will make use of the international network that ZERLI has established since the 1980s. The ERC will continue working with ZERLI's contacts such as GE, Westinghouse, Swiss ABB, Siemens, Toshiba and Hitachi. The ERC will welcome foreign shareholders with a - II.) - Annex 4.6 Page 35 of 95 technological advantage and act as a go-between for domestic enterprises for investment and cooperation from abroad. Through international technical exchanges and exhibitions, the ERC will strengthen and promote international collaboration and technology transfer, and become an effective interface between foreign suppliers of technology including those which are planning co-development activities for the Chinese market. Domestically, The ERC will seek to develop new technologies to be commercialized by the industrial sector in conjunction with research institutes and universities.
5. The diffusion strategy for the dissemination of techniques and products of the ERC-Ct will be based on the network established by ZERLI. It will offer information on new technologies (domestic and foreign) on a regular basis as well as various consulting and technical services. The ERC will be responsible for technical training opportunities in the field and exchange of personnel with customer. To promote investments in the early stages of R&D, the ERC will organize a multi-client investment system outlining future profitable projects of important generic technology in order to avoid high risk investments or to encourage shared risks. The ERC will publish newsletters, and set up other mechanisms to diffuse the latest advances in convertor technologies.
6. The proposal clearly outlines the market demand for convertor technologies. Many important applications for not only electric locomotives, but also power stations, power transmissions, etc. will find large markets nationwide. It is estimated that the market for locomotives and metro-vehicles will reach about 600 million RMB in the year 2000. Another example of the increased market demand for convertor technology will require a locomotive convertor for 4400-600kW unit; a diesel locomotive convertor for 3000kW unit; and power supply for a passenger coach air-conditioner of 40kVa will be developed and supplied by this ERC in 1997. The ERC-CT expects to have six big customers for railway vehicle convertors and over 20 customers of to her industrial application convertors. The products of these potential customers will occupy over 90* of Chinese power electric equipment production.
7. Total funding for The Engineering Research Center for Convertor Technology is US$6,470,000. The breakdown is as follows:
(USD thousand) World Bank ...... 3,750 Other bank loans ...... 427 Equity ...... 2,293 - 113 - Annex 4.6 Page 36 of 95
ENGINZERING RESEARCH CENTER FOR PROCESS AUTOMATION
1. Process automation (PA) is widely employed in almost all process industries such as iron/steel, power generation; fossil fuels; chemistry; materials; textiles; food, etc. Without process automation, it is inconceivable to realize economical and safe mass production with high quality, high efficiency, and low material/energy. With the modernization of Chinese industries, the investments on PA are increasing. The annual growth rate of investments for PA in China are: (i) 8-10% in iron/steel plants; (ii) 6-8* in thermal power stations; and (iii) 15-22% in petrochemical plants. The Engineering Research Center for Process AutomAtion (PA-ERC) will provide "total solutions" such as hardware/software technologies as well as marketing and other services to domestic enterprises. Initially, the ERC will promote the renewal of Chinese PA industries as quickly as possible, set up quality assurance programs for diffusion of reliable technologies to PA manufactures, and set up a design platform for R&D integration particularly aimed at small and medium size enterprises. In the longer run, the ERC will develop advanced digital PA technologies, provide consulting services, and make domestic PA manufacturers competitive with overseas industries.
2. The sponsoring institution, Shanghai Institute of Process Automation Instrumentation (SIPAI), is a comprehensive PA research organization in China, and well respected in the fields of process instruments for measuring, displaying, regulating, controlling, actuating, and control systems integration. The SIPAI, founded in 1956, has been a principal supplier of technologies related to automation products in China, and has a staff of almost 1000, of which 64% make up scientific and technical personnel. The institute has won numerous awards in PA technology, and is involved in international standardization serving as a member of various technical committees of the ISO, (e.g. TC 30), and serves as a reliability and environmental test laboratory, accredited as an international laboratory by Lloyd's Registry and Shipping. Since 1980, over 800 R&D and engineering results have been completed, and 87 of them received awards from ministries, state and local agencies. Many research results have been transferred to over 100 manufacturers. In addition, SIPIA has significant experience in international projects with foreign firms.
3. The subproject is fundamentally sound from a public sector standpoint and deserves to be supported. Process automation technology is a generic technology which is applicable to a variety of industries, thus having a substantial impact on society. The adoption of this technology leads to a significant reduction of energy/material consumption, high quality/yield production, and safety operations. PA technology is characterized by its sensitivity to new technological innovations because it can seriously affect the performance of production yield and quality, resulting in competitive products making PA technology an urgent necessity for Chinese manufacturers. Out of 1500 domestic manufacturers of which 95% are small and medium size firms, the majority do not have access to the latest PA developments according to global standards which are required by domestic manufactures. While PA technology becomes more and more sophisticated (software and networks included) , the hardware will also become more complicated and even the largest and most advanced of Chinese manufacturers, will be at a competitive disadvantage as they seek to adapt, improve, and market innovations in PA technology. Public sector support is warranted for these activities.
4. The PA-ERC, along with its sponsor, has a long history of close relations with foreign enterprises and research organizations. SIPAI has worked with numerous international firms like Honeywell, Modicon, Foxboro, IBM, Yokogawa, Mitsubishi, Siemens, etc. The ERC will not only continue to collaborate with foreign firms but seek new opportunities to cooperate in technology transfer and other ventures. Domestically, SIPAI has strong technological ties with - 114 - Annex 4.6 Page 37 of 95 numerous universities such as Qing Hua, Tian Jin, Middle China University of Science and Technology, Shenyang Research Institute of Instrumentation Technology, etc. This ERC is well positioned to cooperate with these organizations and others to introduce innovations in process automation technology which will enable firms to market products in a growing Chinese economy.
5. The diffusion strategy for the dissemination of techniques and products of the PA-ERC is based on applying the network of its sponsor as well as other related institutions. One approach will be to identify several firms suffering from pollution and high energy consumption, and use them as a testing ground to apply newly developed PA technology to solve technical problems. The results would then be disseminated through various channels set up specifically for this purpose. The ERC will also set up a sales and marketing department as well as regional branches for sales promotion and consulting services. The ERC will continue to participate in technical exchanges and information exchanges as practiced by its sponsor.
6. As stated earlier, there is an enormous market for PA technology, and specifically in petrochemical, power generation, and metallurgy industries. For example, 235 units of 300MW and 96 units of 600MW for large scale thermal power generation will be installed by the year 2000. In addition, more than 10,000 sets of PA products will be needed just for these installations alone, not to mention the huge retrofit market for already installed facilities. This ERC will have a score of marketable new products and technologies even in the initial stage which is clearly outlined in the proposal, and expects to have 20% of its revenue from technological transfers and sales of smart transmitters/new types of actuators.
7. Total funding for The Engineering Research Center for Process Automation is US$7,994,000. The breakdown is as follows:
(USD thousand) World Bank ...... 4,000 other bank loans ...... 496 Equity ...... 3,498 - 115 - Annex 4.6 Page 38 of 95
ENGINEERING RESEARCH CENTER FOR POWER ELECTRONICS
1. The key element of modern power electronics is the development of power semiconductor devices. Power semiconductor devices have been providing substantial changes on not only high power electric equipment but also industrial, office, medical (clinics), and home use equipment, etc. The adoption of power semiconductor devices in these fields has resulted in drastic reduction of electric power and material consumption. In addition, it has also lowered the noise level significantly in extremely noisy operations. A typical example of this change can be seen in air conditioners which apply invertors enabling high efficiency and low noise operations. All these improvements have been realized by replacing conventional means by semiconductor electronic devices. Although a tremendous market for power electronics using semiconductor devices exists in China, the technological level of Chinese manufacturing industries in this field is approximately twenty years behind world levels. There are over 400 enterprises in China (95% are small and medium firms), still employing obsolete technology of the late 1970's. The Engineering Research Center for Power Electronics (PE- ERC) will play an important role in providing basic technology which corresponds to the national long range development of science and technology in the 8th five- year plan of China. The ERC will develop power semiconductor devices to make domestic enterprises competitive with overseas products by applying Chinese research results and introducing foreign technology. The engineering development will be oriented to metallurgy, chemical electrolysis, high voltage DC transmission, and traction of electric locomotives, etc. Consulting services, particularly aimed at small and medium size enterprises, will also be provided.
2. The sponsoring institution, XiIan Power Electronics Institute (XPERI) of the Ministry of Machine Industry (MMI), is the only comprehensive power electronics research institute (with its origins in power electronics) in China. Most of Chinese power semiconductor devices have been developed at XPERI which developed the first semiconductor rectifier diode in early 1960, and the first thryristor in 1962. Since 1978, XPERI has developed 310 research results, of which 180 have received awards from the state and various ministries. Some of XPERI's developments are: (i) 4 inch diameter thyristors; (ii) light-activated thyristors of lkA/4kV; (iii) GTO (Gate Turn Off); and (iv) IGBT (Insulated Gate Bipolar transistor), etc. In addition, the XPERI owns a complete set of fabrication technologies of various high voltage/high current semiconductor devices, and demonstrates a well-balanced potential for testing, design, and application of power electronics. XPERI has a staff of 730, with 150 engineers, 76 senior engineers, and cooperates with Shaanxi Institute of Mechanical Engineering and Xi'an Jiaotong University to train engineering graduates.
3. The rationale underlying the involvement of the public sector is related to: (i) the environmental benefits from the dissemination of power semiconductor device technology in terms of energy and material efficiency. Compared to conventional equipment such as Hg rectifiers and mechanical rotating machines, this technology applied to electric power supplies, electrical power transmission systems, electric trains, and other applications will drastically reduce power consumption, equipment size, and noise generation; and (ii) Given that over 95% of Chinese power electric enterprises are small and medium size firms, and do not have access to the latest R&D, it becomes essential for them to be aware of advanced technologies for commercial scale production; have access to updated information, advice and services; and the latest training, and marketing know-how. Power semiconductor devices require very special and different technology from information oriented semiconductor devices. It must also be extremely homogeneous, have a low defect rate, and fine impurity concentration over a much larger wafer area (5-6 inch diameter) compared with information-oriented semiconductor devices due to the high current of several kA. In addition, special designs are indispensable for high voltage operations over several kV. Even large domestic enterprises would not be able to develop such a high technology device without public support. Given the energy/material savings, - 116 - Annex 4.6 Page 39 of 95 and sound environmental impact this technology will have on society, public sector support is warranted for these activities.
4. The PE-ERC, along with its sponsor, XPERI already has a record of close relations with foreign enterprises and research organizations. They have collaborated with numerous international firms such as Mitsubishi, Hitachi, EUPEC, Wacker-Chemitronic Co. (German), GE, Lisrec, and PSI (U.S.) and British and Taiwanese firms. One example of XPERI's cooperative venture is a signed agreement with GE on the technical transfer of 77mm (3 inch)- diameter thryistor and rotary excitation diodes. The ERC will not only continue to collaborate with foreign firms but introduce advanced technology to Chinese firms, especially small and medium size firms in serious need of new and improved technologies. The practice of technical exchange of personnel with international organizations will also be continued, and domestically, XPERI has strong technological ties with numerous universities such as Xi'an Jiaotong University, Shaanxi Institute of Mechanical Engineering, Lisha Micro-Electronics Institute, and many others. This ERC is well positioned to cooperate with industrial firms, research organizations and others to introduce innovations in power electronics technology which will enable firms to market products in a growing Chinese economy.
5. The diffusion strategy for the dissemination of techniques and products of the PE-ERC is based on applying the network of its sponsor as well as other related institutions. That network consists of over 400 domestic enterprises, 15 universities, and 20 research institutes. This ERC will investigate the market needs to develop technologies, and use all means available for transferring and diffusing technologies such as: (i) establishing a cooperative diffusion mechanism with domestic and foreign firms; (ii) set up regional branch offices for diffusing technologies and providing consulting services to enterprises in the region; and (iii) advertise through the news media and magazines such as "Power Electronics", and "Power Electronics Information." The ERC will continue to participate in technical exchanges and information exchanges as practiced by its sponsor.
6. Given the nature of its applications, there is an enormous market for power electronics products and services. For example, almost all offices using computers as well as clinics using medical equipment are forced to set up non- stop electric power supplies which are critical for their daily operations. Most facilities of this type in developed countries adopt power semiconductor based equipment. Many promising applications such as power stations equipment, electric locomotives, high voltage, DC power transmissions and air conditioners will need high efficiency, compact and low noise equipment which are only realized using power semiconductor devices. It should also be noted that developments in this technology are not only applicable to the industrial sector, but to the home appliance market which will grow rapidly in China along with its economy.
7. Total funding for The Engineering Research Center for Power Electronics is US$9,165,000. The breakdown is as follows:
(USD thousand) World Bank ...... 5,000 Other bank loans ...... 1 ,049 Equity ...... 3,116 - 117 - Annex 4.6 Page 40 of 95
ENGINEERING RESEARCH CENTER FOR OPTICAL DISKS & APPLICATIONS
1. Optical disks have become one of the most novel and rapidly growing industries. In Japan alone, optical production reached 1.35 trillion yens in 1992, and those figures are expected to increase. In China, more than 30 compact disk (CD) duplication lines entered the market in the mid 80's by Shenjeng Advanced Science Enterprises Group (SASEG) as well as other types of optical disks such as CD-ROM, CD-V, CD rewritable, and laser disks (LDs), etc. These technologies have been applied to the fields of education, computers, communications, medical uses, recreation, etc. The market potential for optical disks in China is enormous. In 1993, the production quantities of CDs and LDs attained 10,000 k pieces and 1,500 k pieces, respectively. To date, the total production has reached 400 million RMB. A serious problem facing producers is that most are small and medium size enterprises which basically have no R&D teams for improving optical disk technology. In addition, Chinese production of CD and LD drives still remains in the assembly stage. The Engineering Research Center for Optical Disks & Applications (OD-ERC) will develop various kinds of optical disks and promote their applications to the information industry in China benefiting the users in the diverse sectors such as banking, medical and health, education, commercial, recreation, etc.
2. The OD-ERC has four sponsoring institutions: (i) Shanghai Institute of Metallurgy (SIM); (ii) Shanghai Institute of Optics and Fine Mechanics (SIOFM); (iii) Shenzhen Advanced Science Enterprise Group (SASEG); and China Textile Machinery Co. Ltd. (CTM).
(i) SIM: SIM, with a 66 year track record, is a comprehensive technology research institute primarily oriented towards applied research. Since 1960, SIM has been expanding its activity to new materials such as ultra-pure materials, super-conducting materials, semiconductor materials, magnetic materials and others. The institute is comprised of 800 scientists and technicians and employs a total of 1200 people. The Joint Laboratory of Optical Disk was basically established by SIM and SIOFM for enhancing optical disk research, and has numerous agreements with large domestic enterprises. SIM has published more than 300 original papers annually and completed approximately 580 research results.
(ii) SIOFM: SIOFM is a comprehensive optics research institute which merges optics, fine mechanics, electronics, computer technology, organic materials, and laster technology. This institute established an optical disk pilot line from 1986-1990 for research including glass substrate, pregrooving, preformatting, film deposition, testing, encapsulating, and disk drive. The Joint Laboratory of Optical Disk has also achieved a number of developments involving MO (Magneto-Optic) disk.
(iii) SASEG: SASEG is engaged in optical disk and opto-electronic display developments. The company, SAST Laser Video Co. Ltd., (subsidiary of SASEG) has established production lines for CDs, LDs, and optical disk players in China. These products occupy more than half of the domestic production. SAST has a close relationship with Philips.
(iv) CTM: CTM has a working capital of 249 million RMB, and 5,800 employees including 1,041 technicians. The company's stocks are offered on the Chinese stock market and internationally. CTM has signed an agreement with SIM and SIFOM to establish the Shanghai Optical Disk Industrial company which will import key equipment for manufacture and duplication purposes and potentially target small and medium size enterprises. - 118 - Annex 4.6 Page 41 of 95
3. The subproject is fundamentally sound from a public sector standpoint and deserves to be supported. The optical disk industry is growing at a rapid rate which can only enhance the comprehensive technology which includes numerous other sectors such as material processing, precise machining, lasers, optics, computer software, and international standardization. Although there are only about 30 small and medium size enterprises for optical disk, they do not have the badly needed resources to conduct R&D in the above mentioned sectors. This ERC will disseminate optical disk technology which would have a very strong impact on the information industry as the current capacity is not sufficient to meet the demands of the domestic market, thus public sector support would be warranted for these activities. In addition, optical disks will be widely applied to not only the music and entertainment industry but also to electronic publishing, multi- media, and computer external memory which will promote social prosperity such as education, and cultural exchanges between China and the rest of the world.
4. The OD-ERC has a well defined collaboration strategy with special emphasis on international exchanges already been developed by the various sponsors. For example, close relations exist between Philips, The German firm, Leybold, Nippon Vacuum Co. as well as universities in Arizona, Nagoya, and Osaka. Cooperation with domestic enterprises has been on-going among the various sponsors, and the ERC will introduce products in collaboration with more than 20 organizations such as Nanjing University, Beijing University, Shanghai Laser Institute, Xian Institute of Optics and Fine Mechanics, etc. thus cultivating a domestic market for various optical disks. The ERC will strengthen and promote international collaboration and technology transfer, and become an effective interface between foreign suppliers of technology including those which are planning co-development activities for the Chinese market.
5. The diffusion strategy for the dissemination of techniques and products of the OD-ERC will be based on the combined network of all four sponsors. The ERC will not only be a center for technology transfer but also a center for consultation, training, and test/inspection to provide various technological services for domestic enterprises. To achieve this goal, the ERC will (i) set up an advertising department in conjunction with the Joint Laboratory of Optical Disk which already has a magazine called "Communications on Optical Disk"; (ii) collect information and disseminate it on a regular basis to customers; and (iii) create a special strategy (as needed) for introducing complex technologies by focusing on one or two enterprises with strong R&D teams to gradually disseminate these technologies to other enterprises.
6. As stated earlier, there is an enormous market for optical disk technology in China. The estimated market demand (in quantities) for 1996 in various sectors are as follows: (i) 3 million pieces for cultural and recreational uses, 200 k pieces for educational purposes; (ii) 1 million pieces for electronic publishing; and (iii) 200,000 pieces in education. In order to meet the large social requirement for these technologies, enterprises will not only need to continue providing optical disks but will need innovative technologies and approaches to supply the market, solve technical problems and set technical standards which this ERC is well positioned to do.
7. Total funding for The Engineering Research Center for Optical Disk & Application is US$9,335,000. The breakdown is as follows:
(USD thousand) World Bank ...... 4,500 Other Domestic loans...... 561 Equity ...... 4,275 - 119 - Annex 4.6 Page 42 of 95
ENGINEERING RESEARCH CENTER FOR SHIP DESIGN TECHNOLOGY
1. While the shipbuilding industry in China has become one of the main production industries and international trading businesses, it suffers from a low level of systematization, integration, practicability, and commercialization. China is a country with an extremely viable shipping environment with its enormous coastline of 18,400 km, 500 navigable rivers totaling 108,700 km of navigable routes. With China's economy rapidly expanding, there is an urgent demand for waterway transport which cannot be met by outdated ships operating at low efficiency levels, high energy consumption, and with a fleet estimated to be about 15 years behind world levels. In order to promote shipbuilding technology renovation, it is important to accelerate the development of ship design technology. There are 882 steel ship yards in China, 330 equipment and machinery manufacturers, and over 100 research and design firms. The Engineering Research Center for Ship Deuign Technology will play an important role in providing a continuous base of new technologies to the industry so it can supply advanced and commercialized ship design software suitable for China's practical use to meet the demand of waterway transport. The ERC will develop and disseminate various ship design techniques, them and provide training to Chinese users. The long-term objective is to make this ERC a base for foreign and domestic advanced ship design technology.
2. The sponsoring institution, Marine Design & Research Institute of China (MARIC) dates back to 1950, and is the oldest and most comprehensive ship and offshore design and engineering organization . The institute has over 1800 employees (397 senior naval architects and engineers and 479 engineers); twelve technical divisions such as Merchant & Research Ship Design, Offshore Engineering & Work Boat Design, and Ship Hydrodynamic Laboratories; and three technical consulting companies, the institute has completed over 850 ship and offshore designs. In addition, MARIC has won 372 national and local awards and holds ten patents available for technology commercialization. Some of MARIC's developments are: (i) pre-propeller hydrodynamic fin sector; (ii) anti-fishing net energy- saving device; (iii) asymmetric compensation duct; and (iv) semisubermisible anti-typhoon multi-functional offshore platform, etc. Currently, MARIC has 11 key research achievements being applied or capable of being applied to industry including a series of CAD software for a wide range of ships involving merchant ships, high-performance vehicles, and offshore units. Lastly, the institute has a long history of close ties with China's shipbuilding-related academies, research organizations, and shipyards.
3. The rationale underlying the involvement of the public sector is related to: (i) the environmental benefits from the dissemination of advanced ship design technology in terms of energy and material efficiency; (ii) the productivity gains of a large number (over 800 shipyards alone) of industrial users that will benefit from the diffusion and upgrading of systematic ship design software; and (iii) the dissemination of information and industry-specific norms and standards, and the training of technical personnel. The development of large-scale software packages and other related technologies for high-performance ships is not feasible for any one individual company to finance despite the great demand and urgency for modern ship production. In addition, This ERC will focus on small and medium size ship building enterprises which account for approximately 92% of the market. Given the enormous benefit the Chinese waterway transport sector will have on the economic growth, public sector support is warranted for these activities.
4. This ERC, along with its sponsor, MARIC, already has a record of close relations with foreign enterprises and research organizations (in 31 countries) in the maritime sector. They have collaborated with numerous international organizations such as the American Bureau of Shipping, Lloyd's Registrar of Shipping, Nippon Kaiji Kyokai, and numerous others. The basis of their - 120 - Annex 4.6 Page 43 of 95 international collaboration is to introduce foreign advanced technologies by tapping into the ERC's rich knowledge of domestic conditions to reduce the development cost and penetrate the Chinese market. The international strategy will facilitate the importation and transfer of foreign technology to small, medium and large Chinese firms, as well as co-develop and diffuse new technology into the Chinese market. The practice of technical exchange of personnel with international organizations will also be continued. It should be noted that from 1978-1993, MARIC sent 377 delegations of 715 staff abroad and accepted 2,031 foreign delegations. Domestically, MARIC has strong technological ties with over 500 domestic shipbuilding enterprises and numerous universities and institutes.
5. The diffusion strategy for the dissemination of advanced ship design technologies of this ERC is based on applying the vast network of its sponsor as well as other related institutions. According to their plan, the ERC's ship design software in China will reach a market share of 30% within five years and 50* within eight years, and the products are expected to hit the Asia-pacific market within five years. The ERC will establish different marketing strategies for the different markets. The diffusion channel inside the ERC will be performed by the marketing, quality control, and training and technology exchange divisions. Outside the ERC, the diffusion network will be maintained through close client associations and an active outreach program will be set up for potential clients. The ERC will diffuse technology and information by providing consulting services, advertise through the news media and magazines, publish a special newsletter, and continue to participate in technical exchanges as practiced by its sponsor.
6. Given the size of its vast waterway system, and China's industrial growth, there is an enormous market for ship design technology products and services. As previously stated, there are over 800 steel ship yards, over 300 equipment manufacturers, and over 100 research and design firms, all potential customers for ship design software and services. Many promising technologies such as a ship design database will enhance the operational performance of various ships such as oil tankers, bulk carriers, container vessels, high performance vehicles, work boats, and offshore units.
7. Total funding for The Engineering Research Center for Ship Design Technology is US$8,622,000. The breakdown is as follows:
(USD thousand) World Bank ...... 4,500 Other bank loans ...... 583 Equity ...... 3,529 - 121 - Annex 4.6 Page 44 of 95
THE ENGINEERING RESEARCH CENTER FOR ENERGY SAVINGS IN POWER SYSTZMS
1. While the electric power industry in China has experienced considerable growth, there is still a serious shortage of electricity which acts as barriers to sustainable economic growth. Given the constraints of the limited natural resources on the environment, it is not enough to expand the generating capacity without adopting mitigating measures to reduce waste. With the power industry being the largest consumer of electricity, energy saving techniques and practices could be achieved by applying technical and economical measures regarding coal consumption rates, line losses ratio, auxiliary power ratio, and efficiency of power utilization which are well below international standards. In conjunction with the GOC's development strategy of the power sector, The Engineering Research Center for Energy Savings in Power Systems (ESPS-ERC) will focus on the diffusion of critical technologies in energy savings in power systems while concentrating on areas such as : (i) thermal power plant process control; (ii) energy management systems (EMS); (iii) distribution management systems (DMS); (iv) software support for integrated resource planning; and (v) demand side management (DMS) techniques. The main objectives are to promote R&D activities in energy savings of power production and consumption, and cooperate with electricity utilities, enterprises, and other organizations to integrate and transfer advanced technology in software and hardware products for energy saving. Efforts in this area will be supported by four simulation laboratories to be built (and operating by 1997) on existing facilities for systems integration, performance verification, and demonstration purposes.
2. The sponsor institution, the Electric Power Research Institute (EPRI) dates back to 1951, and is supported by the Ministry of Electric Power. EPRI is not only responsible for R&D but also for testing of power equipment and instrumentation, as well as certification. EPRI has a staff of 830, of which 70* is technical. In recent years, EPRI has sent about 50 technical professionals abroad (US, Canada, Germany, Japan, Switzerland, & Russia) to study and work in power system engineering and control systems. EPRI has accomplished a large number of research results which have received national awards and 57 received award from the Ministry of Electric Power. The most recognized awards have been in the field of power plant controls (SCADA and EMS), power system controls, and energy savings and static Var compensators (SVC). The institute has strong engineering and standards development capabilities, and is quite experienced in technical service and diffusion. EPRI has also been actively involved in the transfer of technologies through licenses to the power industry, and in some cases directly to the end-users such as design institutes, dispatching centers, testing centers, etc. EPRI has established technical exchanges with numerous institutions both internationally and domestically.
3. The rationale underlying the involvement of the public sector in this area is related to the very large number of consumers of electricity in the power sector that would benefit from the positive environmental impact associated with the diffusion of energy saving technologies. Past difficulties in the improvement of energy savings have been partially due to the highly centralized management system which lacked incentives to save energy, as well as research institutes far removed from the market and unable to focus on commercializing energy saving technologies. While individually, large utilities and end-users might have the incentives to improve the efficiency of their operations, they do not necessarily have the means to invest in the specific R&D and engineering activities. Potentially, in cooperation with other producers and suppliers they might accomplish what the ERCs will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transaction costs disallow the formation of a market to supply the innovations on an industry wide basis. The failure of this market to exist generates the externality the ERC would be addressing by introducing energy saving technologies with widespread applicability. - 122 - Annex 4.6 Page 45 of 95
4. In terms of foreign collaboration, this ERC will take advantage of EPRI's extensive links with numerous firms and technical experts to continue cooperating with them. Their strategy will include technical and personnel exchanges in order to support prototype development, software development and engineering and consulting services including DMS, and EMS for its clients. The ERC will, in particular, cooperate with Westinghouse to resell their software and set up an engineering service center, as well as Digital and ESCA (U.S.) for similar purposes. The ERC will also collaborate with ABB and EPRI (Sweden); and EPRI (Russia); and numerous foreign universities based on the network already set up by EPRI.
5. This ERC's diffusion strategy is based on cooperation with the major utilities in China (6 large regional power systems) and foreign companies to disseminate energy saving technologies throughout the country. The principal organization for technical diffusion will be the R&D department in the ERC with a branch in Zhuhai responsible for technical diffusion in the Guangdong area. As advances are made, more diffusion branches will be set up throughout the country, and abroad if warranted. The ERC will make full use of existing information networks, provide training and exchange of personnel with users as well as trade organizations and professional associations to disseminate relevant technologies and information regarding the ERC's activities. They will organize meetings and seminars to diffuse information and even provide technology demonstrations at the user's site.
6. Market demand for the ERC's products and services seems quite robust given the size and potential of the power industry. By the year 2000, 300 sets of power plant monitoring and controlling systems will be equipped for either existing or newly installed thermal power plants. Fifteen per cent of the market share is expected to be awarded to EPRI in the next seven years. Regarding energy management systems, 32 EMS will be installed in the next decade, and it is estimated that 60% EMS (15) market share will be developed by EPRI during that period. The DMS market represents a larger share as 2000 counties with relative heavy power load and complex distribution grids will have to be equipped with distribution management systems on different levels. More than 500 DMS will be installed in the next ten years. Besides energy saving products such as SVC, and SCADA, the ERC will furnish technical support and services to diffuse engineering results for its vast users.
7. Total funding for the Engineering Research Center for Energy Savings in Power Systems is US$6,173,000. The breakdown is as follows:
(USD thousand) World Bank ...... 3,500 Other bank loans ...... 640 Equity ...... 2,033 - 123 - Annex 4.6 Page 46 of 95
ENGINEERING RESEARCH CENTER FOR RARE METAL MATERIAL PROCESSING
1. The manufacturing, processing and application of rare metals are key in supporting modern engineering technology to industry since these metals increase productivity, reduce energy consumption, and improve quality and industrial safety. The goal of the ERC is to improve the status of low industrialization level of China's rare metals and to stimulate the progress of industrial technologies through the fabrication of titanium, zirconium, tungsten and molybdenum. China is rich in rare metal resources yet processed materials only make up 6% of the total, indicating that China's industrial level of rare metal materials is still very low. Innovative processing techniques and equipment in China lag behind those in developing countries because of the high cost associated in processing rare materials. Diffusion of these rare materials will play an important role in industrialization because they possess many unique and valuable properties used for enhancing strength, corrosion and heat resistance, as well as for light structural materials. The substitution of traditional materials to rare metals will improve chemical engineering and civil aviation industries, and materials for electronics and electric lighting industries. The Engineering Research Center for Rare Metal Material Processing will develop and diffuse those achievements which conform to mass production, and supply engineering technologies to relevant industrial departments. The short-term and mid-term objectives of this ERC are to: (i) prepare technologies for high quality ingots and blanks; (ii) process technologies for materials with high performances; and (iii) process technologies for rare metals in manufacturing from automobiles to light industries.
2. The proposal sponsor, The Northwest Institute for Nonferrous Metal Research (NIN), is a comprehensive research institution for basic study and development of rare metals processing. Founded in the mid-sixties, NIN maintains a technical staff of 1,100 with thirteen laboratories whose strength lies in the areas of Ti, refractory metals, nuclear materials, superconducting materials, precious metals, etc. NIN also maintains a graduate school for training students for Masters and Ph.D. degrees. It has obtained over 600 achievements in the last 30 years, for which they received awards for 300 of them. Among their successes, 68 technological achievements have been transferred to enterprises yielding a profit of 29 million RMB (48 technologies still remain to be transferred). The institute also has considerable experience in spinning-off high-tech companies where NIN provides auxiliary facilities for testing. NIN also has many long term cooperative agreements with over 30 research institutes domestically and abroad, including the exchange of technical personnel in 19 countries.
3. The rationale underlying the involvement of the public sector in this area is fundamentally sound and deserves to be supported. The rationale is related to the positive externalities from: (i) developing and promoting rare metal materials with the ERC acting as an interface to industry for significant productivity gains, and (ii) the production and application of high-performance process technologies associated with environmental benefits as this ERC will make effective use of natural resources while its technologies contribute to energy savings. While it is important for China to introduce new technologies to industry, no one technical institution or industry in China is capable due to the high cost of specialized equipment as well as the high risk associated with R&D. Thus, the establishment of the ERC would allow them to disseminate information through evaluation, introduction, and absorption of new technologies much more effectively than any individual companies.
