The World Bank Public Disclosure Authorized
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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 systems with 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.