Technical Assistance Consultant’s Report

Project Number: TA 7117 – PRC October 2009

People’s Republic of China: Heilongjiang Road Development II Project (Yichun-Nenjiang)

FINAL REPORT (Volume II of IV)

Submitted by:

H & J, INC. Beijing International Center, Tower 3, Suite 1707, Beijing 100026 US Headquarters: 6265 Sheridan Drive, Suite 212, Buffalo, NY 14221 In association with WINLOT No 11 An Wai Avenue, Huafu Garden B-503, Beijing 100011

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, ADB and the Government cannot be held liable for its contents. All views expressed herein may not be incorporated into the proposed project’s design.

Asian Development Bank Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Supplementary Appendix A Financial Analysis and Projections_SF1

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report SUPPLEMENTARY APPENDIX SF1

FINANCIAL ANALYSIS AND PROJECTIONS

A. Introduction

1. Financial projections and analysis have been prepared in accordance with the 2005 edition of the Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank. The Guidelines cover both revenue earning and non revenue earning projects. Project roads include expressways, Class I and Class II roads. All will be built by the Heilongjiang Provincial Communications Department (HPCD). When the project started it was assumed that all project roads would be revenue earning. It was then discovered that national guidance was that Class 2 roads should be toll free. The ADB agreed that the DFR should concentrate on the revenue earning Expressway and Class I roads,

2. As required in the Guidelines, the revenue earning evaluation was conducted in two separate parts. First were financial projections for the revenue earning project, using nominal prices (including inflation) and presenting accounting results. Second was cash flow financial analysis for the revenue earning project in constant before inflation prices producing real rates of return etc. These have very different uses, as discussed in section E.4 below.

3. The ADB decided that analysis of the revenue earning project should be backed by evaluation of the likely importance of the non-revenue earning Class II road on provincial finances. This has two major rationales. First to see if the investment and required loan will put too large a burden on HPCD. Second is to determine if future maintenance needs can be properly met.

B. Financial Forecast Assumptions

4. For convenience, accounting results are shown for 27 years, 2009 through 2035, by which date the ADB loan will be fully repaid. The FIRR calculation is made for 25 years and includes a residual value, equal to net asset value. Annual domestic inflation has been assumed at 2.0% throughout the projection period, in accordance with ADB ERD/Divisional guidance. PRC national guidance is that the depreciable life should be no more than the loan period; the FSR assumes even less. If road cost forecasts include periodic maintenance, as they do here, then that life is too short. A life of 40 years has been assumed, giving a depreciation rate of 2.5%1. Terms for ADB on lending have been assumed at 2.45% interest, plus a 0.20% handling charge. These were the 5 year Libor rates on 12 April 2009. A grace period of 5 years is assumed, in line with ongoing ADB loans to PRC. The EA have informed that they intend to pay interest during that period, which will be confirmed during negotiations. The repayment period is 20 years. A domestic loan from the China Development Bank is already agreed. The loan will have the People’s Republic Bank of China interest, which has been 5.94% since December 2008. That has been assumed to continue, which might be optimistic. Grace on repayments for the 4 year construction period has been assumed. As with the ADB loan, the EA say they will pay interest as it is incurred. The local loan is assumed to have a repayment period after grace of 20 years. Since the financial analysis includes payments of interest in construction years, it is unnecessary to amortize deferred expenses. Corporation tax at 25% has been assumed. National instructions are that 10% of after tax income should be transferred to a legal surplus reserve. Guidance is that another 10% should be set aside as staff welfare reserve. It is also expected that 95% of unallocated retained earnings will be distributed as dividends in the following year. These have all been assumed but are not shown separately in the cash flow statement due to shortage of space. The assumptions are summarized below.

1 Similar ADB projects used lives of 24, 30, 34 and 44 years.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report Table 1 Financial Forecasting Assumptions Item Assumption Forecast Period 25 years, 27 years shown in projections Domestic Inflation 2% per year US$ CNY 6.829 Depreciable Life 40 years. ADB Loan Interest 5 Year Libor rate plus 0.20% ADB handling fee Libor 10 September 2009, 2.77% ADB Loan Grace 5 years on repayments ADB Loan Grace 5 years on interest allowed but not used ADB Loan Period 20 years after grace Local Loan Interest People’s Bank of China rate, 5.94% since December 2008 Local Loan Grace 4 years on repayments Local Loan Grace 4 years on interest allowed but not used Local Loan Period 15 years after grace Tolls Base 2009 rates see Table 7 O&M Costs See FSR columns in Table 10 Periodic Maintenance Put to investment Corporation Tax 25% Legal Surplus Reserve 10% after tax income Staff Welfare Reserve 10% after tax income Dividend Distribution 95% of unallocated retained earnings FIRR Residual Life Net Asset Value

1. Toll Rates and Revenue Collection

5. Provinces in China choose one of two systems to set tariffs on tollable roads, known as the Average and the Standard systems. With the Standard system, the authorities agree a set of tariffs to be applied to all roads of a particular class in the province. With the Average system, the authorities calculate averages for existing tariffs and then use these as background when setting the tariff for a new road. Average data in Heilongjiang Province are not published and have been collated only since the Toll Bureau was set up in February 2006.

6. Heilongjiang Province uses the Average system. This means that tariffs on the Project roads cannot be known with any certainty at this stage. In practice, when the road is some six months from completion, three Heilongjiang provincial (HP) departments will between them decide on the tolls, the HP Price Department, HP Financial Department and HP Communications Department (HPCD, the EA). The initial Heilongjiang Road Development Project (HRDP1) covenanted that HPG should set rates 6 months before Project opening and inform ADB of any significant difficulties for the next three years. ADB might want to consider a covenant for the required toll; HRDP1 covenanted a DSCR of 1.2 from the 6th year of operation. Note, however, that such operational covenants have not been fully effective in other sectors: possibly because by the time the covenant is relevant, the loan is fully disbursed.

7. For expressways, HP uses the “one-stop toll collection” system recommended by the national government: vehicles receive a computerized ticket when entering the system and pay an appropriately calculated amount based on the per km toll when leaving. The provincial Finance Bureau say that all toll revenues are remitted to them to be used as general revenue. This is varied for existing BOT/O&M Concession schemes, who keep their own toll revenue. It means that any calculation of Project revenues is only notional.

2. Forecast Toll Rates

8. Heilongjiang Province’s presently stated average tolls are shown below. There is no official assumption, but the Class I and Class II tolls per vehicle stage (toll booth) are based

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report approximately on a 50 km stage length; which is used to calculate the corresponding per km tolls shown. Since the Class I project road section is only 16.3 km, use of the average vehicle stage rates shown would have put the assumed tolls per km higher than those for expressways. The ADB asked that they be lowered to equalize the rates and so 0.51 stages have been assumed.

Table 2 Average Tolls in Heilongjiang Province in CNY in 2008/09 Car/Truck Bus Express-Way Class I Class II Class I Class II By weight (ton) Seat CNY Per Km CNY Per Vehicle CNY Per Km Stage (Quoted) (Calc. @ 50 km) < 2 < 7 0.45 15 10 0.30 0.20

2-5 8-19 0.65 20 15 0.40 0.30

> 5-10 20-39 0.85 25 20 0.50 0.40

> 10-15, 20 ft container > 40 1.00 30 25 0.60 0.50

> 15, 40 ft container --- 1.20 40 30 0.80 0.60

9. Tolls assumed in similar ADB projects are summarized below – rates for only small vehicles are given to simplify presentation and since they represent over 70% of traffic. In each case, tolls were assumed to increase with inflation once every five years. With an average length of 50 km per stage, the rate of CNY 0.35 per vehicle km assumed for HRPDI is equivalent to CNY 17.5 per stage. This is above the presently quoted average rates of CNY 10 for Class II and CNY 15 for Class I.

Table 3 Base Tolls Assumed in Similar ADB RRP Project RRP Date Loan Road Type CNY/Vehicle/Km Heilongjiang RDPI June 2006 2247 Class I & II 0.35 West Guanxi Jul;y 2007 2345 Expressway 0.40 Xinjiang November 2007 2393 Expressway 0.25 – 0.30 Central Yunan September 2008 2348 Expressway 0.40

10. Heilongjiang Province say that tolls once set remain the same until there is some major change. It is true that tolls on recently built toll roads have remained the same for several years. Older toll roads, however, have had their tolls increased for a variety of reasons, including: (a) computerization of the toll collection system; (b) roads extended or joined; (c) change in the road classification; (d) major rehabilitation. Specific examples are shown below.

Table 4 Past Toll Increases, Small Vehicle (CNY/Vehicle/Km) Expressway Year Toll Year Toll Year Toll Year Toll Equivalent % pa incr. Harbin – A Cheng 1989 0.09 1995 0.23 2001 0.36 2004 0.45 11% Mudanjiang – Yabuli 1997 0.25 2003 0.30 2007 0.43 6% Shangzhi – Yabuli 1995 0.20 2004 0.40 8%

11. National inflation 1989 to 2004 averaged some 5.5% pa; inflation 1997 through 2007 was only just over 1% pa. So, these examples indicate that toll rates in Heilongjiang have in the past increased at rates some 5% pa above inflation. To be conservative, however, and in line with assumptions made in similar ADB projects, the assumption is made that increases will be only in line with inflation. This includes the period from the present until the Project roads open. Note, however, that this assumption would not provide sufficient revenues in early years.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report 12. Traffic forecasts provided are for the length of the road and so expressway revenues are relatively simple to model. The project Class I road is only 13 km and so it is difficult to predict the toll which will be set. Using the average toll per vehicle given in Table 7 for the Project Class I road would give a toll per km about double the corresponding expressway toll. However, lowering the assumed toll by an equivalent amount would put the Class I FIRR significantly below those of the expressways. When the time comes to set the tolls for Project roads, decision makers are likely to consider the need to obtain approximate symmetry. Following ADB instructions to make Class I tolls per km no higher than Expressway tolls, 51% of the present average Class I stage toll has been assumed as base.

3. Road Operating and Maintenance Costs

13. Road O&M costs should include the following: (a) direct operating costs, such as toll booth operations; (b) annual maintenance costs; (b) periodic maintenance costs; (c) management costs, including those of the Toll Road Bureau division managing the road. Periodic maintenance could be put to O&M or to investments. As shown in Table 13, HPCD put them to investments and so the same is done here. It might increase corporation tax if paid but does increase the Project end value and so the FIRR.

14. Estimated costs could be based on: (a) assumed engineering needs; (b) actual costs. The PPTA consultants asked both the FSR DI and the HPCD Finance Bureau. The numbers they gave per km are shown below. Periodic maintenance given in the FSR is assumed to be once every nine years. Similar data from the Finance Bureau is included in their annual management cost, which includes everything except routine maintenance, landscaping and snow clearance. The major difference is in the cost of routine maintenance. The low level given by the HPCD FB implies that they are basing costs more on practice than needs. For this reason the longer run FSR assumptions given here have been used in the financial analysis.

Table 5 Alternative Road Long Run O&M Costs (CNY 000 per Km) FSR HPCD FB Express Class I Class II Express Class I Class II Toll Station Not sep. Not sep. Not sep. Not sep. Not sep. Not sep.

Other Ops 23 Not sep. Not sep. Not sep.

Routine Maintenance 150 30 15 20 20 10.5

Periodic Maintenance 1,950 1,000 500 Incl. Incl. Incl.

Management n.a. n.a. n.a. 220.6 131.4 70.4

Project Km 206.75 16.26 135.90 206.75 16.26 135.90

CNY000/Km

Investment 19,455 18,930 5,147 19,455 18,930 5,147

O&M 390 164 94 241 151 81

O&M/Invest. 2.00% 0.87% 1.82% 1.24% 0.80% 1.57%

average 1.86% 1.34%

15. Note that an even larger variation in unit cost assumptions is found in a cross-comparison between other similar recent ADB funded PRC road projects, as shown in the following table.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report These assumptions determine the DSCR cash flow results given for the projects in Table 15 below. The high DSCR ratio for Xinjiang given there, for example, is the direct result of the low assumed routine expressway maintenance costs.

Table 6 Routine Maintenance Costs Assumed in Similar ADB RRP Project RRP Date Loan Road Type CNY/Km/Year Heilongjiang RDPI June 2006 2247 Class I & II 12,000 West Guanxi July 2007 2345 Expressway 200,000 Xinjiang November 2007 2393 Expressway 50,000 Central Yunan September 2008 2348 Expressway 80,000

16. The HPCD maintenance report2 funded under ADB Loan 2247 estimates that on average maintenance of 100% of expressway, 50% of Class I and 72% of Class II highways are covered by tolls. For the remainder, funds used to be collected for road maintenance through annual charges per vehicle registered in the province. Some of these funds were passed on as annual grants to local governments for the roads they manage. The report quotes: CNY 65,000/km for Class I roads, CNY 31,000/km for Class II roads and CNY 7,200/km for the rest.

17. The report says that in practice many of the maintenance funds have been officially or unofficially re-allocated to road construction. The report also says that the Province now has debt for high class highways of some CNY 35 billion (US$5 billion). To put this into context, lengths, unit and derived total replacement costs by road type and administration are given below.

Table 7 Length and Value of Roads in Heilongjiang Province Roads Express Class I Class II Class III Class IV Under Total

KM

National 1,019 952 1,832 1,182 23 5,008

Provincial 184 3,879 3,008 1,033 53 8,157

County 72 1,035 6,016 1,483 42 8,648

Township 59 493 16,190 23,570 14,006 54,318

Village 56 5,362 23,746 32,524 61,688

Special 25 186 149 1,270 1,027 434 3,091

Total 1,044 1,453 7,444 33,028 50,882 47,059 140,910

Nat/Prov. 1,019 1,136 5,711 4,190 1,056 53 13,165

CNY M/Km 25 10 5 3 1 0

CNY Million

National 25,475 9,520 9,160 3,546 23 0 47,724

Provincial 0 1,840 19,395 9,024 1,033 0 31,292

2 Report on Road Maintenance Systems in Heilongjiang, W. Greg Wood, 2008.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report County 0 720 5,175 18,048 1,483 0 25,426

Township 0 590 2,465 48,570 23,570 0 75,195

Village 0 0 280 16,086 23,746 0 40,112

Special 625 1,860 745 3,810 1,027 0 8,067

Total 26,100 14,530 37,220 99,084 50,882 0 227,816

Nat/Prov. 25,475 11,360 28,555 12,570 1,056 0 79,016

18. The above table shows that total replacement costs of all roads in the province using lengths and unit costs given there calculate to CNY 228 billion. Similar costs for national or provincial roads are CNY 79 billion, of which CNY 65 billion is expressway and Classes I & II. Table 13 below shows that HPCD’s construction and periodic rehabilitation expenses 2006 through 2008 was CNY 42 billion, of which 42% was spent on national and provincial roads and the remaining 58% on other roads. If the loans were for all existing national and provincial roads they have funded some 44% of the total; if only for expressway and Class I & II roads, 54%. Both estimates seem reasonable in line with the national requirement of 35% for equity.

19. Table 13 also shows that costs of routine maintenance on national and provincial roads have averaged CNY 625 million per over the last three years. That is 0.8% of total replacement costs. This is less than needs assumed by engineers. The referred to maintenance report asks for 2% to 2.5%. The FSR as shown in Table 10 asks for 1.9%; HPCD FB 1.3%.

C. Fiscal Impact Analysis

20. Revenues and expenditure of HPCD since 2006 are shown below, with HPCD’s own forecasts for the next three years.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report Table 8 HPCD Revenues and Expenditures (CNY Billion) Item Actual 2006 - 2008 Forecast

2006 2007 2008 Total % 2009 2010 2011

Revenue

1 Administration revenue 2.95 3.23 3.55 9.74 16.3% 3.44 4.25 4.57

Road maintenance fee 2.44 2.79 3.02 8.25 13.8% 3.00 3.51 3.80

Surcharge on passenger and freight 0.32 0.20 0.24 0.76 1.3% 0.20 0.43 0.44

Transport management fee 0.20 0.24 0.29 0.72 1.2% 0.24 0.32 0.33

2 Subsidy of MOC 3.73 3.71 3.97 11.41 19.1% 4.16 7.37 3.46

3 Toll revenue 2.34 2.58 2.87 7.79 13.1% 3.21 3.62 4.05

4 Bank loan 4.72 6.92 5.90 17.53 29.4% 8.45 15.54 12.45

5 Subsidy of provincial budget 0.00 0.00 1.40 1.40 2.3% 2.25 1.28 1.06

6 Traffic construction fee 0.00 0.00 0.40 0.40 0.7% 0.90 0.90 0.50

7 Local funds 1.40 3.71 6.28 11.39 19.1% 8.61 4.97 0.16

Total 15.14 20.15 24.36 59.65 100% 31.02 37.93 26.25

Expenditures

1 Management expenses sub-units 0.60 0.61 0.66 1.87 3.3% 0.67 0.70 0.70

2 Routine maintenance, National/Provincial 0.60 0.61 0.67 1.87 3.3% 0.68 1.00 1.00

3 Public facility infrastructure 0.32 0.20 0.24 0.76 1.4% 0.20 0.43 0.44

4 Transport sector expenses 0.20 0.24 0.29 0.72 1.3% 0.24 0.32 0.33

5 Construction & periodic rehabilitation 10.83 15.39 15.73 41.95 74.4% 24.47 31.11 18.69

National and provincial roads 5.45 5.71 6.42 17.58 31.2% 19.03 22.39 16.38

Rural roads 5.37 9.68 9.31 24.36 43.2% 5.44 8.72 2.31

6 Repayment of interest and principal 2.60 3.10 3.48 9.18 16.3% 3.67 4.00 4.95

Principal 1.37 1.27 1.03 3.67 6.5% 1.16 1.30 1.48

Interest 1.23 1.83 2.45 5.51 9.8% 2.51 2.70 3.47

7 Contingency 0.00 0.00 0.00 0.00 0.0% 1.50 1.00 0.00

Total 15.14 20.15 21.07 56.36 100% 31.44 38.55 26.11

D. Revenue Earning Alternatives Evaluated and Presented

21. There is national guidance that tolls on Class II highways should be eliminated. 136 km of the 359 km of the project roads to be built are planned to be Class II roads. Eliminating the toll

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report would financially impact the Project since it could mean that the Class II section should not be included in the revenue earning analysis. The importance of this should not be over-estimated, however, for two reasons. First, tolls on the Class II road based on present rates would be only some 12.6% of total Project toll revenues. Second, and more importantly, as part of the process of eliminating tolls on Class II roads, the central government (CG): (a) eliminated the annual road maintenance tax per vehicle now paid to provinces; (b) added a fuel tax paid by all road users to the CG; (c) stated that the fuel tax would be redistributed by the CG to the provinces in order to provide funds for road maintenance. Exact workings of the new policy cannot yet be determined but the assumption that Class II toll revenues would be replaced by CG maintenance transfers seems reasonable. For this reason. the overall financial assessment has been performed for: (a) the project as a whole, with imputed revenues for the included Class II road derived from present average toll rates; (b) for the toll revenue earning roads, ie 2 x Expressway and 1 x Class I. Results for both are available but projections are given here only for revenue earning projects.