4. In terms of foreign collaboration, the ERC will take advantage of NIN's 30 year experience in foreign collaborative agreements including: The National Science Research Center (CNRS/France); Tskukuba Laboratories and National Research Institute for Metals of Science & Technology (Japan); - 124 - Annex 4.6 Page 47 of 95
International Technology Transfer, INC.; University of Dayton (U.S.); Polish Academy of Sciences; Metallwerk Plansee GmbH (Austria); Technical University (Germany); and proposals from Rumania and Russia. The ERC plans to engage in extensive cooperative activities with foreign firms through joint R&D, contract research, and personnel exchange. The ERC will also engage in demonstration projects and technical consultation services in order to facilitate the adaptation of technology from foreign firms into the Chinese market.
5. The ERC's diffusion strategy will be based on (i) utilizing NIN's vast information channel such through its role as lead institution of China's Rare Metal Scientific and Technological Information Network, Rare Metal Processing Coordinated Group, Tungsten Association, and Molybdenum Association; and through its technological network of clients both domestically and abroad; (ii) a systematized targeted strategy to disseminate technology through its marketing and sales department to three major groups consisting of processors, enterprises, end-users; (iii) establishing a training section to work with the three targeted groups through in-house training or training centers in other provinces and areas, including exchange of technical personnel; and (iv) publish periodicals and newsletters to advertise technical achievements.
6. There is an immense need in China for rare metal materials products and processes for important industries such as chemical, aviation, nuclear power stations, and electric lighting sources. According to the latest economic reports, the total demand in China for rare metal materials for the year 2000 is 7-8 billion RMB with a potential export market of 1 million RMB. In addition, this market demand only accounts for the existing demand and not the huge potential market such as Ti in civil applications of automobiles, bicycles, and building materials. There are approximately 100 enterprises in China that will need new products and technical services and there is a growing demand for consulting services to provide technological innovations and introduction of new equipment, technical software, auxiliary equipment and technical training. The ERC has developed a marketing plan which consists of 6 major projects for development and will begin in 1995. The plan will focus on technology for fabrication of large scale composite plates and other components such as processing technology for high reliable ZR-4 alloy sheathed tubes, W and MO pressed components, etc. for manufacturers and users.
7. Total funding for the Engineering Research Center for the Rare Metal Material Processing is US$9,064,000. The breakdown is as follows:
(USD thousand) World Bank ...... 5,000 Other bank loans ...... 892 Equity ...... 3,172 - 125 - Annex 4.6 Page 48 of 95
ENGINEERING RESEARCH CENTER OF INDUSTRIAL TEXTILES
1. The textile industry is one of the oldest industries in China, employing about 15% of the country's total work force. Focusing primarily on meeting the apparel demands of over one billion people, production of industrial textiles has not been able to keep up with the vigorous growth of other industrial sectors due to the rapid development of China's economy. The current situation of the industrial textile industry in China is bleak, and characterized by low output, poor quality, and outdated technologies (estimated to be twenty years behind those of developed countries). In China, industrial textiles accounts for only 10 of its total fiber consumption, and The GOC has plans to raise that to 25% by the year 2000. In addition, basic industries are in urgent need of industrial textiles of various properties for such sectors as petroleum, chemical, communications, environmental, metallurgy, agriculture, industrial safety, medicine, etc. In addition, 1991 data indicate that 1/3 of all the small and medium size companies (roughly 11,000 firms) in China are engaged in the textile and apparel processing industries, and operating at low levels of efficiency, and high levels of raw material waste. In order to meet the challenges set out by the GOC to promote industrial textiles, the Engineering Research Center of Industrial Textiles (ERC-IT) will play an important role in developing and transferring new technologies to small and medium size firms which currently do not have access to information or advanced technologies to meet the demand of this sector. The long-term objective is to provide high-performance industrial textiles not only to small and medium size firms, but larger firms as well which will enhance other industries such as construction, mining, electronics, marine engineering, etc.
2. The sponsoring institution, The China Textile Academy (CTA), dates back to 1959, and is supported by the China National Textile Council (formerly the Ministry of Textile Industry). With over 100 specialized labs and 10 pilot scale test bases, the Academy has a total workforce of 1700 professionals of which 615 are scientists and 127 senior technical staff. The CTA has several testing centers such as the Quality Supervision Testing Center, a National Textile Metrological Center, and is also a technically affiliated unit of the International Standard Organization (ISO/TC38). With seven engineering R&D departments (synthetic fibers, coasting research, automation, etc.). The Academy has developed more than 300 technologies of which 50 have won awards domestically and abroad. CTA has provided technical services and advice to almost 5000 enterprises in 25 provinces and municipalities, and transferred research results in areas such as (i) treatment technologies for dying, and coating; (ii) high- speed and ultra high-speed polyester fiber spinning; and (iii) industrial protection products that are anti-radiation, waterproof, fire-retardant, etc. Lastly, the academy has extensive links with Chinese enterprises, research institutes and universities which includes technical exchanges and joint research projects.
3. The rationale underlying the involveme-i- of the public sector is related to the very large number of consumers of industrial textiles that would benefit from the diffusion of new technologies, and engineering services as enterprises shift from traditional apparel textiles to the more competitive industrial textiles. Given that over 90% of Chinese textile enterprises are small, medium-sized, or rural enterprises, and do not have access to the latest technologies, they are operating at such low efficiency levels that even large domestic enterprises would not be able to switch to production of such advanced technology without public support. While individually, enterprises might have the incentives to improve the efficiency of their operations or even switch production to industrial textiles, they do not necessarily have the means to invest in specific R&D and engineering activities. Potentially, in cooperation with other producers and suppliers they might accomplish what the ERCs will set out to do, but there are considerable coordination and information costs that no individual actor (especially small and medium size firms) is willing to absorb. - 126 - Annex 4.6 Page 49 of 95
These high transactions costs disallow the formation of a market to supply the innovations on an industry wide bases. The failure of this market generates the externality the ERC would be addressing by introducing industrial textiles with widespread applicability, thus public support is warranted for these activities.
4. The ERC-IT, along with its sponsor, CTA, already has a record of close relations with foreign enterprises and research organizations. They have collaborated with numerous international firms such as Toray (Japan); DuPont (U.S.); Barmag (Germany); The Textile Academy in Russia; and the Wool Bureau of New Zealand. The Academy has been host to more than 50 countries for technical exchanges and joint research, and in recent years, has sent more than 200 people to 20 different countries for conferences and training. The ERC-IT will pursue a strategy to attract advanced foreign equipment, technologies, and products, to introduce to Chinese firms, especially small and medium size firms in serious need of new and improved technologies. The practice of technical exchange of personnel with international organizations will also be continued. Domestically, CTA has strong technological ties with numerous universities and research institutes, and is well positioned to cooperate with industrial firms, and other organizations to diffuse innovations in industrial textiles.
5. The diffusion strategy for the dissemination of advanced technologies, processes, and products of the ERC-IT is based on applying the network of its sponsor as well as other related institutions. That network consists of over 12 research organizations and institutes of higher learning, and numerous diverse enterprises from large scale textile and chemical fiber plants (e.g. Yizheng Chemical Fibre Group) to small and medium sized firms (e.g. Zibo Synthetic Fibre Experimental Plant). This ERC will cooperate with domestic and foreign firms in importing technological software, hardware, and products to transfer and diffuse to end-users. They will promote different forms of cooperation such as encouraging enterprises to enter into close partnerships with the ERC and become its demonstration base for technological transfer in the industry. Regional branches and service outlets to diffuse technological know-how and services will be set up and user conferences will be held regularly to brief the industry on the latest developments. Newsletters, training courses, and other activities to support the diffusion strategy.
6. Normal consumption estimates of industrial textiles in the industrial world account for 20-30% of the fiber consumption in the entire industry. That figure is expected to rise to 50% by the year 2000. In China, market sales are expected to reach US$10-15 billion, equivalent to two million tons by the year 2000. Unless China updates her technological base in this sector, poor performance will continue to dominate production. Waste in fiber consumption (60% are natural fibers) is a major problem in the industry and many products need to be replaced by synthetic fibers. It is clear that market demand is far grater than the supply as industrial textiles are needed by many industries such as construction (housing and roads), environmental protection (ash and dust filtration), and agriculture (equipment). In addition, small and medium size firms in urgent need of technical transformation will need assistance restructuring their product lines and switching to industrial textiles for not only their survival but also to enable China to meet the demand of industrial textiles. - 127 - Annex 4.6 Page 50 of 95
7. Total funding for The Engineering Research Center of Industrial Textiles is US$9,631,000. The breakdown is as follows:
(USD thousand)
World Bank ...... 5,500 Other bank loans...... 376 Equity ...... 3,775 - 128 - Annex 4.6 Page 51 of 95
ZRC FOR MANUFACTURING AUTOMATION
1. In China, there are over 100,000 manufacturing enterprises of which 90* or more are small and medium-size firms located in towns and villages. These enterprises are characterized by high material and energy consumption (1 to 3, and 1 to 4 times higher than developed countries, respectively); low labor productivity (between on-twentieth and one-thirtieth of industrialized economies); poor product quality and adverse production environment caused by weak management; limited technical and market knowledge, and low levels of automation. The Engineering Research Center for Manufacturing Autonation (ZRC-MA) will focus on the production problems faced by small and medium firms, particularly those in towns and villages with the objective of reducing energy consumption, improving product quality, and the working environment. The ERC will offer technical and consulting services, training, management tools for obtaining productivity gains, feasibility studies and related automation equipment and production lines which are generally configured to the specific needs of the enterprise.
2. The sponsoring institution, the Beijing Research Institute of Automation for Machine Building Industry (RIAMB) of the Ministry of Machinery Industry, was founded in 1954 and is a major research facility involved in (among others) the fields of application software, automatic control and application engineering; industrial robots and artificial intelligence; and integrated circuits design and mask-making for machinery. RIAME has about 1300 staff of which 890 are engineers and technicians. In recent years, the institute has obtained over 30 national patents and has transferred numerous research results to enterprises. Thus, RIAMB has disseminated programming techniques for NC machine-tools to over 30 enterprises, installed computer-aided management information systems in over 40 firms; built over 20 highly automated high bay- warehouses; and modernized automatic production lines in 170 enterprises in addition to providing training to 465 firms.
3. The rationale underlying the involvement of the public sector in this area is related to: (i) the environmental benefits from the dissemination of automation technology in terms of energy and material efficiency. Some of the improvements associated with the diffusion of this technology would be privately appropriated; others would be external to the firms; and (ii) a vast number of firms, mostly small and medium-sized (in villages and towns) that would benefit from the productivity and quality gains associated with the diffusion of manufacturing automation technologies throughout the industrial sector. While individually, producers might have the incentives to improve the efficiency of their operations, they would not have the means to invest in the necessary R&D and engineering activities. Potentially, in cooperation with other producers and suppliers of capital goods, they might accomplish what this ERC will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transaction costs disallow the formation of a market to exist generates the externality the ERC would be addressing by introducing technologies with widespread applicability.
4. In terms of foreign collaboration, this ERC will seek to establish close ties with foreign firms through technical and personnel exchanges with the purpose of adapting complex or sophisticated equipment imported by domestic firms to their specific conditions. The ERC will acquire technology through outright purchase and licensing agreements, and co-develop applications geared to local needs. The ERC will take advantage of RIAMB's extensive links with foreign firms. Examples of these links are: a joint development with DEC on a CIMS project; similarly with CDC, in addition to MRP-II software; an agreement with Applicon for CAD development; and technical cooperation (separately) with Grogo (US), IGM (Austria), ABB (Sweden), and 3K (Japan), on industrial robots. - 129 - Annex 4.6 Page 52 of 95
5. The diffusion strategy will be based on: (i) transferring technologies to the associated producers which will manufacture ERC designed products and sell them to end-users; (ii) selecting typical clients to serve as demonstration units; (iii) establishing agents in major markets to disseminate automation technologies and products; (iv) utilizing trade organizations and professional associations to disseminate the technologies developed or adapted by the ERC; (v) organizing client meetings and seminars to disseminate information and demonstrate the ERC's technologies and products; and (vi) providing training and exchanges of personnel.
6. The market demand for the ERC's products and services seem quite robust. Its clients will be the mass of small and medium-sized enterprises, and those located in towns and villages requiring technical services geared at improving quality and productivity. In addition to technical advice, the ERC will furnish cell automatic systems, and non-standardized sets of dedicated hardware and software aimed at the modernization of its clients. For most automatic devices and systems which are in high demand, the ERC will engage in joint development and joint manufacturing with foreign (and domestic) firms, the latter in case they are mature in design and production technology.
7. Total funding sought for The Manufacturing Automation Engineering Research Center is US$11,941,000. The breakdown is as follows:
Us Thousand World Bank 5,500 Other bank loans 2,474 Equity 3,967 - 130 - Annex 4.6 Page 53 of 95
ENGINEERING RESEARCH CENTZR FOR TRANSDUCERS
1. Transducers are "devices that accept information in forms of a physical and chemical variables and convert them to output variables of the same or another nature, according to a definite law". Transducers (sensors) are widely employed in our modern society for not only industrial uses such as iron/steel, chemical, electric power, transportation, energy etc. but also such uses as medical and home use. Without these advanced transducers, highly productive/safety manufacturing lines, and agreeable office circumstances would not be realized. In addition, transducer technologies for medical and home uses will greatly improve the standard of living in China. There are many kinds of transducers for measuring pressure, temperature, magnetic field, optical intensity, moisture, smell, fluid flow speed/volume, etc. which signifies the tremendous world market that exists in this sector. China, for example, needed about seven million pressure transducers in 1992 and was unable to keep up with the vigorous growth of other industrial sectors due to the rapid development of China's economy. The current situation of the technological level of Chinese transducer manufacturing is bleak, and corresponds to levels of international standards of the mid 1970s. There are about 750 enterprises for transducers in China of which 96% are small and medium sized enterprises. It should be noted that even large firms lack the R&D capability necessary for catching up to advanced international standards. In order to meet the challenges of promoting the widespread applications of this industrial sector, the Engineering Research Center of Transducers will play an important role in developing and transferring new technologies to small and medium size firms which currently do not have access to information or advanced technologies to meet the demand of this sector. The objective is to focus on transducers using semiconductor materials for avoiding diversified developments for pressure, magnetic and temperature sensing. 2. The sponsoring institution, The Shenyang Institute of Instrumentation technology (SIIT) dates back to 1960, and is belongs to the Ministry of Machine Building Industry, a comprehensive transducer research institute in China. SITT has over 18 specialized labs in transducer research, including a research and testing base of Sensing Elements and Instrumentation Technology, and quality testing center. The institute has contracted more than 750 research projects of which 123 have won awards from the state ministries and provinces, and holds approximately 34 patents. SIIT has a total workforce of approximately 800 professionals of which 430 are technical staff. The institute has organized many international conferences and symposia in China, and its staff has participated in technical exchanges abroad. SIIT has provided technical services and advice to a vast number of enterprises, as well as transferring research results to industrial clients.
3. The rationale underlying the involvement of the public sector is related to the very large number of industries that would benefit from the diffusion of new technologies, and engineering services which now suffer from the enormous gap between research and production of transducers. As enterprises demand high quality and high performance transducer products for a wide variety of applications, manufacturers will need to provide-more competitive technologies that are able to reduce energy consumption, improve production standards, and increase production efficiency. Transducer technology is a generic technology widely acceptable to not only conventional fields, but also new fields such as micro-machining, super fine grain manufacturing, etc. Given that over 961 of Chinese enterprises are small and medium-sized, they do not have access to the latest technologies. Consequently, they are operating at such low efficiency levels that making the switch to production of such advanced technology is inconceivable without public support. While individually, enterprises might have the incentives to improve the efficiency of their operations by applying advanced transducers, they do not necessarily have the means to invest in specific R&D and engineering activities. Potentially, in cooperation with other producers and suppliers they might accomplish what the ERCs will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transactions costs disallow the formation of a market to supply the innovations on an industry wide bases. The failure of this - 131 - Annex 4.6 Page 54 of 95 market generates the externality the ERC would be addressing by introducing innovations in transducer with widespread applicability, thus public support is warranted for these activities. 4. The ERC, along with its sponsor, SIIT, already has a history of close relations with foreign enterprises and research organizations. They have collaborated with numerous international firms such as: Philips, Siemens, Honeywell, IBM, IC Sensors, and Nova Sensor (U.S.); Degussa (Germany); Yamatake (Japan); Oxford Instruments (UK); ASCOM, Keller (Switzerland)and numerous universities and research institutes abroad. The institute has been involved in numerous technical exchanges, joint research projects, and the practice of technical exchange of personnel with international organizations will also be continued. The ERC will pursue a strategy to attract advanced foreign equipment and facilitate the adaptation and transfer to Chinese enterprises. It will also transfer innovations from engineering achievements to introduce to Chinese firms, especially small and medium size firms in serious need of new and improved transducer technologies. Domestically, SIIT has strong technological ties with numerous universities and research institutes, and is well positioned to continue its cooperation with industrial firms, and other organizations to diffuse innovations.
5. The diffusion strategy for the dissemination of advanced technologies of transducers is quite comprehensive and based on applying the network of its sponsor as well as other related institutions. There are three levels of the strategy: (i) the ERC will enhance a function of market information analysis and provide necessary information to enterprises in order to adopt effective measures quickly; (ii) The Intermediate Experiment Dept. will put newly developed production technologies and equipment into trial operation for eventual technologies to be transferred; and (iii) establish a Transducer Marketing Corporation in the site of the ERC jointly with transducer enterprises to provide close links with users. This ERC will promote different forms of cooperation such as encouraging enterprises to enter into close partnerships with the ERC and become its demonstration base for technological transfer in the industry. Training will be provided to instruct and brief the industry on the latest developments.
6. Market demand for transducers seems enormous due to the nature of the products. A tremendous need exists in many fields such as health care, thermal power plants, ethylene projects, iron/steel plants, energy systems, automobiles and electric appliances. In an initial stage, the ERC will choose 15-20 transducer manufacturing enterprises directly related to materials based on semiconductors for pressure, magnetic, temperature and optical transducers, thus increasing its chances of success in the market. It is estimated that for large size thermal power plants alone, 650,000 transducers of over 500 varieties will be needed and over 200 of those varieties have not yet been developed. The auto industry in the next year or so will need 34 million pieces of 124 varieties of transducers of which half are now imported. It is expected that by the year 2001, transducer products manufactured with technology diffused by the ERC will have captured 15* of the market, and the varieties of transducer products manufactured will reach 25% of all transducer varieties.
7. Total funding for the ZRC for Transducers is US$8,146,000. The breakdown is as follows: (USD thousand) World Bank ...... 4,900 Other banks loan ...... 656 Equity ...... 2,590 - 132 - Annex 4.6 Page 55 of 95
ENGINEERING RESEARCH CENTER FOR SOFTWARE
1. Recognizing that software technology is fundamental for the modernization of society, China has consistently emphasized this area in official plans for national economic and social development. Software driven information technology is critical to the software industry, and the quality, reliability and overall performance of software is essential to the growth of many key industries such as banking, insurance, office automation, and post and communications, etc. Due to the rapid advances in hardware, VLSI and other computer technology, the window of opportunity for software is very narrow, making it extremely competitive in the marketplace. Although China has made many advances in the software field over the last ten years, including their own software development platform (SDP) and computer aided software engineering (CASE), the industry is characterized by lack of standards in software production; slow market penetration; weak maintenance and technical support services; and lack of R&D resources for the majority of the enterprises. In addition the enterprises lack high performance design and testing tools, skilled personnel, and engineering knowledge. In order to meet the challenges set out by the GOC to promote telecommunications software, The Engineering Research Center for Software will promote software development tools such as micro-computer JB, portable computer JB, and workstation JB SDPs fitted to the specific Chinese condition. The ERC will establish advanced development and testing environments, and provide technical consulting, facility support services, training, and upgrading services. 2. The sponsoring institutions are Peking University, (the Department of Computer Science and Technology), and Beijing-Guangdong Computer Center (BGCC), a research and production based firm for computers in Guangdong province.
(a) Peking University, a comprehensive research center operates the leading unit of the project "Software Development Platforms (SDPs)" which is a national scientific key project. The dept. offers four key areas of research,: computer software, software engineering, computers and applications, and microelectronics backed by a total of ten labs for VLSI, artificial intelligence, image processing etc. The dept. has over 75 R&D projects, many of which have been awarded prizes in excellence. There is a staff of over 100 senior technical professionals.
(b) BGCC is a joint-stock company that was selected in 1993 as one of the most advanced high-tech enterprises by the State Science Commission. With a staff of almost 200, the enterprise maintains 23 branches in China, with eight agents and 3 branches in foreign countries. BCCG has produced 20 computer products in five different areas and has established reliable channels for selling its software products. Its tax management software covers 60% of the domestic market while its financial management software is recommended by the Ministry of Finance. The enterprise has engaged in multiple technical exchanges and cooperative ventures with foreign f7i-msand research institutions in the software field and has extensive links with Chinese enterprises, research institutes and universities.
3. The rationale underlying the involvement of the public sector is related to (i) the positive information and coordination externalities from disseminating norms, standards, specifications and protocols for software technology; and (ii) the very large number of manufacturers of such technology who would benefit from software development and testing environments to be provided by the ERC. In a technical area of critical importance to China's future, the country finds itself lagging in basic software technology. Among domestic enterprises, structural deficiencies hamper indigenous technology development. Many firms are below the scale necessary to mount new technology development for advanced software tools such as SDP which enhance productivity. While individually, software manufacturers might have the incentives to improve - 133 - Annex 4.6 Page 56 of 95
the quality and performance of the products, they do not necessarily have the means to invest in the tools, equipment and skilled personnel needed for such an enormous task. Potentially, in cooperation with other producers, users and network operators, they might accomplish what the ERCs will set out to do, but there are considerable coordination and information costs that no individual actor is willing to absorb. These high transactions costs disallow the formation of a market for the services the ERC will be supplying on an industry wide bases. The failure of this market generates the externality the ERC would be addressing by introducing software with widespread applicability, thus public support is warranted for these activities. 4. This ERC, along with both its sponsors' have close ties with both domestic and international organizations. There are eight foreign companies acting as agents in Asia, the U.S., Canada and Australia. Collaborative agreements are with: Oracle, IBM, Unisys, Hewlett Packard, and Digitel (U.S.); Bull (France); and Daiyu (Japan). The ERC has sent 30 senior professionals abroad for technical exchanges and 21 have completed their programs and have returned to China. This ERC will greatly benefit from its sponsor's background in academia and the private sector and will continue to pursue a strategy to attract joint collaborative agreements in R&D, and new technologies and products to introduce to Chinese firms and organizations.
5. The diffusion strategy for the dissemination of advanced communications and services is based on expanding the domestic and foreign network of its sponsors as well as other related institutions. Regarding SDP technology, the ERC will (i) improve developing efficiency; (ii) promote industrialization of software production; (iii) provide consulting, training and technology transfer; and (iv) utilize JB system as SDP to develop applied software systems. The diffusion strategy will also establish a training center for clients and end-users, and set up a unit for engineering standardization for manufacturers. Lastly, the ERC will disseminate information through its own publications and networks such as the Software Industry Association and continue to encourage technical exchanges with other organizations. 6. Demand for the ERC will be derived from the explosive growth in the information industry and consequently software products in China. The targets are both large management departments of industry and government, and enterprises in villages and rural towns for SDPs. According to the latest statistics by the International Data Corporation, 11% of 71,000 commercial multi-user UNIX programmers use CASE. The domestic software output in 1992 was 2 billion RMB, and is expected to double in 1995. With over 100 units engaged in software development and 80,0000 specialists working in this sector, a tremendous market exits. Expected markets for specific products include: (i) security exchange software, 30% of the market at 3-4 million RMB; (ii) accounting software, 20% of the market at 2-3 million RMB; and (iii) cash register and business systems, 10% of the market at 1 billion RMB . Unless China updates her technological base in this sector, lack of standards and poor performance will continue to dominate the industry. It is clear that market demand is enormous and the service sector is in urgent need of technical assistance for innovative software systems and tools.
7. Total funding for the ERC for Software is US$9,172,000. The break down is as follows: (USD thousand) World Bank ...... 4,500 Other bank loans...... 911 Equity ...... 3,761 - 134 Annex 4.6 Page 57 of 95
ENGINEERING RESEARCH CENTER FOR NEW WELDING TECHNOLOGY OF HIGH EFFICIENCY AND HIGH QUALITY
1. The production, processing and application of welding technologies are key in supporting modern engineering technology. Over 50 of the industrial products in China use steel and the majority of the steel products use welding. Welding production technology is an important component to China's industrial base and consequently its national economy. The welding industry in China can be characterized by inefficient use of materials, outdated welding production techniques (20-30 years behind industrialized countries), high energy consumption, and environmental pollution which is intensified by the tens of thousands of small and medium size enterprises that make up the major welding production forces in the country. The Engineering Research Center for New Welding Technology of High Efficiency and High Quality (ERC-W) will diffuse new technologies to correct the current state of the industry by (i) developing new welding techniques for high production efficiency and quality; (ii) supplying new welding techniques for high market-value products to enterprises; (iii) developing manufacturing technology for production welding consumables; and (iv) promoting mechanized (or automated) welding production strategies. These efforts will increase productivity, reduce energy consumption, and improve quality and industrial safety as well as raise the status of China's low level of industrialization. The ERC will also develop the technical standards and specifications for new welding technology which will stimulate the markets in numerous industries (other than steel) such as electric power, construction, aviation, aerospace, and even electrical appliances. 2. The proposal sponsor, The Harbin Research Institute for Welding (HRIW) is a comprehensive research institution for basic study and development of welding processes and products, technology and equipment, welding robot applications, submerged arc welding, resistance welding, automatic control techniques, etc. Founded in 1956, HRIW maintains a technical staff of almost 700 with 93 laboratories, 4 test production workshops, a training center, and manages a cooperative agreement between the Chinese Welding Society, and the German Welding Society. HRIW is also responsible for monitoring the Technical Committee of the National Welding Standardization Organization in the Institute, organizing the National Welding Conference and maintaining close ties with the nearly 1000 member enterprises of the Chinese Welding Association. The institute has obtained over 450 achievements in the last 30 years, 18 patents, and received numerous awards from state and local ministries. Some of the commercialization successes have been in friction welding, plasma surfacing, gas shielded arc welding which have been transferred to over 70 enterprises, resulting in approximately RMB 1.54 billion yuan. 3. The rationale underlying the involvement of the public sector in this area is fundamentally sound and deserves to be supported. The rationale is related to the positive externalities from: (i) developing and promoting welding technology with the ERC acting as an interface to industry for significant productivity gains, and (ii) the production and application of high-performance process technologies associated with environmental benefits as this ERC will make effective use of materials and its technologies to contribute to energy savings. While it is important for China to introduce new technologies to industry, no one technical institution or industry in China is capable due to the high cost of specialized equipment as well as the high risk associated with R&D. Thus, the establishment of the ERC would allow them to disseminate information through evaluation, introduction, and absorption of new technologies much more effectively than any individual companies. Public support would have a significant effect on the improvement of welding production efficiency and in product quality to reduce negative environmental and safety impacts.
4. In terms of foreign collaboration, the ERC will take advantage of HRIW's network of 40 years experience in the welding sector which includes agreements with: Ohio State University, Miller Electric Mfg. (US); E.O. Paton Electric Welding Institute (Ukraine); OTC Daihen Corp., Osaka University (Japan;) and over a dozen domestic enterprises. The ERC plans to engage in extensive - 135 - Annex 4.6 Page 58 of 95 cooperative activities with foreign firms through joint R&D, contract research, and personnel exchange. Their efforts will focus on collaborations with suppliers of available technology to acquire or transfer and the end-users of the results and products developed by the ERC. They will also engage in demonstration projects and technical consultation services in order to facilitate the adaptation of technology from foreign firms into the Chinese market. Other activities will include technical exchanges, invitational lectures, joint research projects and technical information exchanges.
5. The ERC-W's diffusion strategy will be based on utilizing HRIW's vast information channels and apply different mechanisms according to specific markets of suppliers and end-users. The ERC will transfer foreign high efficiency and quality welding technology to enterprises as well as techniques and products developed in-house. Selected enterprises will be used as pilot testing facilities and that information will be diffused through its technological network of clients both domestically and abroad. The ERC-W will participate in training activities; organize plant tours for technical awareness; encourage technical exchanges of personnel; and publish periodicals and newsletters to advertise technical achievements. 6. There is an immense need in China for welding technology products and processes as more than 20 industries(such as steel, electric power, construction, aviation, ship building, aerospace, electrical appliances, etc.) make use of welding. As China's economy continues to grow, the demand for civil industrial products such as bicycles, food processing equipment, and others more varied products have created stresses on the large demands in the welding industry. By the year 2000, welded steel products alone will require 50-60 million tons of steel, and 300,000 welding power tons annually. The market in China for new welding technology of high efficiency and high quality can basically be divided into four categories that the ERC has developed. The plan will focus on: (i) the demand for standardization of technology and processe with a projected market at 90%; (ii) new welding technology, advanced processes of high efficiency and high quality, advanced manufacturing and automated production lines; projected market 50%; (iii) technical training, services and consulting projected at 60%; and (iv) technology dissemination of technologies and services to small and medium size firms projected at 30%.
7. Total funding for the Engineering Research Center for the Now Welding Technology of High Efficiency and High Quality is: US$9,848,000. The breakdown is as follows: (USD thousand) World Bank ...... 5,500 Other bank loans ...... 1 ,762 Equity ...... 2,626 - 136 - Annex 4.6 Page 59 of 95
ENGINEERING RESEARCH CENTER FOR HIGH EFFICIENCY ROLLING TECHNOLOGY
1. Iron-steel production is a fundamental industry in China as steel products are the basic materials of the construction industry. Steel rolling is a critical component of the manufacturing process in the iron-steel production, and the key link between the iron-steel industry and various national economic interests. China is the biggest user of steel products in the world, and its steel production does not meet the demands of the country. In 1993, China imported 20 million tons of steel at a cost of approximately $100 million despite the fact that production has increased 5-10 million tons annually over the last few years. Of the 100 different varieties needed in China, only half are produced. There are almost 6000 rolling mills in China and only 80 of them are large to medium size. In addition, 84% of all the rolling mills were developed between 1930 and 1960, and 96% of the bar and rod rolling mills were made between the 30s-50s. The steel rolling industry in China can be characterized by (i) low productivity; (ii) serious waste water, solid waste and noise pollution; (iii) high energy consumption and materials use. The Engineering Research Center for High Efficiency Rolling Technology (ERC-HER) aims to provide efficient production technologies to industries to improve quantity, quality, variety, and steel consumption rates to competitive levels as well as provide software for designing institutions to better manage the steel production industry. 2. The sponsoring institution, The University of Science & Technology Beijing (USTB) is supported by the Ministry of Metallurgical Industry. Founded in 1952, the institution has over 17 institutes with specializations in metal forming, metallurgical machinery, etc., and includes the Institute of New Metallic Material which is approved as a key lab of the state. USTB has over 1400 faculty members with over 170 full professors including 3 committee members of the Chinese Academy of Science. The institution has cooperative relationships with 18 universities from 10 foreign countries and 37 enterprises. USTB has achieved numerous research results of which many have been awarded technical recognition and prizes by the Ministry and local level. Numerous research results have been transferred to industry. Some of those technical achievements are: (i) technology of car-body steel sheet formability; (ii) research on roll crown and strip shape at wide strip mills; (iii) technology of skew rolling in ball production; and (iv) rolling process controls, etc. The institution also maintains excellent training facilities and promotes technical exchanges at their university and abroad.
3. The subproject is fundamentally sound from a public sector involvement standpoint. Pressures from economic development in the steel industry for better quality production, energy savings and environmental protection enormously enhance the necessity of advanced high efficiency rolling technology. The most serious problem of the Chinese steel rolling industry is its low productivity (about 20-40 tpa), compared to levels of the industrialized countries (400 tpa). Given that the steel rolling operation determines product quality, the technology level is directly related to quantity, variety, and efficiency which greatly influences almost all industries in China. The dissemination of steel rolling technologies developed and adapted to the Chinese industry would have a very significant environmental and social impact by increasing energy efficiency, and reducing waste and material consumption. In addition, the number of producers that are potential users of steel rolling innovations or that will benefit from the productivity enhancing assistance of the ERC is enormous. Individually, these producers might have incentives to improve the efficiency of their operations, but do not have the means to invest in the necessary R & D and engineering activities. Potentially, in cooperation with other producers and suppliers they might accomplish what the ERC will set out to do, but there are considerable coordinating and information costs that no individual actor is willing to absorb on an industry wide basis. The failure of this market to exist generates the externality the ERC would be addressing. In view of these social and technological benefits public sector support would be warranted for these activities.
4. The ERC-HER has a well defined collaboration strategy as it will - 137 - Annex 4.6 Page 60 of 95 make use of the international network that USTB established over the last 40 years. The ERC will continue working with the institution's contacts such as Aachen University (Germany); MIC (Russia); Ohio State and Purdue University (USA); and Davey Corp. (Britain). The ERC will welcome foreign shareholders with a technological advantage and act as a go-between for domestic enterprises for investment and cooperation from abroad. Through international technical exchanges and exhibitions, the ERC will strengthen and promote international collaboration and technology transfer, and become an effective interface between foreign suppliers of technology including those which are planning co-development activities for the Chinese market. Domestically, The ERC will seek to develop new technologies to be commercialized by the industrial sector in conjunction with research institutes and the private sector.
5. The diffusion strategy for the dissemination of techniques and products of the ERC will be based on the network established by USTB. A market service department will be set up to put forward proposals for the ERC Management Committee and Technology Committee. A training center and consultative center will also be set up to diffuse updated technology both domestic and foreign. The ERC HER has established three trade networks in cooperation with 37 domestic enterprises to develop a network for technology transfer. The three centers are: (i) The New Part-Rolling Technology Research Society; (ii) Chinese Deep Drawing Research Group; and (iii) The New Rolling Technology Developing Center. The ERC will publish newsletters, and set up other mechanisms to diffuse the latest advances in steel rolling technologies.
6. The market demand for steel rolling technologies has a huge impact on much of the manufacturing industry in China including the automobile and the machinery industries. While China has introduced some modern equipment from Japan and Germany, 83W of the plants are producing at levels somewhere between 1930- 1960. China's rolling mills (over 2000) are faced with extremely low efficiency and cannot meet the demands of the country. IT is estimated that this ERC will be able to penetrate 80% of the rolling mills with new technology. In parts rolling technology, The ERC will transfer technology to about 50 enterprises within the next five years. This proposal outlines a plan for marketing new developments such as technology of strip profile controls, third generation of sheet steel for the auto industry, and automation of rolling process technology. The marketing strategy will focus on providing technological support, services, information services, technology transfer, and training.
7. Total funding for The Engineering Research Center for High 8f ficiency Rolling Technology is US$7,702,000. The breakdown is as follows:
(USD thousand) World Bank ...... 4,500 Other bank loans...... 403 Equity ...... 2,799 - 138 - Annex 4.6 Page 61 of 95
ENGINEERING RESEARCH CENTER FOR ADVANCED POLYMBR PROCESSING TECHNOLOGY 1. Polymeric materials are experiencing functional improvements and wider applications leading to a predicted level of worldwide usage that should exceed metallic minerals by the end of the century. Data on plastics usage, which accounts for 80% of polymer consumption, demonstrate that trend. In Japan, for example, per capita plastics consumption rose approximately 60% between 1980 and 1990. In China, plastics consumption has risen more than 20% yearly since 1990. Processing technology is the key determinant factor is polymer usage. China's polymer industry is weak in processing capabilities such as: (i) testing equipment and national standards for resin production testing are lacking; (ii) low precision, long manufacturing times, and poor variety characterize mold designs and manufacturing; (iii) obsolete molding equipment is being used lacking the computer-based applications used worldwide; (iv) poor technical skills (only 7-8% are technically skilled) compared to industrialized countries where 1/3 are trained; (v) minimal application of CAD/CAM/CAE compared to 25-75% penetration rate in other countries. Another limited factor is that out of the 20,000 polymer processing enterprises in China, 95% are small and medium size and consequently have almost no relevant technological support. Lastly, there is little connection between China's research sector (universities and institutes) and its industrial sector. In the polymer processing area, research priorities have been biased toward more basic technology questions with inadequate attention to engineering and technology transfer. The ERC for Advanced Polymer Processing Technology (APPT-ERC) will develop and diffuse technology achievements for processes and products, and supply engineering technologies to relevant industries such as machinery, electronics, light industry, automobile communication, architecture, aviation, etc. 2. The proposal sponsor, Zhengzhou University is situated in the central plain of China, and located in an area where the polymer processing industry is heavily concentrated. Its Polymer Processing Technology and Molding Research Institute (PPTMRI) was established in 1984, and the technical focus of the institute spans the range of areas relevant to the industry. The institute has received many awards and has transferred technology in over a dozen fields to over 100 industries such as CAD/CAM/CAE technology, and rubber and plastic processing equipment. PPTMRI is also the sponsor unit of the Polymer Material Property Testing Center of the Ministry of Chemical Industry. It also has a training center of C-Mold software with AC technology and CAD/CAM software; and is a member of numerous organizations such as China's Light Industrial Molds Association and Plastic Process Association. Its staff now number 71, of which many have participated in numerous technical exchanges both domestically and abroad. 3. The rationale underlying the involvement of the public sector in this area is related to the development of emerging technologies. While polymer usage is of course well-established, its transformation and expansion are part of an ongoing worldwide "materials revolution", in which China is lags significantly behind. The proposal has specified clearly a number of pervasive technical capabilities in which Chinese enterprises compare poorly to world standards. Given the current industrial structure, the situation is unlikely to improve unless coordination and integration of activities of polymer manufacturers, processors and users interface with industry to provide and exchange information, technical training, and products standards. The production and application of high-performance polymers will have a significant impact on small and medium (95%) size industries that rely on polymer usage (mentioned above), as well as benefits associated with the environment such as energy efficiency. 4. In terms of foreign collaboration, the ERC will take advantage of PPTMRI's and Zhengzhou Institute of Technology's experience with foreign and domestic partnerships including: AC Technology, EDS, Cornell University (US); IKV Institute, German Battenfield Co. (Germany); Taiwan Qicheng Tech. Co. Ltd., Taiwan Rubber Industry Development Center; Matra (France); Sodick Co., Tokyo University (Japan) etc. The ERC plans to further their cooperative activities with additional foreign firms through joint R&D, contract research, technical - 139 - Annex 4.6 Page 62 of 95
consultation and the provision of technical services to foreign equipment and polymer producers to penetrate the Chinese market. The latter compels the ERC to act as a service center or demonstration production line. In addition, the sponsor has agreements with over 100 enterprises for technical development and technology transfer.
5. The ERC's diffusion strategy outlined in the proposal is excellent and based on a sound understanding of the many means necessary to diffuse research results and state-of-the art techniques. The idea of branch centers in various regions of China is important although costly. Given the relatively modest number of current staff, commitments to maintain branch centers will reach 20 centers in 7-10 years. The strategy will focus on two areas: (i) the acquisition of new technologies both domestically and abroad and adaptation of products to the Chinese market; and (ii) accessing enterprises for market feedback to apply to newly developed technology in a timely manner. The ERC APPT will establish a training center to support customers with technology diffusion. Lastly, the ERC will promote diffusion through its extensive network of their sponsor, associations, through the media, publications and newsletters, and technical exchanges. 6. The polymer processing industries in China are primarily composed of 20,000 enterprises and that market can be divided into three distinct categories: (i) large firms (less than 1% of the total) which maintain a strong technological base, use foreign equipment, but posses poor capabilities to diffuse technology; (ii) medium sized firms (4% of the total) which possess some foreign technology but rely mostly on domestic equipment due to the high cost associated with foreign technology. These firms should be able to absorb competitive technologies developed by the ERC; and (iii) small and medium size firms (95% of total) located mostly in townships and have very little technological support, experience low productivity, high energy consumption and poor management skills. Firms in the third category are the major target fort the ERC APPT. As China's economy develops so will its consumption of plastics. According to 1989 data, the per capita consumption of plastics in China is 5.6 kg as compared to the U.S. where that figure jumps to 99 kg. China ranks loth in the world for annual output of plastics. On the basis of market supplies for resin raw materials, the plastics products is expected to increase 8% annually, valued at approximately US$2.5 billion. In addition, plastic molds, critical to polymer products can only meet the need of 70% of industrial production in China, and most of the products are medium to low-grade molds. China possesses an enormous market for polymer processing technology which will have a significant impact on the many diverse industries mentioned above.
7. Total funding for the Engineering Research Center for the Advanced Polymer Processing Technology US$5,203,000. The breakdown is as follows:
(USD thousand) World Bank ...... 3,000 Other bank loan ...... 310 Equity ...... 1,893 - 140 - Annex 4.6 Page 63 of 95
ENGINEERING RESEARCH CENTER FOR COMKUNICATION SOFTWARE AND APPLICATION SPECIFIC INTEGRATZD CIRCUIT 1. Recognizing telecommunications technology as fundamental for the infrastructure of a modern society, China has consistently emphasized this area in official plans for national economic and social development. Telecommunication services in China are growing at a very rapid pace, and the expansion of telecom services is an important priority to the GOC. Communications software and application-specific integrated circuits (ASICs) are critical elements for the quality, reliability and overall performance of telecommunications products, as the number of functions and degree of integration increase. The current situation of the telecommunications software industry in China is bleak, and characterized by roughly 700 firms of which 90% are small and medium-sized. These firms have limited technological capability, particularly in terms of software and ASIC development. They lack design and testing tools, skilled personnel, and engineering knowledge. Communication software is different from computer-oriented software in that it requires service networks to be multi-vender systems and primarily real-time operating systems as well. ASIC hardware is critical to telecommunication services as it gives rise to low power consumption, miniaturization of equipment, cost reduction, reliability improvements, etc. In order to meet the challenges set out by the GOC to promote telecommunications software, The Engineering Research Center of Communications Software and ASIC will provide advanced environments for software and ASICs design and testing to manufacturers of communications products (333 in 1992), The ERC will establish advanced development and testing environments, and provide technical consulting and facility support services as well as training. The ERC will also provide software maintenance and upgrading services; the design for the ASICs; and the testing of products according to Chinese standards. 2. The sponsoring institution, Shijiazhuang Communications Laboratory (SCL) of The Ministry of Electronics Industry is a major research facility dedicated to communications technology development. SCL is one of the earliest and largest comprehensive labs with ten departments, a factory, and seven permanent organizations serving industry including one for inspection and testing. The lab research includes network and switching systems; ISBN (particularly software development component); satellite communication and TV broadcasting (having designed the first indigenous satellite TV uplink stations in the early 70s); message handling systems; and mobile and optical fiber communications. By the end of 1992, the lab had achieved 1352 scientific and technological results of which 67 were awarded national prizes. The ERC has a staff of approximately 2170 of which over 610 are technical and 283 are senior engineers. The SCL has engaged in multiple technical exchanges and cooperative ventures with foreign firms and research institutions in the communications field and has extensive links with Chinese enterprises, research institutes and universities. 3. The rationale underlying the involvement of the public sector is related to (i) the positive information and coordination externalities from disseminating norms, standards, specifications and protocols for communication equipment and related software; and (ii) the very large number of manufacturers of such equipment who would benefit from the software and IC development and testing environments to be provided by the ERC. In a technical area of critical importance to China's future, the country finds itself in a position of excessive dependence on foreign sources of technology. Among domestic enterprises, structural deficiencies hamper indigenous technology development. These two factors provide a strong rationale for public sector involvement as well. Many firms are below the scale necessary to mount new technology development and this ERC proposes to assist such enterprises as well as mount pilot production facilities which can be adapted by firms in the industry. While individually, equipment producers might have the incentives to improve the quality and performance of the products, they do not necessarily have the means to invest in the tools, equipment and skilled personnel required for such tasks. Potentially, in cooperation with other producers, users and network operators, they might accomplish what the ERCs will set out to do, but there are considerable - 141 - Annex 4.6 Page 64 of 95
coordination and information costs that no individual actor is willing to absorb. These high transactions costs disallow the formation of a market for the services the ERC will be supplying on an industry wide bases. The failure of this market generates the externality the ERC would be addressing by introducing software with widespread applicability, thus public support is warranted for these activities. 4. This ERC, along with its sponsor, SCL, already has a record of close relations with foreign enterprises and research organizations. They have close ties and some collaborations with numerous international firms such as Toshiba (Japan); Texas Instruments, American LSI Logic Corp., GTE, Synopsis, Imag, (U.S.); GMD (Germany); Canada Bell North Lab (Canada) etc. This ERC will greatly benefit from SCL's experience in technical exchanges and joint research, and will pursue a strategy to attract advanced foreign equipment, technologies, and products, to introduce to Chinese firms, especially small and medium size firms in serious need of new and improved communication technologies. Domestically, SCL has strong technological ties with numerous universities and research institutes, and is well positioned to cooperate with industrial firms, and other organizations to diffuse innovations in telecommunications services. 5. The diffusion strategy for the dissemination of advanced technologies in the telecommunications services is based on expanding the domestic and foreign network of its sponsor as well as other related institutions. The ERC will train its clients (details are well documented in the proposal)through product introduction-orientations and technical discussion meetings including exhibitions in China. The diffusion strategy includes the establishment of round-the-clock technical service networks in China's major centers; (Beijing, Shenyang, shanghai, Chengdu, Xian, and Guandzou). The ERC will provide advanced software and IC environments for colleges and institutes' non-commercial applications in order to disseminate technologies. Lastly, the ERC will disseminate information through its own publication "Communication Software and ASIC", E-mail, and industry associations.
6. Demand for the ERC will be derived from the explosive growth in communication products in China. The software and IC components in these products will be responsible for an expanding share of their value. It is estimated that the Chinese software market will grow tenfold by the year 2000 (30-40 billion RMB). If the market accompanies the international trend, the communications software share be 20 percent. It is expected that the ERC's cooperatively developed software will take 10-20 percent of the sales volume in that category. the market for communications ASIC will reach 150 million units by 1995 and over 500 million in the year 2000. Domestic independent IC providers will supply at least 15 million units worth US$ 200-300 million by 1995. It is projected that the ERC or jointly designed ICs will occupy 10% of the communication ASIC market in terms of sales volume and 50% in terms of variety. Unless China updates her technological base in this sector, lack of standards and poor performance will continue to dominate the industry. It is clear that market demand is enormous and small and medium size firms are in urgent need of technical assistance for restructuring their product lines.
7. Total funding for the ZRC for Comsunication Software and ASIC is US$7,365,000. The breakdown is as follows: (USD thousand) World Bank ...... 4,200 Other bank loans ...... 0 Equity ...... 3,165 - 142 - Annex 4.6 Page 65 of 95
ENGINEERING RESEARCH CENTBR FOR MAGNETIC MATERIALS 1. The manufacturing, processing and application of magnetic materials and devices are very important to the modern information industry since magnetic materials increase productivity, reduce energy consumption, and reduce pollution. Magnetic materials are used in many diverse fields such as electric motors, computers, communications, home electronic appliances, automobiles, etc. Over the last 20 years, the production of magnetic materials increased from US$1 billion to US$26 billion on a global scale. Japan is the biggest producer, occupying 60% of world production. The demand for magnetic materials in developed countries is 7kg per person, while in China it is only 0.05kg per person. China is fortunately rich in rare earth natural resources, which are vital to magnetic materials. Recently, an appearance of a new magnetic material, Nd-Fe-B is having a profound influence on relevant industries in the world. The magnetic material was first developed in the U.S. by GM, and by Sumitomo Special Metals in Japan. Compared with conventional magnetic materials such as ferrite, the new material has an energy product ten times larger than that of ferrite. The performance of this material greatly exceed that of Sm-Co magnetic materials, which has been the best magnetic material so far. It is noteworthy that manufacturing of Nd-Fe-B does not cause pollution. The goal of the Magnetic Materials ERC (ERCMM) is to improve the status of the low industrialization level of China's magnetic materials and to diffuse new technologies and magnetic materials and devices to small and medium size enterprises which will have an enormous impact on the multitude of industries that rely on high performing magnetic materials.
2. The proposal sponsors are: (i) The Institute of Physics (IP); and (ii) Beijing San Huan New Materials High-Tech Inc. of the Chinese Academy of science (BSHNM). Both institutes are comprehensive research institutions for basic study and development of magnetic materials processing.
(i) IP was founded in the late 1920s, and has a long history in research on condensed matters, material physics, atomic physics, and various topics in theoretical physics. IP maintains 11 labs and a staff of almost 700 researchers and technicians. In the past 40 years, more than 1000 research results have been implemented of which 200 are significantly important with respect to high quality crystals and new materials such as Nd:YAG, LiIO3, GGG, TGG, as well as superconducting material such as Nd-Fe-B and Ba-Y-Cu-O, IP resulting in 20 patents. IP has the State Key Laboratory of magnetism which is equipped with many advanced facilities like SQUID, and Moessbauer susceptometer. IP also publishes three monthly journals and has extensive technical exchanges with over 20 countries. (ii) BSHNM is a new high technology enterprise, professionally engaged in R&D, production and marketing of permanent magnets. Since it was founded in 1985 as an economic model incorporating market oriented strategies, BSHNM has made great success in industrialization of rare earth magnets, new magnetic devices, key equipment and electronics. In addition to, BSHNM holds 13 patents, and is responsible for editing the premier journal, "Permanent Magnet Materials in China". BSHNM is a leading unit of R&D manufacturing magnetic materials and magnets, and has transferred technology to over 30 industries in China.
3. The rationale underlying the involvement of the public sector in this area is fundamentally sound and deserves to be supported. The rationale is related to the positive externalities from: (i) developing and promoting magnetic materials with the ERC acting as an interface to industry (especially small and medium size) for significant productivity gains; and (ii) the improvement in production and application of magnetic materials resulting in efficiency gains as this ERC will make effective use of rare earth natural resources as well as improved energy savings (as Nd-Fe-B improves energy efficiency of electric motor vehicles) . While it is important for China to introduce new technologies to industry, no one technical institution or industry in China is capable due to the high cost of specialized equipment as well as the high risk associated with R&D. - 143 - Annex 4.6 Page 66 of 95
Thus, the establishment of the ERC would allow them to disseminate information through evaluation, introduction, and absorption of new technologies much more effectively than any individual company. The established of this ERCMM is urgently needed to link enterprises and research organizations with the latest developments in magnetic materials.
4. In terms of foreign collaboration, the ERC will take advantage of IPs long history of foreign collaborative agreements as well as BSHNM's industrial experience. Some of those agreements include: General Motors, Tridus, IG Co, University of Delaware, Aura System (U.S.); CNRS, Rhone-Poulenc (France); Chemical Metal, Tokyo University (Japan); Krupp, Vacuum Shemeltze (Germany); Luckey Metal (Korea), and numerous other countries in Europe and Asia. The ERC plans to continue its cooperative activities with foreign firms through joint R&D, contract research, and personnel exchange. The ERC will also engage in demonstration projects and technical consultation services in order to facilitate the adaptation of technology from foreign firms into the Chinese market.
5. The ERC-MM's diffusion strategy will be based on: (i) utilizing its sponsors' vast information channel gained by their leadership in China's magnetic materials sector, and through its technological network of clients both domestically and abroad; (ii) naming a special deputy director to head up the diffusion and marketing division to disseminate technology to small and medium size industries through its regional branches; (iii) using the mass media and advertise through domestic industrial and academic associations of rare earth magnets, electric motors, etc.; and (iv) establishing a training section including exchange of technical personnel.
6. There is an immense need in China for magnetic materials products and processes for important industries like medical equipment, automobiles, computers, etc. In China there are about 250 plants manufacturing magnetic materials plus another 50 manufacturing magnetic devices. The estimated world market for magnetic materials is expected to reach US$6.5 billion by the year 2000 of which Nd-Fe-B magnets will be about US$3 billion. The domestic production of magnetic materials and devices in 1990 was approximately 2.4 billion RMB which corresponds to 6% of total world production. Based on research achievements already obtained by its sponsors, the ERCMM expects to develop high quality magnetic materials which will enter the market in 2-3 years, magnetic devices for various motors and electrical equipment in 3-5 years, and other materials and products for the auto industry in 5 years. In total, the target of the ERC is to take 50-60% of the domestic market share and 15% of the international market share for rare earth magnets by the year 2000. 7. Total funding for the Engineering Research Center for Magnetic Materials is US$6,942,000. The breakdown is as follows: (USD thousand) World Bank ...... 3,500 Other bank loans ...... 1 ,411 Equity ...... 2,031 - 144 - Annex 4.6 Page 67 of 95
ENGINEERING RESEARCH CENTER FOR EFFECTIVE UTILIZATION OF NATURAL GAS
1. Natural gas is one of the three main fossil fuel resources (petroleum, natural gas, and coal) in the world. The research in natural gas chemical engineering suggests that natural gas will be the basic material for energy sources (liquid fuels) and chemical industrial materials (olefins and oxygen containing organic compound) in the 21st century. Given that petroleum resources are declining, the world is witnessing major exploration and development of natural gas. China is estimated to have 5100 billion M3 in gas deposits which have increased dramatically since the exploration in Sichuan, Shanxi, and Xinjiang providing large quantities of reliable material for the natural gas chemical industry. Despite extensive exploration, the output is quite low (1.5 billion M3) representing about 1% of world output. Unlike coal which must be gasified by costly technology to become chemical material, natural gas can be directly or indirectly converted to liquid fuel and various chemicals. Compared to coal, the capital investment for natural gas conversion is about 70% less, and consequently, many industries and research organizations in the world regard natural gas conversion technology and its application as strategically important for sustainable economic development. In the synthetic ammonia sector, most of the world uses natural gas as the raw material, and in the US, 70t of plants use natural gas in comparison with 17.5 in China. There are about 1400 small synthetic ammonia plants in China and they consume twice as much energy as large plants. These plants would greatly benefit from using natural gas as their raw material. The basic advantages to natural gas are smaller investments, higher production efficiencies, and lower energy consumption. Areas where China faces serious gaps are: synthetic ammonia, methanol, acetylene, acetic acid, olefins, and liquid fuels. Those gaps can be seen in terms of (i) production scale; (ii) technology; (iii) energy consumption; (iv) material quality; and (v) automation. In recognition of its critical importance to industry, the utilization of effective natural gas is intended to ameliorate these widespread problems. The ERC would provide a link to transfer and diffuse technology to industries in a timely manner at a reasonable cost; train technicians and management personnel; help customers assimilate advanced technology; perform R&D; and establish partnerships with industrial facilities. Although the basic technical skills underlying these functions by and large already exist in Chinese universities, the ERC would extend and apply them to industrial needs in a method which would be unlikely without this new institutional mechanism. 2. There are 4 sponsoring institutions for the ERC for Effective Utilization of Natural Gas: (i) Changdu Institute of Organic Chemistry; (ii) Dalian Institute of Chemical Physics; (iii) Chengda Chemical Engineering Company; and (iv) Chengda Chemical Fertilizer Plant.
Chanadu Institute of Organic Chemistry Founded in 1958 whose main area of research is the conversion and utilization of natural gas. The institute has about 450 staff members and labs in natural gas, metallorganic chemistry, 6 plasma chemistry labs, leather chemical material cets, two experimental factories and one pilot testing bas for comprehensive utilization of natural gas. The institute publishes two technical magazines (Natural Gas Chemistry and Synthetic Chemistry) which are well known in China and abroad. As a leader in organic chemistry in China, the institute has achieved the following: Ci) producing hydrogen cyanide from natural gas,; (ii) new methods of producing vinyl chloride from natural gas; (iii) catalyst and technology for producing diamino toluene from dinitro-tulene; (iv) liquid phase systensis of methanol under temperatures and low pressure, etc. Dalian Institute of Chemical Physics This institute has been engaged in catalysis research and development for over 40 years. With almost 300 scientists working in metal catalysis and new materials, fine organic catalysis, etc. there are four applied laboratories and a national laboratory for catalysis basic research. Dalian has successfully developed new technologies such as advanced catalysts and catalytic techniques for the petroleum, natural gas chemicals, fertilizer, and environmental - 145 - Annex 4.6 Page 68 of 95 protection industries. This institute has begun a cooperative pilot program to produce olefin from methanol with Montecatini Co. of Italy. The institute will manage the engineering with its personnel techniques and fund. Chenqda Chemical Engineering Company
This is a large comprehensive company staffed with about 1540 people of which more than 800 are scientists. The company focuses on natural gas chemical engineering and designing unit attached to the Dept. of Chemical Industry of China. With advanced technical equipment and highly skilled staff, the company has won more than 50 design awards, that has given them international exposure. As a result, the company has participated in joint designs of large sized chemical units with engineering companies from the US., Great Britain, France, Germany etc. With numerous business and technical contacts with international engineering corporations, the company has an impressive widespread network to implement applied engineering R&D. As its investment, Chengda Chemical Engineering Company will provide the site for the ERC, as such, the company will provide much of the computer hardware and software for projecting simulation research.
Chengda Chemical Fertilizer Plant This plant is a major enterprise in chemical processing using natural gas as basic material. With over 1500 staff, it produces 40,000 tpa of synthetic ammonium, 100,000 tpa of ammonium bicarbonate, 10000 tpa of natural alipohat alcohols, and P-aminophenol. Commercially, its annual output is over 50,000,000 yuan (RMB). Within the company, a chemical industrial assembling unit is set up with strong engineering and technical capabilities. The ERC is fundamentally sound from the standpoint of public sector involvement. The ERC for Effective Utilization of Natural Gas has a comprehensive research plan focused around the strengths of its four sponsors regarding technologies for natural gas chemical engineering by way of conversion with natural gas as the raw material, for new processes and new techniques. The objectives of the ERC are to produce oxygen-containing compounds, and olefins as chemical raw materials, and liquid fuels which will make a great contribution to the development of natural gas chemical industry while having a significant impact on energy use and the environment in China. The ERC plans to implement more than 20 convertible subprojects which will offer technology transfer for a large number of indsutrial applications for in China. Such work now suffers from underinvestment due to the thousands of small and medium size enterprises in villages and towns in the industry with severely limited R&D resources. Beyond research, much of the work of the ERC will focus on training, dissemination of information and technologies, and technical assistance functions that are unlikely to be provided by any private sector entity. Thus, the activities proposed for the ERC are highly appropriate areas for public involvement. Current use of natural gas in China appear to suffer from high energy intensity, low productivity, and, one would assume, relatively high levels of pollution. Pressures from economic development, energy saving and environmental protection enormously enhance the necessity of this ERC. In view of the social benefits of increased productivity and environmental protection from the positive impact of energy savings devices, public sector support would be warranted for these activities.
4. The ERC for Effective Use of Natural Gas has a well defined foreign collaboration strategy. The sponsoring institutions have in fact already established significant contacts with foreign collaborators which should augment the ERC's foreign collaboration efforts. The Sponsors are already participating in on-going ventures such as: Resource Chemical Institute, (Japan); Chicago Natural Gas Research Institute (US); French Institute of Petroleum; Topsoe Co. (Denmark); and Montecatini co. (Italy). The ERC welcomes foreign shareholders with a technological advantage and will act as a go-between for domestic enterprises for investment and cooperation from abroad. Through international technical exchanges and exhibitions, the ERC will strengthen and promote international collaboration and technology transfer, and become an effective interface between foreign suppliers of technology including those which are - 146 - Annex 4.6 Page 69 of 95 planning co-development activities for the Chinese market. Domestically, The ERC will continue its long history of activities developing new technologies to be commercialized by the industrial sector in conjunction with research institutes and universities. 5. The diffusion strategy for the dissemination of techniques and products of this ERC is a two-pronged approach through a technology transfer stage and information feedback stage. The ERC will focus on five major strategies: (i) information strategy; (ii)technology strategy; (iii) market strategy; (iv) business strategy; and (v) personnel strategy. Those strategies will be strengthened by maintain constant contact with Chinese and foreign users; facilitating the exchange of technical personnel; publicizing joint ventures; publishing technical journals; and host international conferences. The ERC proposal presents a clear management plan which implicitly considers not only the internal management of the center but also relationships with outside entities. 6. The proposal clearly outlines the market demand for technologies relevant to the effective use of natural gas. The industry is characterized by numerous small scale plants, outdated technology, low productivity and low investment. The demand is primarily from small and middle size enterprises and the ERC plans to focus on developing 8 new techniques for the natural gas chemical industry in the short term and produce six products, all clearly outlined in Table 5-1 of the proposal. Some of the new technologies which should be ready to market between 1996 -1998 are: (i) new process for synthetic gas by natural gas catalytic partial oxidation; (ii) new process for PSA separation (iii)membrane separation technology; (iv) ethyl alcohol from synthetic gas; (v) olef in from synthetic gas, etc. The schedule for techniques to commercialized and marketed is also clearly outlined and planned for 1996 (short-term) and others for 1998. Estimated income from technology transfers are expected to come from transfers such as: p- aminophenol (25 million yuan per year); ethyl alcohol from synthetic gas (8 million yuan); olefin from methyl alcohol (5 million yuan); contract missions; and supplying the catalysts required by the downstream enterprises at the beginning of accepting the transferred technology. Small and medium-sized firms are expected to be the main focus of ERC efforts.