22. In both cases, two alternative toll rate assumptions have been used: (a) present average provincial rates; (b) the present average rates increased annually with inflation. Provincial authorities say to assume the former; practice summarized in Table 9 implies at least the latter. Previous ADB toll road RRP have assumed inflationary increases, albeit only every five years. The assumption has an important effect on the result, as shown for the alternative financial FIRR analysis results in Table 18. Accounting projections are given here only with toll inflation but without are available if required.

23. ADB asks that the cash flow FIRR assessment be performed both before and after corporation tax. This can only be done when accounting financial projections for the alternative have been made and so the number of options is limited. Results are given for: (a) the project as a whole as in (a) above, before and after tax; (b) revenue earning roads as in (b) above, before and after tax; (c) each of the three revenue earning roads individually before tax. Results for each of the five alternatives are given with both the present toll and with toll rates increased with inflation.

E. Financial Results for Revenue Earning Components

1. Financial Projections, Accounting

24. Detailed results of the financial projections are given in Appendix SF2, which contains: Income Statement, Balance Sheet, Cash Flows. Summaries of these accounting projections are given in Table 16 below. The results given here are for the revenue earning sections of the Project, assuming that tolls increase from present average levels annually in line with national inflation. The effects of no inflationary increase in tolls are neither practical nor feasible – the DSCR does not reach 1.2 until 2021. They are available on file but are not shown here. More easily displayed FIRR results with and without inflationary increase are given in Table 18 below.

25. Table 14 shows the results for key financial indicators. Results for the project as a whole with imputed revenues for Class II roads are similar. For example, the average DSCR for the latter is 2.57 compared to the 2.71 for all revenue earning projects shown below. The financial ratios shown include those for which specific assurances might be asked or covenanted. These are for the maintenance of: (a) minimum debt service coverage ratio (DSCR) of 1.2; (b) maximum debt to equity ratio of 70/303 = 2.3; and (c) minimum current ratio of 2. Some leeway could be allowed in the current ratio, which measures current assets over current liabilities, if the number is below two only for a few years at the start of project operations.

3 This is more lax than the PRC requirement of 35% local, eg equity, financing.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table 9 Revenue Earning Project Results, with Inflationary Toll Increases 2014 2015 2016 2017 2018 2019 2020 2013 – 2033

Avgax M

Operating Ratio 36.2% 48.2% 47.0% 46.2% 45.4% 42.9% 42.3% 41.4% 48.2%

Operating Margin 8.6% 6.0% 15.7% 23.2% 30.1% 42.4% 47.7% 54.9% 82.6%

ROR on Total Assets 1.2% 1.1% 1.9% 2.6% 3.4% 5.3% 6.4% 10.0% 20.4%

ROR on NFA 0.6% 0.5% 1.4% 2.2% 3.2% 5.6% 7.0% 14.2% 34.2%

Return on Equity 2.9% 2.4% 6.6% 9.9% 12.8% 19.0% 20.3% 29.8% 56.8%

Debt Service Coverage 0.85 1.01 1.12 1.22 1.32 1.60 1.73 3.63 21.37

Current Ratio -3.44 -3.33 -2.80 -2.27 -1.71 -0.84 -0.12 2.16 16.64

Long Term Debt: Equity 3.79 3.58 3.28 2.94 2.56 2.13 1.74 1.48 4.00

Debt/(Debt + Equity) 0.79 0.78 0.77 0.75 0.72 0.68 0.64 0.45 0.80

26. As can be seen, however, tolls based on present average levels, even if increased with inflation, would not satisfy for several years a main ADB requirement of a DSCR above 1.2. In fact, since the DSCR before 2017 is below 1.0, there are cash flow deficits and the project would require additional equity injection. This situation is allowed in Heilongjiang Province where cross-subsidies across toll roads is accepted. It has also not been unusual in similar ADB projects which have been accepted by the Board, as the following table shows. The Xinjiang project does show reasonable DSCR but this could be because the assumed routine maintenance, as shown in Table 11 is low.

Table 10 DSCR Forecasts for Recent ADB PRC Road Projects Project 2010 2011 2012 2013 2014 2015 2016 2017 Heilongjiang I 0.82 0.89 0.97 1.06 1.16 1.46 West Guanxi 0.3 0.5 0.6 0.6 0.7 1.0 Xinjiang 1.5 1.3 1.5 1.6 Central Yunan 0.56 0.50 0.51 0.53 0.58

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table 11 Projected Financial Statements for Revenue Earning Sections of Heilongjiang Road Project II Nominal CNY Million 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030 2035

Total AADT – 358.9 km 0 0 0 0 0 6,902 7,974 8,946 9,656 10,425 11,255 12,154 16,982 22,108 27,950

INCOME STATEMENT

Total Revenues 0.0 0.0 0.0 0.0 0.0 323.8 378.0 415.7 449.6 485.9 579.9 626.7 965.0 1,377.1 1,905.7

Total Operating Expenses 0.0 0.0 0.0 0.0 44.0 46.2 48.5 51.0 53.6 56.3 59.1 62.1 79.5 101.7 130.2

Depreciation 0.0 0.0 0.0 0.0 0.0 64.0 128.0 128.0 128.0 128.0 128.0 128.0 147.6 147.6 178.2

Net Income (Loss) before Tax -4.6 -42.3 -111.0 -162.1 -224.9 27.8 22.7 65.3 104.5 146.3 246.0 299.0 654.0 1,114.1 1,606.7

Income Tax 0.0 0.0 0.0 0.0 0.0 7.0 5.7 16.3 26.1 36.6 61.5 74.8 163.5 278.5 401.7

Net Income (Loss) after Tax -4.6 -42.3 -111.0 -162.1 -224.9 20.9 17.0 49.0 78.4 109.7 184.5 224.3 490.5 835.6 1,205.0

CASH FLOW STATEMENT

Income before Dep/Interest 0.0 0.0 0.0 0.0 -44.0 277.6 329.5 364.7 396.1 429.7 520.7 564.6 885.5 1,275.4 1,775.5

Total Equity 68.3 485.6 572.3 240.5 105.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Borrowing 181.9 1,285.4 1,486.3 566.2 192.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Sources 250.2 1,771.0 2,058.6 806.7 253.4 277.6 329.5 364.7 396.1 429.7 520.7 564.6 885.5 1,275.4 1,775.5

Physical Investment 250.9 1,773.1 2,050.4 781.2 265.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Amortization of ADB Debt 0.0 0.0 0.0 0.0 0.0 43.6 44.9 46.3 47.6 49.0 50.5 52.0 60.2 69.7 0.0

Amortization of Local Debt 0.0 0.0 0.0 0.0 0.0 96.3 102.0 108.1 114.5 121.3 128.5 136.1 181.7 242.4 0.0

Interest on ADB Debt 0.9 8.8 21.0 30.4 33.8 34.7 33.4 32.1 30.7 29.3 27.8 26.3 18.1 8.7 0.0

Interest on CDB Debt 3.7 33.6 90.0 131.7 147.2 151.1 145.4 139.3 132.9 126.1 118.9 111.3 65.7 5.0 -9.4

Total L/T Debt Service 4.6 42.3 111.0 162.1 181.0 325.7 325.7 325.7 325.7 325.7 325.7 325.7 325.7 325.8 -9.4

Working Capital Needs 0.0 0.0 0.0 0.0 0.0 -7.0 1.3 -10.6 -9.8 -10.4 -24.9 -13.3 -17.2 -19.4 -17.4

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Profit Sharing 0.0 0.0 0.0 0.0 0.0 4.2 3.4 9.8 15.7 21.9 36.9 44.9 445.1 783.1 1,156.2

Income Tax 0.0 0.0 0.0 0.0 0.0 7.0 5.7 16.3 26.1 36.6 61.5 74.8 163.5 278.5 401.7

Total Application 255.5 1,815.4 2,161.3 943.3 446.2 325.7 332.7 331.4 342.0 351.8 362.3 387.2 472.0 584.9 374.9

Fund Changes -5.3 -44.4 -102.7 -136.6 -192.8 -48.1 -3.2 33.3 54.0 77.8 158.5 177.4 413.5 690.5 1,400.5

Debt Service Coverage Ratio 0.0 0.0 0.0 -4.8 -1.7 0.9 1.0 1.1 1.2 1.3 1.6 1.7 2.7 3.9

BALANCE SHEET

Assets in Operation 0.0 0.0 0.0 0.0 0.0 5,120.9 5,120.9 5,120.9 5,120.9 5,120.9 5,120.9 5,120.9 5,904.4 5,904.4 7,126.3

Accumulated Depreciation 0.0 0.0 0.0 0.0 0.0 64.0 192.0 320.1 448.1 576.1 704.1 832.1 1,521.2 2,259.3 3,104.2

Cash + Deposits -5.3 -49.7 -152.4 -289.0 -481.8 -529.9 -533.1 -499.8 -445.7 -367.9 -209.4 -32.0 701.1 3,512.7 8,209.2

TOTAL ASSETS 245.7 1,974.3 3,922.0 4,566.6 4,639.0 4,526.9 4,395.8 4,301.1 4,227.1 4,176.9 4,207.3 4,256.7 5,084.3 7,157.8 12,231.3

Long Term-Debt – Net 181.9 1,467.3 2,953.6 3,519.8 3,572.1 3,425.2 3,270.9 3,108.7 2,938.4 2,759.4 2,571.2 2,373.5 1,220.6 -9.2 -159.1

Reserves/Retained Earnings -4.6 -46.9 -157.9 -320.0 -544.9 -528.2 -514.6 -475.4 -412.7 -324.9 -177.3 2.1 410.7 700.9 1,012.2

Total Equity 63.8 507.0 968.4 1,046.8 927.0 943.7 957.3 996.5 1,059.2 1,146.9 1,294.5 1,474.0 1,882.6 2,172.8 2,484.1

EQUITY AND LIABILITIES 245.7 1,974.3 3,922.0 4,566.6 4,639.0 4,526.9 4,395.8 4,301.1 4,227.1 4,176.9 4,207.3 4,256.7 5,084.3 7,157.8 12,231.3

Current Ratio 0.0 -3.4 -3.4 -3.3 -2.8 -2.3 -1.7 -0.8 -0.1 1.7 10.0 20.4

Debt/Equity Ratio 2.9 2.9 3.0 3.4 4.0 3.8 3.6 3.3 2.9 2.6 2.1 1.7 0.8 0.0 -0.1

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Heilongjiang Road Development II (TA 7117 – PRC)

2. Financial Analysis Results, WACC and FIRR

27. ADB project financial analysis requires that the financial internal rate of return (FIRR) is compared against the weighted average cost of capital (WACC). The WACC was calculated in real terms for the Project, as shown below. Funding sources are the ADB loan (20%), local bank loans (42%) and capital contributions from central and local governments (38%). Assumed nominal cost of funds are 2.97%, 5.94% and 8.0% for the ADB loan, local loan and government funds respectively. The cost of government funds is the assumed opportunity cost of capital as given in NDRC and the Ministry of Housing and Urban-Rural Construction 2006 guidelines for the economic analysis of projects in the PRC. Long run inflation was estimated at 0.5% and 2.0% for foreign and local costs. Allowing for taxes at 25% on loans but not equity, the WACC is estimated as 3.45%.

Table 12 Weighted Average Cost of Capital (WACC)

Source Amount Weight Nominal Tax Tax Adj. Inflation Real Weighted CNY M Rate Rate Nom. Cost Rate Cost Comp. ADB Loan 1,367 20.2% 2.7% 25% 2.0% 0.5% 1.48% 0.30%

Local Bank Loans 2,995 44.3% 5.9% 25% 4.5% 2.0% 2.41% 1.07%

Government Equity 2,405 35.5% 8.0% 0% 8.0% 2.0% 5.88% 2.09%

Total 6,767 100.0% 3.45%

28. FIRR and NPV in CNY million calculated for: (a) the complete project (with imputed Class II tolls); (b) the revenue earning project; and (c) individual revenue earning sub-projects are given below for two assumptions: (i) present average tolls as assumed by the EA; (ii) with those tolls increased in line with inflation every five years starting in 2014. All are above the WACC.

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Heilongjiang Road Development II (TA 7117 – PRC)

Table 13 FIRR and NPV (CNY Million) Alternative Results WACC 3.45% Constant Tolls Inflated Tolls NPV FIRR NPV FIRR Total Project

After tax 8.5 3.60% 1,439.6 5.19%

Before tax 556.6 4.24% 2,414.9 6.12%

All Revenue Earning Components

After tax 136.3 3.78% 2,080.6 6.22%

Before tax 643.3 4.45% 3,131.1 7.29%

Individual Components, before tax

Expressway 1 309.7 4.15% 1,478.6 6.01%

Expressway 2 106.6 4.36% 409.9 6.26%

CIass I 162.6 6.31% 303.7 8.13%

29. FIRR and WACC results for similar recent ADB projects are shown below. All assumed tolls increasing with inflation. Reasons for differences depend presumably upon the various assumptions for base toll and costs, shown in Table 8 and Table 11 above.

Table 14 FIRR/WACC Result for Recent ADB PRC Road Projects Project FIRR NPV CNY M WACC Heilongjiang I 6.53% 2.78% West Guanxi 4.5% 3.3% Xinjiang 5.06% 3.21% Central Yunan 4.3% 541 3.5%

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Heilongjiang Road Development II (TA 7117 – PRC)

Table 15 Base FIRR Calculation for Revenue Earning Project With Inflated Tolls Capital Operating Operating Net Cash Flow Cost Revenues Outflows before tax after tax 2009 -249.9 0.0 0.0 -249.9 -249.9

2010 -1,750.3 0.0 0.0 -1,750.3 -1,750.3

2011 -1,999.0 0.0 0.0 -1,999.0 -1,999.0

2012 -748.6 0.0 0.0 -748.6 -748.6

2013 -249.2 0.0 -41.3 -290.5 -290.5

2014 0.0 298.2 -42.5 262.1 255.7

2015 0.0 341.3 -50.1 296.4 291.2

2016 0.0 368.0 -50.1 332.3 317.8

2017 0.0 390.2 -60.6 352.2 329.6

2018 0.0 413.4 -70.1 374.5 343.4

2019 0.0 483.7 -79.8 455.2 403.9

2020 0.0 512.5 -101.1 472.6 411.5

2021 0.0 539.7 -112.2 498.0 427.5

2022 -615.9 565.4 -123.0 -94.1 -173.6

2023 0.0 591.5 -133.5 544.8 458.0

2024 0.0 683.2 -142.3 651.5 540.9

2025 0.0 714.8 -167.2 668.6 547.5

2026 0.0 741.2 -179.4 692.2 561.8

2027 0.0 764.7 -190.3 713.3 574.4

2028 0.0 788.0 -200.6 734.9 587.4

2029 0.0 896.5 -210.8 863.0 685.7

2030 0.0 923.9 -242.1 868.7 681.8

2031 -803.6 952.1 -253.5 91.6 -105.1

2032 0.0 982.7 -265.2 919.7 717.5

2033 0.0 1,006.1 -272.7 5,317.6 5,111.7

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Heilongjiang Road Development II (TA 7117 – PRC)

NPV @ WACC 3,131 2,081

FIRR 7.29% 6.22%

3. Financial Analysis Sensitivity Analysis

30. ADB economic guidelines ask that the sensitivity analysis be conducted against the factors most likely to vary from the assumed base case. Financial guidelines are more restrictive and ask for the results of 10% and 20% decreases in revenues and increases in costs together with a worst case scenario which adds a one year delay in project development. They also ask for sensitivity indicators (SI) or switching values (SV). The sensitivity indicator compares the percentage change in a variable with the percentage change in the NPV or EIRR. The switching value identifies the percentage change in a variable for the project to become sub- optimal and the project decision to change. Since the SI is merely the inverse of the SV, and the SV is more intuitive, only the SV is given. Economists prefer the value to be calculated against the NPV. ADB Finance prefers it against the FIRR.

Table 16 Sensitivity Analysis Item Change NPV FIRR Switching Value FIRR Base 2,080.6 6.22%

Revenue Decrease -10% 1,367.6 5.37% -31.0%

Revenue Decrease -20% 654.5 4.47% -30.1%

Cost Increase 10% 1,394.2 5.27% 27.9%

Cost Increase 20% 707.8 4.41% 29.1%

Revenue & Cost -/+ 20% -718.3 2.70% 14.9%

Rev & Cost + and 1 Year Delay -/+ 20% -851.1 2.48% 14.1%

31. Sensitivity results for similar recent ADB projects are shown below.

Table 17 Sensitivity Result for Recent ADB PRC Road Projects Project Base Sensitivity 1 FIRR Sensitivity 2 FIRR FIRR Revs. Down Costs Up/Revs Down Heilongjiang I 6.53% 20% 5.79% +10%; -20% 4.21%

West Guanxi 4.5% 20% 3.8% +10%/-10% & 1 year delay 3.3%

Xinjiang 5.06% 20% 3.33% +20%; -20% 2.11%

Central Yunan 4.3% 10% 4.2% +10%/-10%\& 1 year delay 3.4%

4. Summary Revenue Earning Financial Results

32. The two sets of financial results given above present two different pictures. The financial projections show that even with tolls increased with inflation there would be cash flow deficits

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Heilongjiang Road Development II (TA 7117 – PRC)

until 2015 and the ADB norm of a 1.2 DSCR would not be attained until 2017. To obtain acceptable cash flows in early years, starting toll rates should be some 40% above present averages. The EA might consider this when setting starting tolls. Even without such increases, however, the after tax FIRR would be 6.22%. This is above the 3.59% WACC and so ADB Guidelines say the Project is financially viable.

33. The reason for the difference between the financial projections and financial analysis results is that financial projections include loan payments. So they often, as here, show cash flow deficits in early years; when loan payments have started but before revenues have increased to sustainable levels. The financial analysis FIRR ignores loan payments and so does not see these early year problems. So the Project may be financially viable but still have initial sustainability problems.

34. These differences are evident in many ADB projects. The table below summarizes the DSCR and FIRR results shown above for recent ADB PRC road projects and also gives quotes from the text of the corresponding RRP4. Project results are also given in the table for reference purposes. Since a DSCR below one implies a cash flow deficit, all the projects apart from Xinjiang would have cash flow deficits in early and in some cases later years and so would have at least had forecast early year sustainability problems. Results for Xinjiang are made suspect by the low level of assumed routine maintenance. None of this was mentioned in the body of the respective RRPs although ADB Financial Guidelines say in 1.3.2 that sustainability “must be confirmed by timely, accurate financial reporting by borrowers and by timely and rigorous project supervision by financial analysts.”