7. Total funding for The Engineering Remearch Centor for Effective Utilization of Natural Gas is US$5,662,000. The breakdown is as follows:
(USD thousand) World Bank ...... 3,100 Other bank loans ...... 1,376 Equity ...... 1,186 - 147 - Annex 4.6 Page 70 of 95
ENGINEERING RESEARCH CENTER FOR PAPER TECHNOLOGYAND POLLUTION CONTROL
1. China now occupies third place among the paper producing countries, with production reaching 17.25 million tons in 1992. While the industry is growing at 8-10% annually, the production, quality and variety of paper and paper-board are said to fall far short of the demand. The ERC proposal characterizes per-capita consumption of paper as a criterion "designating the economic development and social civilization of a nation," and therefore emphasized the need for increases in production capacity as well as pollution control for existing facilities. Effluents from the industry currently account for 1/6 of the total water effluent discharge in China. Much of the spent liquor from pulping is discharged totally non-treated. In addition, discharges of chlorinated organic compounds (dioxin, clorophenols, and trichloromethane) represent a serious health hazard to humans and other species. These pollutants continue to mount with increased production, use of chlorine bleaching agents and lack of treatment. The Engineering Research Center for Paper Technology and Pollution Control will not only develop and diffuse innovations in technologies treating spent liquor but develop "clean" pulping technologies for the elimination of spent liquor to promote environmentally sustainable technologies to paper-making plants, instrument manufacturers, and paper mills. 2. The proposal sponsor, The South China University of Technology (SCUT) is a comprehensive research institution for basic study and development of science, engineering, management and liberal arts. The Pulp and Paper Engineering Discipline (unit) in SCUT is a national key level laboratory and trains about 75% of China's post-graduates in pulp and paper engineering. SCUT has an impressive list of its research achievements such as new model headboxes for low-speed paper-machines, pulping spent liquor treatment, and lignin industrial utilization which have been successfully applied to industry. The Pulp & Paper Unit of SCUT maintains a technical staff of approximately 130 engineers specialized in pulp & paper mechanical engineering. SCUT maintains close ties with many design institutes and paper mills such as The China Technical Association of Paper, Qingzhou Paper Mills, Guangzhou Paper Mill, etc. In addition, the Pulp and Paper Unit maintains close ties with foreign universities and equipment manufacturers. SCUT has obtained numerous awards at the local and ministerial levels as well as many patents. They have a clear R&D track record with numerous ministries and 33 research and development projects from industrial enterprises totaling 1.83 million yuan (RMB). While SCUT's record is to be commended, by their own acknowledgment, they have been slow to diffuse pollution control techniques due to their lack of a strong engineering research base for pilot demonstrations, which is precisely why an ERC would complement their research capabilities. 3. The rationale underlying the need for public sector support in solving environmental problems of this magnitude in the paper and pulp industry is clear. There is also a strong case to be made for public support for technology development in an industry of such critical national importance. Given that available pollution prevention and control technologies are now available, an effective strategy is to support a policy package which includes public funding to enhance the diffusion of technology to the multitude of small and medium scale firms currently polluting the environment. The need for support is related to the positive externalities from: (i) developing and promoting technologies to improve quality and variety of paper and paperboard with the ERC acting as an interface to industry for significant productivity gains, and (ii) the production and application of high-performance process technologies associated with pollution abatement and prevention. While it is important for China to introduce new technologies to the pulp and paper industry, no one technical institution or industry in China is capable due to the high cost of specialized equipment as well as the high risk associated with R&D. Thus, the establishment of the ERC would allow them to disseminate information through evaluation, introduction, and absorption of new technologies much more effectively than any individual companies. 4. In terms of foreign collaboration, the ERC will take advantage of SCUT's experience in foreign collaborative agreements including: The Universities - 148 - Annex 4.6 Page 71 of 95 of Quebec and Toronto (Canada); Royal Institute of Technology, (Sweden); University of North Carolina and Black Clawson Co. (USA); Adritz Sprout-Bauer (Austria) which has designated the ERC as its pilot test and training center in the Far East and Southeast Asia. The ERC plans to engage in extensive cooperative activities with foreign firms through joint R&D, contract research, and personnel exchange. The ERC will also engage in demonstration projects and technical consultation services in order to facilitate the adaptation of technology from foreign firms into the Chinese market. The ERC will continue to collaborate with domestic laboratories and industries in the field of paper technology and pollution control. 5. The ERC's diffusion strategy is based on the Pulp & Paper Unit's vast information channel developed at SCUT, a leading institution of pulp and paper engineering research. Through its technology training and service center, the ERC will hold seminars in (i) pulping spent liquor treatment; (ii) less pollution high yield pulping; and (iii) new techniques of papermachine headbox, etc. It will also publish periodicals and newsletters to advertise technical achievements and disseminate information of through its technological network consisting of China Technical Association of Paper Industry, China Development Corporation, China General Corporation of Light Industrial Machinery, etc. The ERC will also establish a sub-center of demonstration engineering to expand cooperation to its various clients both domestically and abroad including exchange of technical personnel. 6. As the output of pulp and paper increases, there is an immense need in China for treatment of (i) non-wood fiber pulping spent liquor and effective utilization of lignin in small and medium scale non-wood pulp mills; (ii) pollution abatement technologies; and (iii) techniques for medium and low-speed papermachine headboxes for non-wood fiber pulp. Knowledge about these technologies have translated into requests from 300 straw pulp mills (out of about 2000) expressing interest to integrate non-wood fiber pulping spent liquor. The investment of this new process developed by SCUT requires only 1/7 of that of the alkali recovery process. The investment for spent liquor treatment is only 1.7 million yuan (RMB) while the penalty for pollution is quite high. Therefore it becomes practical for enterprises to employ this technology. In efforts to transfer the technology, the ERC will set up demonstration sites to begin the process. In addition, the latest economic reports estimate that in five years, 200,000 tons of lignin will substitute as a rubber reinforcing agent, cement grinding agent, and other uses. In Japan, 1 million tpa of lignin is recovered for use as compared to China's several thousand tons of which the rest gets discarded. There are only 30 alkali recovery systems in China and about 170 are expected to be needed and built in the next 15 years. Given that the industry will grow 8-10% annually, the demand for new products, technical services, auxiliary equipment, and technical training in this growing industry is significant, and this ERC has developed a marketing plan which clearly identifies its users in the pulp and paper industry.
7. Total funding for the Engineering Research Center for Paper Technology and Pollution Control is US$6,135,000. The breakdown is as follows:
(USD thousand) World Bank ...... 3,000 other bank loans ...... 368 Equity ...... 2,767 - 149 - Annex 4.6 Page 72 of 95
ENGINEERING RESEARCH CENTER FOR FINE PETROCHEMICALS 1. The importance of fine petrochemical technology is significant to a country the size of China whose economy is rapidly growing and will depend on effective use of its limited resources to meet the needs of industry. In China, the industry is characterized by quite a low ratio of fine chemicals to chemical products (25%) as compared to 50% in industrialized countries. Other characteristics are lack of variety of products, shortage of raw materials and intermediates, and environmental pollution. It is clear that China must make productive use of petroleum and natural gas as well as increase the level of petroleum processing to enhance raw materials and intermediates urgently needed to develop the fine chemical industry. Developing the fine petrochemical industry will lessen the shortage of basic raw materials and intermediates and provide specialty chemicals essential to other industries such as mining, petroleum, medicine, light industry and electronics. Technologies are needed to: (i) make comprehensive utilization of gases discharged from petroleum refineries using advanced catalytic synthesis technology with low pollution and less energy and raw material consumption to produce aldehydes, alcohols, and other oxygen containing compounds which increase the fine chemical proportion to whole chemicals produced in the country; (ii) transfer to small and medium chemical enterprises for comprehensive utilization of carbon monoxide discharged from small chemical fertilizer plants; (iii) byproducts produced from the petro- chemical industry such as those from ethylene production units. The Engineering Research Center for Fine Petrochemical Technology will develop and diffuse technological achievements focused on the effective utilization of byproducts, and develop production technology for intermediates for fine chemicals.
2. The proposal sponsors are (i) The Lanzhou Institute of chemical Physics (LICP) and (ii) Lanzhou Petroleum Processing and Chemical Complex (LPPCC, SINOPEC), both comprehensive research institutions for basic study and development of chemicals. Both sponsors have carefully outlined their rich commercial network of domestic and foreign partners which will greatly enhance their ability to commercialize and diffuse engineering achievements. (i) Founded in 1958, LICP maintains ten research divisions, 2 state key laboratories and a division for maintenance of instruments and equipment. With a staff of 700, of which 500 are scientific and technical, the institute has carried out more than 280 projects winning awards for more 100 from state and local ministries. LICP has successfully transferred numerous results to industry including the process of oxidative dehydrogenation of butane to butadiene; a new generation catalyst, W-201, and many other. (ii) LPPCC maintains 4 research and design institutions, a staff of over 900 of which over 200 are scientific. The majority of the research is focused on catalytic petroleum refining, lubricating oil additives and engineering of chemical reactions. LPPCC has been awarded over 200 prizes by the state and local ministries. This sponsor also has experience in transferr4lg technology to industries such as the first domestic deparaffinating industrial installation, the first industrial enlargement of the catalytic cracking installation for maximum yields of liquid hydrocarbons and gasoline. LPPCC will be able to provide excellent conditions for pilot plants and industrial verifications and testing.
3. The rationale underlying the involvement of the public sector in this area is fundamentally sound and deserves to be supported. The rationale is related to the positive externalities from: (i) developing and promoting fine petrochemical with the ERC acting as an interface to industry for significant productivity gains, and (ii) the production and application of high-performance specialty chemicals and intermediates associated with environmental benefits as this ERC will make effective use of natural resources while its technologies contribute to energy savings. While it is important for China to introduce new technologies to industry, no one technical institution or industry in China is - 150 - Annex 4.6 Page 73 of 95 capable due to the shortage of raw materials and as well as the high risk associated with R&D. Thus, the establishment of the ERC would allow the dissemination of information through evaluation, introduction, and absorption of new technologies much more effectively than any individual companies.
4. In terms of foreign collaboration, LIPC and LPPCC each have about 30 years of experience with both foreign and domestic partners and this ERC will take advantage of its sponsors' vast network. Collaborative agreements (80 in total) in the field of petrochemicals and fine chemical technology include: Occidental Chemical Co., UOP Co., Oxychem Co., Shell (US); Oiles, Perfume Co. (Japan); and joint projects and technical exchanges with 60 major universities throughout Europe, Australia, and Japan. The ERC plans to engage in extensive cooperative activities with foreign firms through joint R&D, contract research, and personnel exchange. The ERC will also engage in demonstration projects and technical consultation services in order to facilitate the engineering of fine chemical technology into Chinese firms, particularly small and medium size.
5. The ERC's diffusion strategy will be based on a two-tier approach consisting of (i) technology transfer, realized through training and technology related services; and (ii) the information feedback stage which will provide capabilities to improve technologies and products based on market information. This ERC will benefit from its two sponsors' vast information network both domestic and foreign including numerous industry associations and its technological network of clients. The ERC will disseminate technology through its marketing and sales department; training of clients and staff; exchange of personnel; annual conferences; and publish periodicals and newsletters to advertise technical achievements. 6. There is an immense need in China for fine chemical intermediates for industries as diverse as mining, petroleum, medicine, light industry and electronics. China's industry is deficient in intermediates for surfactants, fragrance aldehydes, food and feed additives, and pharmaceutical which currently rely heavily on imports. Based on that market analysis the ERC will focus on (i) preparation of proponal, propanoic acid and their downstream products from dry gas of petroleum refineries; (ii) fragrance aldehydes; (iii)Mixed C6 alcohols as floatation agents; (iv) long chain alcohols and its catalyst; and (v) phenylacetic acid. In China there are more than 30 large petroleum refineries and byproducts can be used for food and feed additives in the domestic market. Technologies of fine chemicals are especially suited for small and medium size companies which the ERC is targeting. 7. Total funding for the Engineering Research Center for the Fine Petrochemicals is US$8,049,000. The breakdown is as follows:
(USD thousand) World Bank ...... 4000 Other bank loans ...... 1,986 Equity ...... 2,063 - 151 - Annex 4.6 Page 74 of 95
ENGINEERING RZESARCH CENTER FOR POWER SYSTEM AUTOMATION
1. As China's economy continues to grow, the demand for electric power is increasing at an accelerated rate. Power shortage in China is currently around 20%, and an annual growth rate of 9% is needed to relieve the serious bottleneck which hinders industrialization and economic growth. At the end of 1993, the installed capacity and the yearly electric generation was 180 GW and 815 TWH respectively. Estimates for the year 2000 are calling for a in installed capacity of 310GW and yearly electricity generation of 1400TWH respectively. China's electric power industry is operating at low reliability levels coupled by shortages and waste. In order to meet the needs of these serious problems, China must increase installed capacity while paying close attention to the security and reliability of its power supply as well as energy conservation. Based on these policies and guidelines, the ERC for Power System Automation has been established, and will seek to improve power system efficiency on energy conservation and environmental quality as well as: (i) advance technical standards and norms; (ii) provide technical support for large control systems requiring foreign equipment and systems; (iii) transfer technologies and offer technical training and services; and (iv) enhance the monitoring for environmental protection. 2. The sponsoring institution, Nanjing Automation Research Institute (NARI) is a comprehensive research institute affiliated with the Ministry of Electric Power. Founded in 1973, NARI has branch offices in Shenshen Special Economic Zone and Nanjing High Tech Development Zone. NARI consists of 10 R&D divisions with labs engaged in power plant production control, power system relay protection techniques, power system communication techniques, engineering design etc. The institute has a total workforce of approximately 900 professionals of which half are engineering specialists. Every year over 60 persons travel abroad to participate in technical exchanges. To date, NARI has won more than 65 national awards and holds about 25 patents. Many technical results have been commercialized to industry such as the first domestic IC relaying protection device, 500kV line protective relaying equipment, and the first domestic SCADA system of real time supervision control. NARI also has a thirty year history of close ties with both domestic and foreign institutes and enterprises.
3. The rationale underlying the involvement of the public sector is related to the very large number of power system equipment manufacturers (mostly small and medium size) and consumers of electric power that would benefit from the diffusion of new electric power devices, and engineering services. Given that China is operating at very low, inefficient levels of power, strengthening its electric power infrastructure will provide a great social benefit to society. A leading center, such as this ERC, is necessary to resolve some of these critical problems. Manufacturers do not have access to the latest technologies, nor are they able to adapt imported equipment to the Chinese market without public support. While individually, enterprises might have the incentives to improve or develop the technology they do not necessarily have the means to invest in specific R&D and engineering activities. Potentially, in cooperation with other producers and suppliers they might accomplish what the ERC will set out to do, but there are considerable coordination and informatTon costs that no individual actor (especially small and medium size firms) is willing to absorb. These high transactions costs disallow the formation of a market to supply the innovations on an industry wide bases. The failure of this market generates the externality the ERC would be addressing by introducing power system automation technologies for widespread applicability, thus public support is warranted for these activities. 4. The ERC along with its sponsor, NARI, already has a record of close relations with foreign enterprises and research organizations. They have collaborated with numerous international firms and universities such as: Leige University (Belgium); HVDC Canada); Siemens, PTI, General Electric, Power Technologies, Intel (U.S.); Electricite de France; Korea Electric Power Corporation; and Digitel (Hong Kong). NARI will continue its practice with international organizations and enterprises to encourage joint research and - 152 - Annex 4.6 Page 75 of 95 technical exchanges. Domestically, NARI has strong technological ties with numerous universities and research institutes, and is well positioned to cooperate with industrial firms, and other organizations to diffuse innovations in power systems automation technologies. The ERC will pursue a strategy to attract advanced foreign equipment, technologies, and products, to introduce to Chinese firms to fulfill the power shortage demand that characterizes Chinese society. 5. The diffusion strategy for the dissemination of power system automation technologies and services of the ERC is based on applying the network of its sponsor as well as other related institutions. A marketing and sales department will be set up with manufacturers (both domestically and abroad) and end-users to collect market information and introduce technologies in a timely manner. This ERC will cooperate with domestic and foreign firms in importing new equipment and technology to transfer and diffuse to end-users. They will provide advisory services to enterprises to diffuse information on standards and specifications, as well as provide technical training for staff and customers. They will also publish these new standards for corporations through publications and workshops in addition to working closely with their network of trade associations institutes, and other professional committees.
6. It is clear that China's market for power system security control technologies and reliable power supply is enormous given the population size and the rapid growth of the economy. Statistics indicate that industry will have a yearly growth rate of over 9% by the year 2000, and newly installed transmission lines exceeding 15000 kilometers will be needed. Following that construction will be corresponding control equipment and systems installations. For protective relays, every year more than 100 transmission lines over 220kV must be put into operation. For transient stability control systems, every major power plant and large generating unit must consider control measures, even regional control measures to ensure full capacity . For power network dispatch control system, there are 6 regional centers, 250 local or city control centers, and more than 2300 county level centers in China. Obviously there is a large demand, especially for remote terminal units, communication interfaces, and dedicated communication equipment to satisfy the shortage of electricity nationwide. Unless China updates her technological base in this sector, unreliable power supply, and high energy waste will continue to dominate production which will hinder China's sustainable growth. This ERC can facilitate the technical transformation needed to restructure China's power system industry which will have a tremendous impact on society at large.
7. Total funding for the NRC for Power System Automation is US$9,973,000. The breakdown is as follows:
(USD thousand) World Bank ...... 5,550 Other bank loans ...... 932 Equity ...... 3,491 - 153 - Annex 4.6 Page 76 of 95
ENGINEERING RESEARCH CENTER FOR APPLIED POWER ELECTRONICS
1. Traditional industries dominate China's economy and its development, to a large extent, will depend on the success of renovating these industries. Industries such as electric power generation, machine building, metallurgy, petroleum, chemical, textile, and transportation are the mainstay of China's economy. Heating (including heat treatment and processing such as smelting and welding) and drive (dynamic transmission for electric motors, etc.) are critical technology components for the above mentioned industries. The application of inductive heating and speed control technology for electrical machinery to transform traditional industrial and drive systems will reduce energy consumption, waste of raw materials, environmental pollution, and increase productivity. Given that most of China's industries are small and medium size, and using the traditional methods of heat treatment (coal and oil burning), there is a tremendous waste of energy and raw materials coupled with pollution. Large enterprises in China also facing similar environmental problems. For example, the average heat efficiency of industrial boilers and furnaces is 10-20 times higher than international standards. In the field of electrical machinery drive, the technology used is rated at the level of the 1980s. The Engineering Research Center for Applied Power Electronics (APE) will seek to develop and transfer technologies to promote the renovation of the heat treatment process and drive system related to heavy industry in China benefiting the users in the diverse industrial sectors mentioned above which will have enormous impact on China's industries and consequently, the economy. 2. The ERC's sponsoring institution is Zhejian University, administered under the Education Commission. Founded in 1897, the university has trained more than 50,000 students in specialized disciplines. The university maintains nine state key laboratories and one engineering research center. Since 1970, Zhejian University has conducted comprehensive R&D in energy saving and technical renovation for industrial heat treatment and drive systems. The university has many extensive research groups dedicated to technology diffusion in such fields as applied electronics technology; electrical machinery and control; electrical power system; semi-conductive materials; and testing and measurement apparatus, etc. In the field of heating and drive system technology, the sponsor has successfully commercialized 33 scientific achievements, several patents, 16 prizes from state and local ministries. There has been a major effort in the last five years to train graduates in electrical and electronic technology. The R&D groups of the university has transferred technology to enterprises in medium frequency inductive heating throughout the country saving about 117 million KHW of power annually. The university maintains extensive relationships with large Chinese enterprises such as Shanghai General Rectifier Plant, Harbin Large Electrical Machinery Research Institute as well as small and medium sized. Lastly, the university has close ties with about 30 universities broad which enabled them to participate in hundreds of technical exchanges. 3. The subproject is fundamentally sound from a public sector standpoint and deserves to be supported. The applied power electronics industry is growing at a rapid rate which can only enhance the comprehgnsive technology critical to the productivity of numerous other industrial sectors such as electric power generation, machine building, metallurgy, petroleum, chemical, textile, and transportation. As the modern heat treatment process and the speed control system of electrical drivers fall in the category of complex system engineering covering many branches of science and technology (power electronics and motion control, computer technology, etc.), practical difficulties emerge in applying these technologies which hinder the application of innovations to the traditional industries in China. Therefore, it is necessary to set up this ERC-APE to serve as a channel between research and industrial production which will undertake various activities such as the development of prototypes, trial production, testing and evaluation, and include the diffusion of those innovations. The transfer of those technologies by any individual enterprise is highly unlikely due to the enormous cost and complexities associated with the power sector, however public sector support is warranted as the transformation of this sector will have a tremendous impact on China's industries, especially small and medium - 154 - Annex 4.6 Page 77 of 95 size companies as they seek to transform their capacity for increased productivity, energy efficiency, and reduction of raw materials gained through the technical renovation in applied power electronics. 4. This ERC has a well defined collaboration strategy with special emphasis on international exchanges already developed by the long history of its sponsor. For example, letters of intent for joint projects have already been signed with EUPEC, a consortium of AEG and Siemens of Europe; Virginia Polytechnic Institute and State University (US); Heriot-Watt University (UK); The ERC will introduce products in collaboration with more than 20 enterprises and research institutes in China thus cultivating the domestic market for various applied power electronics technologies. The ERC will strengthen and promote international collaboration and technology transfer, and become an effective interface between foreign suppliers of technology including those which are planning co-development activities for the Chinese market.
5. The diffusion strategy for the dissemination of techniques and products of the ERC will be based on the combined network of its sponsor and vast number of enterprises in which it has maintained close ties with over the last 100 years. The ERC will set up a national network to function as a center for technology transfer as well as a center for consultation, training, and test/inspection to provide various technological services for domestic enterprises needing to renovate its industrial heat treatment and drive systems. To achieve this goal, the ERC-APE will (i) set up a marketing and training unit; (ii) collect information and disseminate it on a regular basis to customers; and (iii) establish three or four national cooperative networks for enterprises and consumers to focus on the service aspect of introducing new technologies. The ERC will use the mass media as well as professional associations, technical committees, and other institutes to disseminate information and technology developed by them along with its industrial partners.
6. As stated earlier, there is an enormous market for industrial heat treatment and drive systems technology in China as it is essential for the renovation of the traditional heating process and mechanical drive system. The transformation of those sectors will not only result in both energy and material savings but will push ahead the renovation and development of related industries such as machine building, electric power generation, automation, etc. In China, the estimated market demand for equipment related to drive systems, inductive heating and high frequency inverters systems for arc welding and various rectified power sources is 6.5-8.5 billion yuan RMB per year by 2000. In order to meet the large demand required to shift China's industrial base to a more productive and efficient one, enterprises will not only have to continue providing power saving electronic devices, but will need innovative technologies and approaches to supply the market, solve technical problems and set technical standards which this ERC is well positioned to do. 7. Total funding for The Engineering Research Center for Applied Power Electronics is US$5,330,000. The breakdown is as follows: (USD thousand) World Bank ...... 2000 Other bank loans ...... 1 ,287 Equity ...... 2,043 - 155 - Annex 4.6 Page 78 of 95
ENGINEERING RESEARCH CENTER FOR ADVANCED POWER SOURCES TECHNOLOGY
1. Power sources technology encompasses devices or systems that convert chemical, solar heat or nuclear energy into electrical energy. The focus of the proposed ERC is to work within this broad field toward the development and commercialization of certain advanced power sources, notably various types of batteries (the primary near-term need), thermoelectric modules, solar cells, and fuel cells. In China today, there are more than 1000 power source enterprises, employing 130,000 workers, and claiming sales of about 5.7 billion yuan in 1992. This industry, faced with enormous growth, is estimated to lag 20-30 years behind the most advanced technology elsewhere in the world. Besides obvious performance deficiencies, the power source technologies widely employed in China present severe environmental problems. For example, lead acid battery designs currently used in China leak and corrode where as they are discarded in the US, Japan and Germany. Lead and cadmium consumption is high in China and materials recovery is ineffectively applied. Lastly, production output per worker lags behind highly industrialized countries by a factor of 10 due to the lack of efficient production techniques and equipment. Although R&D in advanced power source technology has increased markedly since 1985, there are still many technical goals that remain unmet including enormous problems to diffuse both existing and new technology into enterprises throughout China. This ERC aims to apply advanced power sources technology to industrial needs in a manner which would be unlikely without institutional support.
2. The sponsoring institution, The Tianjin Institute of Power Sources, (TIPS) under the jurisdiction of the Ministry of the Electronics Industry, is the only comprehensive R&D institute for power sources in China. Founded in 1958, it now has 10 R&D departments and two factories. The staff numbers 1500, of which some 600 are technical personnel. TIPS provides a wide variety of services including (i) turn-key development of production factories; (ii) pilot plants; (iii) testing; (iv) the organization of industrial associations; (v) and an information exchange network. Its comprehensive research accomplishments are well-documented. With almost 40 years of experience, TIPS has compiled an impressive record of concrete research achievements in areas of lithium battery, sealed lead acid battery, Ni/Cd battery, Zn/air battery, water activated battery and fuel cells. Through the formal publication of "Chinese Journal of Power Sources" and other means, TIPS has become the leading institution of information for industry regarding power sources in China. 3. The subproject is fundamentally sound from a public sector involvement standpoint. The development and dissemination of advanced power sources is of critical importance to China's future in any number of areas, ranging from production efficiencies to the possibility of electric vehicles. Efforts by the power source industry to upgrade advanced power sources technology is not seen as an immediately viable strategy given the limited funds of Chinese enterprises and the many interface problems such technologies encounter. Rather, the development of domestic battery technology engineering and adaptive capacities presents the key to technological progress. These areas are precisely those to which the proposed ERC is addressed, and ts establishment would thus fill an institutional void to which the overall program is addressed. The ERC's plan is to focus on servicing SMEs and TVEs by transferring engineering production technology of advanced electrochemical power sources thus improving the quality of products and production efficiency while decreasing material consumption and usage of toxic materials. These production improvements will also generate significant environmental improvements. In addition, large numbers of battery enterprises would benefit from this type of public sector investment which now suffers from underinvestment due to the small size of most factories with severely limited R&D resources. Beyond R&D, much of the work of the ERC will focus on training, dissemination of information and technologies, and technical assistance functions that are unlikely to be provided by any private sector entity. Thus, pressures from economic development, energy conservation, and environmental protection enormously enhance the necessity of power source technologies thus warranting public sector support. - 156 - Annex 4.6 Page 79 of 95
4. The ERC has a well defined foreign collaboration strategy. The proposed ERC has developed a collaboration strategy which will be guided by the demands of the market including both domestic and foreign. In the revised proposal, the ERC provides a list of 15 important domestic partners, including universities, institutes and factories, some of which have singed letters of intent. Some of the partnerships include: Bitrode Co., Electrochemical Automation Inc., and American Oven Systems (US); Japanese Battery Industrial Association (Japan); and more foreign collaboration is being sought in Europe, Australia and India. TIPS appears to be well-positioned to introduce advanced technologies from abroad by converting and integrating it for the Chinese market. They will take full advantage of their network of colleagues already engaged in international research and development, and disseminate their findings through their technology transfer network. 5. The diffusion strategy for the dissemination of techniques and products of this ERC is characterized as the "life blood" of the ERC, thus indicating the high priority assigned to this function. A dissemination strategy (both internally and externally) is set out clearly and thoroughly, covering the organization of the effort. The marketing, sales, and the information & training departments will be responsible for technical dissemination as well as external channels "tightly and loosely associated" networks established to disseminate reulsts of technical achievements and market information. The ERC proposes to maintain constant contact with Chinese and foreign customers; to facilitate and publicize joint ventures; publish technical reports; provide outreach to professional organizations; hold regular meetings with its clients; and to host international conferences. 6. The proposal outlines the market demand for technologies relevant to the ultimate demand for new power source technologies, both in its direct discussion of this issue and in the Business Plan. Given that over 85% of battery enterprises (approximately 1000) in China are SMEs or TVAs, and basically using elementary production technologies. The ERC can have an enormous impact in terms of market penetration by providing the needed technology transfer services, consulting services, and necessary training. Technologies expected for delivery to industry are advanced NI/MH battery, sealed lead-acid battery, lithium battery, and other electrochemical power sources. The management and organizational plans of the ERC are well-conceived and technical goals of the organization are specified early-on, organized according to long and short-term. The implementation plan to initiate the ERC plus a list of steps necessary to establish a limited liability corporation are detailed and this will enable a strong marketing plan to move forward.
7. Total funding for The Engineering Research Center for Advanced Power Sources Technology is US$9,186,000. The breakdown is as follows: (USD thousand)
World Bank ...... 5,000 Other bank loans...... 781 Equity ...... 3,405 - 157 - Annex 4.6 Page 80 of 95
ENGINEERING RESEARCH CENTER FOR DIGITAL CORDLESS TELEPHONE SYSTEM
1. As China's economy continues to grow, the demand for information exchange and telecommunications becomes critical to its development. Telecommunications is a basic public service necessary for development, and the GOC has given it a high priority in its plan for modernization. At present, telecommunications services is increasing at an unprecedented speed, and the capacity of telephone exchanger in China doubles every five years. By the year 2000, the entire capacity of telephone exchanger will exceed 10 million lines. However, given the size of China's population, telephones will still only be provided to 5-6% of its population. An enormous effort must be undertaken to meet the demand of the telephone market in China. The challenge to combat a weak communications infrastructure has been tackled by the GOC as can be observed by their serious effort to promote (i) the purchase of radio communication products from abroad; (ii) introduce advanced production technology, assembly and manufacture radio products; and (iii) develop and adapt radio communications products suitable to the Chinese market based on advanced international technology. It is through these policies and practices that the ERC for Digital Cordless Telephone Systems has been established, and will seek to advance the technical standards, unify radio interfaces and the interfaces with public telephone networks, and assist manufacturers and clients in solving problems and developing new services. The objectives of the ERC are to (i) complete the development of frequency-scan cordless telephones and input trial products into the market by 1994; (ii) complete the R&D for cordless equipment of one way calling functions, (CT2), partial two-way (CT2+), and complete calling functions (CT4) systems for trial network testing; (iii) complete the research of national digital cordless telephone systems (DECT) by early 1995 and then put the trial products into market by early 1996; and (iv) widely implement the engineering research of CDMA-PCN systems before the year 2000. 2. The sponsoring institution, The 4th Research Institute (FRI) of the Ministry of Posts and Telecommunications (MPT) is an industrial center of the Ministry engaged in R&D of civil radio and wireless communication technology. The institute has a total workforce of approximately 750 professionals of which half are technical, and about 40 staff members have participated in technical exchanges and training abroad. To date, FRI has won more than 20 national awards and about 300 MPT awards, of which most have been in mass production regarding mid and small capability digital radio communication systems in various bands. The FRI is responsible for several testing centers such as the Quality Monitoring and Test Center of Radio Communication Equipment, and Xi'an Communication Measurement Center. In 1992, a group of engineers developed the first practical cellular mobile communication handset which currently is being successfully produced at 20,000 units per year. The institute is focused on (i) studying generic criteria and network operation engineering for CT4; (ii) implementing system equipment of network management systems, RF port controller, portable units, etc; (iii) establishment of public digital cordless telephone system trial networks; and (iv) the field test of production to study mass product technology and form mass production capability. Lastly, FRI has extensive links with Chinese enterprises such as Jiangyin Intelligent Communication Co. for product development, research institutes and universities which includes technical exchanges and joint research projects.
3. The rationale underlying the involvement of the public sector is related to the very large number of manufacturers and consumers of digital cordless telephones that would benefit from the diffusion of new technologies, and engineering services. Given that digital cordless telephones have good security and low interference and CT2 and CT2+ as well as higher traffic density and low price and operation costs, these systems are greatly needed in China to help speed ups and strengthen its telecommunications infrastructure, and provide a great social benefit to society. The current system is characterized by weak standards, equipment and norms; manufacturers without access to the latest technologies; and limited funds to adapt imported equipment to the Chinese market without public support. While individually, enterprises might have the incentives to improve or develop the technology they do not necessarily have the - 158 - Annex 4.6 Page 81 of 95 means to invest in specific R&D and engineering activities. Potentially, in cooperation with other producers and suppliers they might accomplish what the ERC will set out to do, but there are considerable coordination and information costs that no individual actor (especially small and medium size firms) is willing to absorb. These high transactions costs disallow the formation of a market to supply the innovations on an industry wide bases. The failure of this market generates the externality the ERC would be addressing by introducing digital cordless communications with widespread applicability, thus public support is warranted for these activities.