Table 18 Financial Forecast Summaries for Recent ADB PRC Road Projects Project DCSR avg. 1st FIRR Quote From RRP 3 Operational Years Heilong-jiang I 0.89 6.53 The highway is considered to be both financially viable % and sustainable West Guanxi 0.46 4.5% The Project is considered financially viable and sustainable Xinjiang 1.43 5.06 The FIRR is higher than the WACC and therefore the % Project is considered financially viable Central Yunan 0.52 4.3% The Project is considered financially viable and sustainable

Project 0.99 6.22 The expressway is considered financially viable in the % longer term.

F. Non Revenue Earning Component Financial Effects

35. The non-revenue earning Class II road will cost CNY 797 million (US$ 117 million) in nominal prices, excluding interest during construction. The Class II road cost is 16.9% of Project investment costs (excluding IDC) even though it will be 37.9% of km. Class II construction costs per km are only some 26% of corresponding expressway costs. The investment cost of the Class II project roads will be only some 1.52% of three year costs

4 Note that the recent suggestion by EARD to compare assumptions used in financial analysis is shown by the comparisons given here to be particularly worthwhile. It implies that it would be useful for EARD to maintain a data base for use by PPTA consultants.

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Heilongjiang Road Development II (TA 7117 – PRC) forecast by HPCD for 2009 through 2011 - total Project costs will be 11.0%. Loans taken out for the Class II Project road will be 0.55% of those forecast by HPCD 2009-2011. They will be 1.14% of loans taken out 2006 through 2008, however – as shown in Table 13 above, HPCD expect significantly more loans in the three years u/i 2008 than in the three years from 2008. Debt payments (ADB and CDB) for the Class II road in 2014 will be only 0.77% of HPCD debt payments in 2011.

36. Table 10 shows road operating and maintenance costs assumed in the FSR and proposed by the HPCD Finance Bureau (FB). Understandably, they use different allocation systems. Equally understandably for a province with a high proportion of new roads, the FB estimates are a little below those in the FSR. As with revenue earning projects, the FSR estimates have been used. Since only one overall management/other figure is available there it is possible that its use will overestimate costs for the non-revenue earning Class II roads. These imply regular operating and routine maintenance costs for the 136 km of Project Class II roads of 2008 CNY5.2 million. In addition would be 9 yearly periodic maintenance costs of some 2008 CNY68 million. If the latter are annualized, total annual costs would be some 2008 CNY12.75 million. This is 0.8% of HPCD’s annual expenditure for management and routine maintenance. The low level is understandable, given that the length of the Project Class II is less than 1% of the length of roads under HPCD management.

G. Private Sector Participation in Heilongjiang Province Roads

1. BOT Schemes in Heilongjiang Province

37. In Heilongjiang Province there are two BOT, both now owned by the same holding company, the Heilongjiang Guanyang Construction Road-Bridge Engineer (Group) Co. Ltd. This company has two subsidiaries: Heilongjiang Dongchang Highway Co. Ltd. operates the Zhaodong-Zhaozhou highway; Heilongjiang Haxi Highway Co Ltd. operates the Hulan-Lanxi highway. Physical and financial details of each highway are shown below. The BOT concession will last for 30 years after the start of construction. BOTs also benefit from a preferential tax policy, business tax at 3% instead of 5%.

Table 19 Heilongjiang BOT Details Zhaodong- Zhaozhou Hulan-Lanxi Length Class I, 22 km Class I, 51.7 km Class II, 20.5 km Construction Start Sept 2000 Sept 2003 Construction End Sept 2002 Oct 2005 Construction Cost CNY 345 million CNY 599 million Loan CNY 310 million Annual Debt Cost CNY 19 million Annual Operating Cost CNY 2.4 million Workers 69 63 Staff 7 12 Annual Revenues CNY 17.5 million CNY 33 million Return on Investment 5.1% 5.5%

38. Tolls rates on the two roads are:

Table 20 Heilongjiang BOT Toll Rates Car/Truck Bus Zhaodong- Zhaozhou Hulan-Lanxi Ton Seat Class I Class II Class I CNY/Vehicle

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Heilongjiang Road Development II (TA 7117 – PRC)

1 ﹤2 ﹤7 10 6 20

2 2-5 8-9 14 10 30

3 5-10 20-39 18 14 40

4 10-15 ﹥40 22 16 50

5 ﹥15 --- 28 18 55

. 39. Unlike publicly built roads, BOT road tolls are not remitted to the Finance Bureau but are directly collected and kept by the company. HPCD say that tolls on BOT roads are about 20% higher than on publicly built roads, in order to allow a return on investment. Comparison of the tolls on the present BOT roads with the provincial averages is complicated by uncertainty as to the length of road to which the averages apply. In general this is thought to be about 50 km, which implies that the toll rates for the Hulan-Lanxi road are at least 33% above the average. For the Zhaodong-Zhaozhou highway, if all vehicles go through each of the three toll booths, tolls are nearly double the average. For a group one vehicle, the charge for traveling the 42.5 km would be CNY 22/vehicle. This compares to a Class 1 average of CNY 15/vehicle and a Class II average of CNY 10/vehicle, possibly for similar length roads.

Table 21 BOT and Average Provincial Tolls Compared Zhaodong- Zhaozhou Hulan-Lanxi Vehicle Group Class I Class II Class I Km 22 20.5 51.7

Booths 1 2 1

Toll/Booth % Average % Average % Average

1 67% 120% 133%

2 70% 133% 150%

3 72% 140% 160%

4 73% 128% 167%

5 70% 120% 138%

40. In spite of this, and of the comparable returns to investment for the two roads given in Table 24 above, the company told the PPTA consultants that low demand on the Zhaodong- Zhaozhou road means that tolls cannot cover all costs. They say that demand is lower than forecast for two reasons. First is its location in the north-west of the province; second are alternative railway and river routes. Hulan-Lanxi, they say, has good traffic flow so that tolls can cover costs.

2. O&M Concessions in Heilongjiang Province

41. There do not appear to be any existing O&M concessions in Heilongjiang Province. Concessions were to be set up under Loan 2247/Project 39038. The PAM for that loan includes in para 7 "Upon project completion, HPCD will do its best to award an O&M concession." The PPTA have discussed this with HPCD. They say that no concessions have yet been awarded and that they will discuss their need with the ADB on project completion. The Loan 2247 PID

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Heilongjiang Road Development II (TA 7117 – PRC) says that as of end January 2009, the project was 71% complete. It is probable that final completion is unlikely before 2010.

42. Para 6 of the above PAM said that the loan would fund a "study on how to strengthen domestic capacity…. and how to facilitate awarding O&M concessions". HPCD confirm that the study has not yet been done. The PPTA contacted Winlot who are to do the study. They say that it was meant to start last July but is now planned for sometime after March. The expected end date is around September 2009.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Supplementary Appendix B Financial Management Questionnaire_SF2

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

SUPPLEMENTARY APPENDIX SF2

FINANCIAL MANAGEMENT QUESTIONNAIRE AND ATTACHMENTS

Topic Response Remark

1. Implementing Agency

1.1 What is the entity’s legal status PIU, newly set up for implementation of the / registration? proposed project. It is a Division of the Construction Bureau of the Provincial Department of Transport (HPCD).

1.2 Has the entity implemented an There are four ADB road project in externally-financed project in Heilongjiang. Tongsan Highway (Haerbin- the past (if so, please provide Jiamusi), Tongsan Highway (Haerbin-Lalin details)? River), Flood Destroy Reconstruction Project and Heilongjiang Road Development Project. The lessons learnt in those projects will be applied. Two PIU deputy directors were involved in the ADB Heilongjiang Road Development Project.

1.3 What are the statutory reporting PIU will prepare the statutory annual report requirements for the entity? according to the accounting regulations of state construction unit (MOF required), including Funds Balance Sheet, Infrastructure Construction Investment Sheet, Deferred Investment Sheet, Infrastructure Construction Loan Statement. It will also prepare a monthly report for HPCD, including Funds Balance Sheet, Deferred Investment Sheet, Detailed Project Fund Disbursement Statement, and Project Completed and Investment Fund Flow Statement etc.

1.4 Is the governing body for the HPCD is the governing body, HPCD represents project independent? the government, executing and managing the project. It reports to the Heilongiang Provincial Government (HPG)

1.5 Is the organizational structure Organization Chart, see attachment appropriate for the needs of the project?

2. Funds Flow Arrangements

2.1 Describe (proposed) project See attachment funds flow arrangements, including a chart and explanation of the flow of funds from ADB, government and other financiers.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Topic Response Remark

2.2 Are the (proposed) Yes arrangements to transfer the proceeds of the loan (from the government / Finance Ministry) to the entity satisfactory?

2.3 What have been the major None problems in the past in receipt of funds by the entity?

2.4 In which bank will the Imprest Bank of Communication, Harbin Branch, Account be opened? International Operation Department

2.5 Does the (proposed) project Two deputy directors of the project have implementing unit (PIU) have participated in Heilongjiang Road Development experience in the management Project. The EA (HPCD), which has experience of disbursements from ADB? in three other ADB projects, will train and supervise PIU staff.

2.7 Does the entity have/need a The funds will flow through the HPG Finance capacity to manage foreign Bureau who will be responsible for repaying the exchange risks? loan through the PRC central government. HPG FB will allocate funding from tolls and other sources as needed. This will cover any foreign exchange risk.

2.8 How are the counterpart funds National funds from MOT. Provincial funds accessed? based on the plan and approval of HPCD. Local loan funds from an existing agreement with CNB. Copy available.

2.9 How are payments made from PIU will apply for funds from HPCD monthly. the counterpart funds? Payments will be disbursed to the PIU after approval by HPCD. PIU will disburse the payment to contractors and suppliers after expenses have been reviewed.。

2.10 If part of the project is N/A implemented by communities or NGOs, does the PIU have the necessary reporting and monitoring features built into its systems to track the use of project proceeds by such agencies?

2.11 Are the beneficiaries required to No, all the investment will be made by the contribute to project costs? If government. beneficiaries have an option to contribute in kind (in the form of labor), are proper guidelines formulated to record and value the labor contribution?

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Topic Response Remark

3. Staffing

3.1 What is the (proposed) One accountant-in-charge, one accountant and organizational structure of the one cashier. This has been confirmed for the accounting department? Attach DFR. an organization chart. Accountant-in-charge

Accountant Cashier

3.2 Identify the (proposed) CV of Accountant-in-charge is available in accounts staff, including job Chinese if required. See below for other details title, responsibilities, of qualifications and experience. educational background and professional experience. Attach job descriptions and CVs of key accounting staff.

Staff Job title Main responsibilities Training and Certification

Haiying Cui Accountant- Coordinate, Monitor and 3 years as in-charge supervise accounting activities Senior Accountant

To be determined Accountant Record accounting transactions NA and perform reconciliation

Hongpeng Zhou Cashier Record cash receipts and 6 years as payments and perform bank Assistant reconciliation Accountant

3.3 Is the project finance and Present staffing is sufficient to supervise the accounting function staffed PPTA. Sufficient staff will be added for project adequately? implementation.

3.4 Is the finance and accounts Yes. The accountant in charge has 12 years staff adequately qualified and financial management experience and senior experienced? accountant qualifications. The likely accountant has worked in the transportation sector for 15 years. The cashier also has 10 years working experiences. Both of them have years of experiences working for other project implementation units, such as Suiman PIU, which is the HTCP’s Suifenhe-Manzhouli road project.

3.5 Is the project accounts and No, they were transferred from the Heilongjiang finance staff trained in ADB Road-Bridge Construction Group. procedures?

3.6 What is the duration of the The personnel are full time government contract with the finance and employees. accounts staff?

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Topic Response Remark

3.7 Indicate key positions not The PIU accountant has been identified but contracted yet, and the has not yet arrived. S/he will be available estimated date of appointment. before project implementation.

3.8 Does the project have written Yes，Chinese version is available. position descriptions that clearly define duties, responsibilities, lines of supervision, and limits of authority for all of the officers, managers, and staff?

3.9 At what frequency are Seldom. There will be no change during the personnel transferred? project implementation period.

3.10 What is training policy for the HPCD has in-house experience in ADB finance and accounting staff? financial procedures for funds management, disbursement and procurement etc. This will be used before and after the mobilization of the implementation consultants, who will further training EA and PIU staff. The EA and PIU will maintain connections with the ADB PRC resident mission in Beijing and participate in the training program provided to all provinces. In addition, HPCD holds a training program for the finance and accounting staff every year and the finance division of HPCD organizes on- the-job training for staff regularly.

4. Accounting Policies and Procedures

4.1 Does the entity have an Yes. Unified government accounting software accounting system that allows will be used, and the financial report will be for the proper recording of prepared following both statutory and ADB project financial transactions, requirement. including the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds? Will the project use the entity accounting system?

4.2 Are controls in place concerning Yes the preparation and approval of transactions, ensuring that all transactions are correctly made and adequately explained?

4.3 Is the chart of accounts Yes. They will follow government financial adequate to properly account regulation and also ADB’s accounting for and report on project requirement. activities and disbursement categories?

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Topic Response Remark

4.4 Are cost allocations to the The experience of PIU’s for other ADB and various funding sources made international organization projects will be used accurately and in accordance to ensure correct cost allocations in with established agreements? accordance with established agreements.

4.5 Are the General Ledger and Yes，the software will do it automatically. subsidiary ledgers reconciled and in balance?

4.6 Are all accounting and Yes, they will be kept permanently. supporting documents retained on a permanent basis in a defined system that allows authorized users easy access?

Segregation of Duties

4.7 Are the following functional Authorisation of the transaction will be the responsibilities performed by responsibility of director of PIU. different units or persons: (i) authorization to execute a Recording of the transaction will be the transaction; (ii) recording of the responsibility of accountant-in-charge transaction; and (iii) custody of assets involved in the Custody of the asset involved will remain with transaction? general office and financial division until it is transferred to the relevant road management agency on project completion

4.8 Are the functions of ordering, Yes. They will be performed by different people receiving, accounting for, and or departments. Details as above. paying for goods and services appropriately segregated?

4.9 Are bank reconciliations Yes. Details as above. prepared by someone other than those who make or approve payments?

Budgeting System

4.10 Do budgets include physical Yes and financial targets?

4.11 Are budgets prepared for all Yes significant activities in sufficient detail to provide a meaningful tool with which to monitor subsequent performance?

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Topic Response Remark

4.12 Are actual expenditures Yes. This is done monthly. compared to the budget with reasonable frequency, and explanations required for significant variations from the budget?

4.13 Are approvals for variations Yes, according to policy, any variations from from the budget required in the budget should be approved by the advance or after the fact? management of HPCD.

4.14 Who is responsible for Financial and plan department of PIU do the preparation and approval of budget and get the approval from the PIU budgets? director. They then get the approval of HPCD，

4.15 Are procedures in place to plan Yes. PIU has a special unit making plans and project activities, collect collecting information. information from the units in charge of the different components, and prepare the budgets?

4.16 Are the project plans and Yes，Preliminary plans and budgets of project budgets of project activities have been reviewed and approved by the EA. realistic, based on valid Final plans will be similarly reviewed and assumptions, and developed by approved. knowledgeable individuals?

Payments

4.17 Do invoice-processing Yes. The EA has a set of accounting procedures provide for: (i) management policy and procedures for control Copies of purchase orders and and management of the PIU’s purchasing, receiving reports to be obtained invoicing and financial activities. directly from issuing departments? (ii) Comparison of invoice quantities, prices and terms, with those indicated on the purchase order and with records of goods actually received? (iii) Comparison of invoice quantities with those indicated on the receiving reports? (iv) Checking the accuracy of calculations?

4.18 Are all invoices stamped PAID, Yes dated, reviewed and approved, and clearly marked for account code assignment?

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Topic Response Remark

4.19 Do controls exist for the Yes preparation of the payroll and are changes to the payroll properly authorized?

Policies And Procedures

4.20 What is the basis of accounting Accrual basis (e.g., cash, accrual)?

4.21 What accounting standards are National accounting regulations of state followed? construction units

4.22 Does the project have an Yes, “Infrastructure Construction Financial adequate policies and Management Regulation” issued by MOF. procedures manual to guide activities and ensure staff accountability?

4.23 Is the accounting policy and Yes procedure manual updated for the project activities?

4.24 Do procedures exist to ensure Yes. PIU will strictly follow the accounting that only authorized persons regulations of China. can alter or establish a new accounting principle, policy or procedure to be used by the entity?

4.25 Are there written policies and Yes. Chinese version is available. procedures covering all routine financial management and related administrative activities?

4.26 Do policies and procedures Yes, there are specific regulations for solving clearly define conflict of interest financial conflicts in the accounting policies. and related party transactions (real and apparent) and provide safeguards to protect the organization from them?

4.27 Are manuals distributed to Yes appropriate personnel?

Cash and Bank

4.28 Indicate names and positions of Mr. Jianfeng Liu, PIU Director authorized signatories in the bank accounts.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Topic Response Remark

4.29 Does the organization maintain Yes an adequate, up-to-date cashbook, recording receipts and payments?

4.30 Do controls exist for the Yes , collection, timely deposit and recording of receipts at each collection location?

4.31 Are bank and cash reconciled Yes, the cash and bank reconsolidation on a monthly basis? statement will be prepared monthly.

4.32 Are all unusual items on the Yes bank reconciliation reviewed and approved by a responsible official?

4.33 Are all receipts deposited on a Yes timely basis?

Safeguard over Assets

4.34 Is there a system of adequate Yes safeguards to protect assets from fraud, waste and abuse?

4.35 Are subsidiary records of fixed Yes，they do monthly assets and stocks kept up to date and reconciled with control accounts?

4.36 Are there periodic physical Yes， they do that quarterly inventories of fixed assets and stocks?

4.37 Are assets sufficiently covered Yes by insurance policies?

Other Offices and Implementing Entities

4.38 Are there any other regional Yes, such as local government will support on offices or executing entities land acquisition and other activities participating in implementation?

4.39 Has the project established Yes, EA and PIU will control and approve all controls and procedures for flow the financial activities. of funds, financial information, accountability, and audits in relation to the other offices or entities?

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Topic Response Remark

4.40 Does information among the Yes, based on previous projects experience, different offices/implementing they will do the same agencies flow in an accurate and timely fashion?

4.41 Are periodic reconciliations Yes PIU will do the periodic reconciliations with performed among the different financial division of HPCD. offices/implementing agencies?

Other

4.42 Has the project advised Yes. There is a supervision department to employees, beneficiaries and which they know they can report. other recipients to whom to report if they suspect fraud, waste or misuse of project resources or property?

5. Internal Audit

5.1 Is there a internal audit HPCD has independent internal audit agency. department in the entity? HPCD will provide the periodic audit on PIU. And the PIU will review and control all the financial activities of other regional offices or executing units.