4. The ERC along with its sponsor, FRI, already has a record of close relations with foreign enterprises and research organizations. They have collaborated with numerous international firms and universities such as Intel, AT&T, Bellcore, California Institute of Technology (U.S.); Montreal University, (Canada); and Philips (The Netherlands). The Institute has been involved in a multitude of technical exchanges in numerous countries, and that practice will also be continued. Domestically, FRI has strong technological ties with numerous universities and research institutes, and is well positioned to cooperate with industrial firms, and other organizations to diffuse innovations in digital cordless telephone systems. The ERC will pursue a strategy to attract advanced foreign equipment, technologies, and products, to introduce to Chinese firms to fulfill the demand for cordless telephone systems and services in serious need of new and improved technologies. 5. The diffusion strategy for the dissemination of digital cordless telephone systems and services of the ERC is based on applying the network of its sponsor as well as other related institutions. An institute for "Market economics" will be set up to closely monitor contacts with foreign manufacturers and potential clients and well as monitor market trends in the industry. This ERC will cooperate with domestic and foreign firms in importing new equipment and technology to transfer and diffuse to end-users. They will provide advisory services to enterprises to diffuse information on standards and specifications. They will also publish these new standards for corporations through publications and workshops. The ERC has carefully outlined its diffusion channels in the proposal and has focused on 4 key units: (i) international cooperation; (ii) research institutes and universities; (iii) professional information/user information; and (iv) governmental information. A special training unit has also been set up and is expected to operate in six major regions in China in conjunction with the local telecommunications agencies. 6. It is clear that China's market for digital cordless telephone systems is enormous given the population size and the rapid growth of the economy. The estimate of 5-6W of telephone popularization by the year 2000 has been made by MPT, and the ERC is expected to capture 209 (about 13 million subscribers) of that market which includes its trial products and the products manufactured by the firms adopting the technologies diffused by the ERC. The service target of the ERC is the national telecommunications network, hundreds of thousands of final clients and a multitude of manufacturers and counterpart associates. The ERC will focus on 20 demands based primarily on four categories related to: (i) network operators such as general technical specifications and network management; (ii) clients' need for technical training, support of management software etc.; (iii) small and medium companies and their need for design document of equipment and standardization document; and (iv) test documentation in adjustment technology and systems and procession control. Unless China updates her technological base in this sector, poor performance will continue to dominate production, and a great reliance on foreign equipment will continue, and with that often inefficient service and maintenance. In addition, the cordless digital telephone industry, represented by small and medium size manufacturers, and final end-users is in urgent need of technical transformation to facilitate the Chinese in restructuring their entire telecommunications sector. 7. Total funding for the ERC for Digital Cordless Telephone System is US$9,024,000. The breakdown is as follows: - 159 - Annex 4.6 Page 82 of 95
(USD thousand) World Bank ...... 4,500 Other bank loans ...... 1,058 Equity ...... 3,466 - 160 - Annex 4.6 Page 83 of 95
ENGINEERINGRESEARCH CENTER FOR SYNTHZSIS OF NOVEL RUBBER AND PLASTICS MATERIALS
1. The petrochemical industry and synthetic materials have a significant significant impact on Chinese industries given that rubber and plastics are widely used throughout the country. The industry is faced with a slow rate of commercialization of engineering applications which makes installations for producing synthetic rubbers and plastics very weak, and one that relies heavily on imports. With billions of dollars in imports related to the installation of large ethylene plants, this becomes a heavy financial burden for a developing economy like China. While many industrial sectors rely on synthetic rubber and plastics (telecommunications, packaging, automobile, electrical and medical appliances, shoes, etc.), it is estimated that industries need about 10 million tpa of which the domestic output can only satisfy about half this amount. A look at the automobile industry indicates that in 1995, 5 or 6 production lines for making 3 million tires and tubes will be needed and the demand for styrene butadiene rubber (SBR) will be greatly increased. By the end of 1990, it is estimated that the demand for S-SBR will reach 65,000 tpa. Similarly, toward the end of the 90's, China will have produced 2,000,000,000 pairs of shoes requiring 90,000 tpa of SBR. The market potential for synthesis of novel rubber and plastics materials in these two sectors alone is enormous, and new technologies will improve the efficiency of all the above mentioned sectors in China. The industry is characterized by weak and limited industrial testing capabilities; outdated technologies contributing to high energy consumption and pollution; lack of funds for testing; and weak promotional systems within the sector to diffuse information. The Engineering Research Center for Synthesis of Novel Rubber & Plastics Material (RPM-ZRC) will develop various kinds of new technologies and scaled up pilot test installations in synthetic rubbers and resins including thermoplastics, elastomers, synthetic resins of the styrene family, and certain polyester resins for non-fiber uses. 2. The sponsoring institution, Beijing Yanshan Petrochemical Research Institute (BYPRI) is a R&D organization under the leadership of China Petrochemical Corporation (SINOPEC), one of the largest enterprises in China. Founded in 1972, BYPRI employs over 250 engineers involved in polymer science and since its new engineering unit, over 80 engineering designers i the fields of processing, construction, electric engineering, heating, and ventilation, etc. The institute claims over 40 science and technology prizes at the ministerial level, among them pilot plant tests and the industrialization test for manufacturing thermoplastic elastomers and styrene-butadiene block copolymers. BYPRI holds ten patents and has commercialized 36 technical achievements for industry. The institute has numerous agreements with large domestic enterprises and foreign companies such as Polydora in Britain, and Fuji Electric in Japan. BYPRI also set up the National Quality Supervision & Testing Center of Petrochemical Organic Material and Synthetic Resin in 1992. Several professional scientific associations are also based at the institute, and it publishes the "Synthetic Resin and Plastic Journal" research results. 3. The subproject is fundamentally sound from a public sector standpoint and deserves to be supported. The novel rubber and plastics industry is growing at a rapid rate which can only enhance the comprehensive technology which includes numerous sectors such as telecommunications, packaging, automobile, electrical and medical appliances, shoes, etc. The ERC will provide technologies for synthesis of resins and synthetic rubbers aiming to reduce environmental pollution, and energy consumption while improving technological capabilities of small and even large manufacturers of synthetic rubber and synthetic resin plants. The small and medium size enterprises do not have the badly needed resources to conduct R&D in the above mentioned sectors. This ERC will disseminate information on new technologies which would have a very strong impact on the resin and plastics industry as the current capacity is not sufficient to meet the demands of the domestic market, thus public sector support would be warranted for these activities. 4. The ERC has a well defined collaboration strategy with special emphasis on international exchanges already developed by the sponsor. For example, close - 161 - Annex 4.6 Page 84 of 95 relations exist between Polydora Corp. (Britain); EniChem (Italy); Polymer Institute of Hamburg University (Germany); and Taiwan Sanda Co. Cooperation with domestic enterprises has been on-going through the sponsor, and the ERC will encourage participation with other institutes, ERCs, and enterprises to cultivate a domestic market for various new rubbers and plastic materials. The ERC will strengthen and promote international collaboration and technology transfer, and become an effective interface between foreign suppliers of technology including those which are planning co-development activities for the Chinese market.
5. The diffusion strategy for the dissemination of techniques and products of the ERC will be based on the network of sponsor, SINOPEC and expand those contacts further according to the objectives of the ERC. The ERC will utilize its marketing and patent department, and information and training center to diffuse technological achievements. It will not only be a center for technology transfer but also a center for consultation, training, and test/inspection to provide various technological services for domestic enterprises. To achieve this goal, the ERC will collect information and disseminate it on a regular basis to customers using various established mechanisms such as the Chinese Association of Synthetic Rubbers, and Association of Synthetic Resins and their prospective publications. The ERC will also promote technical exchanges, conferences and workshops. 6. As stated earlier, there is an enormous market for synthetic rubbers and resins in China as well as the Asia region . The estimated business income for 1994-1995 is 1,000,000 RMB (yuan). Key research items to be developed by the ERC are: (i) S-SBR (used in anti-skid tires); (ii) low cis-polybutadiene rubber; (iii) hydrogenated thermoplastic elastomers of polystyrene rubber styrene with an estimated domestic demand at about 20,000 tpa; (iv) hymopolymerization and copolymerization of styrene which only meets 50% of the domestic demand requiring excessive imports; and (v) chemical modification and viscosity-increasing of PET to be used in the manufacture of polyester fiber, film, and bottle industry, all which represent an enormous market for China. It is believed that the ERC would supply technologies to the downstream enterprises regardless of whether the technologies are developed domestically or imported from abroad. The long-term objective is to integrate energy-saving and environmentally sound technologies in order to meet the large social requirement for users of resins and synthetic rubbers in solving technical problems which this ERC is well positioned to do.
7. Total funding for The Engineering Research Center for Synthesis of Novel Rubber & Plastics Material is US$7,940,000. The breakdown is as follows: (USD thousand) World Bank ...... 4,500 Other bank loans ...... 202 Equity ...... 3,238 - 162 - Annex 4.6 Page 85 of 95
ENGINEERING RESEARCH CENTER FOR ULTRA-FINE POWDERPRODUCTION TECHNOLOGY
1. The powder industry is one of the most important raw materials industries in China. There are 5000 powder production enterprises in China of which 90t are small and medium sized, and located in rural areas. Powder products are not only essential as basic raw materials in paints, coatings, cosmetics, and detergents, but also fundamental to newly developed industries such as communications, electronic materials, and advanced ceramic materials. In China, the powder industry is characterized by (i) high energy consumption; (ii) low product quality;(iii) insufficient in resources utility; (iv) serious environmental pollution; and (v) technology lagging 30-40 years. In addition, industrial and institutional applications are inefficient and need more systematic R&D while producers are highly scattered with small production capacity. In recognition of these obstacles, and given the importance of this industry, the Engineering Research Center for Ultra-Fine Powder Technology will target small and medium size industries in efforts to raise the level of manufacturing and productivity in areas such as powder preparation, surface treatment, testing and evaluation, and environmental protection by technology transfer of new products and processes. 2. The sponsoring institution, the East China University of Science & Technology (ECUST), is a key university under the State Education Commission. Founded in 1952, ECUST is a comprehensive institution with a long history of R&D in chemical engineering and powder preparation. ECUST operates 12 laboratories, one of which is a National Key Lab, and a new team of 100 senior engineers has been organized to focus on the development of powder preparation and application. ECUST publishes several journals on functional polymers, chemical engineering and has set up a direct network of information connection with American DIALOG data base. Over the last ten years ECUST has compiled an impressive record of concrete research achievements which have been successfully transferred to industry. It also maintains numerous ties with domestic and foreign enterprises and institutions.
3. The subproject is fundamentally sound from the standpoint of public sector involvement. Given that ultra-fine powders is developing at an accelerated rate due to the fact that they are important as basic raw materials to industry, the GOC has given it high priority as it recognizes the need to stimulate the development for industrial growth. The lack of engineering-oriented research has impeded the growth of technology transfer of powder production and application. The ERC's research plan is focused on the scale-up of many selected engineering processes for commercialization of technology such as gas-solid-liquid reaction, supersonic air grinding, homogeneous cobalt coating, super-pure ultrafine products, etc. This work now suffers from under investment due to the small size of most plants in the industry characterized by severely limited R&D resources. Beyond research, much of the work of the ERC will focus on training, dissemination of information and technologies, and technical assistance functions that are unlikely to be provided by any private sector entity. Thus, the activities proposed for the ERC are highly appropriate areas for public involvement. In view of the social benefits of increased productivity and environmental protection from the positive impact of energy savings devices, public sector support would be warranted for these activities. 4. The ERC has a well defined foreign collaboration strategy based on: (i) R&D and collaboration, (ii) collaboration in engineering research projects where enterprises will be encouraged to invest in joint work to share risks and benefits; and (iii) acquisition of technology & international cooperation. ECUST has over 35 cooperative agreements with institutes and enterprises such as: Jenkins Newell Danford Corp. (Britain); Taiwan Metal Co.; Korean Ewon; Nippon Paint Co., Unitech, Chemicals (Japan); Ohio State University, MIT, Dupont, American SuperStar International Co. (US); and Henkel Co., Technische Universitat Clausthal, B.Braun Melsungen AG, Hoechst, (Germany). The sponsor has sent 64 researchers to work in 12 countries for technical exchange and has received more than 20 experts in return. ECUST has an elaborate network of domestic partners and will encourage domestic and foreign institutions to join R&D efforts to - 163 - Annex 4.6 Page 86 of 95
advance technology exchanges, and act as an effective interface between foreign suppliers of technology planning co-development activities for the Chinese market. 5. The diffusion strategy is aimed at transferring technology and extending it's application to achieve productivity gains to benefit small and medium size enterprises. In order to accomplish those goals, the ERC will establish internal and external organizations to act as diffusion channels. It will take full advantage of its sponsor, industrial clients (domestic and foreign) as well as academic institutions. It will create a professional society of powder production industries to take advantage of the networks in manufacturing and application of powder products within the industry. The two major units to focus on diffusion are the sales and marketing divisions. The ERC will also concentrate on training staff and customers through demonstration plants, site visits, conferences, and trade journals. 6. The proposal outlines the market demand for key technologies and applications relevant to the ultra-fine powder sector and other associated industries. Because of the wide and versatile applications of powder products, the ERC will first focus on 20 carefully selected products that cover the essential areas of manufacturing and applications of powder products, and ultra- fine products in particular, such as: bio-ceramic materials, silver halide particles of silvery salt sensitized materials, fine fillers for coatings, ultra- fine zircite, titanate, alumina, etc. The market for specific powders include: (i) Fe203: China needs 5000 tons of magnetic powder and can only produce 1500 tons of low-quality powder each year; (ii) titanium powder: in the 80's there were 63 factories mostly with small inefficient production units of which only 40 are still operating, and producing low quality and poor varieties of titanium; (iii)electronics ceramic powder: 70/80 factories in the electronic industry produce mainly sensitive parts, and electric pressure ceramics materials which do not possess the same electricity resistance as manufactured by the industrialized countries. The industry faces an enormous gap between supply and demand of ultra-fine powders and unless industry is technologically equipped, China will not only depend on foreign exports but will not be able to compete in a global market. 7. Total funding for The Engineering Research Center Ultra-fine Powder Production Technology US$4,038,000. The breakdown is as follows:
(USD thousand) World Bank ...... 1,900 Other bank loans ...... 212 Equity ...... 1,860 - 164 - Annex 4.6 Page 87 of 95
ENGINEERING RESEARCH CENTER FOR SURFACTANT TECHNOLOGY
1. The surfactant industry is essential for household laundry detergents, household and personal cleaning products as well as agricultural and industrial products. In addition, surfactants are used in the development of other industries to enhance process efficiency, improve product quality, and save energy (e.g. high speed spinning in the textile industry and use of emulsifiers in the food processing industry to enhance flavor. Even though this industry has grown considerably in the last 30 years, it lags 20 years behind the industrialized countries due to its weakness in advanced engineering technology. The primary obstacles are: (i) a major gap between the supply and demands of surfactant on an industry wide basis as well as weak production due to limited availability of domestic natural resources; (ii) new varieties of highly efficient and energy saving detergents already on the world market; (iii) industrial and institutional applications are inefficient and need more systematic R&D; (iv) surfactant producers are highly scattered and larger firms have small production capacity; and (v) negative environmental impact caused by surfactant/detergents. In recognition of these obstacles, and given the importance of this industry, the GOC has designated surfactant as one of the industries targeted for major technological transformation. Presently, it takes 10 years or longer in China to develop a new catalyst or reactor for large-scale production. If surfactants are to be developed cost effectively, the transfer of engineering applications into new products and processes must be shortened if industry is to be competitive. The ERC in Surfactant Technology is intended to ameliorate these widespread problems. The ERC proposes to provide industry with scaled-up design demonstrations, train technicians and management personnel, help customers assimilate advanced technology, and invest in environmental technologies. 2. The sponsoring institution, Research Institute of Daily Chemical Industry & National Council of Light Industry (RIDCI) has 30 years experience specializing in R&D of surfactant/detergents. RIDCI operates five laboratories (surfactant synthesis, oil/fat processing, surfactant application, engineering R&D, and specialized instruments & equipment), and maintains three centers focusing on quality and supervision, standardization, and information dissemination. In addition to these activities, three companies are also part of this institute which develop, market, test, and sell specialized instruments, and agricultural disinfectants. This institute employs 405 people of which 208 are technical. Over the last ten years the Institute has compiled an impressive record of concrete research achievements and awards as well as eight sets of pilot plants.
3. The subproject is fundamentally sound from the standpoint of public sector involvement. The Surfactant Technology ERC'e research plan is focused on the scale-up of many selected engineering processes for developing technology for commercialization in areas such as: (i) biodegradable products; (ii) new paraffin dehydrogenation catalysts; (iii) preparation of catalysts for hydrogenation of fatty nitriles; (iv) food emulsifiers including polyglcerides and monoglycerides; and (v) ecological and environmental engineering. This work now suffers from under investment due to the small size of most plants in the industry with severely limited R&D resources. Beyond research, much of the work of the ERC will focus on training, dissemination of information and technologies, and technical assistance functions that are unlikely to be provided by any private sector entity. Thus, the activities proposed for the ERC are highly appropriate areas for public involvement. In view of the social benefits of increased productivity and environmental protection from the positive impact of energy savings devices, public sector support would be warranted for these activities.
4. The Surfactant Technology ERC has a well defined foreign collaboration strategy based on the conversion of engineering results and the potential of foreign providers for the advancement of commercial applications. Recognizing the disparity in current technical levels between Chinese and foreign firms, the proposed ERC has developed four strategies to promote this effort: (i) - 165 - Annex 4.6 Page 88 of 95
co-development with internal and overseas technology providers for industrial testing; (ii) technologies provided by domestic and foreign units will be converted for domestic use; (iii) collaborating with potential end-users of technologies; and (iv) encouraging domestic and foreign institutions to join R&D ef forts to advance technology exchanges. The collaboration strategy will make use of the international network that has already been established by its sponsor, RIDCI. Since 1989, and the UNDP funded project, about 20 foreign experts from the US, Europe, and Japan have given technical lectures, and 47 RIDCI professionals went abroad for technical exchanges. RIDCI has signed technical agreements with: Proctor & Gamble, Unilever, Monsanto (US); Lion and Mitsubishi, (Japan); and other Asian firms. Through international technical exchanges and exhibitions, the ERC will strengthen and promote international collaboration and technology transfer, and become an effective interface between foreign suppliers of technology including those which are planning co-development activities for the Chinese market. 5. The diffusion strategy for the dissemination of techniques and products will be based on market trends, demands of customers, and take full advantage of its sponsoring institution, RIDCI. The institute is actively involved in many organizations such as the Soap and Surfactant Industry Association, and it holds seats on numerous scientific and technical committees which can facilitate technology driven opportunities through outreach activities. Also available to this ERC is its information center which is well poised to diffuse information and technologies through its many periodicals, seminars, and international meetings. Lastly, due to the geographic distribution of its customers, the ERC envisions setting up a decentralized division for the rapid diffusion of its technologies and products. 6. The proposal clearly outlines the market demand for key technologies and services relevant to the surfactants/detergent, and other related industries. Because of the wide and versatile applications of surfactants, the ERC will first focus on the industrial sectors which use large amounts of surfactants such as textile, petroleum, leather, and pulp and paper industries. China faces an enormous gap between supply and demand of surfactants and their intermediates. By the end of this century China will need two or three more new LAB plants each with capacity of about 70,000 metric tons per year. The exploitation of domestic available natural resources to produce surfactants is still at a very weak stage. Surfactant producers in China are highly scattered and in 1988 there were 263 firms producing 283,000 tons of surfactants. Some of the key technologies and services for this market are: (i) catalysts for production of surfactant and their intermediaries; (ii) reaction equipment needed,; (iii) production technology for main additives and builders used in household and industrial applications; (iv) and environmental products and applications. 7. Total funding for The Engineering Research Center for Surfactant Technology is US$8,603,000. The breakdown is as follows:
(USD thousand) World Bank ...... 5,250 Other bank loans ...... 1,332 Equity ...... 2,028 - 166 - Annex 4.6 Page 89 of 95
ENGINEERING RESEARCH CENTER FOR RARE EARTH METALS
1. Rare earth materials (RE) have wide applications in many diverse industries such as metallurgy, machinery, petroleum, chemical engineering, electronics, communication, energy development, aviation, automobile, agriculture, and environmental protection. China claims 80% of the world's total rare earths mineral reserves, and many of them possess a high content of middle to heavy RE elements. Because of its benefit to basic industries, and its vast reserves, the GOC has given national importance to the development and utilization of RE resources. With over 300 RE processing factories in China, of which 90% are small and medium size as well as township enterprises, there still remains only a limited amount of highly refined products due to outdated technology and equipment, and the difficulty to transfer research achievements into a wide range of applications for industrial production. The Engineering Research Center for Rare Earth Metals will develop industrial technologies for manufacturing high purity rare earth elementary materials (mainly rare earth oxides and metals), and functional materials (mainly hydrogen storage materials) used in the development of energy sources and environmental protection.
2. The sponsoring institution, General Research Institute for Non- ferrous Metals (GRINM) is China's largest research unit specializing in R&D of non-ferrous and RE metals. GRINM, founded in 1958, has been a principal supplier of technologies related to RE metals, and has a staff of over 1300, with more than 500 senior level engineers. With over 20 research institutes and offices, including the National Analysis and Testing Center for Quality Control for Non- ferrous Metals, the institute has won numerous awards in RE technology. Since its inception, over 3000 R&D and engineering results have been completed, 64 have been granted patents, and more than 50 received awards from various ministries. Scholars and specialists in RE studies from nearly 20 countries have participated in technical exchanges at GRINM. In addition, GRINM has significant experience in international projects with foreign firms in many countries such as Australia, Brazil, Pakistan, Korea, etc. 3. The subproject is fundamentally sound from a public sector standpoint and deserves to be supported. RE technology has a broad range of applications for a vast number of industries including metallurgy, electronics, energy development, and environmental protection that its development and diffusion will have a substantial impact not only on industry but society at-large. The adoption of this technology leads to a significant reduction of energy and material consumption in addition to high quality/yield production. RE technology requires new technological innovations because it can seriously affect the performance of production yields and quality required for competitive products making RE technology an urgent necessity for Chinese manufacturers. Out of 300 domestic manufacturers, the majority do not have access to the latest RE materials (according to global standards) required by domestic manufactures. While RE technology becomes more and more sophisticated, the products (hydrogen storage materials, metals, phosphor, electric light source materials) will also become more complicated and even the largest and most advanced of Chinese manufacturers, will be at a competitive disadvantage as they seek to adapt, improve, and market innovations in RE technology. Public sector support is warranted for these activities.
4. The RE-ERC, along with its sponsor, has a long history of close relations with foreign enterprises and research organizations, and will continue to collaborate with foreign firms in the area of RE technology. On-going projects are with Piesteriz Agrochemie (Germany); CETEM and IPEN (Brazil); SAMIM (Italy); and Ashton Mining Co. (Australia). This ERC is well positioned to cooperate with organizations and enterprises to introduce innovations in RE materials technology which will enable firms to market products in a growing Chinese economy. Domestically, GRINM has strong technological ties with numerous institutes throughout the country as well as many small and medium size and enterprise townships such as Harbin Rare Earth Material Plant (Jiangxi Province); Changding Rare Earth Plant (Fujian province); Shanghai Plant for Light Source Materials, etc. - 167 - Annex 4.6 Page 90 of 95
5. The diffusion strategy for the dissemination of techniques and products of the RE-ERC is based on applying the network of its sponsor as well as other related institutions both domestically and abroad. The main executors of technical diffusion are the Marketing & Sales Dept. and the Information & Training Center. Technical achievements will be disseminated through various channels set up to promote innovations by holding technical exhibitions, pilot plant testing and scale-up testing, publishing newsletters and journals, and working closely with their clients. The ERC will continue to participate in technical exchanges and information exchanges as practiced by its sponsor.
6. As stated earlier, there is an enormous market for RE technology, as observed by the upward demand for RE metals and alloys; RE elementary compounds; luminescent materials; and hydrogen storage materials. For example, in Japan, several companies are successfully producing hydrogen storage materials with the capacity of thousands of tons per year, and in China, the preparation of hydrogen storage materials is still only at the laboratory stage. It is estimated that in the next 10 years, requirements for these materials will more than double. Overall, the market demand for total rare earth materials is expected to increase 3-5% every year while the market for functional materials with high performance will increase more than 10% annually. In addition, the price for RE products has been increasing at a considerable pace, and in 1994 the price for these products was 10-20% higher than 1993.
7. Total funding for The Engineering Research Center for Rare Earth Metals is US$6,061,000. The breakdown is as follows: (USD thousand) World Bank ...... 3,100 Other bank loans ...... 937 Equity ...... 2,204 - 168 - Annex 4.6 Page 91 of 95
ENGINEERING RESEARCH CENTER FOR DIE AND MOLD CAD ENGINEERING
1. The die and mold industry is internationally recognized as a key underpinning of economic and technological development for a wide variety of other sectors to which it supplies equipment. This is especially true for a manufacturing-oriented economy such as China. In recognition of the strategic importance of this industry, the State Council of China has designated dies and molds as one of the industries targeted for a major technological transformation. There are currently more than 10,000 die and mold factories in China, of which 95% are of small or medium size. Employment in the industry reaches 360,000, of which about 10 are technicians. The conditions and economic demands facing these factories vary widely, however a number of general problems are pervasive: (i) high materials and energy consumption; (ii) low productivity; (iii) lack of R&D; (iv) poor technical and management capabilities; and (v) lack of resources to assimilate new technology, particularly from abroad. The ERC in Die and Mold CAD Zngineering is intended to ameliorate these widespread problems. Its main purposes are to provide factories with advanced CAD software at reasonable cost, train technicians and management personnel, help customers assimilate advanced technology, perform R&D and establish partnerships with industrial facilities. Although the basic technical skills underlying these functions by and large already exist in Chinese universities, the ERC would extend and apply them to industrial needs in a manner which would be unlikely without this new institutional mechanism. 2. The sponsoring institution, Shanghai Jiao Tong University, is one of the key institutions of higher learning in China. Its Research Institute of Tool and Die Technology, founded in 1983 jointly with the Shanghai No. 2 Light Industry Bureau, will be the home of this ERC. This institute now employs about 130 people. Over the ten years of its existence, the Institute has compiled an impressive record of concrete research achievements (documented in an appendix to the proposal) as well as a widespread network of contacts and sites for the implementation of CAD systems throughout twenty-one Chinese provinces. It publishes a journal, has hosted international conferences, and has embarked on four joint ventures involving companies and universities from the US and Japan.
3. The subproject is fundamentally sound from the standpoint of public sector involvement. The Die and Mold CAD ERC's research plan is focused on technologies of generic applicability across a large number of applications and factories in China. Such work now suffers from underinvestment due to the small size of most factories in the industry with severely limited R&D resources. Beyond research, much of the work of the ERC will focus on training, dissemination of information and technologies, and technical assistance functions that are unlikely to be provided by any private sector entity. Thus, the activities proposed for the ERC are highly appropriate areas for public involvement. Current die and mold operations in China appear to suffer from excessive use of materials and energy intensity, low productivity and, one would assume, relatively high levels of pollution. Pressures from economic development, energy saving and environmental protection enormously enhance the necessity of die and mold CAD engineering. In view of the social benefits of increased productivity and environmental protection from the positive impact of energy savings devices, public sector support would be warranted for these activities. 4. The Die and Mold ERC has a well defined foreign collaboration strategy. Recognizing the disparity in current technical levels between Chinese and foreign institutions, the proposed ERC has developed a well-defined collaboration strategy with potential foreign providers of technology. This is based on a consultancy committee of ERC personnel and representatives from abroad. The committee would function as an intermediary and source of technical expertise to facilitate exchange between China and other countries. The sponsoring institution has in fact already established significant contacts with foreign institutions which should augment the ERC's foreign collaboration efforts. Some of the on-going joint ventures are with: Mitsubishi, Yamamoto, and Sodick Corp.(Japan); Molex (American subsidiary in Singapore); Taiwan Gongzhun Precision Die Co.; and EDS, and Moore (American). The ERC welcomes foreign - 169 - Annex 4.6 Page 92 of 95 shareholders with a technological advantage and will act as a go-between for domestic enterprises for investment and cooperation from abroad. Through international technical exchanges and exhibitions, the ERC will strengthen and promote international collaboration and technology transfer, and become an effective interface between foreign suppliers of technology including those which are planning co-development activities for the Chinese market. Domestically, The ERC will seek to develop new technologies to be commercialized by the industrial sector in conjunction with research institutes and with universities. 5. The diffusion strategy for the dissemination of techniques and products of this ERC is capsulated in the description of this ERC as a "window" through which technical and marketing information would pass to users in the industry. The ERC thus proposes to collect changing market information; to maintain constant contact with Chinese and foreign customers; to facilitate and publicize joint ventures; to establish branches of the ERC in the main regions of China; to publish journals; provide outreach to professional organizations; convene regular meetings of its clients to discuss needs and problems; and to host international conferences. The ERC proposal presents a clear management plan which implicitly considers not only the internal management of the center but also relationships with outside entities. 6. The proposal clearly outlines the market demand for technologies relevant to die and mold CAD engineering such as PC stamping mold system; plastic ejected mold system; pattern technologies; and software developed for CAM. The proposed ERC is envisioned to have two main market targets: (i) factories without die and mold CAD software, to which it would provide CAD products; and (ii) factories already in possession of CAD software but in need of technical expertise. The ERC will actively train personnel to utilize the software effectively. Small and medium-sized firms (95% of the industry) are expected to be the main focus of ERC efforts. It is estimated that some 600 CAD software sets could be sold to this market within five years. On a more aggregate level, the proposal estimates that in five years' time the ERC's business income would be around 80 million yuan, which would amount to 10% of the total business in the die and mold market.
7. Total funding for The Engineering Research Center for DIE AND MOLD CAD ENGINEERING is US$7,035,000. The breakdown is as follows:
(USD thousand) World Bank ...... 3,500 Other bank loans ...... 370 Equity ...... 3,165 - 170 - Annex 4.6 Page 93 of 95
ENGINEERING RESZARCH CENTER FOR CLEAN EXTRACTION AND ENERGY SAVING IN NON-FZRROUS METALLURGY 1. The non-ferrous metal (NM) industry is by nature prone to environmental degradation and high energy consumption. Given the rate of industrial growth in China, that problem has become increasingly critical due to the negative environmental impact and shortage of energy sources that face the Chinese population. Compounding the issues, China faces a serious technology gap (operating with technology from the 50's and 60's) to effectively address those problems. The development of technology regarding clean extraction (CE) and energy savings has proven to be the most appropriate means to keep up with industrial expansion worldwide. Furthering the NM industry in China necessitates the establishment of the Engineering Research Center for Clean Extraction & Energy Saving in Non-Ferrous Metallurgy (ERC-CBES). China's NM industry consists of over 1,000 enterprises located nationwide while the most pollutant smelters are situated around large or medium cities. These industries are characterized by (i) outdated technology and equipment; (ii) poor quality of raw materials and low grade ore; and (iii) poor management and low automatization which creates huge energy consumption and efficiency wastes. The wastes released by the NM industry contain numerous toxic substances and their danger to humans and the environment are quite severe in this industry. Currently, the NM industry in China accounts for over 10% of the total solid waste. China's laws regarding the management of industrial solid waste began late, thus their rate of land rehabilitation is only 6% as compared to 80% in the U.S. The ERC-CEES's major task is to focus on the development and transfer of new technologies to small and medium size firms. Priorities will be on (i) waste abatement at NM mines and smelters; (ii) S02 removal and recovery from fumes emitted from smelters; (iii) new techniques for high efficiency and clean smelting technology; and (iv) new technology of hydrometallurgy, and cyanide-free mineral processing, etc. In order to meet the challenges set out by the GOC to promote the NM industry and resolve the severe environmental impact, only new environmental high-performance "clean" technologies" can adequately prevent and abate the environmental and energy problem.
2. The sponsoring institution, The Beijing General Research Institute of Mining and Metallurgy (BGRIMM) dates back to 1959, and is currently affiliated with China National Non-ferrous Metals Industry Corp (CNNC). BGRIMM runs about 100 laboratories with thousands of testing facilities throughout the country including 18 research departments from (i) Mining Technology; (ii) Mining Chemical Engineering; (iii) Extractive Metallurgy; (iv)Environmental Protection; and (v) Mineral Processing. The institute has a total workforce of 1600 professionals of which 400 are high ranking technical experts. BGRIMM is actively involved in many associations and sits on numerous technical committees including the China National Scientific & Technical Information Network for Mineral Processing, and the China Communication Engineering Information Network. The Institute has developed more than 1000 scientific and technical achievements of which over 350 projects won awards domestically and abroad. The institute also has extensive capability for scaling up and engineering R&D results such as a pressure ammoniac leaching plant for a nickel powder factory. Lastly, BGRIMM maintains relations with over 500 enterprises and has extensive links with research institutes and universities (domestic and foreign) which includes technical exchanges and joint research projects.