5.2 What are the qualifications and The auditor will have many years auditing experience of audit department experience on transportation sector with staff? required qualification and certificates.

5.3 To whom does the internal The internal auditor will report to the auditing auditor report? office in HPCD. S/he will also notify the director of PIU.

5.4 Will the internal audit Yes. department include the project in its work program?

5.5 Are actions taken on the Yes, experience with other PIUs shows that internal audit findings? they will be actioned on.

6. External Audit

6.1 Is the entity financial statement Yes. According to Chinese regulations, the audited regularly by an audit will be conducted by both the provincial independent auditor? Who is auditing department and an independent the auditor? accounting firm.

6.2 Are there any delays in audit of Annual and timely auditing will be taken for this the entity? When are the audit project based on the regulation of PRC. reports issued?

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Topic Response Remark

6.3 Is the audit of the entity Yes. PIU will prepare the auditing report conducted according to the according to ADB’s regulations and format. International Standards on Auditing?

6.4 Were there any major PIU set up with no issues. No issues have accountability issues brought been brought up for HPCD, the EA. out in the audit report of the past three years?

6.5 Will the entity auditor audit the Yes. Additional auditing will be done by project accounts or will another provincial and national auditing department auditor be appointed to audit the project financial statements?

6.6 Are there any recommendations No. PIU just set up. No auditor comments on made by the auditors in prior HPCD (EA) accounts, audit reports or management letters that have not yet been implemented?

6.7 Is the project subject to any Yes, the project will be audited by the kind of audit from an provincial and national auditing department. independent governmental entity (e.g., the supreme audit institution) in addition to the external audit?

6.8 Has the project prepared Not yet. PIU will prepare the information acceptable terms of reference required for auditing according to statutory for an annual project audit? requirements and those of the ADB.

7. Reporting and Monitoring

7.1 Are financial statements Yes. They will be prepared in line with the prepared for the entity? In accounting regulations of state construction accordance with which unit. accounting standards?

7.2 Are financial statements Yes. They will be prepared in line with the prepared for the implementing accounting regulations of state construction unit? unit.

7.3 What is the frequency of Standard monthly reports for managerial level preparation of financial and HPCD include Funds Balance Sheet, statements? Are the reports Deferred Investment Sheet, Detailed Project prepared in a timely fashion so Fund Disbursement statement, and Project as to useful to management for Completed and Investment Fund Flow decision making? Statement.

7.4 Does the reporting system need Yes. It will be in line with previous PIU needs. to be adapted to report on the project components?

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Topic Response Remark

7.5 Does the reporting system have It will. The planning and financial departments the capacity to link the financial of the PIU will work together to set up the information with the project's reporting system in order to link the financial physical progress? If separate information with the project’s physical systems are used to gather and progress. compile physical data, what controls are in place to reduce the risk that the physical data may not synchronize with the financial data?

7.6 Does the project have Yes. It already report to the project director. established financial This will be expanded as required for project management reporting implementation. responsibilities that specify what reports are to be prepared, what they are to contain, and how they are to be used?

7.7 Are financial management Yes. Project management reviews the financial reports used by management? reports monthly.

7.8 Do the financial reports Yes. They already do this monthly and report compare actual expenditures to the management level. with budgeted and programmed allocations?

7.9 Are financial reports prepared Monthly financial statement will be prepared by directly by the automated the computerized accounting system. Annual accounting system or are they final report will be prepared by MOF specified prepared by spreadsheets or software. some other means?

8. Information Systems

8.1 Is the financial management Yes. The Shenquan computerized accounting system computerized? system is used. It is one of the most popular financial software in China.

8.2 Can the system produce the Yes. The system can produce reports as necessary project financial required. reports?

8.3 Is the staff adequately trained to Yes. According to regulations, financial staffs maintain the system? must be properly trained.

8.4 Does the management Yes organization and processing system safeguard the confidentiality, integrity and availability of the data?

Supporting Documents

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Suggestions:

Financial regulations, standards or pronouncement used by the project/entity available in Chinese

Information concerning the legal and organizational structure of the entity-See attachment

Extracts or copies of important legal documents, agreements, or minutes

Loan agreement with CBC available in Chinese

Regulation regarding need for 35% local/government equity available in Chinese

Information concerning the sector, economic and legislative environment within which the entity operates

Evidence of consideration of the work of the Internal Auditor (if applicable) and conclusions reached-not available

Analyses of significant ratios and trends (revenue generating projects) – see PPTA reports

Draft format of the financial statements produced by the project/entity available in Chinese

Copies of communications

Chart of Accounts available in Chinese

Project or entity Financial Management Manual available in Chinese

Audit terms of reference

Terms of reference and curriculum vitae for key financial and accounting personnel available in Chinese

Operational manual, each division has their own operational manual available in Chinese

Copy of most recent audit report (if applicable)

PIU say that it is not possible to obtain one from HPCD for any project since it is may include many other information rather than the transportation related activities.

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Attached：

Heilongjiang Provincial Government

Headquarter Office Heilongjiang Provincial Communication Department (HPCD)

Financial Division Planning & Statistical Division

Construct and Personal Division Management Division Tech & Education Discipline & Inspect Division Division

Others Construct Quota China/Russia United

Station Transportation Office

Quality Monitory Project Management Toll Road Admin Bureau Toll Road Admin Bureau Waterway Admin Bureau

Road Trans Admin Bureau Station Consulting Company Scientific Research Institute Institute Scientific Research Road Administration Bureau Plan Survey Design Institute

Center Transport Information Toll & Fee Inspection Bureau Bureau Toll & Fee Inspection Waterway Public Sec Bureau Waterway Public Sec Bureau Highway Construction Bureau Highway Construction Bureau Administration Office Policy and Regulatory Division

Others

Toll Toll Other Toll HLJ Road -Ⅰ HLJ Road - II Other PIUs Subdivision 1 Subdivision 2 Subdivisions PIU PIU

Organization Chart Heilongjiang Provincial Communication Department (HPC

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PIU Organization Chart

Director

Deputy Deputy Deputy General Director Director Director Engineer

Engineering Planning Financial Quality Safety General Division Division Division Division Office

Accountant-in- charge

Accountant Cashier

PIU Organization Chart

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Flow of Funds Chart

ADB

MOF MOT

Provincial Government

Provincial FD HPCD Domestic Bank

Qian-Nen PIU

Contractor Consultant Others

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Supplementary Appendix C Summary Financial Management Assessment_CF3

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

CORE APPENDIX CF3

SUMMARY FINANCIAL MANAGEMENT ASSESSMENT

1. The Heilongjiang Road Development II Project (Yichun-Nenjiang) will construct 359 km of road, including branch roads, which will complete the link from Russia in the east to Inner Mongolia in the west. It is an essential part of the provincial highway construction program. The Provincial Department of Transport (still known as HPCD) will be the executing agency (EA) responsible for overall implementation of the project under the guidance of the national Ministry of Transport (MOT). HPCD has past experience of implementing 5 ADB-financed projects and is currently implementing the Heilongjiang Road Development I Project.

2. HPCD has already set up an implementing agency (PIU). In order to assist ADB loan development for the Project. PPTA consultants funded by TA 7117-PRC are presently working with the PIU. The PIU is an office of HPCD, and falls under its Expressway Construction Bureau (ECB). There are more than 20 similar ECB offices now developing projects under the bureau in the province.

3. An FMAQ for the PIU is given in Supplementary Appendix B (SF2). With the FMAQ are: (a) the HPCD organization chart; (b) the PMU organization chart; (b) the flow of funds chart showing how funds will move from the ADB and other funding sources to the contractor. The PIU FMAQ indicates that the agency is well aware of how its responsibilities will grow when the project is under implementation and has already set in place the necessary organizational structure.

4. When construction is completed, the project will be transferred to an operations division under the HPCD Toll Road Management Bureau (TRMB). That division does not yet exist and so an FMAQ cannot be performed. Regardless, there are ten existing divisions already operating various toll roads in the province and the indications are that they are well managed financially. The operating division will not be responsible for expenditure of any of the ADB loan funds.

5. The Project Performance and Audit Report (PPAR) for the first ADB Heilongjiang road project, the Heilongjiang Expressway, marked it as satisfactory. The Project Completion Reports (PCR) for the next two projects, both parts of the Changchun-Harbin Expressway, marked both as satisfactory.

6. No country assessment or diagnostic studies have been performed for the PRC apart from Financial Management and Governance Issues in the PRC, ADB 2000. This showed that there were issues but they were being dealt with. The positive assessment of the PIU given here does not mean that continuous supervision by ADB staff will not be needed during project implementation. They should ensure that actions are being taken to ensure that loan covenants applicable to the post construction period, such as the debt service coverage ratio, will be met. These covenants might require levels of revenues/tolls above those already implemented. There might be sound reasons for this and the ADB should discuss and record them.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Supplementary Appendix D Financial Analysis Attachments _CF4, CF5 & CF6

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CORE APPENDIX CF 4

THE EXECUTING AGENCY’S PROJECT PROGRESS REPORT

A. Introduction and Basic Data

Provide the following:

• ADB loan number, project title, borrower, executing agency(ies), implementing agency(ies); • total estimated project cost and financing plan; • status of project financing including availability of counterpart funds and cofinancing; • dates of approval, signing, and effectiveness of ADB loan; • original and revised (if applicable) ADB loan closing date and elapsed loan period based on original and revised (if applicable) loan closing dates; and • date of last ADB review mission.

B. Utilization of Funds (ADB Loan, Cofinancing, and Counterpart Funds)

Provide the following:

• cumulative contract awards financed by the ADB loan, cofinancing, and counterpart funds (commitment of funds to date), and comparison with time-bound projections (targets); • cumulative disbursements from the ADB loan, cofinancing, and counterpart funds (expenditure to date), and comparison with time-bound projections (targets); and • reestimated costs to completion, need for reallocation within ADB loan categories, and whether an overall project cost overrun is likely.

C. Project Purpose

Provide the following:

• status of project scope/implementation arrangements compared with those in the report and recommendation of the President (RRP), and whether major changes have occurred or will need to be made; • an assessment of the likelihood that the immediate development objectives (project purpose) will be met in part or in full, and whether remedial measures are required based on the current project scope and implementation arrangements; • an assessment of changes to the key assumptions and risks that affect attainment of the development objectives; and • other project developments, including monitoring and reporting on environmental and social requirements that might adversely affect the project's viability or accomplishment of immediate objectives.

D. Implementation Progress

Provide the following:

• assessment of project implementation arrangements such as establishment, staffing, and funding of the PMO or PIU; • information relating to other aspects of the EA’s internal operations that may impact on the implementation arrangements or project progress;

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• progress or achievements in implementation since the last progress report; • assessment of the progress of each project component, such as, - procurement of goods and works (from preparation of detailed designs and bidding documents to contract awards); and - the performance of suppliers, manufacturers, and contractors for goods and works contracts; • assessment of progress in implementing the overall project to date in comparison with the original implementation schedule—quantifiable and monitorable target, (include simple charts such as bar or milestone to illustrate progress, a chart showing actual versus planned expenditure, S-curve graph showing the relationship between physical and financial performance, and actual progress in comparison with the original schedules and budgets, the reference framework or guidelines in calculating the project progress including examples can be made available and • an assessment of the validity of key assumptions and risks in achieving the quantifiable implementation targets.

E. Compliance with Covenants

Provide the following:

• the borrower's compliance with policy loan covenants such as sector reform initiatives and EA reforms, and the reasons for any non-compliance or delay in compliance; • the borrower’s and EA’s compliance with financial loan covenants including the EA’s financial management, and the provision of audited project accounts or audited agency financial statements; and • the borrower’s and EA’s compliance with project-specific loan covenants associated with implementation, environment, and social dimensions.

F. Major Project Issues and Problems

Summarize the major problems and issues affecting or likely to affect implementation progress, compliance with covenants, and achievement of immediate development objectives. Recommend actions to overcome these problems and issues (e.g., changes in scope, changes in implementation arrangements, and reallocation of loan proceeds).

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CORE APPENDIX CF5

SAMPLE AUDIT LETTER

ASIAN DEVELOPMENT BANK

Regional Department

Sector Division / Regional or Resident Mission

[Date]1

[The Borrower]

Dear Sir or Madam:

Subject: [Loan No. and Project Title]

FINANCIAL REPORTING AND AUDITING REQUIREMENTS

This letter is to ensure your timely compliance with the loan covenants and the quality of financial information as required by ADB. ADB's Handbook for Borrowers on the Financial

Governance and Management of Investment Projects Financed by the ADB (the Booklet) is enclosed to guide you.

ADB, by its Charter, is required to ensure that the proceeds of any loan made, guaranteed, or participated in by ADB are used for the purposes for which the loan was approved. ADB requires accurate and timely financial information from its borrowers to be assured that expenditure was for the purposes stated in the loan agreement.

For this particular loan, the requirements are stipulated in sections _____2 and _____3 of the Loan Agreement of ______between ADB and [the Borrower] and sections ______4 and _____5 of the Project Agreements of ______between ADB and [name of the EA].7 Copies of the Loan/Project Agreements are enclosed for onward transmission by your office to your EA and the auditor(s), together with a copy of this letter.

The following are the main requirements:

ADB requires the EA to maintain separate project accounts and records exclusively for the Project to ensure that the loan funds were used only for the objectives set out in the Loan or Project Agreements. The project accounts comprise the following:-

The first set of project accounts to be submitted to ADB covers the fiscal year ending ______. As stipulated in the Loan or Project Agreements, they are to be submitted up to ______months after the end of the fiscal year. For this loan, the deadline is by ______. A sample report format with explanatory notes is attached as Annex XX.

The accounts and records for the project are to be consistently maintained using sound accounting principles. Please stipulate that your external auditor is to express an opinion on whether the financial report has been prepared using international or local generally accepted accounting standards and whether they have been applied consistently. ADB prefers project accounts to use international accounting standards prescribed by the

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International Accounting Standards Committee. Please advise your external auditor to comment on the impact of any deviations, by [name of the Executing Agency] from international accounting standards.

Please ensure that your external auditor specifies in the Auditor's Report the appropriate auditing standards they used, and direct them to expand the scope of the paragraph in the Auditor's Report by disclosing the key audit procedures followed. Your external auditor is also to state whether the same audit procedures were followed for all supplementary financial statements submitted. ADB wishes that auditors conform to the international auditing standards issued by the International Federation of Accountants. In cases where other auditing standards are used, request that your external auditor to indicate in the Auditor's Report the extent of any differences and their impact on the audit.

The external auditor's opinion is also required on whether

- the proceeds of the ADB's loan have been utilized only for the project as stated in the Loan Agreement; - the financial information contains data specifically agreed upon between [name of the Borrower or EA] and ADB to be included in the financial statements; - the financial information complies with relevant regulations and statutory requirements; and - compliance has been met with all the financial covenants contained in the Loan or Project Agreements.

The Auditor's Report is to clearly state the reasons for any opinions that are qualified, adverse, or disclaimers.

Actions on deficiencies disclosed by the external auditor in its report are to be resolved by [name of Borrower or Executing Agency] within a reasonable time. The external auditor is to comment in the subsequent Auditor’s Report on the adequacy of the corrective measures taken by [name of Borrower or EA].

Compliance with these ADB requirements will be monitored by review missions and during normal project supervision, and followed up regularly with all concerned, including the external auditor.

Yours sincerely,

Director/Country Director

(Sector Division/Regional or Resident Mission) cc: (EA)

(External auditor of the Borrower or EA)

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APPENDIX CF6

CORE APPENDIX - PROJECT COMPLETION REPORT

PAI 6.07, REVISED AUGUST 2005

Objective and Scope

1. The main objective of a project completion report (PCR)1 is to learn from the experiences of borrowers, executing agencies (EAs), and ADB in implementing projects, and to use the lessons learned to improve the performance of ongoing and future ADB-financed projects. The PCR will also be used as a measure of ADB’s development effectiveness and as an input to country strategy formulation. A PCR:

• provides a concise description and assessment of the project from identification to completion; • evaluates the adequacy of preparation; design; appraisal; implementation arrangements; and performance of the borrower, EA, and ADB, including how problems were handled, whether they were foreseen as potential risks, and the adequacy of the solutions adopted during implementation; • provides a preliminary evaluation of initial operation, and achievement and sustainability of benefits; • provides a preliminary evaluation of the extent of achievement of the immediate objectives (purpose) of the project and the project’s impact in contributing to achievement of the long range objectives (goal); • suggests follow-up actions required during project operation; and • makes recommendations—based on the evaluation and lessons learned—for future project implementation and operation, as well as improvements in related ADB procedures.

Contents

BASIC DATA

MAP2 (Title)

I. PROJECT DESCRIPTION

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

B. Project Outputs

C. Project Costs

D. Disbursements

E. Project Schedule

F. Implementation Arrangements

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G. Conditions and Covenants

H. Related Technical Assistance

I. Consultant Recruitment and Procurement

J. Performance of Consultants, Contractors, and Suppliers

K. Performance of the Borrower and the Executing Agency

L. Performance of the Asian Development Bank

III. EVALUATION OF PERFORMANCE

A. Relevance

B. Efficacy in Achievement of Purpose

C. Efficiency in Achievement of Outputs and Purpose

D. Preliminary Assessment of Sustainability

E. Environmental, Sociocultural, and Other Impacts

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

B. Lessons Learned

C. Recommendations

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Supplementary Appendix E Project Performance Monitor System (PPMS)

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Project Performance Monitoring

Data Sources/ Baseline Design Performance Targets Indicators Reporting Frequency Summary Mechanisms (Example)

Impact A more balanced 1. Interprovincial trade For Heilongjiang HSYB; • (9.99*1010ton in at start of economic with Heilongjiang Province, Statistic Data 2008) construction development increases annually by • amount of cargo of • (9.99*107ton in is realized in 10% from 2008 to 2020. traded by road Heilongjiang 2008) In the Heilongjiang transportation Customs middle province. • trading volumes during Heilongjiang- project Russia construction

2. Tourism revenue in For Yichun, Suiling, Survey to TB (Yichun in 2008: at project Heilongjiang increases Bei’an, Wudalianchi, of the Project • 9.99*107 completion by average annual Nenjiang and cities/counties; person.time growth rate 15% from Heilongjiang, HSYB • CNY9.99*1010) yearly 2008 to 2020. • number of tourists intervals for • tourism revenue 3 years after completion

3. Average per capita For Yichun, Suiling, Survey to SB, (Yichun in 2008: GDP in the project area Bei’an, Wudalianchi, AB, PAO, • CNY9,999 increases from Nenjiang and CAB of the • CNY4,999 CNY3,350 in 2008 to Heilongjiang, Project • CNY12,999 CNY6,400 by 2020. cities/counties; • GDP per capita • 10 ton per HH HSYB • rural net income • 500 HH per capita • 500 HH) • average income per capita of forestry farm • annual production of main cash crops • number of poor households (income < CNY1,300) in rural area • number of household with minimum living safeguard standard in state forestry farms and agricultural farms

Outcome A more 4. The traffic volume on For sections of HPTD • (Yichun – at start of resource- the project expressway Yichun – Bei’an, Bei’an in 2008: construction efficient, safe, increased for Yichun– Bei’an – Wudalianchi, 7,166 pcu) and Bei'an section to 7,166, Longzhen – Nenjiang In the environmentally- for Bei'an – Wudulianchi • traffic volume middle friendly road section to 8,267, for average annual during transport Longzhen – Nenjiang daily traffic Construction system is section 4,523 pcu by (AADT) by vehicle developed in 2015. type at project Heilongjiang completion province. 5. Travel time from towns and villages to yearly major service centers intervals for (health, commerce, and 3 years after

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Data Sources/ Baseline Design Performance Targets Indicators Reporting Frequency Summary Mechanisms (Example)

education) is reduced by completion 20% to 50% during 2008–2015.