3. The rationale underlying the involvement of the public sector is related to the severe pollution problems and high energy consumption associated with the NM industry. Considering that China's output in 1993 was over 3.2 million tons, (ranking it forth in the world) it is not surprising that with a twenty year lag in technology, the pollution and energy problem has had a negative impact on economic development. In recent years, the price of end-products of the Chinese NM industry has been set at world market levels, but the technology level, equipment and price of raw materials and energy are not able to compete on the global market. By the year 2000, the estimated yearly output of non-ferrous metals in China will be 4-5 million tons, with energy consumption at around 40 million tons of equivalent coal; that demand, will be very difficult to satisfy - 171 - Annex 4.6 Page 94 of 95 given the level of technology in China. Since a large number of these polluting industries are situated around large or medium size cities, the GOC chose 32 cities as high priority for environmental cleaning of which 16 cities have been slated because of NM industries. Urban areas, and the NM industry would greatly benefit from the diffusion of new technologies, and engineering services in tackling this serious environmental/energy related problem. With over 1000 enterprises nationwide operating at such low efficiency levels it is clear that they will not be able to tackle these environmental problems associated with high production unless there is public support of advanced technology. While individually, enterprises might have the incentives to improve the efficiency of their operations they do not necessarily have the means to invest in specific R&D and engineering activities. Potentially, in cooperation with other producers and suppliers they might accomplish what the ERCs will set out to do, but there are considerable environmental, coordination, and information costs that no individual actor is willing to absorb. These high transactions costs disallow the formation of a market to supply the innovations on an industry wide basis. The failure of this market generates the externality the ERC would be addressing by introducing CE and energy saving technologies with widespread applicability, thus public support is warranted for these activities. 4. The ERC-CEES, along with its sponsor, BGRIMM, already has a record of close relations with foreign enterprises and research organizations. The institute maintains technical cooperation and trade relations with more than 40 countries such as: Utah State Bureau of Mines (US); Mekhanobr, (Russia); Kasmekhahobr, (Kazakhstan); Mining Research Laboratories (Canada); German Grund Corp.; Woodward-Clyde International (Australia); and The Sino-Australian Mine Waste Research & Management Institute (China). It has set up several co-operative ventures with foreign partners in Russia, Haiti, and Kazakhstan. In addition, BGRIMM also sponsors technical exchanges both domestically and internationally. The ERC will pursue a strategy to attract advanced foreign equipment, technologies, and products to introduce to the Chinese NM industry in serious need of new and improved technologies. Domestically, BGRIMM has strong technological ties with numerous universities, research institutes, and is well positioned to cooperate with all industrial firms, and other organizations to diffuse innovations in clean technologies in non-ferrous metallurgy. 5. The diffusion strategy for the dissemination of advanced technologies, processes, and products of the ERC-CEES is based on their capability for scaling up engineering results and applying them to large and small firms engaged in non- ferrous, ferrous, rare metals, and precious metals. Within the ERC, a Marketing Dept. and Exchange & Training Dept. will be set up and headed by a vice-president for the diffusion of technology, engineering services and general networking of information in the NM sector. The ERC will sponsor a CEES network linking up enterprises and clients worldwide through the distribution of a newsletter. They will promote different forms of cooperation such as encouraging enterprises to enter into close partnerships with the ERC and become its demonstration base for technological transfer in the industry. Conferences, training courses, and technical exchanges will be held regularly to brief the industry on the latest developments to advance CEES technology. The ERC has also proposed the use of risk contracts to share the technological and financial risk of technology transfer with its potential clients.
6. The ERC-CEES has classified the basic market demand in China for NM goods and services into 6 categories: (i) land rehabilitation with a minimum of 1000 tailings ponds occupying over 2000 km2 of space. At the Zhongtiaoshan Mine alone, rehabilitated land is expected to bring 20,000 RMB yuan per mu (lmu= 0.067 hec) generating about 250 million RMB yuan to the mine; (ii) full tailings back- filling technology used in all underground mines (70% of NM ores are mined underground); (iii) underground solution leaching which has a strong demand as seen by rough estimates for 5 mines predicted to yield over 300 thousand tons of copper valued at 5.4 billion yuan; (iv) recovery of SO2 from dilute gas emission and purification of other gases, clean and energy-saving technology, and - 172 - Annex 4.6 Page 95 of 95
hydrometallurgical process (given that SO2 emission from NM production is only second to that of thermal power); (v) efficient water treatment and cyanide-free gold extraction which has a huge demand in China for the drainage of waste water from NM production and carries a drainage penalty of 100 million yuan to polluting industries (in addition, approximately 600 mines will benefit from cyanide-free gold extraction technology); and (vi) new technology and equipment for energy-saving operations as it benefits all industries from heat loss released from NM smelting process which accounts for 1/3-1/4 of total energy consumed by the industry. Overall, the ERC will provide more technological achievements (now tested in batch scale in laboratories) and will be able to commercialize them in the next 2-3 years.
7. Total funding for Engineering Research Center for Clean Extraction & Energy Saving in Non-Ferrous Metallurgy is US$7,924,000. The breakdown is as follows:
(USD thousand) World Bank .3,300 Other bank loans .2,252 Equity .2,372 - 173 -
Annex 4.7 Page 1 of 21
TEC}NOLOGY DEVELOPMENT PROJECT
ExaMple of Proposed ERC Financial Plan
I I B C 0 E F C , I J K L 2 07:103AM FINANCIALANALYSIS FOR ERC PROJECT 3 20-Jun-93 .ar. fhfs.z.f.a:...s...... r..... 4 5 6 7 1939 1994 1Q95 1996 1997 1998 1999 2000 2001 2002 * k ** ,* _ * S-*w--*------*--k rW*w*f*aw***Wf*A-*a-waw***-aa.. -*t * ** * a*w** aa*^* ^**** - k*k -k-*kk~*
9 Parameters A*kkkkkkk
10 a.ms ...... g...aw a === .. tx. . mu..: a*a**.-a
12 Physical Contingencies 13 DonesticCost 15.007. 14 ForeignCost 15.007. Is *k***k 16 FinancingTerms Interest Term Grace CoMM.
Is *orldBank (to HOF) 1.0i7. 15 5 0.757.... . 19 Domestic Bank t.48% 10 3 lb... A 20 WorkingCapital Loan t.64% 21 Other Dom. Credit t.467. 22 Onlending Charge to ERC 0.007. 23 Net 18 Loan Cost to ERC 7.80t 24 25 26 E.wchangeRate
28 Market ExchangeRate 5.75 RMB/IUSD ** 29 OrticlalExchange Rate 5.75RMB/iiSO
31 Ye.ir OQ~.
33 Current Year 1993 ...... m 34 Disbursement 1994o ...... 35 P'tject Cc.mpletion 1996 ......
37 Ile P*irPed -if thieProject la ------_ ...... q9 1.i Peee.id IS15... Years IU. 41 Tax Rate .*.*A.. 42 ------___------**r**_~ 43 Average Sales Tax Rate for Products 4.002 4.00% 4.00Z 4.007 4.00Z 4.002 4.002 4.002 4.002 4.002,*****a.. 44 Income Tax Rate 33.007 33.00% 33.007 33.007 33.002 33.007 33.002 33.00% 33.002 33.00%*.*.**o. 45 Two Funds Rate to Covernmaknt 0.00% 0.007 0.007 0.007 0.00 0.00;! 0.001. 0.00 0.002. Q.00%*.*
ts,,.w*...... ,F*,.t...... ,46 ...... _*a,-a,a...-....n.a...... sa...,** 41 Tax Exemption / Tax 4t ------**** 49 Inc.Tax Exemp./Inc.Tax 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 S0 Sales Tax Exemp./Sales Tax 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 51
53 54 55 56 Escalation 57 *gwuag asz4 gz5: z5 . g.. 1993 1994 1995 1996 1997 1993 1999 .2000 2001 2002
59 Domestic 1.000 1.050 1.050 1.050 1.050 1.050 1.050 i.oso 1.050 1.050 60 1.000 I.0S0 1.101 I.t15 1.216 1.276 1.340 1.407 1.477 I.S51 -n 61 1.000 1.025 1.076 1.130 1.17 1.246 1.308 1.374 1.442 I.514 62 63 Foreign 1.000 1.03t 1.019 1.021 1.034 1.036 1.036 1.036 1.033 1.029 64 1.000 1.03t 1.05t 1.06 1.123 1.164 1.206 1.249 1.290 1.328 65 1.000 1.019 1.04t 1.012 1.105 1.143 1.11S 1.227 1.270 1.309 66 67 *...... eaa.. ... r... .. -. rq_..r...... f...- n . a. . * *...... 6t 69 70
12 73 14 Project Cost Estimate 1is ...... - 16 In RMBTh.:.usand 77 ------~~~~~-~~~~------~---~~~ ~ -~------*
79 1993 1994 1995 1961 Total o 10 Pr.j.-.ect Cc mponent Lecal F.rrelgn Local Foreign Local Foreign Local Foreign L.cal F.:.reign I' ------I------32 Assets Transferred- Buildings 0 0 876 0 0 0 0 0 876 a I 53 Assets Transferred- Equipment 0 0 0 0 584 0 0 0 584 0 584 34 New Civil Wofks 0 0 4.000 0 4.000 0 3.000 0 11.000 0 11.000 IS5 New Equipment 0 0 300 4.830 300 4.106 200 1,932 800 10.168 11.668 36 TechnicalDocumentation 0 0 I5 12 Is 75 Is 48 45 193 233 87 ConsultingExpense 0 0 0 48 II8 46 Is 46 36 14017 S3 Starr Training 0 0 300 290 400 288 200 211 900 865 1.165 89 Pre-ProjectExpences s0 0 20 0 30 0 2S 0 125 0 125 go------91 Base Cost s0 0 5.511 5.241 5.347 4.514 3.451 2.312 14.366 12.066 26.432 92 PhysicalContingency I 0 827 738 302 81 519Si 341 2.15S 1.310 3.965 93 Price Contingency 0 0 153 151 469 396 SI7 346 1.145 192 2.037
95 TotalIIns ta I -d Cc.st 58 0 8.495 8.177 6.613 5.517 4.494 3.004 11.565 14.168 32.433
91 Ir-rkingCapital I 0 1.353 0 182 614 2.634 0 2.634 98 ------99 ToalI FinancingRequired SS 0 7.150 8.177 8.100 S.517 5.171 3.004 20.300 14.753 35.058 100 -0 I0I 102 103 104 105 In IJSOThousand l0 ------101 108 109 1223 1994 1995 1998 T%%a I CrandJT-ngjl 110 Vr,..jec-tC.mope.nent Local Fc.,eign Lc,calIForeign Lc.alI F.znetign L.ca I Fnieign Local Foreign tIISDThousand
112 Ay-setsTran%ferred Buildings 0 0 12 0 0 0 0 0 152 0 152oOQ 113 AssetsTrainsferred -Equipment 0 0 0 0 102 0 0 0 102 0 102m: 114 New Ci .iI W.:.rks 0 0 696 0 696 0 522 0 1.913 0 1.913 JX 115 Mrw Equipme~nt 0 0 52 340 52 114 35 336 139 1.290 2M 11e T,.chnicalI).,mnAg;n0 0 3 13 3 13 3 a a 34 4i1~ Il7 t.,rnsultingExpense 0 0 0 3 a3 6 24 31 11I Staff TraininRt 0 0 52 50 10 50 35 so IS? ISO 301 jig Pr#-Pu~.iectExpences 9 0 3 0 s 4 0 22 0 27 120 ...... - 785 801 402 2.491 1to01 i.59 121 Base Cost 9 0 958 911 930 375 31S 122 Physical Contingency I 0 144 137 139 III 90 60 122 98 21S 123 Price Contingency 0 0 21 20 51 43 50 33 1224 5.505 125 Total installcdCost 10 0 1.123 1,068 1.121 94G 71i 496 2.995 2,510 126 458 0 458 127 Working Capital 0 0 235 0 32 119 128- 5.9G3 129 Tctal Financing Required 10 0 1.359 1.068 1.152 946 860 496 3453 2.510 130 131 132 133 134 135 136 Financing Plan 137 138 In RHB thousand 139 ------140 T<.tal Cr.mnd TI.tal H 141 1993 1994 1995 1996 Fcreign Lc.cal Fore ign tRMB Thbu- < 142 LŽcal Foreign Local Foreign L(cal. Foreign Local 143- 10t 3.004 0' 14.168 11.76S 144 WorId Bank Loan 0 0 0 6.177 (0) 5-587 0 3.494 0 13.666 0 13.666 145 Donestic Bank Loan 58 0 5.620 0 1.494 182 0 684 0 2.634 0 2.634 146 Wrrking Capit.I LoAn I 0 1 353 0 0 0 0 i.60 0 1.460 147 Eqcity ---F.C. Fr.nl,Insttut,.n 0 0 S76 0 SS4 0 2.)000 0 2.540 0 2.740 248 Equit Fr.,n. Prt,rs 0 0 0 0 2.540 0 0 0 0 00 249 LEui2ty .,crmnf..nIAppr..pruiAl*n 0 0 0 0 0 0 0 0 0 0 0 2J0 Equ I ty Cash C..ntributu.n 0 0 0 0
5.58 7 1- 27 3.004 7 0-300 14. Mi8 35-0GS tS2 ! t.. 56 0 .u,30 6.1177 2.800 131
156 In IISO th..usAnd rs> 1.18 , ta~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. Crand TutaH] 1579 0 1993 1994 1995 1996 1..t.aIl Eti t IIS0 TIWu!~ t. i~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~nlil7.cI.cl F.-,elp ia F:ein 1.-ua I [:-.rrignI ,<1L -ctIr.tiltn.gn -c I :,r n 161 (0) 496 lO) 2.510 2.510 162 World Bank Loan 0 0 0 1.06t (0) 946 516 0 2.319 0 2.119 183 Domestic Bank Loan 10 0 972 0 761 0 119 0 453 0 45t 164 Working Capital Loan 0 0 235 0 32 0 0 0 0 250 0 250 ls Equity ---F.C. Frc.-InstItit ti.n 0 0 151 0 99 0 165 0 426 0 426 168 Equity ---Frcm Partters 0 0 0 0 261 0 0 0 0 0 O 161 Equityr--- Covernnent Appropriation 0 0 0 0 0 0 0 0 16t Equity - -Cash Contribution 0 0 0 0 0 ------169 ------49S.S6St 3453.217 2509.566 5962.144 170 Total 10.14492 0 135t.520106t.024 1152.261 945.9565 360.2909 111 172 173 174 17S ...... , ...... 116 ...... *-*-..-- -*-*--**------...... 177
(13Itl ISO
132 133 Rumsness Plan tRHB th.:.usjnd, 114 =.s.*...... S...... 115 fiperatioinRevenue 116 ------. tIt Firm C-.ntracts
119 Includingthe Fire Contracts 8.sed on (ClientInstituti.,ns 190 .nd ERC 0-n Institution. 1993 1999 ?Ot) UJii 2002 191 1993 1994 199S 1996 199i 192 5.9!m i .155 7.6;5 9.21() I0.t1iJ 11.475 193 RK.nov fr-t.:.* I.rr (ntnacts.- 0 3.535 3.935 i.;20 194 195 I.d.JestsNanuracttred
1993 1994 199; 1996 199i 1991 1999 2000 2001 2002 197 - -- - - 191-9------3------994 - -- 99------20--0---- 4.430 5.400 6.600 6.300 7.200 0I 199 R.'venstcfrom Products Hjnufactuited 0 2.200 2.720 3.600 4.430 200_ 201 Other Operation Itorks 202- 203 1993 1994 1995 1996 1997 199t 1999 2000 2001 2002 204-- 205 Incc.mer,om Othver flperalion Works 0 0 0 0 0 0 0 0 0 0 206 207 20t Total Operation Revenue 0 5.735 6.655 9.320 10.400 11.635 13.055 15-.40 16.890 1.675 209 210 211 212 1on-OperatIon Revenue 213 ------214 Investment Incoae 215 ------_. 216 Suppose the investment Income is to be AtoX IRMO thousand' 217 X: accumulated investment other than project. 211 A 0.00 219 8 o0.00 F 220 Accumulated Investment 0 0 0 0 0 0 0 0 0 0 221 Invvrtnent Income 0 0 0 0 0 0 0 0 0 0 222 223 tJthe-r h.n-Operation Income 224 _--- 225 Coverneent Support 0 0 0 0 0 0 0 0 0 0 226 Others 0 0 0 0 0 0 0 0 0 0 22t- 223 Subtotal 0 0 0 0 0 0 0 0 0 229 230 TotAl Rton-Operatio.n Inco" 0 0 0 0 0 0 0 0 0 0 231 232 233 Expense 234 - --- 235 Staff Salaries 236 --- _ ------237 Base Year Salary Per Capita 7.2 233 Annual Salary Increase Rate 5.002 239 Numberof Staff Employed 0 120 130 140 ItO ISO ISO ISO ISO ISO 240 Tntal Salar le: 0 901 1.032 1.167 1.225 1.31t 1-447 1.520 1.59 l.t15 f t 240~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~s Tna 3Ois_ 241 242 Staff Benefits 243 ------__-_-_-_ 244 Base Yeat Benefits Per Capita 5 245 Annual Benefit Increase Rate 3.002 241 NumBer of Staff Euployed 0 120 130 140 140 ISO ISO ISO ISO ISO 247 Total Benerit 0 oil ttO 765 718 tti9 89 922 950 979 248 249 Patent Fee 250 ------_-_-- 251 Annual Patent Fee 10 10 10 10 10 10 10 10 10 10 252 253 Spare Parts J, maintenance 254 ------_-.- _ 255 iMaint.Rate of Fixed Assets 0.002 4.002 4.002 4.002 4.002 4.002 4.002 4.00^ 4.002 4.002 256 maintenance 0 1.297 1.297 1.2 I71.297 .237 1.297 1.297 1.291 1.297 257 258 Raw Materials 253 260 1993 1994 1995 199t 1997 1991 1999 2000 2001 2002 261 ------262 material Cost 0 200 300 300 300 320 360 400 400 600 283 264 ItIilitiis 265 ------261 Namesof lltilities Average Prices 267 -1------263 TatertktON) 0.550S-0 4. 269 ElectrIcity(KIIlI 0.450 **..*..* 210 V.apc.uriKMN31 1 . 500.* 211 Ca I ITN' 0.240 ...... 212 Itli.Is 0.000 ...... 213 774 2iS Ctnsumpti-n V-.d141 ol ltilit:efi 216i 277- 1993 1994 1995 1996 ISO? 1998 1999 2000 2001 2002
219 A.j1erkILT'.i' 0.00 2.00 2.00 2.00 2.00 4.00 4.00 4.00 4.00 41.00 280 lrIecvtrecittiylWi 0.00 350.00 350.00 350.00 350.00 360.00 360.00 370.00 310.00 400.00 00 > 21l Vapour(KHA3) 0.00 SOO.00 500.00 SOO.00 SOO.00 SOO.00 500.00 550.00 550 00 SSO 00 282 CoaI(TON) 0.00 1000.00 1000.00 1000.00 1000.001000.00 1000.00 1000.00 1000.00 1000.00 283 Others 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
21S 238 Utility Costs 217 ------231 1993 1994 lo9s 1995 1991 1993 1999 2000 2001 2002
220 Water(kTON) 0 I I I1 2 2 2 2 2 211 Electricity(K!III 0 I St ISt ISl 15t 182 182 161 187 ISO 292 VapourtKN^3) o 75050 7150 150 750 750 750 125 325 825 233 Coal(TONI 0 240 240 240 240 240 240 240 240 240 234 Others 0 0 0 0 0 0 0 0 0 0
229 Total 0 1.149 1.149 1.149 1.149 l.lS4 1.154 1.214 1.234 1.247 217 233 Sales Expense 202 ------300 Sales Expense 0 600 . . .650tOO tOO tOO 35O 1SO lSO 360 301 302 D-pr-cIat-.n
303 ------_.-..--.-... 304 AnnualDepreciation 0 0 0 2.513 2.513 2.513 2.313 2.513 2.S13 2.513 305 306 TotalExpense 10 4tl 5.121 t.OOI 3.032 3.343 t.;2t 3.14; t.350 9.13? 201
309
311 312 l'I...jectIRR
212 ..... SSfIZJ St.&?t . 314 Lire Perlodof theProject IS Year 31 ------1991 1993 1999 2000 2001 2002 315 1993 1994 199S 1206
- - _.-...... -.....--.--- 0 0 31t ProjectC'.st St 12.673 12.205 7.493 0 0 0 0 1JS91 464 175 293 j1i I.-rkIn3Capital Increase I 1.353 132 684 It? 223 9.320 10.400 11.835 13.OSS IS.340 I-11.9O 1I.815 220 flperJtiCrAlncox 0 5.735 6.SSS 321 Operation Expease 10 4.7t1 5.121 S.4l1 5.569 5.129 6.014 6.231 6.331 6.689 322 Net Cash Flov 6139 (13.013)tlO.3S9) t4J349J 4.644 5.51t 7.499 9.I43 10.37t 11.709 323 ------324 32S hRt 22.57- 326 222 ...... l...... a ...... 328 329 1993 9994 1995 1996 1997 1998 1999 2000 2001 2002
331 Switch 0 0 0 I I I 1 I I I 332-
334 33S 331 Working Capital Analysis
338 339 - 340 , i 341 Turn Over Period (Days) 1993 1994 1995 1996 1997 1991 1999 2000 2001 2002 342 ------. . - Minimum Cssh 343 30 30 30 30 30 30 0 0 0 0 344 ReetivableAcc...unt 60 60 60 s0 60 60 O 60O60 60 34S Inventorles 60 60 60 sO 60 60 sO 60 60 60 346 Payable account C0 60 s0 s0 s0 60 s0 60 60 60 3471------.-----...... 341 349 350 Projeeld Not *.C S I ------352 1993 1994 1995 1996 1997 199 199 2000 2001 1007 3S3 - .--- .. ---- -... .- ...... 354 Cash Hiniaum I 393 421 66i fi,4 69; 0 0 0 0 JSS ReceivableAcc-tont 0 956 1.109 1.553 1.133 1.939 2.176 7.640 2.tlS 3.I13 356 Invtnt.tits 2 191 555 915 sil 972 1.002 1.039 1.056 1.111 351 Pa).vbl. acc-11nt 2 191 155 915 9g1 912 1.002 1.039 1.056 1.11- 35 ,( t 7 1.351 1-;36 i.270 7.407 2.634 7.1i6 7.610 2.11; 3.113 35 9 ...... ------.-. - 360 .t *.t Incre se 1.3S] 112 6t4 It7 22t (4591 J64 175 291 263 362 J38 364 Capital Formation and Depreciation Calculation 365 ...... I...... 381 367 Capital Formation 1913 1994 1995 1996 19C7 199t 1999 2000 2001 2002 361 - _ - 369 Installed Cost---Buliding 0 5.714 4.951 3.899 0 0 310 Installed Cost---'Other Than building S 6.926 1.254 3.599 0 0
312 Total St 12.613 12.205 1.498 0 0 0 0 0 0 313 314 Peprlciable Value 315 ------_-___ 376 Building 0 5.748 10.69S 14.597 14.57 14.517 14.597 14.537 14.597 14.591 I77 Other Than Building St 6.933 14.237 13t136 17.3t 17.336 11.t3311.3t6 1.836 17.836 373 379 Depreciation Rate 380 --.. _._._ ------213 Building 5.007. 332 Other Than building 10.00O 313 334 Deprtciati.;n
386 Building 0 0 0 130 730 730 730 730 730 730 3t1 (other Than buildinf 0 0 0 1.1J4 .134 1.734 1.7114 1.734 1.1t4 1.14 333 Total DepreciatIon 0 0 0 2.513 2.53 2.513 2.513 2.511 2.513 2.513 339 Aeuc. DepSeciJtm..n 0 O 0 2.513 5.071 1.540 10.034 12.S6t IS-011 17.594 39)
:392 393 394 195 IL...InC.Ilcul.,I ..n
396 . r..,.-- ,, ...- .,
398 399 I....inDisbu,rsecent 1993 199J 1995 1996 1997 1991 1999 2000 2001 2002 . .n ...... _.H 401 I.,rIdBank (USD) 0 1.068 94B 496 0 0 402 Wotld Bahk (RHB Equivalentl 0 8,177 5.587 3.004 0 0 403 Doe*stic Bank 52 5,620 4,4Q4 3.494 0 0 404-- - --.--...... --- ... 405 Total 58 11.797 10.081 6.498 0 0 0 0 0 0 406 407 Commitmenl Fee 40- -- .. ----- 409 WorId Bank 1USD) 19 is 1 2 iO) to) 410 WctrldBank (RHB EquaveIent I 108 86 43 11 tOI to0 411 O.c.esticBank 412 ---- - .- 413 TvtJI 108 86 43 11 17n '0' 0 0 0 0 414 415 Inter.s( 416------417 World Bank 1USD) 0 41 117 172 191 181 162 143 124 105 412 World Bank (RHB Equavelenl) 0 235 892 .042 1.178 1.135 1.029 921 S10 6Q8a 419 Domestic Bank 238 195 62t 778 1.074 908 743 578 413 2488 420.----- .-.- 421 T,tal 238 430 1.320 1.820 2.251 2,044 I.773 I 499 1.223 94G 422 423 Repayment 424 ------425 W.,rldBank 1USD) 251 251 251 251 251 426 World Bank (RHB Equavelent) 1.572 1.594 1.615 1.639 1.610 427 D-.mesticBank 0 0 0 0 1.952 1.952 1.952 1.952 1.952 i.952 4228-. .- 429 Total 0 0 0 0 1.952 1.525 3.5i 37567 3.592 3.G23 430 431 I'.'tstanding 43. 433 'i.rldBank (ULSDI 0 1.068 2.014 2.510 2.510 2.259 !.O08 1l73; lSOG 1.255 434 W.)rIdBank IRHG Equavelentl 0 6.1i7 11.764 14.768 14.768 13.195 11.602 9.987 8.348 6.678 435 Drestic Bank 58 5.678 . 10.172 13.666 1.113 9.761 7.809 i.857 3.904 1.952
431 T.,tII 52 11.855 21.935 28.433 26.481 22.957 19.411 15.844 12.252 8.6303 432 439 4'.rkingCapital Loan r7 440 - - -.-- - -- 441 . forking Capital Loon I 1.353 12 684 117 228 442 forkingCapital Repayment 443 Outstanding I 1.354 * 1.538 2.220 2.407 444 tnterest 2.634 2.634 2.634 2.834 2.834 0 59 12S 152 445 200 218 223 228 228 221 446
44? ...... h...... w ...... *w . tr.. .. u.....w... ta...... 448 .. w...... £W..wwss ..... 449 Projected IncomeStatement 450 a....a tw...... w. wsot...... 451 (RHOThouisand) 452 (YearEnd Dec.31) 453 454 1993 1994 logs 19.6 1901 1993 1999 2000 2001 2002 456 OperationRevenue 0 53718 7.162 10.532 12.340 14.496 11.078 451 Revenuefrom Fire Contracts 21.7SS 24.360 28.281 0 3.823 4.235 6.464 7.024 8.914 10.014 458 Salesor Products Mtanufactured 12,692 14.553 17.378 0 2,255 2.927 4.068 3.316 450 OtherOpt-ration 5.532 7.054 9.066 9.807 10.904 Income 0 0 0 0 0 0 0 0 0 0 461 t oss- fussncs'cT.ux 0 233 462 286 421 94 580 683 Net Rtvi-nue ~~~~~~05.643 6.816 It0 914 1.131 10.111 11.847 13.916 16.395 20.3817 23.386 21.3150
465 4t alaStsssssetastssstsssssssttss:wst-trga-s-zZ--tssassssass:tssttsstsswstsstawssasSsessssawss ssssas 466 stalr Benefits 0 633 142 864 935 1.083 1.172 467 Annual Patent Fee 1.261 1.370 1.48? 10 10 II II 32 12 468 SpareParts L maintenanc# 13 14 14 is 0 1.330 1.396 1.466 1.339 469 Raw Ma.terials 1.616 1.691 1.182 1.811 i.9ss 0 205 323 339 356 470 UtiIi I itks 399 471 549 S11 909 1.171 1.236 471 Salesi Experts.- 2.292 1.363 2.433 1.510 1.695 1.719 1.330 0 615 100 904 949 .372 DepreciAtIu.'n 991 1.112 1.163 1.226 1.302 0 0 0 2.513 2.513 413 2.513 2.513 2.513 2.-513 2.513t 414 11.rtngIc-t lIt) 7143 1.3SZ 1.39U 2.125s 4.140 415 G.0l1- 0.332 11.133 11.538 416 !4..n.tlp&rxtie.n Incomt 0 0 0 0 0 0 411 InvestmentIncomAe 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4718 titherN..n-11peratik.n Incc.u.e 0 0 0 0 0 0 0 419 0 0 0 480 .N..n ..p.±rAtinit Expwrnso s0 SI 54 51 00 59 62 Gs 69 12 76 411 412 Financial Charges 4t3 forld Bank JO 320 735 1.053 1.171 1.135 1.029 921 llO 693 434 Do1.estic Bank 238 195 621 771 1.074 l0t 743 571 413 243 415 forkIngCap. L.E-n 0 59 125 162 200 213 223 223 223 223 436 Subtotal 346 574 1.J41 1.913 2.451 2.261 2.000 1.728 1.450 1.173 481 433 IncoseBefore Tax (406) III (134) (6541 215 1.31l 3.943 1.017 10.210 13.2t9 419 Incose Tax 0 39 0 0 71 S93 1.303 2.646 3.369 4.3tS
491 Net Incose 14061 79 (1341 (654) 144 1.217 2.645 5.372 6.t41 3.903 492 493 494 Ratios 49S Cross Profit Margin ERR 13.167. 19.742 13.117 23.007 29.752 36.637. 46.93t2 50.172 53.552 496 Pretax Income/Net Sales ERR 2.032. -2.61Z -6.412 1.317. 13.052 24.082 33.312 43.667 41.95. 491 Net Income/Net Sales ERR 1.39% -2.612 -6.472 1.21% 1.747 1.13?. 25.727. 29.25% 32.79! 493 Operating Ratio ERR 36.147. 30.262 t6.197 77.00% *0.2S2 63.327 53.022. 49.t33 46.45- 499 Net Incooe/Total Assets 117.342 0.542 -0.6t7. -1.392. 0.432 3.12 3.3372 17.52 21.902 26.t7. H 500 ,w 501 502 503 Net Income Distribution 504 a...... an ...... of ...... 505 (RHB Thousand) S06 (Year End Dec.31) 501 Sol 1993 1994 199S 1996 1997 1998 1999 2000 2001 2002 509.. S10 Ratio: 512 Dlvident Rati.,IPxid Next Yearl 0.007 0.007 50.002 50.00. 50.007. 50.002 i50.00% 50.007. 50.002 50.007. 512 Reserve Rati. 0.007. 0.002 25.002 25.007. 2S.007. 25.007. 25.002 25.007 25.001 25.00. S 13 ------...... - -.------.------.------*------514 Net Income t4O6' 79 (114 (t654) 144 1.217 2.64S ;.372 t.l41 3.903 SIS Dlvident Paid 0 0 0 '92) t3271 72 603 1.323 2.6t6 3.420 5S6 Annual Reserve Funds 0 0 146) (2631 36 304 661 1.343 1.710 2.226 517 Accumulated Reserve Funds 0 0 (46) (2091 21741 131 792 2.13; 3.31S 6.0,11 Sit Annual Retained Earning (406' *9 (133) (399' 435 ii1 1.376 2.706 2.445 3.257 519 Accumulated Retwined Earning '406' (3271 (465' (364) 1429t 412 1.787 4.493 6.931 IO.195S S20 _ 521 522 523 ProjectedSource and Applicatlon Statement 524 ...... 525 (RHB Thousand) 526 (YearEnd Dec.31) 527 SOURCES 528 1993 1994 199S 1996 1997 1998 1999 2000 2001 2002 529- Net 530 Income (406) 79 (184) (654) 144 1.217 2.645 5.372 6.341 3.903 531 Depreciation 0 0 0 2.513 2.513 2.513 2.513 2.513 2.513 2,513 532 Interest 346 514 1.438 1.993 2.451 2.261 2.000 1.726 1.450 1.173 533 ----- 534 CashFrom Operation (60) 653 1.304 3.853 5.109 S.992 1.159 9.611 10-305 12.590 535 538 long-TereBorrowing 531 lorldBank 0 6.177 5.5t7 3.004 0 0 0 0 0 0 538 D.mesticBank St 5.620 4,494 3.494 0 0 0 0 0 0 539 ------540 tvtalL-1 Bcrroving 5S 11.797 10.01 5.490 0 0 0 0 - 541 < 542 ShI.,r-te(raB.rrc.wing 1 1.353 12 6t41 13 228 0 I 0 0 543 S44 EquityTransf.trred 0 376 2.124 1.00( n0 545 346 1-.IAI S'.urcvs ...r Fund (2' (4.659 13.690 12.034 5.295 6.219 1.159 9.611 lO.t05 12.590
543 549 550 AIiPLICAT lI(NS 551 S52 553 Pra.j.ctExpenditure St 12.613 12.205 7.493 0 0 0 0 0 0 551 N(..n Pr.%ject (nvestesnt 0 0 0 0 0 0 0 0 0 n 555 -- ,...... - iSS T-utaxlInvestI&ent 53 12.673 12.205 7.49t 0 0 0 0 0 0
553 l,ng-terwDebt Service -_t 559 FinancialCharges 346 574 1.433 1.993 2.451 2.261 2.000 1.726 1.450 1.173 0 >I 560 Rrpayment 0 0 0 0 1.152 3.52S 3.546 3.567 3.592 3.622 ______- 561 S,736 5.546 5.294 5.042 4.795 592 Total L-T Debt Service 346 574 1.4t1 1.993 4.404 563 0 0 0 0 0 0 564 Energe& Buget AdjustingFund 0 0 0 0 72 603 1.323 2.636 3.420 565 DlvidentPaid 0 0 0 921 (327) 568 69 112 103 llt g99 b4 567 Inc/DecIn Inventory 2 t35 [OS 1ll 256 333 6tO 346 506 583 Rec./Pay.Acc. Adjustment (2) 169 11: 459 239 569 6.226 6.595 7.415 1,172 3.3SS 570 Tot Applicationsof Fund 404 14.251 13.911 9.975 4.335
910 (71 564 2.196 2.633 3.705 572 Net Cash Flow (405) 423 (2211 2.060
1.862 2.772 2.768 3.329 5.526 t.15l 574 BeginningCash 0 (405) 23 (193) 2.772 2.766 3.329 5.526 3.153 11.t64 575 EndingCash (405) 23 (1931 1.362 516 517 1.2 1.0 1.3 1.3 2.1 2.6 517 Debt ServiceCoverage Ratio -0.2 1.1 0.9 1.9 H 519 530 531 512 5t3 534 Sts 536 Projectedhalanc+ Sheet Sl7 t - g - g * S3t (RHBThousand) 531 (Year End Dec.31' 590 1997 1993 1999 2000 2001 2002 Sol 1993 1994 1995 1996 592.-...... 593 I.SSETS 594 . .. 59S CturrentAssets :.772 2.766 3.329 5.526 L.I53 11.S64 596 Cash & Bank (4051 23 (193) 1.862 0 0 0 0 0 0 0O 597 Securiles or Ron-Pro.nv. 0 0 0 1.107 2.175 2.916 3.715 4.159 4.829 r 593 AccountsReceivable 0 1.004 1.223 1.79t 0 0 0 0 O 0 0 599 ('therReceivables 0 0 0 1.121 1.140 1.343 1.462 1.560 1.724 Ch 600 Inventories 2 337 942 1.059 0 8O0 Other Current Assets 0 0 0 0 0 0 0 U u u
603 Total Current Assets (404) 1.1884 1.967 4.719 8.007 8.481 7.583 10.702 13.878 18.416 f04 BOS Fixed Assets 608 Gross Assets 0 0 0 32.433 32.433 32.433 32.433 32.433 32.433 32.433 607 less. Depreciation 0 0 0 2.513 5.027 1.540 10.054 12.S67 15.081 17.594
609 Net Fixed Assets 0 0 0 29.920 27.406 24.t93 22.379 19.t68 17.352 14.839 t10 fill Construction 7IP 53 12.731 24.935 0 0 0 0 0 0 0 612 813 Total Assets (348) 14.594 26.903 34.639 33.414 31.373 29.968 30.568 31.230 33,255 614 615 616 LIABILITIES & EOUITY fill ------Slt Current Liabilities 6B9 Accounts Payable 2 837 942 1.059 1.128 1.240 1.343 1.462 1.560 1,724 820 Other Payables 0 0 0 0 0 0 0 0 0 0 621 Short-term Loan 1 1.354 1.536 2.220 2.407 2.634 2.634 2.634 2.634 2.634 622 Current Haturities of LT Debt 0 0 0 1.952 3.525 3.546 3.587 3.592 3.6?2 3.658 623 Other Current Liabilities 624 625 t"tal Current Liabilities 3 2.191 2.479 5.231 7.060 7.420 7.545 7.6tt 1.t17 8.016 626 627 Long-Term Debt 628 World Bank 0 6.177 ((.764 (4.763 (3.195 ((.602 9.987 S.3i3 6.671 J.9.3 629 D.:.aesticBanks 58 5.678 10.172 11.1(3 9.761 7.809 5.857 3.904 1.952 '0' 630 ------.- . -. 631 T..IalL-T D.bt 58 1.I855 21.935 26.J41 22-9;7 19.111 5-.44 1?.23? 8.f.30 4.'J 632 633 FrqiitY 63-1 C.kpitaI 0 816 3.000 4.000 4.000 4.000 4.000 4.000 4.000 1.000 635 Reserve Fund 0 0 148' '209' 1(741 131 792 2.13S 3.84S 6.071 636 R,tained Earings '406' (3271 (4651 '3641 1429' 412 1.787 4.093 6.93.3 (1.195 6371. > 638 T...talEquity (405' 5l9 2.489 2.921 3.397 4.512 6.519 10.563 14.183 23.2G6 -x i 639 . x B40 T..t.11I.i.ab. L Equity '346) 144594 28.903 34-639 33.414 31.373 2.9-88 30.563 31.230 33.255 642 , -o -0 0 0 0 0 0 0 0 843 644 L-T Debt / (L-T Debt + Equity) -16.507 95.587. 89.817. 90.OS7. 87.117 81.04' 70.66% 53.557. 31.t6% 19.707. 645 Current Ratio -161.41 0.8S 0.79 0.90 0.85 0.87 1.01 1.39 1.7t 2.30 646 Current Ratio -161.41 0.85 0.79 1.44 1.70 1.67 1.91 2.61 3.31 4.23 647 Ouick Ratio -152.01 0.47 0.41 0.70 0.69 0.71 0.t3 1.20 1.58 2.08
C) 0
0) l3-. Operation Revenue ------Fire Contracts
Including the Firm Contracts Based on Client Institutions and ERC Own Institution.