6. The number of road For Yichun, Suiling, Survey to TPD (Yichun in 2008, accident fatalities per Bei’an, Wudalianchi, of the Project • 1,000 cases 10,000 vehicles in Nenjiang and cities/counties; • 800 persons Heilongjiang is reduced Heilongjiang, and HSYB • 100 persons from 4.92 in 2008 by Project roads, • 100,000 trucks 10% by 2020. • number of • 6,000 buses accidents • 100,000 cars • number of injury • 5,000 others) • number of death • number of vehicle owned by type

8. 2700 km priority For Yichun, Suiling, roads are maintained by Bei’an, Wudalianchi, 2015. Nenjiang and Heilongjiang • mileage of local roads maintained For Heilongjiang, • mileage of expressway and highway roads maintained

(Yichun in 2008, 9. Bus network Survey to For Yichun, Suiling, • 500 villages coverage in the project BAO of the Bei’an, Wudalianchi, • 8 rounds per area increases from Project Nenjiang and day 60% of villages in 2008 cities/counties; Heilongjiang • CNY1 per km) to 95% of villages by • number of villages HSYB 2015. with bus service (Yichun – Bei’an • average bus in 2008: frequency from • 8 lines village to towns • CNY50 • passenger fares • bus with seats on selected roads more than 10 but less then For the Project roads 30: CNY30 • number of long • truck heavier distance lines than 10 ton but • passenger fares lighter than 30 on selected ton: CNY20) sections • toll level per vehicle type

Outputs Provincial 10. Travel distance • travel distance QNHCMO • (700 km in at start of highway and between Yichun and between Yichun 2008) construction associated Bei'an reduces by and Bei'an before facilities about 400 km and after the In the between Yichun Project completion middle and Nenjiang is during operational. 11. Travel time • travel time QNHCMO Construction between Yichun and between Yichun • (12 hr in 2008) Bei’an reduces by and Bei'an before at project about 6 hours and after the completion Project completion

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Data Sources/ Baseline Design Performance Targets Indicators Reporting Frequency Summary Mechanisms (Example)

yearly 12. 206 km of • total mileage of HSYB, HPTD • (5,000 km in intervals for expressway expressway of 2008) 3 years after opened to traffic by Heilongjiang completion 2015

13. 13 km Class I road • total mileage of HSYB, HPTD • (8,000 km in between Nenjiang and Class I highway of 2008) the province border Heilongjiang with Inner Mongolia constructed by 2014

14. 134 km Class II road • total mileage of HSYB, HPTD • (9,000 km in between Wudulianchi Class II highway of 2008) and Nenjiang upgraded Heilongjiang by 2014

15. Three branch roads • travel distance, Survey on the (Nenjiang city in connecting the project • time and roads 2008 road to Nenjiang city, • volume on existing • 3 km Gequishan forest farm, roads and on the • 10 min and Qixingpao state Project branch • 400 per day farm completed by 2014 roads • 20 rounds

• bus frequency and • CNY3)

• passenger fares

on existing roads (Nenjiang branch

and on the Project road in 2010,

branch roads • 100 persons

• number of local • 10 persons unskilled labors • CNY80 per employed during day) the Project construction and operation • number of local skilled labors employed during the Project construction and operation • wage levels of unskilled and skilled labors

Road 16. RAMS is fully • total mileage of maintenance is functional by 2011 expressway, improved in Classes I and II to Heilongjiang be managed by RAMS

17. Maintenance • number of vehicles planning and budgeting used for road is based on the RAMS detection and data by 2011 collection • frequency of data collection • time for updating data of RAMS

18. Beginning 2011, the • number of staff to annual budget for operate the RAMS updating database is

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Data Sources/ Baseline Design Performance Targets Indicators Reporting Frequency Summary Mechanisms (Example)

allocated • budget for updating the RAMS

Rural bus 19. The 20 bus stations For towns or farms Survey to (Yichun in 2008, service is are built/and or where the proposed BAO of the • Class V: 20; improved in rehabilitated by 2014 bus stations to be Project Class IV: 5 Heilongjiang built, cities/counties; • 100 persons • number and class HSYB per day of bus stations • CNY5 before and after • 4 lines) the Project completion • average number of bus users • passenger fares on selected roads • number of bus service lines (Yichun in 2008, • number of traffic Survey to • 20 cases accidents TPD of the • 10 persons • number of injury Project • 2 persons) • number of death cities/counties

20. Flexible bus services Survey on the • number of local (Yichun in 2010, provided in Bei'an bus Stations unskilled labors • 20 persons county by 2014 employed during • CNY80 per

the Project day) construction and operation • wage levels of unskilled labors

Institutional 21. Enforcement of For Yichun, Suiling, Survey to TPD (Yichun in 2008, management road safety law and Bei’an, Wudalianchi, of the Project • 100 persons capacity will be regulation is improved Nenjiang and cities/counties; • 100 persons strengthened. by 2014 Heilongjiang, HSYB • 6 times • number of traffic • 500 police staff person.times) • number of traffic assistants • number of training on road safety • number of trainees

22. 80 staff capacity For the Project main Survey to (Yichun – Bei’an for managing public road, TPB of the in 2012: transport and road • number of Project • 100 persons maintenance unskilled staff for cities/counties • 10 persons) improved by 2014 road maintenance • number of skilled staff for road maintenance

For towns or farms Survey to (Yichun in 2012: 23. Rural bus services where the proposed TPB of the • 20 persons and road maintenance Project bus stations to be • 100 persons works contracted out cities/counties built, • 500 starting 2014 • number of local person.times)

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Data Sources/ Baseline Design Performance Targets Indicators Reporting Frequency Summary Mechanisms (Example)

unskilled labors employed for bus station operation • number of local unskilled labors employed for road maintenance • number of training on road safety Note: HSYB = Heilongjiang Statistics Yearbook, TB = Tourism Bureau, SB = Statistic Bureau, AB = Agriculture Bureau, PAO = Poverty Alleviation Office, CAB = Civil Affairs Bureau, HPTD = Heilongjiang Provincial Transport Department, TPD = Traffic Police Detachment, TPB = Transportation Bureau, BAO = Bus Administrative Office or Station, QNHCO = Heilongjiang Province Qiannen Highway Construction Office, HH = Household, CPMS = China Pavement Management System.

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Supplementary Appendix F Social Poverty Analysis and Assessment

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CURRENCY EQUIVALENTS

Currency Unit CNY (CNY)

Y1.00 = $0.146 $1.00 = Y6.840

ABBREVIATIONS

ADB Asian Development Bank AIDS Acquired Immune Deficiency Syndrome CDC Center for Disease Control CMU County Management Unit CNY Chinese Currency, CNY DMF Design and Monitoring Framework DOH Department of Health DPA Direct Project Area EIA Environmental Impact Assessment EMs Ethnic Minorities EMP Environmental Management Plan EPB Environment Protection Bureau FGD Focus Group Discussion HIV Human immunodeficiency virus HASS Heilongjiang Academy of Social Science IDPA Indirect Project Area MLSS Minimum Living Standard Scheme NPV Net Present Value NTFP Non-Timber Forest Production PA Project Area PADO Poverty Alleviation and Development Office PCDC Provincial Center for Disease Control PMU Project Management Unit PPMS Project Performance Management System PPTA Project Preparatory Technical Assistance PRA Participatory Rural Appraisal PSA Poverty and Social Assessment PRC People’s Republic of China RC Resettlement Committee RP Resettlement Plan RRA Rapid Rural Appraisal SEIA Summary Environmental Impact Assessment SEPP Soil Erosion Protection Plan SES Socio-economic Survey TA Technical Assistance TOR Terms of Reference

WEIGHTS AND MEASURES

ha – hectare km – kilometer

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kg kilogram m – meter m2 – square meter m3 – cubic meter mm – millimeter mu _ 1/15 hectare yr – year

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TABLE OF CONTENT

I. INTRODUCTION ...... ……5

II. OBJECTIVES ...... 6

III. METHODOLOGY ...... 6

IV. SOCIO-ECONOMIC PROFILES OF THE PROJECT AREA...... 8 A. DEFINITION OF PROJECT AREA ...... 8 1. Main Expressway and Highway ...... 8 2. Bus Stations ...... 12 B. PHYSICAL CHARACTERISTICS OF THE PROJECT AREA ...... 13 C. SOCIO-ECONOMICAL CHARACTERISTICS ...... 13 1. Population and Distribution ...... 13 2. Economic Situation ...... 20 3. Infrastructure and Social Services ...... 24 4. Project Counties/Cities/Farms ...... 26 V POVERTY IMPACT ANALYSIS ...... 27 A. POVERTY IN HEILONGJIANG ...... 27 1. Current Situation in Heilongjiang Province ...... 28 2. Poverty Reduction Programs and Achievements ...... 28 B. POVERTY IN THE DIRECT PTOJECT AREA (DPA) ...... 29 1. Rural Poverty ...... 29 2. Non-rural Poverty ...... 31 C. POVERTY IMPACT ASSESSMENT ...... 34 1. Beneficiary Groups Identification ...... 34 2. Identification of Benefits to the Poor ...... 37 3. Overall Poverty Reduction Role of the Project ...... 38 4. Benefits and Impacts of Bus Stations ...... 39 VI CONSULTATION AND PARTICIPATION ...... 39 A. PARTICIPATION AND CONSULTATION IN DESIGN STAGE ...... 39 B. PARTICIPATION AND CONSULTATION STRATEGIES ...... 44 VII GENDER AND DEVELOPMENT ...... 47

VIII SOCIAL SAFEGUARDS ISSUES AND OTHER SOCIAL RISKS ...... 48 A. INVOLUNTARY SETTLEMENT ...... 48 B. ETHNIC MINORITY ...... 48 1. Population and Distribution ...... 48 2. Living Pattern and Minority Culture ...... 50 3. Minority Policies ...... 54 4. Impacts Analysis ...... 55 C. LABOR ...... 55 D. OTHER RISKS AND/OR VULNERABILITIES ...... 56 IX CONCLUSIONS ...... 56

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I. INTRODUCTION

1. Heilongjiang Province is located in northeast China. Its population is 38.24 million, comprised mainly of Han Chinese (94.77%), the other 5.23% mainly include Manchu, Korean, Hui, Mongolian and Daur. Heilongjiang is a national base for grain, soybean, coal, timber, oil, gas, and manufacturing of industrial equipment and machinery.

2. Heilongjiang is a landlocked province and has no direct access to ocean ports except by long routes through other provinces or the Russian Federation. It is in the extreme north of the PRC and is bordered by the Inner Mongolia Autonomous Region (Inner Mongolia) on the west, the Russian Federation on the north and east, and Jilin Province on the south. Its area of 2,454,000 km2 makes it the 6th largest province in the country. About 42% of its land is forestland, and cultivated land covers 9.2 million hectares, which is the largest in the country. Its per capita gross domestic product (GDP) was CNY18,478 in 2007. The industry share of GDP is 12.96% for primary, 52.31% for secondary, and 34.73% for tertiary industries. The common boundary of Heilongjiang and the Russian Federation is 3,400 km long with 14 class I ports. In 2007, its total trade with the Russian Federation through the ports was 20% of that of the whole PRC, and the total value of goods traded comprised about 16.6% of the province’s GDP. Foreign trade has grown by more than 15% per annum over the last 5 years.

3. Despite its economic potential, Heilongjiang has been left behind by the fast developing coastal provinces since the 1980s. In support of the grand plan to revitalize the northeast region as an industrial hub, the Ministry of Transport 1 approved in 2006 the northeast regional transport network development plan involving three provinces. 2 In line with the plan, the Heilongjiang Road Network Plan for 2006–2020 was developed by the Heilongjiang Provincial Communications Department (HPCD) in 2006, with the aim of construction of a road network comprising two rings, seven radial, six north–south, and three west–east high-class highways totalling 13,000 km that is named as 2763 network. As of the end of 2007, 16% of this plan had been achieved.

4. The 824 km Qiangfeng Farm–Nenjiang (WE2) road is one of the three key west–east corridors of the 2763 network and is a major route connecting the Sanjiang Plain agricultural area, and coal mines and forest industry in the northeast and Songnen Plain farm, pastoral area, and Wudalianchi GeoPark3 in the northwest. Along WE2 are five road sections totalling 377.6 km, which either are in poor condition or need to be constructed. Xiaoxinganling prevents direct travel between the northeastern and northwestern parts of the province and between Yichun and Bei’an cities.

5. The project area covers Yichun, Suiling, Bei’an, Wudulianchi, and Nenjiang counties or cities in Heihe Prefecture in the remote north-western part of Heilongjiang, and has a population of 2.91 million, of which 53% is rural. In 2007, the rural per capita income was CNY3,980. The per capita GDP in the area was CNY9,131, which is 49.4% of the provincial average of CNY18,478, and 48.9% of the national average. The project area has 135 poverty villages; the rural poverty incidence is about 8%. Long distances and poor transport conditions limit the mobility of people in the project area. The Project will substantially improve transport infrastructure and service, and will improve access to larger markets and higher quality social

1 Formerly the Ministry of Communications. 2 The northeast region consists of Heilongjiang, Jilin, and Liaoning provinces. 3 The Wudalianchi GeoPark is a national nature reserve with 14 volcanoes and 5 cold mineral spring lakes.

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services. The main ethnic groups in the project area include Manchu, Korean, and Hui. There are no minority townships along the alignment, but there are eight minority villages. Even these villages have mainly Han people; only about 20% of their population are ethnic minorities. 6. The proposed Project will construct 20 township bus stations in addition to the proposed expressway and highway. The bus stations recommended by Heilongjiang Provincial Communication Development (HPCD) will be as a part of the Project for improving service and poverty reduction of rural population.

II. OBJECTIVES

7. Social and Poverty Analysis (SPA) is undertaken in line with the ADB guidelines on social dimensions, gender, poverty reduction, indigenous peoples and minorities, resettlement and stakeholders’ participation, as set out in the ADB’s Poverty Handbook (2006) and Handbook on Social Analysis: A Working Document (2007).

8. The objectives of the social and poverty assessment are to: (i) develop socio-economic and poverty profiles of the project area, (ii) analyze the key social factors that may affect the project objectives; (iii) identify the key stakeholders and conduct participatory and consultative approaches to analyze their needs, especially poor people, women and ethnic minority groups; (iv) assess the project’s potential positive and negative impacts, analyze the project’s potential social benefits, poverty reduction benefits and social risks; and (v) bring the social factors relating to the fulfilment of project objectives into the project design, proposing measures and action plans to (i) avoid or reduce negative effects and (ii) enhance project benefits for the poor and other vulnerable groups to ensure inclusive development.

III. METHODOLOGY

9. In this social and poverty assessment, the methods of literature study, socio-economic household questionnaire surveys, participatory focus group discussions, stakeholder consultation workshops and key informant interviews have been used.

10. Literature Study. The following documents and materials were reviewed: (i) Eleventh Five-Year Development Plan of Heilongjiang Province; (ii) Feasibility Study Report for the proposed project; (iii) statistics yearbooks of Heilongjiang and proposed project counties/cities; (iv) poverty reduction plan of Heilongjiang Province; (v) development plan and evaluation reports for women; (vi) ethnic minority group development policies and programs; and (vii) land acquisition and house demolition policies.

11. Socio-economic Household Survey. A household sample survey was conducted in order to (i) obtain basic socio-economic information on the beneficiary population; (ii) capture the attitude and aspirations of project affected people; (iii) assess the potential positive and negative social impacts of each subproject; and (iv) formulate a public participation strategy. Heilongjiang Academy of Social Science (HASS) was contracted to carry out the survey. So far, a total of 513 households have been surveyed in 18 township level units of towns/ townships/ state farms/ state forestry farms, which the alignment traversed. Table 1 shows the number of households surveyed and the sample distribution in project counties/cities/districts.

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Table 1: Sample Households Surveyed and Distribution Townships/Towns/ County/City/District No. of Households Distribution (%) Villages Farms /Forestry Farms Cuiluan District 37 7.2 2 - Suiling County 33 6.4 3 - Beian County 79 15.4 4 6 Wudalianchi City* 232 45.2 5 10 Nenjiang County 132 25.7 4 10 Total of DPA 513 100.0 18 26 *Include Wudalianchi Scenic Area Source: Field survey

12. Interviews with Key Informants: Interviews included governmental agencies, NGOs, private companies, market managers and store owners, and village leaders. Interview guidelines were prepared for each interview. Emphasis was placed on (a) agencies concerned with addressing poverty, gender, minority, HIV/AIDs/STD issues, and (b) agencies or businesses likely to be directly affected by the proposed project.

i) Interviews with village leaders: 26 villages are selected on the following basis:

• Traversed villages by the proposed road;

• Villages along the proposed expressway route and along secondary or tertiary roads (including local roads);

• Poverty villages designated as ‘poor’ by the Poverty Alleviation & Development Office; and

• Villages with ethnic minority groups concentrated.

ii) Interviews with state farm leaders and state forestry farm leaders: a total of 5 forestry farms’ leaders and 4 state farms’ leaders were interviewed so far for identifying the opportunities and challenges the project faced and potential measures to take for maximizing the project benefits or migration potential adverse impact.

iii) Participatory consultation meetings and focus group discussion: 16 villages were surveyed through focus group discussions and consultation meetings. The surveys included:

• Beneficiary group identification;

• Perspectives of different beneficiary groups on the project;

• Focus on ethnic minorities, especially the poor and women and other vulnerable groups;

• Main positive and negative impact of the project and their coping strategies; and

• Comments and suggestions on measures to maximize the positive impact and minimize the negative impact.

iv) Information sheets distribution: A set of information sheets has been distributed to general forestry farm, general forestry farm and project county to collect township level and village level data regarding townships within 40 km project economic way corridor,

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covering population, average net income, poverty population under MLSS, amount of land etc.

v) Secondary sources collection: These include statistical yearbooks of Heilongjiang and project counties/cities and maps of project area, and materials from Poverty Alleviation & Development Office, Civil Affairs Bureau, and Women’s Federation of Heilongjiang Province.

IV. SOCIO-ECONOMIC PROFILES OF THE PROJECT AREA

A. DEFINITION OF PROJECT AREA

1. Main Expressway and Highway

13. The definition of the project area is grouped into three parts. The first part is the area along the proposed project alignment that is affected by the land acquisition and house demolishment. This will be addressed in Resettlement Plan (RP) of this Project. The second part is a corridor with about 20 km width on each side of the project highway from Cuiluan Forestry District of Yichun City in east to Nenjiang County of Heihe City in west. This area is called as the Direct Project Area (DPA) and includes 48 towns/ townships/ forestry farms/ state farms. The third area is all 5 counties/cities/districts, which is called the Indirect Project Area (IDPA). Basic information on the DPA and IDPA can be found in tables 2-6. Table 2: Population and Lands of DPA along the Economic Corridor (2007) Project Town/Township//State Per Capita Per Capita Total Farm Land Forestry County/City/ Farm/State Forestry Farm Land Forestry Population (mu) Land (ha) District Farm (mu) Land (ha) Kunlunqi forestry farm 1,046 73 23,332 0.07 22.3

Cuiluan Jianshanhe forestry Forestry farm 935 395 20,169 0.42 21.6 District Kaiyuan forestry farm 749 122 14,126 0.16 18.9 Sub-total 2,730 590 57,627 0.22 21.1 Beiguliu forestry farm 1,479 6,302 18,818 4.3 12.7 Yuejing forestry farm 864 7,517 14,535 8.7 16.8 Bayi forestry farm 1,478 5,254 13,418 3.6 9.1 Wuyi forestry farm 939 7,428 15,546 7.9 16.6 Suiling Wusi forestry farm 2,008 64,195 10,887 32 5.4 Forestry District Laoguliu forestry farm 868 6,600 6,226 7.6 7.2 Yiqisong forestry farm 1,283 7,140 19,235 5.6 15 Jianxing forestry farm 2,941 6,597 7,713 2.2 2.6 Qiyi forestry farm 907 15,389 9,596 17 10.6 Sub-total 12,767 126,422 115,974 9.9 9.1 Zhaoguang Town 27,986 183,540 0 8.3 0 Bei'an City Dongsheng Township 17,121 127,380 0 7.6 0

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Project Town/Township//State Per Capita Per Capita Total Farm Land Forestry County/City/ Farm/State Forestry Farm Land Forestry Population (mu) Land (ha) District Farm (mu) Land (ha) Erjing Town 11,695 185,940 769 16.4 0.1 Chengjiao Township 12,450 129,900 0 10.5 0 Jianshe state farm 14,305 244,500 7,115 17.1 0.5 Zhaoguang state farm 29,771 448,470 3,032 15.1 0.1 Hongxing state farm 11,892 335,475 2,844 28.2 0.2 Jianhua forestry farm 257 300 3,500 1.2 13.6 Xinfu forestry farm 575 8,001 15,337 13.9 26.7 Gangyao forestry farm 467 2,317 8,320 5 17.8 Sub-total 126,519 1,665,823 40,917 13.2 0.3 Qunli forestry farm 566 2,519 10,957 4.5 15.2 Weidong forestry farm 783 2,157 33,833 2.8 40.6 Caoyang forestry farm 680 1,805 13,518 2.7 17.4 Tongbei Qianjin forestry farm 1,554 4,365 27,351 2.8 15 Forestry District Nanbeihe forestry farm 3,238 28,890 11,448 8.9 3.5 303 forestry farm 518 3,981 12,423 7.7 24 Bishui forestry farm 538 25,395 6,477 47.2 12 Sub-total 7,877 69,112 116,007 8.8 14.7 Xinglong Township 10,174 86,385 0 8.6 0 Xingfa Township 16,084 122,565 0 7.7 0 Jianshe Township 15,486 114,795 0 7.6 0 Wudalianchi Tuanjie Township 14,689 125,700 0 8.8 0 Shuangquan Township 16,419 121,530 0 7.5 0 Caoyang Township 8,205 97,335 0 12.3 0 Sub-total 81,057 668,310 0 8.2 0.0 Wudalianchi Town 14,643 47,655 0 7.5 0 Wudalianchi farm 7,164 155,265 2,305 21.7 0.3 Wudalianchi Scenic Weishan state farm 10,124 228,570 7,447 22.6 0.7 District Geqiushan state farm 7,820 211,905 7,667 27.1 1 Sub-total 39,751 643,395 17,419 16.2 0.4 Qianjin Town 24,239 238,965 0 9.9 0 Keluo Town 15,296 468,555 0 30.6 0 Baiyun Township 14,350 401,970 0 28 0 Nenjiang Changfu Town 20,005 353,430 0 17.7 0 County Nenjiang Town 87,204 61,995 0 0.7 0 Haijiang Town 41,846 448,110 0 10.7 0 Sub-total 202,940 1,973,025 0 9.7 0

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Project Town/Township//State Per Capita Per Capita Total Farm Land Forestry County/City/ Farm/State Forestry Farm Land Forestry Population (mu) Land (ha) District Farm (mu) Land (ha) Qixingpao state farm 13,955 467,115 13,783 33.5 1 Nenjiang Nenjiang state farm 12,212 386,745 5,935 31.7 0.5 Division of State Farm Shanhe state farm 12,388 352,425 13,838 28.4 1.1 Sub-total 38,555 1,206,285 33,556 31.3 0.9 Sub-total of Towns/Townships 367,892 3,315,750 769 9 0 Sub-total of State Farms 119,631 2,830,470 63,966 23.7 0.5 Sub-total of State Forestry Farms 24,673 206,742 316,765 8.4 12.8 Total of DPA 512,196 6,352,962 381,500 12.4 0.7 Source: Consultant’s calculation based on statistical yearbooks of project counties/cities 2007 and information collected from Heilongjiang general state farm and county level bureaus of state forestry farm. Table 3: Per Capita Average Farmland And Rural Net Income of the Townships/towns in DPA Name of Total Rural Per Capita Rural Per Capita Project County/City Township/Tow Population Average Net Income ns Farmland (mu) (CNY) Bei’an City Zhaoguang 22,012 8.34 4,695 Dongsheng 16,669 7.64 2,986 Erjinzi 11,365 16.36 3,953 Chengjiao 12,389 10.5 4,248 Sub-total 62,435 10.0 4,015 Wudalianchi City Xinglong 10,026 8.62 3,333 Xingfa 15,893 7.71 2,990 Jianshe 15,136 7.58 3,035 Tuanjie 14,206 8.85 2,974 Shuangquan 16,258 7.48 3,104 Wudalianchi 7,908 7.54 2,733 Chaoyang 6,323 12.31 2,420 Sub-total 85,750 8.58 2,941 Nenjiang Qianjin 21,903 9.86 3,865 Keluo 14,320 30.63 4,417 Baiyun 13,387 28.01 4,361 Changfu 19,765 16.53 3,850 Nenjiang 6,604 0.61 2,888 Haijiang 27,600 10.70 3,894 Sub-total 103,579 16.0 3,948 Total Townships 251,764 11.9 3,639

/township in DPA Source: Field survey and local relevant county/city bureaus and farms.

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Table 4: Per Capita Average Farmland and Income of the State Farms in DPA Per Per Town/Township//State Capita Per Capita Capita Project County/City/ Total Farm/State Forestry Farm Forestry Net District Population Farm Land Land (ha) Income (mu) (CNY) Jianshe state farm 14,305 17.1 0.5 7,000 Bei'an City Zhaoguang state farm 29,771 15.1 0.1 8,106 Hongxing state farm 11,892 28.2 0.2 7,800 Wudalianchi farm 7,164 21.7 0.3 5,500 Wudalianchi Weishan state farm 10,124 22.6 0.7 8,000 Geqiushan state farm 7,820 27.1 1 8,500 Qixingpao state farm 13,955 33.5 1 8,901 Lenjiang Division of State Farm Nenjiang state farm 12,212 31.7 0.5 9,180 Shanhe state farm 12,388 28.4 1.1 10,830 Sub-total of State Farms 119,631 23.7 0.5 8,289 Source： State Farms Heilongjiang General and State Farms

Table 5: Per Capita Average Farmland and Income of the State Forestry Farms in DPA Per Per Capita Capita Per Capita Project County/City/ Town/Township//State Total Net Farm Forestry District Farm/State Forestry Farm Population Income Land Land (ha) (CNY) (mu) Kunlunqi forestry farm 1,046 0.07 22.3 4,000 Cuiluan Forestry District Jianshanhe forestry farm 935 0.42 21.6 4,200 Kaiyuan forestry farm 749 0.16 18.9 4,200 Beiguliu forestry farm 1,479 4.3 12.7 6,826 Yuejing forestry farm 864 8.7 16.8 7,716 Bayi forestry farm 1,478 3.6 9.1 6,673 Wuyi forestry farm 939 7.9 16.6 8,034 Suiling Forestry District Wusi forestry farm 2,008 32 5.4 7,275 Laoguliu forestry farm 868 7.6 7.2 6,929 Yiqisong forestry farm 1,283 5.6 15 6,777 Jianxing forestry farm 2,941 2.2 2.6 6,910 Qiyi forestry farm 907 17 10.6 8,061 Jianhua forestry farm 257 1.2 13.6 6,395 Bei'an City Xinfu forestry farm 575 13.9 26.7 9,639 Gangyao forestry farm 467 5 17.8 8,350 Tongbei Forestry District Qunli forestry farm 566 4.5 15.2 3,962

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Per Per Capita Capita Per Capita Project County/City/ Town/Township//State Total Net Farm Forestry District Farm/State Forestry Farm Population Income Land Land (ha) (CNY) (mu) Weidong forestry farm 783 2.8 40.6 5,365 Caoyang forestry farm 680 2.7 17.4 4,364 Qianjin forestry farm 1,554 2.8 15 4,839 Nanbeihe forestry farm 3,238 8.9 3.5 4,924 303 forestry farm 518 7.7 24 6,027 Bishui forestry farm 538 47.2 12 7,621

Sub-total of State Forestry Farms 24,673 8.4 12.8 6,224

Source：State Forest Divisions and State Forestry Farms

Table 6: Basic Natural Characteristics of IDPA of the Project Population County/City Total Area Total Population No. of Towns/ No. of Density /District (km2) (10,000) Townships Villages ( person/km2) Cuiluan District 1,561 5.4 4 N.A* 34.6 Suiling County 4,238 33 11 76 77.9 Beian County 7,194 47.1 9 62 65.5 Wudalianchi City 9,846 36.6 11 96 37.2 Nenjiang County 15,109 50.4 13 142 33.4 Total of IDPA 36,387 172.5 44 376 45.9 *Cuiluan District is an integrated forestry management district and administrative district. Whole area is forestry area, no village units but forestry farms. Source: Heilongjiang Statistical Yearbook 2007, 5 county level units’ statistical yearbooks (2007).

2. Bus Stations 14. The bus stations were selected on the basis of community needs, population served and the presence of poor and ethnic minority families. The population to be served by these improvements is estimated to be approximately 536,183 of 219 administrative villages, including 28,135 under MLSS and 5,319 of ethnic minorities. The total cost of the bus stations is about CNY6.62 million, and new land to be occupied is about 13,547 square meters.

15. 20 bus stations are dispersed in 14 townships/town of 6 counties/cities and 6 farms. 13 stations are located in the identified indirect project area (IDPA), while 7 are out of the IDPA as defined in the main text. Among 15 stations in the IDPA, 8 bus stations are located in the direct project area (DPA). Table 7 shows the location of the bus stations in details. Table 7 Location of Bus Stations Counties/ Within Within Out of No. Bus Station Name Cities DPA IDPA IDPA 1 Bei’an Shiquan town bus station No. Yes No. 2 Bei’an Haixing town bus station No. Yes No. Bei’an 3 Bei’an Er’jing town bus station Yes Yes No. 4 Bei’an Zhaoguang town bus station Yes Yes No.

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5 Qixingpao farm bus station Yes Yes No. Hongxing farm bus station Yes Yes No. 6 7 Hailun Ai’min town bus station No. No. Yes 8 Hailun Zhayinhe bus station No. No. Yes 9 Hailun Hailun Donglin town bus station No. No. Yes 10 Hailun Haixing town bus station No. No. Yes 11 Hailun Qianjin town bus station No. No. Yes 12 Suiling Shuangchahe town bus station No. Yes No. 13 Suiling Suiling Geshanxiang town bus station No. Yes No. 14 Suiling Shangji town bus station No. Yes No. Tieli Langxiang town Shenglang bus 15 No. No No. Tieli station 16 Tieli Taoshan town Shichang bus station No. No No. 17 Geqiushan farm bus station Yes Yes No. 18 Wudalianchi Weishan farm bus station Yes Yes No. 19 Wudalianchi farm bus station Yes Yes No. 20 Nenjiang Nenjiang farm bus station Yes Yes No.

B. PHYSICAL CHARACTERISTICS OF THE PROJECT AREA

16. In terms of geographic conditions of the project area, Cuiluan Forestry District is located in mountainous area, Suiling, Bei’an and Wudalianchi are in semi-mountainous area or hills, while Nenjiang County belongs to the Nenjiang Plain. Among the five counties/cities/forestry districts, farms of Nenjiang County, Bei’an City and Wudalianchi City are famous in soybean production, while Cuiluan Forestry District and the north part of Suiling County are forestry area with forest vacation parks. In Wudalianchi, there is not only a national geological park, but also natural reserves, wetlands and water source protection areas. Tourism resources in these areas are abundant. In addition, land resources in the area are rich compared with other provinces of China.

17. Although each project county has an existing road to connect with Harbin, the capital of Heilongjiang Province, there is not a road to pass through the project counties/cities from east to west. It is difficult to travel directly between the project counties/cities. The proposed project will solve this problem.

C. SOCIO-ECONOMIC CHARACTERISTICS

1. Population and Distribution

18. The DPA has total population of 512,196. Out of them, 44,531 (8.7% of the total population) are poor under the MLSS. As presented in Table 8, the forestry farms have the highest poverty incidence ratio of 12.8%, followed by the townships/towns with 9.5%, while the state farms have the lowest poverty incidence of 5.3%. MLSS threshold officially is CNY1,000 for rural, however, most of the project counties/cities has their MISS higher than CNY1,000. The field interviews found that it is set at around CNY1,300-1,500 in practice. Urban MLSS threshold is CNY176 per person per month. Table 8 has the details.

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Table 8: Population Characteristics in DPA Poor Project Town/Township//State Farm/State Total As % of Total Minority As % of Total Population County/City/District Forestry Farm Population Population Population Population under MLSS Kunlunqi forestry farm 1,046 Cuiluan Forestry District Jianshanhe forestry farm 935 595 21.8 50 1.83 Kaiyuan forestry farm 749 Beiguliu forestry farm 1,479 246 16.6 18 1.22 Yuejing forestry farm 864 127 14.7 11 1.27 Bayi forestry farm 1,478 75 5.1 21 1.42 Wuyi forestry farm 939 22 2.3 19 2.02 Suiling Forestry District Wusi forestry farm 2,008 83 4.1 24 1.20 Laoguliu forestry farm 868 93 10.7 8 0.92 Yiqisong forestry farm 1,283 136 10.6 15 1.17 Jianxing forestry farm 2,941 97 3.3 29 0.99 Qiyi forestry farm 907 25 2.8 13 1.43 Zhaoguang Town 27,986 560 2.0 436 1.56 Dongsheng Township 17,121 1,825 10.7 216 1.26 ErjingTown 11,695 795 6.8 509 4.35 Bei'an City Chengjiao Township 12,450 1,336 10.7 261 2.10 Jianshe state farm 14,305 617 4.3 348 2.43 Zhaoguang state farm 29,771 1,850 6.2 186 0.62 Hongxing state farm 11,892 429 3.6 238 2.00 Qunli forestry farm 566 138 24.4 9 1.59 Tongbei Forestry District Weidong forestry farm 783 83 10.6 12 1.53

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Poor Project Town/Township//State Farm/State Total As % of Total Minority As % of Total Population County/City/District Forestry Farm Population Population Population Population under MLSS Caoyang forestry farm 680 106 15.6 8 1.18 Qianjin forestry farm 1,554 236 15.2 16 1.03 Nanbeihe forestry farm 3,238 231 7.1 31 0.96 303 forestry farm 518 112 21.6 10 1.93 Bishui forestry farm 538 38 7.1 7 1.30 Jianhua forestry farm 257 31 12.1 6 2.33 Xinfu forestry farm 575 142 24.7 7 1.22 Gangyao forestry farm 467 113 24.2 9 1.93 Xinglong Township 10,174 2,014 19.8 136 1.34 Wudalianchi City Xingfa Township 16,084 3,470 21.6 189 1.18 Jianshe Township 15,486 2,154 13.9 216 1.39 Tuanjie Township 14,689 3,407 23.2 321 2.19 Shuangquan Townhsip 16,419 3,242 19.7 396 2.41 Caoyang Township 8,205 2,401 29.3 125 1.52 Wudalianchi Town 14,643 293 2.0 196 1.34 Wudalianchi farm 7,164 900 12.6 154 2.15 Wudalianchi Scenic District Weishan state farm 10,124 870 8.6 289 2.85 Geqiushan state farm 7,820 361 4.6 94 1.20 Qianjin Town 24,239 1,750 7.2 751 3.10 Nenjiang county Keluo Town 15,296 514 3.4 436 2.85 Baiyun Township 14,350 989 6.9 386 2.69

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Poor Project Town/Township//State Farm/State Total As % of Total Minority As % of Total Population County/City/District Forestry Farm Population Population Population Population under MLSS Changfu Town 20,005 1,536 7.7 267 1.33 Nenjiang Town 87,204 2,433 2.8 1,236 1.42 Haijiang Town 41,846 1,639 3.9 863 2.06 Qixingpao state farm 13,955 448 3.2 239 1.71 Bei’an Division of State Nenjiang state farm 12,212 387 3.2 66 0.54 Farm Shanhe state farm 12,388 526 4.2 213 1.72 Sub-total of Towns/Townships 367,892 34,990 9.5 6,940 1.89 Sub-total of State Farms 119,631 6,388 5.3 1,827 1.53 Sub-total of State Forestry Farms 24,673 3,153 12.8 323 1.31 Total of DPA 512,196 44,531 8.7 9,090 1.77

Source: Heilongjiang Statistical Yearbook 2008 and data from Provincial Poverty Alleviation Office and Provincial Ethnic Minority and Religion Affairs Bureau.