Prices Names or F.C. Average Prices
Firm Contract I CB 35.000 * Firm Contract2 FB 150.000 Firm Contract3 TS 200.000 Firm Contract4 CP 450.000 *-****' Firm ContractS LVC 230.000 *s - Firm Contract6 F 0.000 * Fire Contract1 G 0.000 *-****.* Firm Contract8 H 0.000 * Firm Contract9 I 0.000 Firm Contract 10 1 0.000 Firm Contract 10 0.000 ... Firm Contract 10 1 0.000 ''. Firm Contract 10 J 0.000 * *_ >- Firm Contract 10 J 0.000 ****. H Firm Contract10 J 0.000 h...... * Firm Contract 10 000 A H0I Firm Contract 10 J 0.000 ... . Firm Contract 10 J 0.000.... Firm ContracttO 0.000..... Firm Contract 10 1 0.000 *.. Firm Contrart tO 1 0.000 .--
Iijtpumt v.Iunre .r F.C.
1993 .199-1 1995 1996 IYYi IYY1 IYWJ 2000 7001 200!2 2003
CB 0.00 15.00 15.00 20.0 70.00 !; no *>.on 3n.nn 30.11() 35.00 35.0() 20.00 22.00 25.00 FR 0.00 10.00 10.00 12.00 12.00 13.00 15.00 11.00 12.00 12.00 11.0o is 0.00 3.00 5.00 1.00 S.00n .o 9.00 10.00 (P 0.00 i.00 1.00 2.00 2.on 3.no 3n.0 4.00 4.00 5.00 5.00 LYC 0.00 2.00 2.00 4.00 4.00 6.00 6.00 3.0() 3.00 10.00 10.00 o>
0 x Revenue frto Fire Contracts 2001 2002 2003 1993 1994 1995 1996 1991 199t 1999 2000
1.155 7.6S5 9.240 10.090 11.475 12.325 Total 0 3.S35 3.935 S.720 5.920
700 700 17S 315 l.OS0 l.OS0 1.225 I.22S CB 0 S25 S25 1.300 1.t00 1.950 2.2so 2.550 3.000 3.300 3.750 FB 0 I.S00 1.500 1.600 1.800 1.t00 2.000 2.400 2.400 2.800 TS 0 600 1.000 1.400 900 1.350 1.350 1.800 1.00 2.250 2.250 cP 0 450 450 800 920 920 1.330 1.380 1.t40 1.340 2.300 2.300 LYC 0 460 460
Prtdticts Hanuractured
Pr i.ges N.amJs-,f P.M. AverJVe Ptices
H Product I DP 40.000 * Pr,duct 2 FS 0.400 .- *.a. Prc.duct 3 a 0.000 .- i*i
tOlutput V:.lume of P.H. 2001 2002 2003 1993 1994 1995 1996 Iu9; 1998 19Y9 2000 ~~~~~~~~~~~~~~--. -- - - ...... - .. 10.O0n 100.00 120.00 150.00 150.00 160.00 160.00 DP 0.00 50.00 6o. 30.00tO 2000.00 2500.00 0.00 500.00 300.00 1000.00 1200.110 1200.00 1500.00 1500.00 'I00.00 0.00 0.0 .00 0.00 0.00 0.00 0.00 0.00 -. ~~~~~00 ~~~~~0.00 ~~~0.0.00
C)- C0 ------: ------1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 ------…------Total 0 2.200 2.720 3.600 4.480 4.420 5.400 6.600 6.S00 7.200 ------7.400
DP 0 2.000 2.400 3.200 4.000 1.000 4.800 6.000 6.000 8.400 6.400 FS 0 200 320 400 480 480 800 600 SO0 800 1.000 a 0 0 0 0 0 0 0 0 0 0 0
RawMaterials . Namesor Materials Average Prices steel 2.000 **-*** 0.000 ft.*,-A- m 0.000 *--**
Consumption Volume of materials ------…------1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 ..------.------. . st.el 0.00 100.00 150.00 150.00 150.00 160.00 180.00 200.00 200.00 300.00 300.00 t I 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 :| 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 .. …~~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~.....
HAItrial Ct.sts
1993 1994 199S 1996 199i I!Il9l 19!9 2000 2001 2002 2(03
1. I 0 200 300 300 300 320 360 40() 100 600 600 ------. .------. ------_ ------..-. -
It.el n 200 300 300 300 320 360 400 100 G00 600 I ~~ ~~0 ~0 ~~~~~00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
p3
00 TBCHNOLOGY DBVELOPMENT PROJECT
Sumary Table of BRC Proposals ECs Estimted Estimted Key Spon-so Foreign* DomesticPartners Difftsion Strategy Market (Objectives) Project IBRD Cost Lown USSOOO USSOOO Perform. 9,166 4,000Institute of Metal Amoco (US); 7 largedomestic iron Outreachengineering services for Market for new materiaLsis: Alloys Research,and and steel companies;Chemical testing,consulting, and chemical,automotive, metaLLurgy, (productivity ChineseAcademy of IndustryMinistry; and others. marketingon new technologies, non-ferrousmetals, enhancement) Sciences(IMR CAS) training;and a data-basefor the petrochemicals,textiLes medicine, design,production and and environmental. utilizationof high performance attoys. Laser 7,900 4,000 HuazhongUniversity Rofin-ShinarLaser, Siemens Three specialdepartments for Market for new processesis: Processing of Scienceand (Germany);BIAS, PRC, Coherentand applicationdemonstrations, automotive,electronics, machine (productivity Technology(HUST) Cattech(US); Amada,Toshiba, and consulting,marketing, and and ship building,aviation, and enhancement) Mazak (Japan);and Chineseplants. networking with associations;and materiaLprocessing. ______~~~~~~~~~~trainingof personneL. ______Distillation 10,190 5,000Tianjin R&D Center Mitsubishi(Japan); Koch Collaborationwith BeijingPetro. With approximately8000 petro- Technology for Petro-Chemical (US);Sulzer(Switzerland); Mass- Eng. Co.; Localagents in areas chemicaland oil refinery (envirormentat Technology(PCTRDC), Transfer (Britain); and about40 with major concentrationof factoriesin China and 35,000 impact) (SINOPEC)and Chinesefirms. chemicalplants and refineries; distillationcolumns (90X small TianjinUniv. training,data-bases and joint and medium),the market is ______~~~~~~~~~~~researchprojects. significant. Clean Coat 5,953 2,500Tsinghua University FosterWheeler Corp.(US); IHI Networkof institutionsand Strongmarket given the need to Coabust. (Japan);ABB-CE (US); BMFT companiesincluding power operatehigh-efficiency large (Boilers) (Germany);Intesol (US); and other utilities;marketing, sales, and scalepower plants and medium size (envirornmental Chineseplants. trainingdepartment; and thermalpower stations. impact) p_artnerships with industry. Shipping 8,296 4,000The Ministryof Norcontrot(Sweden); ConsiliLm and Promotionand collaborationof With over 3100 domesticshipping Control Communicationsand Saab (Sweden);Motorola and Sperrycommercial applications with co's. operating38,000 passenger (productivity ShanghaiShip and (US); and other domesticshipping Chinese Societyof Navigation, ships, 18,000km of coastline,and enhancement) ShippingResearch co's. Chinese Societyof Automation; 110,000km of waterwayscarrying Institute(SSSRI) agents in shippingco's.; 90X of trade. ______newsLetter, and semninars. Petroleae 15,612 6,800Research Institute IFP and Intevep(Venezuela); Stone Exptoiting ties with SINOPEC, The marketfor lead-freegasoline Refining& of Petroleum & Webster(US); and otherdomestic technical exchanges of personnel and cleanerfuels will be large in Catalyst Processing(RIPP) firms. from industry& institutes, the transportationsector as new (environmental promotionof clean air envirorunentatregs. are enacted. impact) technologies. Pouder 10,260 4,500Central South Bendix,Boeing (US);Goodrich, Exploitingsponsor's network of The demand for p/m technologyis: Metallurgy Universityof Airbus (France);Toyota (Japan); associationsand industrial automotive,machinery, chemical, (enviroraental Technology(CSUT) Degussa(Germany) and other clients;exchange of technical civil aviation, impact) Chinese firms. personnel and training. electronics/electrical and others. n- CleanCoal 9,172 4,000 Thermal Power Steag (Germany); numerous domestic Network of institutions The market for clean coal Cobumtion Research Institute plants, and several universities. associations, and companies, combustion technology is coal- D (envirormentaL (TPRI) including power utilities; fired power plants, users of M-C impact) marketing and sales, and an industrial boilers and combustion O X ______inform ation and training center. equipment. " 4 ERCs Estiioted Eat imted Key Sponsors Foreign & Domestic Partners Diffision Strategy Market (Objectives) Project Iow Cost Loan
Fluid 6,447 3,000Xi'an Jiaotong Ingersolt-Rand(US); Demag Activitieswith over 10 Focus on 6 major productareas Machinery University (Germany);Howden (Britain); SRM cooperativepartners (factories where demand is high: pumps; (envirorvnentat (Sweden);and other Chinese firms. and workshops); set-up 6 regional turbo-compressors; energy-saving impact) trainingcenters and design products;fans for coal mines and institutes. power stations; and compressors. Met Shape 10,123 5,000 Beijing Research Eumuco(Germany); ALinco and AmadaTies with mechanicaL design The market for NSH components in Manufact. Instituteof (Japan);and domesticptants. institutesand firms to set-up industries are automobile; (environmentaL MechanicaL& model productionLines and electronics; chemical; metallurgy; impact) ELectrical advancedequipment; training, transportation;refrigeration; Technology(BRIMET) technicaland consuLting textiLe and computers. ______services. Audio/Video 11,157 4,500 Nanjing Radio Matsushita and Sharp (Japan); Focus on SHEsand dividing Market for a/v products is Tech. Factory (NRF) StanfordUn.; Phittips; and country into 6 service areas; use processes and consulting at smaLL Diffusion domestic universities and researchof trade organizations;seminars, and medium size firms (approx. (productivity centersand others. user's conference;and training. 600) manufacturingT.V.s, enhancement) sateltiteequip., radios, CD payers,l etc. Industrial 6,900 3,000 EnvirornmentaL Environ.Research Inst. of Essen Continuationof technicaLand Market is for environ.services F Envirrent ProtectionInstitute (Germany); Nippon Hokkaido Un., academic exchange;seminars; and processesfor industry n Protection of CentratResearch New Japan SteeL Co. Kimoto ELec. Licensingagreements; includingwastewater treatment and (environmentaL Instituteof Co. (Japan);Inverteck Int'l Co. coltaborativeproduction and controlof fLue gases; and impact) BuiLding & (Sweden);British Environ. joint ventures. buiLdingmaterial ptants. Construction ResourcesLtd.; and numerous Industry (CRIBC) domestic plants & institutes. of new PolyoLefin 11,586 5,500 BeijingResearch Montecatiniand Enichem(Italy); Estabtishmentof technical& Market is for applications Naterials Instituteof PhiLtips(U.S.); Buss econ. committee,databank; poLyotefinmaterials in households (productivity ChemicatIndustry (SwitzerLand);W&P and Drossbar trainingstation with 5 regional for appLiances;auto industry; enhancement) (BRICI) (Germany);and domesticfirms. su-iostations;and technicaL packagingand new materiaLsfor ______~~~~~~~~~~~~~~~extensionstations. manufacturers. Urban 4,948 2,700 TonghiUniversity Un. of Bradford(U.K.); Lyonnaise Assistmunicipalities and Market is municipalitiesof 438 Pollution and ShanghaiTonghi des Eaux (France);Tech. HoschuLe industriesto prepareenv. citiesfor waste water treatment Control Science& TechnoLogyDarmstadt (Germany); Q Source& managementand planningthrough and disposaLwaste treatment, (envirornmentat Industry Co. Ltd. Aepco (U.S.); UNEP; Who; and seminars;cooperative development incineration pLants; and impact) numerousdomestic firms and agreements;demonstration cotlection and transport municipaLities. projects;and strong customer industries. services.
Mabilte 7,347 3,500 Guangzhou 4-6 six foreignfirms (eg.) Transferof R&D achievements; Market is SMEs producingmobile Communicatioms Communication Motorota,ATT (U.S.);Ericsson, advisoryservice centers in communicationsequipment for (productivity Instituteof (Sweden);NEC (Japan);and other provincesand cities;using infrastructure;network systems; m Ministryof domesticfirms. pubtications,associations; and testing;and standards. ( D enhancement) X Etectronics Industry exchange of personnet. M to 0 Adyarced 11,447 5,000 TsinghuaUniversity 15 universities(eg.) M.I.T., Plans to establish23 technology With an enormouspoputlation Edurational Johns Hopkins(U.S.); Osaka Un. and equipmenttraining centers in train,new educationalequipment e 4- co Tech & (Japan);Telecom Institute, major cities;set up urban ed. and productssuch as: CAI Equipmlt (France);contacts with private programs;disseminate info software;CD-Rom systems; Chinese (productivity firms in Hong Kong, U.S., Japan, throughindustriaL associations, terminals;T.V. sateltite enhancement) France& the NetherLands;and trainingcenters, and regional technoLogy; and muLti-media domesticinstitutes and indxustriaLeducation centers. teachingsystems are urgentLy _firms. I__needed. ERCs Estimted Esti_ted Key Sponsors Foreign & Domestic Partners Diffusion Strategy Market (Objectives) Project I1R Cost Lon USSOOOUSSOOO Converter 6,470 3,750 Zhuzhou Electric GE (U.S.); ABB & LEM (Swiss); Plans to offer new technology to Enormousmarket for electric Tedhology Locomotive Research Westinghouse (U.S.& France) domestic and foreign customers; locomotives and electric (envirornental Institute Toshiba & Hitachi (Japan); DSI technical services and training vehicles, but also power stations, impact & (Canada); and domestic opportunities; exchange technical power transmissions, etc. productivity collaboration with universities, personnel with customers; and Products of potential customers enhancement) institutes, and numerous firms. organize a multi-client wiLl occupy over 90% of Chinese investment system for important power electric equipment technologies. production. Process 7,994 4,000 Shanghai Institute Mitsubishi, Hokushin, Diffusion channels wiLl be set up Market will be in four major Autotion of Process Toshiba(Japan); Eurotherm (U.K.); internally (such as sales and industrial sectors: power (productivity Automation Action, Modicon, IBM, Foxboro marketing dept.) and externally generation (control systems); enhancement) Instrumentation (U.S.); Siemens(Germany)and (regional branches in targeted petrochemicals; metallurgy; and numerous domestic universities, locations) to meet market harbors (automatic control institutes and industrial firms. demands, and exchange of systems) as well as PA products in technicaL personnel. technical retrofits and existing enterprises. Power 9,165 5,000 Xian Power GE, Zastech (U.S.); Mitsubishi, Set up regional branch offices There are 400 power electronic Electronics Electronics Research Toshiba, Hitachi (Japan); EUPEC for diffusion of technoLogies to enterprises and products such as (productivity Institute (Germany); Wacker-Chemitronic Co., regional enterprises; creation of power semi-conductor devices and -Z enhancement & Brush (U.K.); and numerous marketing and business modules; protection equipment O' envirornmental domestic universities, institutes departments to promote technical, technoLogies as well as technical imoact) and industrial firms. consultative, and training consulting services. services. The ERCwill also advertise technology transfer opportunities through the mass media. Optical Disks 9,336 4,500 Shanghai Institute Philips (Dutch); Leybold (German); Center for tech transfer, Largest market for opticaL disks & Application of Metallurgy; Nippon Vacuun Co., Nagoya Univ., training, consultation and are computer use and data storage (productivity Shanghai Institute OsakaUniv. (Japan); Prodisk, test/inspection for small and with growth of multi-media enhancement) of Optics & Fine Arizona Univ. (U.S.); and numerous medium size domestic enterprises; technology for use in education, Mechanics; Shenzen domestic institutes, universities set up advertising dept., and comuinication, medical, business, Advanced Science and firms. focus on special R&D and entertairunent sectors. Enterprise Group; partnerships. and China Textile Machinery Co. Ltd. Ship Design 8,622 4,500 Marine Design & American Bureau of Shipping Client network for specific Large, medium, and smalt shipyards Tedwology Research Institute (U.S.); Lloyd's Registrar of markets to diffuse design (882 steel shipyards, 330 (productivity of China Shipping (U.K.) Bureau Veritas software in coastal cities & equipment & machinery enhancement& (France); Det Norske Veritas inland regions for small, mediun manufacturers, and numerous I envi ronnental (Norway); Nippon Kaiji Kyokai and Large conpanies; pursue concrete shipyards, and over 100 am impact) (Japan) to establish ship contacts with cLients (many of research and design firms aLL classification methods; and over which have investments in the potentiaL customers for ship 500 domestic shipbuilding ERC); disseminate information design software and services. X enterprises and ship through public media & o organizations; universities and associations. Z. institutes. 0 ao ERCs EstiiatedEstimated Key Sponsors Foreign & Domestic Partners Diffusion Strategy Market (Objectives) Project IBRD Cost Loan US$000 US$000 Energy Savings 6,173 3,500ELectric Power Numerouscooperative agreements Regionaltechnical branches to The power industryis the largest in Power ResearchInstitute with ESCA,Westinghouse, Digital cooperatewith majorutilities in consumerof electricity,and in System (U.S.);ABB, EPRI (Sweden); China to diffuse advanced urgent need of energysaving (environmental EPRI(Russia);and numerous technologies;organize training productsand servicessuch as impact) domesticresearch institutes, courseswith demonstrationsfor thermalpower plant process universities,and industrial potentiaLusers; publish controls;energy management firms. technicaljournals, organize systems,distribution management technicalexchanges; and provide systems;software and techniques consulting services. for demand side management. Rare MetaL 9,064 5,000Northwest Institute Collaborativeagreements with: Utilizationof NIN's information Estimatefor Chinesemarket in Materials for NonferrousMetal CNRS (France);Takuba Labs and channelthrough its role as lead year 2000 is 7-8 bilLionRMS with (productivity Research NationalResearch Institute for institutionin numerous another1 billionin export enhancement& Metalsof Science& Technology associations;organization of potential. Demand will come from envirormental (Japan);ITT Inc.,University of targetedstrategy to 3 major chemical,aviation, nuclear power impact) Dayton(US); Metallwerk Plansee groupsof processors,enterprises stations, electronics and electric GmbNH(Austria), and numerous and end-users;estabLishing a lightingsources as well as growth domesticuniversities, trainingdept.; exchangeof in civil applicationof Ti in enterprises,and institutes. technicalpersonnel; and automobiles,bicycles and building disseminatepubtications. materials. I- Industrial 9,631 5,500The ChinaTextile Toray(Japan); Dupont (U.S.); Applyingnetwork of over 12 Industrialtextiles account for _ Textiles Academy Bermag(Germany) The Textile researchorganizations and only 10% of its total fiber (productivity Academyin Russia;and the Wool institutes;outreach to large consumptionand the indsutryrust enhancement) Bureauof New Zealand;and corporationsand smalland medium raise that level to 25% by the domesticinstitutes. size firms throughregional year 2000. In addition,basic branchesand serviceoutlets; industriesare in urgentneed of establishdemonstration units; variousproperties such as and exchangeof personnel. chemical,petroleum, construction, agriculture,environmental protection,etc. One-thirdof the 11,000 firms are SMEs, and operatingat high levelsof inneficiency. Marsufacturing 11,941 5,500Beijing Research DEC, Grogo,CDC, etc. (US);AEG Transferringtechnologies to The market is significantdue to Automtion Instituteof and ProductionTech. Center producersto sell to end-users; the small and mediumsize firms (productivity Automationfor (Germany);IGM (Austria);ABS establishdemonstration units; needingmanagement automation, enhancement) Machine-Building (Sweden);3K (Japan);and Chiangs professionalagents for productdesign, and manufacturing Industry(RIAMB) Group(Hong Kong); and domestic marketing,and exchangeof automationin auto,machine-tools, institutes. personnel. heavy machinery, and others. Surfactant 8,603 5,250Research Institute Proctor& Gamble,Unilever, Furtheringties with Surfactant Focus on industriesthat apply Td Technology of Daily Chemical Monsanto(US); Lion and MitsubishiIndustry Assn. and its many seats large amountof surfactantssuch (productivity Industry& National (Japan);other Asian firms;and on numerousscientific and as: textile,petroleum, leather, o entnuicement& Councilof Light domesticinstitutes and firms. technicalcommittees to promote and pulp & paperfor new enviroanental Industry(RIDCI) outreachactivities; and technologiesin additivesfor 4- impact) establishingdecentralized householdand industrial o informationcenter. applications;environmental ' ______I______products, etc. ERCs Estimted Estimted Key Sporsors Foreign & Domestic Partners Diffusion Strategy (Objectives) Project IBRD Market Cost Loan USSOOO USSOOO Rare Earth 6,061 3,100 General Research Piesteriz Agrochimie (Germany); Continued colLaboration with Metals Institute Demandfor RE eLementary for Non- CETEM& IPEN (Brazil); SAMIM foreign firms in RE technology; compounds, luminescent (productivity ferrous Metats materials, (Italy); and Ashton Mining Co. and smatt & medium firms and hydrogen storage materials enhancenent & (GRINM) (Australia); and domestic throughout China. A marketing wilt more than double in the next envi rormental institutes and firms. iq2act) and Sates Dept. wiLl be set up to 10 years; while market for high diffuse information on technotogy performance materiats will transfer opportunities wiLl be increase more than 10%annually. disseminated through newsletters, journals,conferences, and trade ______~~~~~~~~~~~~~associations. Die & Mold Cad 7,035 3,500 Shanghai Jiao Tong Mitsubishi, Yamamoto, and Sodick Facititate and publicize joint Two targets are: factories without Engineering University (Japan); MoLex (US sub. in (productivity ventures; establish regional die & mold CADsoftware, and Singapore); EDS, and Moore (US); branches ernhancmnt) of the ERC; and outreach factories in possession of CAD and Taiwan GongzhumPrecision Die to professional organizationsand soft- ware in need of Co. technical clients through international expertise. Smatl & medium size meetings and technical exchanges. firms(95% of industry)wit be main focus,and within5 years, expected income will be 80 mittion yuan, or 10% of total die & mold market. a.0 0D Clean 7,979 3,300 Beijing Generat Utah State Bureau of Mines (US); Engineering resuLts will be Market Extraction & Research divided into 6 categories: Institute Mekhanobr (Russia); Grund Corp. disseminated by the Marketing Land rehabititation; Energy Saving of Mining & (Germany); full tailings Mining Research Lab. Dept., and the Exchange & back-filling; underground solution in Mm-Ferrous Metallurgy (BGRIMM) (Canada); Woodward-Ctyde Int't Metallurgy Training Dept. A vice-president teaching; recovery of SO2; (Australia); and The Sino- will be namedfor technotogy efficient water treatment & CprwxNJctivity Australian Mine Waste Research & diffusion, erhwment & and a network will be cyanide-free goLd extraction; and ManagementInstitute based in set up to Link enterprises and energy saving technoLogies. envi ronmental China. impact) cLients worLdwide through a newsletter. Conferernces, training courses, and technical exchanges will be held reguLarLy to brief industry. mechanisms such as newsLetters, symposia, technicaL exchanges, ______~~~~~~~~~~~~~etc. Power Systm 9,973 5,500 Nanjing Automation Intel, GE, Power Tech- notogies Network of sponsor; creation of Market is coaposed of consumers of Automtion Research Institute Siemens, (US); Korea ELectric Cprcxkictivity sales & marketing dept. electric power. Industry witl (NARI) Power Co.; Digitel (Hong Kong); (domestically enhare-nt * and abroad); have growth rate over 9% by year EDF(France); Leige Univ. technical exchanges; publications 2000 requiring 15,000km envi raomntal (Belgium); of HVDC(Canada) and and contact with trade transmission lines; and more than imct) domestic firms. associations. 2500 county leveLand city level CD centers will need dispatch control Iu I______systems. _ o x I-t .-f '.OCD ERCs Estimted Estianted Key Speors Foreign & Domestic Partners DiffusionStrategy Market (Objectives) Project IBRD Cost Loan UsSOOO UsSOOO Applied Pouer 5,330 2,000Zhejian University EUPEC,a consortiLnof AEG & This ERC will tap intotheir The market for industrialheat Electronics Siemens(Europe); Virginia sponsor'snetwork which is over treatmentand drive systemsis (productivity PolytechnicInstitute (US); 100 years old and closelyLinked enormousas China renovates enburvonet * Heriot-WattUniversity (UK); and to domesticand foreignfirms and traditionalheating process and enviraroental mumerousdomestic institutes and organizations.Three or four mechanicaldrive systems. impact) enterprises. cooperativenetworks will be Estimatedmarket by year 2000 for establishedfor inspection, power electronicsequipment and consultation,technology servicesis 6.5-8.5billion yuan transfer,and training. RMB relatedto industriessuch as machinebuilding, chemical, textile,petroleum, metallurgy, ______~~~~~~~~etc. Transducers 8,146 4,900 ShenyangInstitute Philips,Siemens, Honeywell, IBM, Strategyis to build on the vast Market demandexists in numerous (produetivity of Instrumentation IC Sensors,Nova Sensor (US); network(close ties with foreign industriessuch as health care, enhanceenrt& Technology(SIIT) Degussa(Germany); Yamatake & domesticenterprises, thermalpower plants,iron/steel environmental (Japan);Oxford Instruments(UK); institutes,universities, and plants,automobiLes, electric impact) ASCOM and Keller (Switzerland); tradeassociations) of its appliancesetc. Large thermal and numerousdomestic plants. sponsorto diffusetechnologies plants alonewill need over and information.The ERC will 650,000transducers; and the auto set up a marketingdept. to industrywilt need over 34 million disseminatemarket trendsand (half are now imported).By year informationfrom pilot testing. 2000, ERC plans to capture 15X of Strategywill also undertake market. training and exchange programs. AdvacxedPouer 9,186 5,000 TianjinInstitute of Bitrode,Electrochemical Creationof marketing,sales, and Over 85% of batteryenterprises Soumrces Power Sources(TIPS) AutomationInc., American oven information& trainingunits for (1000)are smalland mediun sized, Technology Systems(US); Japanese Battery technicaldissemination and well the marketpotential is enormous Cproduetivity IndustrialAssn.; and numerous as externaLchannels already (currently5.7 billionyuan). enhancement& domesticfirms. utilizedby sponsorfor outreach This amountwill increaseat an envirrmm!ntal activities. acceleratedrate based on the impact) large demandfor power sources that accompanyindustrial growth.