Table 9: Population Characteristics in IDPA Non- Total Agricultural Rural As % of As % of Project Agricultural Minority Population Male Female Population Poverty Total Total County/City/District Population Population (‘0000) (‘0000) Population Population Population (‘0000) Cuiluan 5.4 2,68 2.72 0.32 5.08 6,138 11.37 545 1.00 Suiling 33.0 16.9 16.1 19.9 13.1 25,837 7.82 11,106 3.37 Bei’an 47.1 24.1 23 19.4 27.7 40,870 8.69 9,925 2.11 Wudalianchi 30.0 19 17.6 11.3 18.7 36,937 12.30 6,397 2.14 Nenjiang 50.4 25.6 24.6 23.6 26.8 23,211 4.61 14,365 2.86

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Total of IDPA 160.5 85.6 81.3 74.2 86.3 126,855 7.90 41,793 2.60 Heilongjiang Province 3824 1,892.9 1,931.1 1,763 2061 2.69 9.83 2.00 5.23 million million

Source: Heilongjiang Statistical Yearbook 2008 and data from Provincial Poverty Alleviation Office and Provincial Ethnic Minority and Religion Affairs Bureau.

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19. Total ethnic minority population in the DPA is 9,090, or 1.77% of the total population. And as shown in Table 9, the minority people are mainly scattered in the state farms, state forestry farms or other villages; however, a few minority people (about 20%) are concentrated in 5 ethnic minority sub-villages.

20. There are around 0.4 million rural labours in the DPA, excluding workers of the state farms and state forestry farms. Table 10 has the details.

Table 10: Rural Laborers in Project Counties/cities (2007) (‘0000) Project County/City Total Labor* Male Labor % Female Labor % Yichun 9.3 5.4 57.7 3.9 42.7 Nenjiang 9.2 5.7 62.1 3.5 37.9 Wudalianchi 7.6 4.6 61.1 2.9 38.9 Bei’an 7.2 4.2 58.6 3.2 41.4 Suiling 9.0 5.4 60.2 3.6 39.8 Sub-total of IDPA 42.2 25.3 60.0 17.1 40.5 Heilongjiang Province 949.4 543.1 57.2 406.3 42.8 *The labor population excluded labor of state farms and state forestry farms. Source: Heilongjiang Statistical Yearbook 2008.

21. As mentioned above, among 20 bus stations, 8 bus stations are located in the identified DPA. The relevant information on the DPA are shown above. To avoid double calculation, the remaining 12 bus stations that are not within the DPA are described here.

22. A total of 12 additional townships/towns with 125 administrative villages will be served by the proposed bus stations to be constructed, of which 40 are key poverty reduction villages identified by the Heilongjiang Provincial Government. The total population served by the stations amounts to 431,550, and rural population accounts for 67%. Of the total population 23,946 (or 5.5%) are under MLSS. Out of the total population, 3,294 (or 0.8%) are minorities. Details are indicated in Table 11.

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Table 11 Socio-economic Indicators of Bus Station Affected Townships/Towns Rural Average per Urban per Urban Rural Township No. of % of % of Ethnic % of Farm Capita Capita County/ Name of No. of Total Urban Poor Rural Poor /Town Poverty Urban Rural Minority Ethnic Land Net Expendable /City Bus Station Villages Population Population under Population under Located Villages Poor Poor Population Minority (mu/ Income Income MLSS MLSS capita) (yuan/ (yuan/yr) yr) Shiquan Shiquan 14 2 42,000 3,000 155 5.2 39,000 1,950 5.0 230 0.5 7.6 3,560 6,500 Beian Haixing Haixing 6 1 17,441 780 35 4.5 16,661 677 4.1 0.0 7.8 3,400 7,000 Aimin Aimin 10 5 26,433 26,433 1,108 4.2 57 0.2 5.48 2,600 Zhayinghe Zhayinghe 12 6 30,450 30,450 565 1.9 0.0 5.73 2,540 Hailun Donglin Donglin 15 7 33,622 33,622 1,765 5.2 1,020 3.0 5.6 2,580 Haixing Haixing 10 5 37,000 9,000 738 8.2 28,000 1,191 4.3 80 0.2 5.7 2,800 3,500 Qianjin Qianjin 15 8 34,000 34,000 2,050 6.0 0.0 5.1 2,950 Suangchahe Suangchahe 8 1 25,210 3,389 907 26.8 21,821 1,040 4.8 152 0.6 8.2 2,708 4,700 Suiling Geshan Geshan 7 2 19,407 2,262 615 27.2 17,145 982 5.7 313 1.6 6.6 3,015 4,700 Shangji Shangji 9 0 25,321 3,012 812 27.0 22,317 1,130 5.1 541 2.1 6.2 4,098 4,700

Shenglang Liangxiang 5 0 77,790 74,657 5,172 6.9 3,133 363 11.6 96 0.1 2.1 5,246 6,780 Tieli Shichang Taoshan 14 3 62,876 46,525 1,846 4.0 16,351 845 5.2 805 1.3 4.1 4,615 6,960

Total 125 40 431,550 142,625 10,280 7.2 288,933 13,666 4.7 3,294 0.8 6.1 3,119 6,501

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2. Economic Situation

23. The proposed project will traverse Songnen Plain in northwest of Heilongjiang and foot of Xiaoxinganling area in middle of Heilongjiang. The whole area is dominantly by agriculture except in Yichun City. Tables 12 and 13 indicate the GDP and its composition in the project counties/cities.

Table 12: GDP Composition of Project Counties/Cities (2007) (CNY ‘000 million) Average GDP Primary % Secondary % Tertiary % Per Capita GDP(CNY) Yichun 153.2 39.7 25.9 56.9 37.2 56.5 36.9 10,858 Nengjiang 54.3 24.2 44.6 11.6 21.4 18.5 34.1 10,825 Wudalianchi 26.9 15.0 55.8 3.0 11.2 8.9 33.1 8,988 Bei’an 35.9 15.5 43.2 5.6 15.6 14.8 41.2 7,614 Suiling 16.9 10.0 59.2 2.1 12.4 4.8 28.4 5,173 Heilongjiang 7,065 915.4 13.0 3,695.6 52.3 2,454.0 34.7 18,478 Province Source: Heilongjiang Statistical Yearbook 2008, and county level statistical yearbooks.

Table 13: Composition of Primary Industry in Project Counties/Cities Heilongjiang Year Yichun Nenjiang Wudalianchi Bei’an Suiling Province Total 100 100 100 100 100 100 Plantation 47.8 85.4 69.8 82.5 62.6 69 Forestry 29.4 1.5 13.5 3.6 14.2 4.4 2005 Husbandry 20.4 12.7 13.4 13 18.1 23.4 Fishing 2.1 0.4 2.8 0.9 4.6 1.7 Others* 0.3 0 0.5 0 0.5 1.5 Total 100 100 100 100 100 100 Plantation 48.3 85.9 71.4 83.3 67.1 72.3 Forestry 28.6 1.5 14.4 3.1 14.1 4.3 2006 Husbandry 20.8 12.2 10.2 12.8 13.7 19.8 Fishing 1.8 0.3 3.5 0.8 4.3 1.2 Others* 2.3 0.4 4 0.8 5.1 3.6 Total 100 100 100 100 100 100 Plantation 52.9 84.3 75.2 82.5 66.9 71

2007 Forestry 29.8 0.1 11.9 4.2 10.2 4 Husbandry 15.3 14.5 11.1 12.7 19.6 21 Fishing 0.9 0.1 1.3 0.5 2.5 1.4 Others* 1.1 1 0.5 0.1 0.8 2.6 *Note: Value added through services.

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Source: Yearbooks of counties/cities and Heilongjiang Province.

24. All counties/cities are important national grain production bases except for Yichun. Most of the villages along the economic corridor are the national production base of soybean, rice, maize. Other products include potatoes, beetroot, sunflower seeds and flax. Table 14 has the detail.

Table 14: Main Agricultural Production in Project Counties/Cities(2007) (tons) Grain, Soybean and Oil Plants Beetroot Flax Meat Potatoes Yichun 581,595 3,523 7,750 3,556 54,827 Nenjiang 649,690 77 45,635 -- 15,783 Wudalianchi 263,057 206 1,759 -- 5,146 Bei’an 353,640 256 1,080 15,840 4,019 Suiling 372,022 21 -- -- 5,718 Heilongjiang Province 39.7 0.5 2.4 0.2 2.3 (million tons) Source: Heilongjiang Statistical Yearbook 2008 and yearbooks of local counties/cities

25. Average farmland of Heilongjiang Province is 10 mu. The average farmland of the project counties/cities/districts are higher than the provincial average except for Yichun City and Suiling County as a forestry area where farmland is less. Nenjiang has the highest farmland per capita which is almost the twice of the provincial average. Details see Table 15.

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Table 15: Farm Land of Project Counties/Cities Average Farm Land of Total Farmland Average Farmland of Whole County/City/District Rural Population (mu/ (mu) Population (mu/ person) person) Cuiluan District* 2,245 10.52 0.62 Suiling County 1,655,007 8.3 5.1 Bei’an City 2,322,759 11.9 4.9 Wudalianchi City 1,666,012 14.8 4.8 Nenjiang County 4,703,793 19.9 9.4 Heilongjiang 175,500,000 10 4.6 Province *Note: Cuiluan as a forestry district has no official farm land. Source: county level statistical yearbook 2007. 26. Tourism industry in the project area has been developed mainly in Wudalianchi geographic scenic area and Yichun ecotourism area. In 2007, the total number of tourists in the project cities amounted about 5.4 million, and tourism income achieved around CNY1.8 billion. With development of new scenic spots, tourism industry has very big potential in these project areas. Indeed, tourism is becoming one of the most important industries in Yichun and Wadalianchi. Table 16 has the details. Table 16: Tourism Development in Project Area (2007) Income from Tourism Number of No. of Tourists Level A or Development (‘000) Area above Scenic Domestic Foreign International RMB Spots (‘000) Currency (US$) Yichun 87 -- 3,010 -- 1,200,640 Wudalianchi 36 -- 1,448 -- 576,310 Suiling 2 -- 15 -- 1,470 Heilongjiang 149 1,414,187 65,150 642,700 38,000,000 Province Note: Bei’an and Nenjiang have no tourism data available. Source: Heilongjiang Statistical Yearbook 2008 and project county tourism bureau.

27. Local government revenue of the project counties/cities are poor. Table 17 has the details. Table 17: Financial Revenue by Project County/City (2007) (CNY) Average Budgeted Financial Average Budgeted Financial Area Revenue Income Per Revenue as % of Revenue Expenditure as % Capita GDP Expenditure of GDP Bei’an 198 2.6 1,774 23.2 Wudalianchi 101 1.1 1,420 15.8 Nenjiang 184 1.5 1,174 9.9 Suiling 86 1.7 1,501 29.1 Yichun City 260 2.4 1,695 15.4 Heilongjiang Province 1,515 8.2 2,533 18.8

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Sources: Heilongjiang Statistical Yearbook 2008, Yearbooks of Yichun, Nenjiang, Wudalianchi, Bei’an and Suiling county/city 2007.

28. The three indicators of staff average wages, urban per capita disposable income, and urban and rural per capita year-end savings deposit balance for project areas along the proposed road are evidently lower than the average level of the whole province. This illustrates that the income of the residents living along the road is still at a lower level. For rural per capita net income, only that of Nenjiang County is a bit higher than the provincial average level. The rural per capita net income for Suiling County is only 2,800 Yuan, which is less than 2/3 of the provincial average. Details show in Table 18.

Table 18: Some Economic Indicators for Project Affected Cities/Counties Unit CNY Urban Rural Per Urban and Rural Per Staff Average Per Capita Capita Net Capita Year-end Savings Wages Disposable Income Deposit Balance Income Yichun 9,658 7,415 4,675 8,813 Nenjiang 17,308 7,075 4,356 8,148 Wudalianchi 11,834 5,975 4,067 8,538 Beian 14,717 6,886 4,003 9,579 Suiling 11,999 4,340 2,800 5,279 Heilongjiang 19,386 10,245 4,132 11,712 Province Sources: Heilongjiang Statistical Yearbook 2008, statistical yearbooks of Yichun, Nenjiang, Wudalianchi, Bei’an and Suiling county/city.

29. In general, plantation still is the main income among all income groups. Lower income group has higher seasonal labour income. Non-poor have higher off-farming business income. Table 19 shows the details.

Table 19: Income Sources by Social Groups Poorest Poor (lower Non-poor Income Categories (%) income group) (%) (%) Seasonal labor 5 10-30 10-20 Off-farming business <5 5-10 10-30 Farming 50-80 70-80 50-60 Grain subsidy 5 5-10 5-10 MLSS subsidy 5-30 <5 0 Source: Sample survey and consultant’s field interview

30. The per capita expenditure scale for sample households as a whole is lower than the average level of Heilongjiang Province. The lowest is Suiling County, only 2,370 Yuan. The highest is Yichun City, 2,690 Yuan, which still is lower than the provincial average of 3,117 Yuan. This indicates that living standard for the residents living along the road is still at a lower level compared to the provincial average. Details show in Table 20.

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Table 20: Average Per Capita Expenditures (2007) (CNY) Consumption Area Total Expenditures Expenditure Bei’an City 8,802 2,627 Nenjiang County 9,116 2,673 Wudalianchi City 7,002 2601 Suiling County 6,720 2,370 Yichun City 7,510 2,690 Provincial Average 7,631 3,117 Source: Field HH survey.

3. Infrastructure and Social Services

Road and transport service

31. The proposed project is a section of the WE2, of which the section from Yichun to Bei’an east is an integral part of WE2. It connects Heha expressway with Suiling-Beian expressway, and plays a significant role in the provincial road network. But currently, Yichun and Bei’an are cut off by Xiaoxinganling, and there is no direct road all along. Old logging roads with broken ends in the area are everywhere. Opening the “Yichun-Nenjiang” road has become the urgent desire from local governments and people of all levels along the road.

32. The cities/counties in the project area are open to traffic till Tuen (a natural residence group, smaller than a village). The rate for opening traffic is over 80%. For example, there is a passenger transport terminal, six substations in Neijing County of Heihe City. The county as a whole has ninety-nine passenger transport routes, including one interprovincial route, eleven prefecture-level routes, six inter-county routes, eighty-one routes within the county. There are 386 freight vehicles in total, with a gross tonnage of 2,589 tons. In addition, there are four taxi companies and 1,249 taxies. The passenger and freight transport route of Wudalianchi is mainly heading for cities/counties of Harbin, Qiqihar, Suihua, Nenjiang, Daqing, Nahe, Moqi, Bei’an, Longzhen, Heihe, Beixing, and Sunwu. It leads to all the townships and administrative villages within the county. Table 21 summarized the service situation in the project area. Table 21: Transport Service Situation of Project Area in 2007 Passenger Passenger Person- Volume of Volume of Freight Capacity kilometers Freight Transport (10,000 (10,000 people) (10,000 people km) (10,000 ton) ton km) Yichun 380 21,887 376 16,941 Nenjiang 82.6 6,068 52.1 3,136 Wudalianchi 51 3,856 226 11,772 Beian 92.2 6,051 73.2 1,923 Suiling 173.1 5,593.8 129 5,206.6 Heilongjiang 54,592 3,139,000 51,996 2,899,000 Province Sources: Heilongjiang Statistical Yearbook 2008, statistical yearbooks of Yichun, Nenjiang, Wudalianchi, Bei’an and Suiling county/city.

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Health care

33. The project area has fundamentally realized a multilevel health network of cities, counties, and townships. In addition to the general health units, there are also specialized health care institutions of maternity hospital, contagious control hospital, tuberculosis hospital, as well as mental hospital. Table 22 summarized the health care indicators. Table 22: Health Care Situation Table for Project Cities/Counties Number of Beds in Health Health Care Number of Numbers of Workers per Number of Institutions Institutions Health Workers 10,000 Beds Owned by (unit) (person) people 10,000 (person) people

Yichun 80 4,886 5,236 38.3 41 Nenjiang 59 1,112 1,787 22.1 88.9 Wudalianchi 36 945 1193 31.5 39.8 Beian 31 2,286 3,110 48.5 65.5 Suiling 61 652 1,301 19.8 39.4 Heilongjiang 8,464 126,058 158,726 33 41.6 Province Sources: Data from statistical yearbooks of cities /counties and local officials interview.

Education

34. Cities and counties of the project area have all realized the “two basic” education complying with the national requirements (that is, basic nine-year compulsory education and basic elimination of illiteracy among the young and middle-aged). They could also complete the ordinary high school education. Only Yichun City of the project area has adult higher education. Other counties/cities have no higher education.

Other infrastructure and social services

35. The urban and rural radio and television coverage rate in the cities/counties of the project area is over 80%. The coverage rate by radio in Yichun City is 98.56%, and that of the television is 99.56%. The coverage rate by radio in Nenjiang is 82.6%, and that of the television is 83.1%. The coverage rate by radio in Wudalianchi is 100%, and that of the television is 92%. The coverage rates by radio and television in both Bei’an and Nenjiang are all 100%.

36. Besides, the project area focuses on the strengthening of the input towards urban infrastructure construction and the construction of new country. When Bei’an City is building urban greening, lighting, and cultural residential areas, it increases the construction of rural roads, rural electricity network, and the rehabilitation of rural multi-use cultural centres. It invested eight million Yuan to promote the reformation of rural electricity network in 2007. It is also the first county across the province that started traffic broadcasts. Nenjiang and Wudalianchi strengthen the construction of the security for rural drinking water sources, while

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they are constructing urban infrastructure. Wudalianchi dug eleven rural drinking wells in 2007, Nenjiang has also solved the safety problem of drinking water for 8,000 people.

4. Project Counties/Cities/Farms

Yichun City and Cuiluan District

37. Yichun City is a prefectural-level city, with 1 city, 1 county and 15 districts. Yichun forestry management bureau has 16 forestry bureaus, 10 large and medium-sized woods processing, mechanic and electric, building materials enterprises. In 2007, the city’s population was 1.32 million, and there are Han, Manchu, Hui, Oroqen and other 22 ethnic groups.

38. In 2007, the city’s industrial added value realized 4.892 billion Yuan, an increase of 16.8 percent than last year. The GDP in the same year is 15.384 billion Yuan, 6.48 times that of 1980, with an average annual growth rate of 7.17 percent; per capita GDP is 12,050 Yuan, 6.07 times that of 1980, with an average annual growth rate of 6.91 percent. At the same period, the three major industries’ rate is 26.0:37.1:36.9. Yichun City was named national garden city in 2005, and received 3.005 million tourists, an increase of 17.4 percent; tourism revenues was 1.2 billion Yuan, an increase of 27.6 percent.

39. Cuiluan District is the most western district of Yichun City and starting point on the east of the proposed project.

Bei’an City

40. Total area of the city is 7,194 square kilometers, with 5 towns, 6 townships and 1 ethnic township. Bei’an city is one of the main wheat and soybean production base in Heilongjiang Province, famous for its beet, forest and wildlife resources. The city’s GDP in 2007 reached 3.590 billion Yuan, an increase of 12.2 percent; urban residents’ per capita disposable income was 6,886 Yuan, an increase of 29.7 percent; rural per capita net income was 4,003 Yuan, an increase of 17.3 percent compared that with 2006.