Softumre 9,172 4,500 PekingUniversity Oracle,IBM, Unisyss,Hewlett Build upon networkof both In 1992, the domesticsoftware (prodxictivity (Dept.of Computer Packard,Digitel (US); Bull sponsors;set up a unit for outputwas 2 billionRMB and that eriuwowent) Science& France;and Daiyu (Japan)and engineeringstandardization for is expected to double by 1995. Technology) and numerousdomestic firms and manufacturers;establish a Over 100 unitsengage in software Beijing-Guangdon institutes. trainingcenter for clientsand developmentand specificsoftware Computer Center end-users; and continue its products targeted for: security (BGCC) programof technicaland exchange, accounting, cash linformation exchanges. register and tax forms. OQ
0 4OO- ERCS Estim_tedEstim_ted Key Sponors Foreign & Domestic Partners Diffusion Strategy Market (Objectives) Project I R Cost Loan USSOOO US$S0OOO ______Me ueLding 9,888 5,500 The HarbinResearch Ohio State Univ.,MiLler Electric Strategywill apply and expand Market includesmore than20 Teco-rlogyof Institutefor Mfg. (US);E.O.Paton Electric HRWIs vast informationnetwork; industriessuch as steel, eLectric High Welding (HRIW) Welding Institute(Ukraine); OTC organizetraining activities; power,construc-tion, aviation, Efficiencymid Daihen Corp.,Osaka Univ. (Japan);pLant tours;promote technical shipbuilding, electrical High mimlity and over a dozen enterprises. exchanges;publish periodicals; appliances,etc. The demand for (proilctivity and focuson 20 selected weldedsteel productsalone for enhfdwxant industriesfor pilot testingand the year 2000 is estimatedat 50- Mid diffusinginformation to 60 milliontons. The ERC expects enwiromental supptliersand end-users. to gain 50X of market for new impact) weldingtechnology in advanced manufacturingand automated I______production lines. Synthesis of 7,940 4,500 Beijing Yanshan Polydora (UK); Fuji Electric Utilization of vast network of Industries requiring synthetic Novel Rubber & Petrochemical (Japan); Enichem (Italy); Polymer sponsor incLuding SINOPEC. rubbers & resins are: Plastics Research Institute Institute of Hambuirg(Germany); EstabLishmarketing and patent telecommunications, packaging, Materials (BYPRI) Taiwan Sanda Co. (Taiwan), and departments as welt as centers automobile, shoes, medical (productivity numerous domestic firms and for tech transfer, consultation, appliances, etc. For example, in enhaneement& institutes. and training. 1992, China needed90,000 tpa of environmental styrene butadiene rubber just for impact) the shoe industry (2 biLlion o pairs)which China was unabLe to 0 meet. The estimatedrevenue for 1994-1995 for synthetic rubbers and resins in China and parts of Asia is 1 million RMB. Cc.mmication 7,365 4,200 Shijiazhuang Toshiba (Japan); Texas This ERC's sponsor is highly The domestic software market is Software & Communications Instruments, American LSI Logic sophisticated in using expected to grow tenfold by the ASIC Laboratory (SCL) Corp., GTE, Synopsis, Image, (US); telcommunications and part of the year 2000 (30-40 billion RMB), and (productivity GMD (Germany); CanadaBell North strategy is to expand that use to the communications share is enharvdent) Lab; and numerous domestic firms disseminate information . In estimated to be 20X. The ERC and institutes. addition, the ERCwill propose pLans to capture10-20X of the productintroduction-orientations sales volume in that category. By and technicaldiscussion 1995,the market for domestic meetings;round-the-clock integratedcircuits will be at technicalservice networks and least 15 millionunits worth US# major cities;and publishand 200-300million. disseminate information through E-mail and industry associations. Nauletic 6,942 3,500 The Institute of General Motors;, Tridus, IG Co., Utilize its vast network of both Industries to benefit are: Materials Physics (IP) and Universityof Delaware,AuraSystem sponsorsdomestically and abroad; automobiles,medical equipment, (prodchtivity Beijing San Huan New (US); CNRS,Rhone-Poulenc namea special deputy director computers, and electrical erauraoent I MaterialsHigh-Tech (France);Luckey MetaL, Korea; for the diffusionand marketing equipment. Domesticproduction of X ernironentaL Inc. (BSHNM) Krupp, VaccunSchemeltze; numerous division; establish regional magneticmaterials and devices in ._ > iq2pet) other domestic firms and branches to focus on SMEs; use 1990 was about 2.4 billion RMB (6X X institutes. the mass media to advertise, and of world production). The target 0 establish a training center. of the ERCis to take 50-60X of domesticmarket and 15X of '0 co internationalmarket by the year I ______1__2000. ERCs Estimted Estimated Key Sponsors Foreign & Domestic Partners Diffution Strategy Market (Objectives) Project IBRD Cost Loan USSOOO usSOOO Effective 5,662 3,100 4 sponsors: (i) Resource Chemical Institute Utilize and expand the network of Market is users of natural gas as Utilization of Changdu Institute of (Japan), Chicago NaturaL Gas four sponsors; deveLop 5 basic raw materials for energy Natural Gas Organic Chemistry; Resource Institute, (US); French strategies: information; sources (Liquid fuels and chemical (prodictivity (ii) Dalian Institute of Petroleum; Topsoe Co. technology; marketing; business; & industrial materials). Ammonia ednct Institute of (Denmark); and Montecatinit Co. and personnel. Strengthen plants alone represent 1400 users. and Chemical Physics; (Italy) and numerous domestic outreach activities through Yearly estimates from tech enviror_mntal (iii) Chengda pLants and institutes. technicaL exchanges, transfer for the following is: p- iq.ct) Chemical Engineering publications, and hosting aminophenol, 25 million RMB; ethyl Co.; and (iv) international conferences. alcohol from synthetic gas; 8 ChengdaChemical million RMB; and olefine from Fertilizer Plant. methyt alcohol, 5 million RMB. Paper 6,135 3,000 The South China Universities of Quebec& Toronto SCUTwill establish an There are about 2000 straw paper Tedm ology and University of (Canada); Royal Institute of information channel for diffusion mills in China , and estimates PoLLution Technology (SCUT) Technology (Sweden); Univ. of of new technologies; set up a indicate that in five years, Control North Carolina, Black Clawson Co. training center; hold seminars; 200,000 tons of lignin will (productivity (US); Adritz Sprout-Bauer and advertise in the mass media substitute as a rubber reinforcing erharcement (Austria); and numerous domestic specifically to SMEs. agent (which is also cheaper). amd plants and institutes. Given that the industry will grow emviroantal at about 8-10X annually, the impact) demand for new products,technicaL0 equ)ipmentand training will also ______grow. Ultra-Fine 3,972 1,900 East China State Jenkins Newell Danford Co. (UK); Strategy aimed at transferring With over 5000 powder plants (90X Pouder University & Taiwan Metal Co.; Korean Ewon; technology to SMEsto acheive SMEs), needing technological Proidtion Technology (ECtST) Nippon Paint Co., Unitech, productivity gains. The ERCwill upgrading, the market is enormous Technology (Japan); Ohio State Un., MIT, set up internal and external for raw materials supplied by (proidtivity Dupont, American Superstar units for sales and marketing to ultr-fine powders. Due to the wide wnhuintt International (US); Henkel Co., act as diffusion channels; create diversity of applications of an Technische Uni. Clausthal, B. a professional society of powder powder products, the ERCwill nvirommntal Braun MeLsungenAG, Hoechst industries; train staff and focus on 20 selected ultr-fine impact) (Germany);and numerousdomestic customers; and promotetest products. Regardingmagnetic plants and institutes. plants and site visits. powders alone, China needs 50W tpa and can only produce1500 of inferior quality. Nigh 7,702 4,500The University of Aachen Univ. (Germany); MIC A marketing dept. will be set up Market for steel rolling Efficimecy Science& Technology(Russia); Ohio State Univ., Purdue to monitor industry's needsand technologies benefits Rolling Beijing (USTS) Univ., (US); DaveyCorp. (UK), and diseamminatetimely information. manufacturing industry as well as Tednology numerousdomestic firms and A consultative and training automobileand machinery. China (proiintivity institutes. center will also be established maintains over 2000mills, and the enhu n t and three trade networks in ERCexpects to capture 80X of the b NW cooperation with 37 enterprises market over the next five years. erwironmental have been set up for technology Iimpc t) l l ltransfer and diffusion. ____
0 I.ih.cs ERCs Estimted Estimted Key Spsors Foreign L Di stic Partners Diffusion Strategy Market (Objectives) Project IBRD cost Loan USSOOO USSOOO Advanced 5,203 3,000 ZhengzhouUniversity AC Technology, EDS, Cornell The ERC is committed to the The market is composed of about Pol>_er University (US); IKV Institute, establishment of 20 branch 20,000 enterprises of which 95% Processing German BattenfieLd Co. (Germany); centers (over 7-10 years) in are SNEs. The domestic plastics Technology Taiwan Qichen Tech. Co., Taiwan various regions throughout the market is expected to increase 8% Cprdxhctivity Rubber Industry Dev. Center; Matra country to provide access of annually, valued at US$2.5 erdmoxmment (France); Sodick Co., Tokyo Univ. technologies to SMEs. A training billion. Industries benefitting a_d (Japan); and numerous domestic center wilL also support from advanced polymer processing ernvirrntal plants and enterprises. customers nationwide, as well as are machinery, electronics, Light imact) publications and technical industry, automobile, aviation, ______exchanges. etc. Fine 8,049 4,000 The Lanzhou Occidental Chemical Co., UOPCo., Strategy based on two-tier Industries relying on fine Petrocheicals Institute of OxychemCo., Shell (US); Oiles approach consisting of technology petrochemcials are mining, (praLictivity Chemical Physics Perfume (Japan); numerous domestic transfer through training and petroleum, medicine, enhancemnt (LICP) and Lanzhou plants and institutes; and technology related services, and pharmaceuticals, light industry, ard Petroleun Processing technical exchanges with 60 the information feedback stage and electronics. China's envirormental and Chemical Complex foreign universities throughout based on market information. industries are deficient in i act) (LPPCC) Europe, and Asia. Technology and information intermediates and technologies of disseminated through the mass fine chemcials are especially media, conferences,periodicaLs, suited for SMEs, the target for and workshops. thisERC. Digital 9,024 4,500 The 4th Research Intel, AT&T Bellcore, California Strategy is based on applying The market is enormous given the Cordless Institute (FRI) of Institute of Technology (US); network of sponsor; creating an population of China. The ERC is Telephone the Ministry of Montreal University (Canada); institute for marketing to expected to gain 20% of the market System Posts and PhiLipps (Holland); and numerous monitor industrial trends; for products and services (13 (prmdJctivity TeLecammunications domestic firms and institutes. disseminate new standards through million subscribers) by the year enhancemnt) (MPT) workshops and publications; and 2000. The market also includes a promote technical exchanges. multitude of manufacturers, and the nationaL telecrammuinications ______network. Telecmmicat 7,000 5,000 Tenth Research AT&T, Northern Telecom, Shanghai- The strategy is based on TeLecommunication equipment ijrs Switching rInstitute of the BeLgium, Bell Telephone Coepany dissemination of information manufacturers, telecomeunication (productivity Ministry of Post and through publications, operators, mostly in the small- enhancent) Telecommunications professional and user and medium-size mrket. associations,training, and ______demonstration tools. TOTCAL 3a3,96 192 tlOO
0
0 1-uS- - 203 - Annex 4.9 Page 1 of 1
CHINA
TECENOLOGY DEVnELOPENT PROJECT
Procedur-s for Anpraical and AMproval of NRCa
1. With a view to broadening the base of the proposed project and ensuring transparency in the process of selection and review of ERCs, the following procedures for appraisal and approval of the ERCs were agreed upon by the GOC and the Bank:
2. The SPC has already advertised in the national media an invitation to participate in the ERC program to R&D institutions, universities, and enterprises that wish to sponsor an ERC.
3. The SPC has set up a two-stage panel review process involving leading national experts from industry, science, and technology. First, the SPC has established a two-tiered Sector Committee of Experts that will examine the technical, financial, and economic rationale for the establishment of the ERCs. The rationale for public sector support will be based on whether the ERCs proposed would: (i) have a broad positive environmental impact from the adoption of the technology; (ii) generate productivity-enhancing benefits to a large number of potential users of technologies that would not be widely diffused without the engineering development and dissemination efforts undertaken by the proposed ERCs; and (iii) generate other activities in which there are large economic and social benefits arising from externalities due to economies of scale or other systemic benefits from undertaking technology development or engineering.
4. Second, after the Sector Committee has made its recommendations on -whether the proposed ERCs meet the rationale for public sector support, a distinguished Panel of Experts (listed in Annex 4.3) will conduct a detailed review of the proposals and rank them according to their merit, following the selection criteria jointly established by the SPC and the Bank. These criteria include: the relevance of the proposed program to the Chinese economy, the scope of the work and its potential to cater to a large number of industries, the ability of the proponent to transfer technology to commercial use, the proposed collaboration strategies with foreign and domestic sources of technology, the dissemination strategy for proposed products and services, and the management and structure of the sponsoring institution (technical and financial criteria are listed in greater detail in Annex 4.1).
5. The best proposals will then be submitted to the Bank for feedback and comments on their rationale for public sector involvement and Bank support.
6. Once the Bank has endorsed the proposals according to the established criteria, the GOC will provide a final acceptance of the proposals as eligible under the ERC program.
7. The proposals are then submitted to China International Engineering Consulting Corporation, the implementing agency and financial intermediary, which will determine the financial and economic merit of the proposal and decide on its funding. IMPLEMENTATION SCHEDULE
......
INVESTMENT (ERCS)
PUBLIC SERVICES.;
(~~~~ ...... Njjjjjjjjjjjjjjjjjjjjjjjjj
. .~ . ~~ .~ ~.iiiiii . .~ ....- ...... iii i TECH.CASSISTACESNIM . ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.____...... ,,,.....
1,995 1,996 1,997 1,998 1,999 2,0002 2001 2,002 Xx FISCAL YEAR°
U DESIGN/APPRAISAL FI PROCUREMENT EZIMPLEMENTATION| - 205 -
Annex 5 2 Page 1 of 1
TECMMOLOGY DEVELOPT PROJECT
Zatimt Diahuruemnt Sch-dul- for Ban Loan
Diaburuaoent
Bank Fiscal Profile Year and China Profile Annual Cumulative Annual Cumulative 8ea_ ter Industry Bank
US$ million % of total
1996 Sept-Dec. 0 0 0.0 0.0 0 0 Jan-June 3 3 6.0 6.0 3 3
1997 July-Dec. 6 10 6.0 12.0 3 6 Jan-June 10 18 7.9 19.9 4 10
1998 July-Dec. 14 30 26.0 45.9 13 22 Jan-June 26 42 30.0 75.9 15 38
1999 July-Dec. 46 54 28.0 103.9 14 54 Jan-June SB 66 28.0 131.9 14 66
2000 July-Dec. 70 78 25.0 156.9 13 78 Jan-June 82 86 25.0 181.9 12 86
2001 July-Dec. 90 94 6.0 187.9 3 94 Jan-June 90 96 6.0 193.9 3 97
2002 July-Dec. 94 98 6.1 200.0 3 100 Jan-June 98 100 2003 July-Dec 100 - - - - - 206 - Annex 6.1 Page 1 of 6
TECHNOLOGY DEVELOPMENT PROJECT
Chaterof ol ChLna ScinLai schnology nvsent CoXRoration
Chapter 1: General Principles
Article 1 Gold China Science & Technology Investment Co. (hereinafter called "GCC") is a holding limited company by the State Planning Commission (SPC) with independent legal position. It works on, as an intermediary, transferring research achievements into productivity.
Article 2 Under the guidance of the national development strategy of economy, science and technology, sector policies, technology policies as well as the long-term program and planning, GCC is to promote applying the research results and transferring the new technologies into production. GCC also provides the services for implementation and intermediary of the Technology Development Project (constructing the national engineer research centers) loaned by the World Bank.
Article 3 GCC abides by the related law, regulations and decrees issued by the state. It upholds the socialist direction and the principles of science, justice and reliability. GCC will implement various business to the contracts and active efficiency.
Article 4 GCC will carry out its operations with the principles of independent management, self-responsibility for losses and profits, self-restriction and self-develoment.
Article 5 The registered capital of GCC is 30 million Yuan RMB. The total capital is 80 million Yuan RMB which is from SPC. The Corporation will increase its registered capital with the development of the corporation businesses.
Article 6 GCC is located in Beijing (office address is in Haidian District.) GCC will set up branches in other places according to the condition possible and the development of its businesses.
Chapter 2: Business Scope
Article 7 GCC undertakes the transferring of key research achievements and related businesses. The corporation provides the consultancy appraisal and intermediary services in the process of research achievements transferring to industry; promotes the improvements of the technology used in both small and medium enterprises and township and village factories. - 207 - Annex 6.1 Page 2 of 6
Article 8 Being entrusted, GCC provides the administration of implementation and services for constructions of national engineering research centers which are financed by the World Bank, GCC provides the services for administration of the Technology Development Project and provides the services for purchases of the ERCs according to the purchasing formula provided for by the World Bank, at the meantime, GCC manages the payment and the recovery of the World Bank investment to the ERCs and prepares the necessary data and document for SPC, MOF, and the World Bank.
Articl- 9 GCC will develop the foreign cooperations, raising the funds from various channels, so as to promote the commercialization of research achievements both home and abroad, and to strengthen the competitiveness of domestic products.
Article 10 Creating appropriate conditions for proceeding development, operations, and business agent of new high tech products (mechanism, electron, information, chemical industry, communication, new material, environmental protection and energy saving.)
Article 11 Developing the consultancy services of technical information and appraising the technical transferring activities.
Chapter 3: Operational Mode
Article 12 All the activities of GCC will apply contracting approach according to the international custom. By various means including joint shares, holding shares, joint ventures, joint operations, and shared cooperations, GCC will run comprehensive businesses under the national laws and try to maintain or increase the value of state-owned assets.
Chapter 4: Operational Management
Article 13 Under the guidance of the long-term planning, program, sector policies and technology policies prepared by SPC, GCC will make full use of market mechanism to appraise the investment projects and analysis risks independently and flexibly with scientific management and operational modes.
Article 14 The Corporation is independent in its operation, management and accounting, and self responsible for losses and profits. It will set up independent business and financial units.
Article 15 Based on the related stipulations of the state and the business needs, GCC will appoint the concerned financial organizations to manage and run the funds and make them apply to the technology transferring.
Chapter 5: Organizations and Rights - 208 - Ann Page 3 of 6
Article 16 GCC will separate the governmental functions from the enterprise, and adopt the general manager responsibility system under the leadership of the shareholder meting. The primary shareholder of GCC is SPC. The board of directors (BOD) of GCC will be selected by SPC. The BOD will be consisted of five persons, of which one chairperson, four members (of which one is executive director). The term of the BOD is four years.
Entrusted by the shareholder meeting, the BOD has the following rights:
1. Reviewing and making decisions on the general development directions and annual operations plan of the Corporation; 2. Reviewing and determining the general operation policies of the Corporation; 3. Reviewing and checking the annual budget plan, final budget, and profit distributing plan of the Corporation; 4. Reviewing and approving the increase and deduction of registered capital, merge, sub-establishment, termination and clearance of the Corporation; 5. Reviewing and approving the major investment, joint venture and share holding decisions. 6. Determining the employment and dismissal of general manager, deputy general managers and the rewards and punishment to them. The general manager will be nominated by the BOD and approved by SPC (four-year term). The general manager nominates the deputy general managers, chief economist, chief accountant and chief engineer and shall get the approval of the BOD and submits to the SPC for file. 7. Listening to the working reports of the general manager periodically, 8. Discussing and addressing other major issues which the BOD regards as necessary concerning operation and personnel of the Corporation.
Article 17 The BOD will hold several regular meetings annually. The meetings will be presided by the Chairperson or the delegated executive director when the chairperson is not able to attend the meeting. In addition, interim BOD meeting will be held when the general manager makes the request or three BOD members propose to.
During the period of no BOD meeting, the Chairperson is responsible for the daily works of the BOD, while the major issues will be reported to the BOD and filed.
Article 18 the Corporation will have one general manager and several deputy general managers. According to the development of the Corporation businesses, the Corporation will have chief economist, chief accountant, and chief engineer gradually. The staff will be employed on the contract basis. - 209 - Annex-6.1 Page 4 of 6
Article 19 The Corporation will set up several functional departments according to the requirements of the businesses and employ qualified staff for the department.
Article 20 The Corporation will expand its business scope gradually and set up subcompanies or subsidiaries accordingly.
Article 21 The organization mechanism of GCC can be expressed as the following chart.
Chart of Organization Mechanism of GCC: (draft)
|BOD|
General Kanagor D-puty General M^nager
Office Finance Service Center Domestic International Dopartment for Sci. & Tech. Business Cooperation Development Department Department l ~~~~~~~~~~Proje*cts
Of which the organization of Service Center for Science and Technology Development Projects can be showed as the following chart. - 210 - AnnAEx 6 1 Page 5 of 6
Director of the Center
Deputy Director Project of the Center Management
- Planning - Coordination - Progreso Checking - Consultation & - Progress Reporting R-aluation
Technical {~~~IAssi tance - raining Plan -Dtailod Arrangementj - Conference Arrangements
I Eq-uipment Procuremnt
- Planning - Contracting - Tender Offering - Approving - Tender gvaluating -Implementing & Checking
Financ- Management|
- Fund-Spending - Chart Reporting Supervicion - Special Account -Reviewing Management
Article 22 The main duties of the legal representative of the Corporation are the following:
1. Organizing and implementing various decisions of the BOD; 2. Formulating the draft development plan, operational policies, and regulations of the Corporation; 3. Proposing the annual budget plan, final budget, and profit distributing plan; - 211 - Annex 6.1 Page 6 of 6
4. Determining the establishment and adjustment of the institutes of the Corporation; 5. Determining employment, dismissal, salary, rewards, and punishment of the staff under the deputy general manager; 6. Executing daily administrative, operational, and financial matters and signing of documents concerned; 7. Signing of contracts and agreements of major projects following the decisions of the BOD. The deputy general managers assist the general manager in implementing the daily operations according to their divisions of task.
Chapter 6: Financial Management and Profit Distribution
Article 23 GCC carries out the financial activities following the enterprise financial standards and accounting standards issued by the state. GCC will pay taxes according to the laws and stipulations of the state.
Article 24 GCC distributes its profit following the Company Law. GCC will withdraw funds appropriately for development and material benefits under the prerequisites of guaranteeing the development of the Corporation and value maintain or increasement of state-owned assets. Subject to ratification, GCC can put its benefits into effect. Corporation to promote transferring the science and technology achievements.
Article 25 GCC carries out the laborer employing systems of engagement contract under the prerequisite of competity.
Chapter 7: Program of Revising the Charter of the Corporation
Article 26 The charter of GCC will be examined and approved by the shareholder meeting, the top authority of the Corporation. When the dominant shareholder is the SPC, the charter will be examined and approved by the SPC. The program of the adjustment and termination of the charter is the same as above.
Chapter 8: Termination of the Corporation
Article 27 The terminate program of GCC is: When the Corporation is going bankrupt or closed, the shareholder meeting of the Corporation will examine and approve whether GCC terminates its business and applies for bankrupt following the related regulations of the state. When the dominated shareholder of the Corporation is the SPC, SPC will determine whether the Corporation terminates its business and applies for bankrupt.
Chapter 9: Supplements
Article 28 This Charter will become effective after it is approved by the high authoritative organization and registered in the industrial and commercial administrative organization. - 212 - Annex7.1. Page 1 of 4
Ca=
TECHENOLOGY DEVELOPMENT PROJECT
Dociuent. in the Proj*ct File.
DOCUMENTI
LIST OF NRCs
1. Proposal for Power System Security Control, February 1994 by Nanjing Automation research Institute, Nanjing.
2. Proposal for Power Electronics, February 1994 by Xian Power Electronics Research Institute, Xian.
3. Proposal for Die and CAD Technology, February 1994 by Shanghai Jiao Tong university, Shanghai.
4. Proposal for Industrial textiles, January 1994 by China Textile Academy, Beijing.
S. Proposal for Transducer Technology, February 1994 by Shenyang Institute of Instrumentation Technology.
6. Proposal for Process Automation, January 1994 by Shanghai Institute of Process Automation and Instrumentation.
7. Proposal for Industrial Heat Treatment and Drive System, March 1994 by Zhejiang University.
8. Proposal for Ship Design Technology, January 1994 by Marine Design and Research Institute, Shanghai.
9. Proposal for Advanced Power Sources Technology, February 1994 by Tianjin Institute of Power sources.
10. Proposal for Software, January 1994 by Peking University and Beijing Guangdong Computer Center, Guangdong.
11. Proposal for Surfactant Technology, January 1994 by Research Institute of Daily Chemical industry, Taiyuan.
12. Proposal for New Welding Technology, February 1994 by Harbin Research Institute of Welding, Harbin.
13. Proposal for High Efficiency Rolling, February 1994 by University of Science and Technology, Beijing.
14. Proposal for Cordless Phone, January 1994 by The Fourth Research Institute, Xian. - 213 - Annex 7.1 Page 2 of 4
15. Proposal for Advanced Polymer Processing Technology, February 1994 by Zhengzhou Institute of Technology, Zhengzhou.
16. Proposal for Synthesis of Rubber and Plastic materials, February 1994 by Beijing Yanshan Petrochemical Research Institute, Beijing.
17. Proposal for Rare Metal Material Processing, January 1994 by Northwest Institute for Non-Ferrous Metal Research, Xian.
18. Proposal for Clean Extraction and Energy Saving in Non-Ferrous Metallurgy, February 1994 by Beijing General Research Institute of Mining and Metallurgy, Beijing.
19. Proposal for Converter Technology, February 1994 by Zhuzhou Electric Locomotive research Institute.
20. Proposal for Optical Disk Technology, February 1994 by Shanghai Institute of Metallurgy, Shanghai Institute of optics and fine Mechanics, China Textile Machinery Company Limited, Shenzhen Advanced Science and Technology Laservideo company Limited.
21. Proposal for Advanced Educational Technology, January 1994 by Tsinghua University, Beijing.
22. Proposal for Synthetic Fiber, February 1994 by Shanghai Petrochemical company, Shanghai.
23. Proposal for Communication Software, February 1994 by Shijizhuang communication laboratory.
24. Proposal for Magnetic Materials, January 1994 by Institute of Physics, and Beijing San Huan New Materials High Tech Inc..
25. Proposal for Rare Earth Materials, February 1994 by General Research Institute for Non-Ferrous Metals, Beijing.
26. Proposal for Energy Saving in Power systems February 1994 by Electric Power Research Institute.
27. Proposal for Effective Utilization of Natural Gas, February 1994 by Chengdu Institute of Organic Chemistry, Dalian Institute of Chemical Physics, Chengdu Chemical Engineering Co., Chengdu Chemical Fertilizer Plant, Chengdu.
28. Proposal for Powder Production Technology, February 1994 by East China University of Science and Technology.
29. Proposal for Laser Processing, September 1993 by Huazhong University of Science and Technology, Wuchang. - 214 - Annex 7.1 Page 3 of 4
30. Proposal for Fluid Machinery and Compressor, September 1993 by Xian Jiaotong University.
31. Proposal for Distillation Technology, May 1993 by Tianjin University.
32. Proposal for Clean Coal Combustion Technology for Industrial and Domestic Boilers, August 1993 by Tsinghua University, Beijing.
33. Proposal for Fine Petrochemical Intermediates, September 1993 by Lanzhou Institute of Chemical Physics, Lanzhou Petroleum processing and Chemical Complex, Lanzhou.
34. Proposal for Distillation Technology, September 15, by Tianjin University and China Petroleum Chemical Corporation.
35. Proposal for Manufacturing Automation, May 1993 by Beijing Research Institute of Automation for Machine Building Industry.
36. Proposal for Powder Metallurgy, May 1993 by Central South University, Hunan.
37. Proposal for Olefin Polymerization and Catalyst, May 1993 by Beijing Research Institute of chemical Industry, Beijing.
38. Proposal for Audio/Video Technical Diffusion, January 1994, by Panda Electronics Group and Nanjing Radio Factory.
39. Proposal for Telecommunication Switching and Software Support System, September 1993 by The 10th Research Institute of MPT.
40. Proposal for High Performance Homogenized Alloys, May 1994 by Institute of Metal Research.
41. Proposal for Shipping Control System, September 1993 by Shanghai Ship and Shipping Research Institute, Shanghai.
42. Proposal for Net Shape Manufacturing, September 1993 by Beijing Research Institute of Mechanical and Electrical Technology MMEI, Beijing.
43. Proposal for Clean Coal Combustion Technology, September 1993 by Thermal Power Research Institute.
44. Proposal for Petroleum Refining Technology and Catalyst, September 1993 by research Institute of Petroleum Refining, Beijing.
45. Proposal for News Processing and Electronic Publishing, January 1993 by Peking University.
46. Proposal for Mobile Communication, 1993 by Guangzhou Communication Institute, Guangzhou. - 215 - Annex 7.1 Page 4 of 4
47. Industrial Environmental Protection, November 1993 by Central Research Institute of Building and construction, Ministry of Metalurgical Industry.
48. Proposal for Paper Technology and Pollution Control, February 1994 by South China University of Technology, Guangzhou.
49. Proposal for Urban Pollution Control, January 1994 by Tongji University, Shanghai Tongji Science and Technology Industry Co. Ltd..
OTER DOCUMENTS
DOCUITH II Proposal for Strengthening the Research Basis of Metrology and Improving the Capability of Measurement and Testing Services, January,1993 by National Institute of Metrology.
DOCUnENT III Environmental Impact Assessment for ERCs.
DOCUMENT rV Proposal for Funding of A Productivity Center.
DOCUMENT V Objectives and Management Modalities of the ERC Program - 216 -
Annex 7.2 Page 1 of 1
CHINA
TECHNOLOGY DEVELOPMENT PROJECT
Outline of Contents of Semi-Annual Report (to be furnished by GCC within 30 days of end of each quarter)
I. Summary
II. Activities and Developments Related to the Implementation of the Project, by component:
(i) Approvals of ERC proposals and activities under the public services component;
(ii) Procurement Activities (details in annexure) - Tender document preparation, tendering and contract awards by ERC, progress by contract compared to agreed procurement schedule and contracts (table including (i) date of bid invitation; (ii) date bids received; (iii) date of bid validity; (iv) date of contract award; and (v) delay or elapsed time).
(iii) Status and Progress of Consultant Services (progress report of technical assistance component in annexure).
III. Financial Management - Broad parameters of GCC's financial situation; project expenditures by component; disbursements. - 217 -
Annex 7.3 Page 1 of 1
cam
TECHNOLOGY DEVELOPMENT PROJECT
SBRervision Plan
Dates Activity Skills SW
FY96 Supervision Management/Engineering 3 Mission Technology Policy 2 Financial Analysis 2 Procurement 2
Headquarters Management 3 Technology Policy 2
FY97 Supervision Management/Engineering 4 Mission Technology Policy 4 and Procurement 4 Headquarters
FY98 Mid-Term Review Management/Engineering 4 Technology Policy 4 Procurement 4 Economics 2 Financial Analysis 2
Headquarters Management 2 Economics 2
FY99 Supervision Management/Engineering 3 Mission Procurement 3 and Technology Policy 3 Headquarters
FY2000 Supervision Management/Engineering 3 Mission Procurement 3 and Technology Policy 3 Headquarters
FY2001 PCR 12