41. Total industrial value in 2007 was 573.12 million Yuan, an increase of 12.4 percent; the industrial added value is 180.28 million Yuan, an increase of 12.3 percent; above scaled enterprises realized the added value of 85.20 million Yuan, an increase of 17.9 percent compared that with 2006.

Wudalianchi City

42. Wudalianchi City has a total area of 9,800 square kilometers, with a population of 360,000, and there are Han, Manchu, Hui, Mongolian, Daur and others total 22 ethnic groups. The city has four towns, Qingshan, Longzhen, Heping, and Wudalianchi, twelve townships including Xinfa, Xinglong, and Wudalianchi Scenic Area. More than ten state farms and forest bureaus are located in the city, including Zhanhe Forestry Bureau.

43. The city has realized a GDP of 2.996 billion Yuan in 2007, an average increase of 15.55 percent since 2000; per capita gross regional product is 8,988 Yuan, 3.13 times that of 2000. The three major industrial structure’s rate is 39.4:16.5:44.1.

Wudalianchi Scenic Area

44. Wudalianchi Scenic Area was established in May 1996. Wudalianchi Scenic Area has 82.4 million mu of arable lands, 40.2 million mu of forests, 17.1 million mu of grasslands. The population is 56,000. The scenic area includes one town, two farms, and three troop farms, four

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farms’ (township) parts of villages, 33 public institutions, 41 enterprises and 29 provincial/municipal units.

45. Wudalianchi scenic nature reserve, with long-standing reputation of singular volcanic scenery and natural mineral spring at home and abroad, is an integrated scenic spot of eco- tourism, vocation and health treatment, and professional expedition, and is a famous tourism and recuperation place. Wudalianchi Scenic Area has two world-class reputation of “the world geological park” and “world human and biosphere protection area” by the United Nations. In recent years, Wudalianchi Scenic Areas revenues have increased at a rate of 35 percent. Tourists was 380,000 in 2004, 450,000 in 2005, and 750,000 in 2007, increased at an average annual rate of 25 percent, and it is expected to exceed one million in 2010.

Nenjiang County

46. Total area of Nenjiang is 15,107.2 square kilometers, which includes the arable land 368,000 hectares, reclamation land 192,000 hectares, woodland 413,000 hectares, barren hills and lands suitable for forestation 16,400 hectares, and grassland 221,000 hectares with sheep farm capacity of 664,000 sheep units. The county has 6 towns, 7 townships, 8 sub district offices, 166 administrative villages, 416 villages. By the end of 2007, the population of the county was 503,000. Nenjiang County is rich in water resources, good quality of wheat and soybean, forest, grassland and mineral resources. The county achieved a GDP of 5.936 billion Yuan in 2007, an increase of 14.4 percent. Per capita GDP reached 11,807 Yuan, an increase of 14.2 percent. The proportion of the three major industries changed from 59:15:26 in 1990 to 49.6:20.4:30.0 in 2007.

47. There are many units called non-local units in the county, which are not administrated by local government. This type of units include General Logistics Department, Jiusan farm bureau, northeast aerial forest protection bureau, 10 large provincial farms, 1 provincial stock seed farm, 2 provincial quarries, 6 railway stations, 44 troop agriculture and avocation production bases, 6 other agriculture and avocation production bases, and hundreds of other units. Non-local units has an important position in the county, with population accounting for 37.8 percent, arable land 61.9 percent, grain and bean total production 64.9 percent(not include troops), industrial output value 57.6 percent, and gross social retail sales 36.9 percent.

V POVERTY IMPACT ANALYSIS

A. POVERTY IN HEILONGJIANG

48. The national objectives of the Program For Rural Anti-Poverty of China are as follows:

• To solve the basic needs of people living in poverty

• To improve the economic activity and living conditions of poverty areas

• To increase the life quality and integrated capacity of the poor population

• To improve the ecosystem of the poor areas

• To Improve the infrastructure of poor areas

• Then, gradually improve the backward situation of the economy, society and culture.

49. The program has a number of key strategies and its sixth strategy calls for enhanced construction of roads, power, irrigation and communication. In this same document, the

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approach to this program is to improve the basic production and living conditions of poor areas and to enhance the construction of basic farmland, infrastructure, environment improvement and public service facilities. By the end of 2010 the program will try to solve the problem of drinking water in the poor areas, try to access electricity, road, mail, telephone, cable TV in each poor village.

50. Similarly at the Provincial Level, the Heilongjiang Anti-Poverty Development Regulation prioritizes transport. Specifically, items 14, 17 and 18 describe transport regulations of the funds. For instance under regulation 14: “The poverty reduction funds include central government and local government financial poverty reduction funds; work for relief funds; loans without interest; donation funds of private institutions and society groups”. These financial poverty reduction funds should be used for: construction of the countryside roads, bridges, basic farmland, irrigation, drinking water and used for the planting sector and livestock sector and relief funds are targeted at infrastructure and the construction of roads, bridges, and small irrigation systems”.

1. Current Situation in Heilongjiang Province

Rural 51. The poverty line in the rural area is that the net income of a person is lower than 1,300 Yuan. According to this standard, there are 14 national level poverty counties ( net income lower than 1,000 Yuan per capita ) and 7 provincial level poverty counties (net income lower than 1,300 Yuan per capita) in Heilongjiang Province. At the village level, there are total 3,112 poverty villages (including 14 minority villages) (identified and summed in 2000 when prepared Heilongjiang Ten-year Integrated Poverty Village Development Program Plan). The total poor population is 2.68 million or 15.2% of the total rural population. Urban 52. According to the Provincial statistical data, there are 6.92 million households with 20.61 million population living in urban areas in 2007. Out of that, there are about 1.58 million population (7.67%) belonging to the poor (income less than 104 Yuan per capita per month). In urban areas, the poor people can get relief (up to137 Yuan per month) from the urban lowest life standards guarantee system.

2. Poverty Reduction Programs and Achievements

53. Since 2002, the whole province has focused on poverty reduction through integrated poverty village development program. Total 2,382 poverty villages have received funds to implement integrated village development. Average funds for integrated village development for each village is around 2 million, out of which, around 50% supported from national and provincial finance budget, the rest from various approaches, include the poor’s labour investment, private sector contribution, local county level government counterpart. Farmer’s net income has increased by around 30%, in some villages it is doubled. Another important achievement is the road conditions of these areas have improved. During the past five years, 1,987 km village road and 198 sets of bridges have been constructed, and this has promoted the agricultural products flows. The third important achievement is mechanization of agricultural production. 135 sets of harvesting machines and 403 sets of agricultural tools were distributed to these villages. 4,489 wells were dug for irrigation, and 983 items of small irrigation system were established. The fourth achievement is that drinking water problems of these villages have been solved, with 948 drinking water wells dug for 1,574 villagers’ groups. The fifth is to set up

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one (1) health clinic for each village with some necessary equipment to serve villagers. The sixth is to establish livestock technical service stations with relevant equipment in each village to serve the livestock development in these villages. The seventh is the TV signal improvement in these poor villages. The households with cable TV increased from 10% to 87.4%. The last significant achievement is to solve the difficulties of education in these villages. 93 schools were established or upgraded with some new education facilities, and the enrolment fees for all students were waived. Over 98% of school age children study in the schools.

54. The remaining 760 poverty villages will be funded in year 2010-2011. However, compared with non-poverty villages, the per capita net income of the poverty villages funded through integrated poverty village development program still is lower than provincial average. Therefore, these villages still are called as poverty village as the poverty line is increased gradually.

B. POVERTY IN THE DIRECT PROJECT AREA (DPA)

55. A total of 44,531 people or 8.7% of the total population in DPA are categorized as poverty population under MLSS. Table 21 has the details. The poverty population is identified according to the poverty definition described in Section V.A.1, in which the poverty line is equivalent to $1.10/day for rural poor and roughly equivalent to $1.10/day for non-agricultural residents. However, according to ADB new poverty and vulnerability lines ($1.25/day and $2.00/day), it appears that the degree of poverty and vulnerability presented in Table 23 is understated. Table 23: Total Poverty Population and Distribution in DPA No. of Township Total Poverty Poverty Incidence Scope Level Units Population Population % Sub-total of 17 367,892 34,990 9.5 Towns/Townships Su-total of State Farms 9 119,631 6,388 5.3 Sub-total of State Forestry 22 24,673 3,153 12.8 Farms Total of DPA 48 512,196 44,531 8.7 Source: Data collected from Bureaus of State Forestry Farm and State Farm.

1. Rural Poverty

56. There are total of 34,990 of rural poverty population in the Project DPA highway corridor. Out of them, 24,566 people live in the poverty villages under MLSS, and the rest scatter in other non-poverty villages. The rural poor of the DPA are mainly concentrated in Bei’an and Wudalianchi cities, and Nenjiang County. Since there are no rural administrative townships in Cuiluan District and Suiling County within DPA, therefore there is no rural poverty in this two county level regions found in the DPA. People living in state-owned forestry farms are categorized as forest workers.

57. There is about 6,000 people scattered in the non-poverty villages. Poverty incidence in these non-poverty villages is around 2% of total population.

58. However, there are total 50 poverty villages (account for 1.6% of the total poverty villages of Heilongjiang Province) located within the DPA highway corridors. Within these 50

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poverty villages, poverty incidence is quite high. There are 68,404 people in 23,511 households. Out of them 24,566 people (35%) in 5,869 households (24%) are poor. The poverty incidence within these villages is about 35%. The per capita net income of these poverty villages ranks from CNY 997-2,495. Of course per capita net income of the poor would be lower although there is no separate data available currently. Details see Table 24. Table 24 : The Poor in Poverty Villages within DPA of the Project Per No. Per Townships/ No. of Total Capita of Total Poor Capita Area Town within Poverty No. of Average Poor Population Population Average DPA Villages HH Net HH Farmland Income Cuiluan None 0 0 0 0 0 0 0 Suiling None 0 0 0 0 0 0 0 Dongsheng 2 505 304 2,109 1,525 1,445 7.8 Bei'an Chengjiao 2 648 276 2,090 1,129 1,133 10.9 Erjin 1 508 240 1,141 782 1,390 10.4 Xinglong 5 2,445 466 7,181 1,954 1,697 10.4 Chaoyang 6 1,763 437 4,884 2,335 2,495 15.7 Xinfa 6 3,511 526 10,067 3,350 1,669 9.3 Jianshe 5 2,710 596 5,860 1,961 1,300 10.8 Shuangquan 6 4,089 801 10,954 3,133 1,917 8.0 Wudalianchi Tuanjie 4 2,410 852 5,251 3,218 997 11.8 Haijiang 2 1,253 234 4,667 895 1,732 19.4 Nenjiang 2 376 211 1,405 717 1,039 21.3 Qianjing 2 1,165 315 4,941 1,364 1,122 22.7 Changfu 3 1,122 341 4,506 1,226 1,912 15.5 Baiyun 3 534 198 1,684 736 1,036 17.2 Nenjiang Keluo 1 472 72 1,664 241 1,065 24.9 Total 50 23,511 5,869 68,404 24,566 1,597 12.9 Source: Consultants’ calculation based on poverty village information from Heilongjiang PADO.

59. Out of the total 50 poverty villages in the DPA, 25 has implemented the integrated village development project, the remaining 25 villages are included in the 5th batch plan of the development project. It is estimated that some total of 50 millions will be granted to those poverty villages.

60. The main causes of poverty in poverty villages are:

• Mountainous area where rice, soybean and other profitable cash crops can not plant due to cold weather;

• Limit of farmland;

• Poor irrigation conditions;

• Poor transportation conditions; and

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• Natural disasters.

61. The main causes of poverty in individual household base include:

• Disease/poor health;

• Lack of labour or have disabled family members;

• Limit farmland; and

• Limited off-farming incomes.

2. Non-rural Poverty

62. In the DPA, the residents who work on agricultural production and are living in administrative towns/townships are defined as rural or agricultural people; the residents who don’t work directly on agricultural production and are living in administrative towns/townships as urban people; all residents who are living in state farms as agricultural workers; all residents who are living in forestry farms as forest workers; and all urban people, agricultural workers and forest workers as non-rural people. The poverty existing in non-rural people is called as non-rural poverty. Total non-rural poor are 14,186, or 5.5% of total non-rural population of 260,432 in DPA. Table 25 has the details.

Table 25: Other Poverty in DPA Non- No. of Township rural Non-rural Scope Poverty Incidence (%) Level Units Populati Poverty on Sub-total of 17 116,128 4,645 4.0 Towns/Townships Su-total of State Farms 9 119,631 6,388 5.3 Sub-total of State Forestry 22 24,673 3,153 12.8 Farms Total of DPA 48 260,432 14,186 5.5 Source: Local statistical yearbooks and information collected from local counties, cities, state farms and forestry districts.

Poverty causes of urban poor in towns/townships in DPA.

63. When asked about poverty causes, household survey results found that lack of labour force, illness increasing a family’s burden, laid-off or unemployment and high education fee are the top four causes of poverty. Focus group discussion has explored that although primary school and middle school is free in project areas, high school is still not free. One high school student’s minimum expenditures require 2,000 Yuan per year excluding additional payments if one wants to be enrolled in a better school. Medical expenditure is another big item of this group because more than 60% of this group has a chronical ill, handicapped or old person in the household. Laid-off or unemployment ranks as the third cause of poverty. Note, there is a difference between laid-off and unemployment. For people who are laid off from state owned enterprise such as state farm and state forestry farm, they can get retirement pension (currently CNY1,000 per month in average in the project area) when they reach the official age of

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retirement standard. An unemployed people can only get MLSS. Table 26 summarized the survey results. Table 26: Perspective of Poverty Causes by Urban Residence Poverty Causes % 1. Lack of labor force 32.50 2. Illness increasing a family’s burden 28.75 3. Laid-off or non-employment 26.25 4. Heavy education cost if the household has high school or above students 12.50 Source: field HH survey. Total valid cases 411.

Poverty causes of agricultural worker poor in the state farms in DPA.

64. People working in state farms more or less look like a farmer in terms of household based production responsibility but in fact they are registered as non rural residence. The major difference is that they are not fixed in a specific piece of land. Therefore their incomes would depend on which piece of land they can rent to plant. The income differentiation among household is very big. Some households who rent more land need to hire seasonal labours for farm work. It is estimated that the seasonal labours absorbed by the state farm reached 20% of its total population. However, poverty in these state farm also existed. The main poverty causes include:

• Illness increasing a family’s burden. • Loses caused by heavy price up and down of agriculture products. For instance, soybean’s price decreased around one third from CNY 5.5-5.6 per kilogram in 2007 to CNY3.5-3.8 in 2008 while the cost of the product increased around 10%. • Vulnerability of elderly or handicapped. Poverty causes of forest worker poor in state forestry farms in DPA

65. The situation in this group is complex. As can be seen in Table 22, the poverty incidence ratio in this group is almost doubled compared to the average in DPA. State forestry farms experienced a parabola pattern. It started from early 1960s and reached its peak time in 1980s in production scale. The main product was timber at that time. As the forest resources becoming depletion, timber products decreased. In 1998, the government initiated the “natural forest logging ban” program, all logging in natural forest has been stoped. Meanwhile, the government reduced timber logging quota greatly. For instance, in Suiling forestry farm bureau, total timber product decreased from around 400,000 m3 in 1980s to around 150,000 in 1998 before the logging ban. In year 2008, the quota approved by the state forestry bureau was only 10,700 m3. In addition compared to the huge natural growth trees, the logging now is mainly the small cultivated trees. Variety and quality are totally different. Therefore the values also decreased. This changes caused a great decrease of the income of the state forestry farm workers. Many workers have to seek alternative incomes, such as farming, NTFP producing or seasonal labour. As mentioned by most forestry farm workers, it was the villagers and state farm workers (during winter season) came to be seasonal labours of the forestry farm before middle 1990s. Now the situation reversed, it is the forestry workers go to the state farms and villages as seasonal labour during summer season.

66. Poverty causes in forestry farms include:

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• Laid-off become the major causes of this group. It is difficult to separate full laid-off and semi-laid-off. Some workers moved out to find new job or to do other business without coming back to undertake any work of the forestry farm. They are called full laid-off. Even though, the Hukou of the full laid-offs still remains in the forestry farm. They pay their own social insurance until age of retirement. In return, they will get pension fund after retirement. The pension fund was increased around CNY 130 per month and currently the average pension fund for retired workers is around CNY 1,000 per month. Semi-laid offs means for those who chose part time keep on duty in the forestry farm. These workers need to come back to work when the farm requires. Normally they need to come back during winter season for logging and spring season for forest fire prevention. They are free to cultivate their own farmland, if any, or do NTFP producing or other business when there is no tasks in the forestry farm.

• Non-economical impact also include school abolishment in some remote forestry farms where logging become very little. Most household move out for looking for new job and bring their children in better schools. In the case of Kunlunqi forestry farm of Cuiluan forestry farm district, the households decreased from more than 400 households in 1998 to around 100 in 2008.

• Less farmland or non-farmland. For coping the logging ban, some forest workers start to cultivate barren land. The economic status of the forestry farm partly depends on how much farmland they have developed at the early 2000. However, not all the farms have suitable barren land to be convert to farm land. It depends on the slope, weather and irrigation possibility. For instance, in Yichun, as the higher altitude caused colder weather and more slope mountain, most areas could not be converted into farmland. Therefore there is a common recognition that economic situation of the forestry farms in Suiling and Bei’an are much better than that of Yichun.

• Big differentiation of farm land occupation among forestry workers. In the end of 1990s, there was a program to sell the barren forestry land use right to individuals. Some bought more and some got less. For those who have no farmland, they have to rely on NTFP producing or being seasonal labour. Otherwise they remain as poverty population. However, producing NTFP also faced a lot of challenges. First, market demand changed very quick. Most workers can not chase the pace of the market changes due to lack of accurate information. Second, technology limitation faced. Most of them have no practical experience on NTFP, particularly for new varieties of Chinese herb plantation, such as Pingbei. Third, big price changes on the products. In the case of black fungus, the prize decreased to CNY 15 per kilometre in 2008 from around CNY 40 in 2006 and 2007. The price of Nutgall (a herb medicine growth under forest) in 2008 decreased 50% compared to that in 2006. Interviewee also mentioned that although the price changes may bring some lose, but if continuously plant, it is profitable in general. This indicated that long term use right of the land is important to the workers. For stimulating investment on forestry of the workers, a policy reform similar to the rural household responsibility system is under experiment in Yichun forestry farm bureaus. Forth, working capital requirement. It is very much capital intensive to producing NTFP. For example, black fungus cost around CNY16,000 per mu scale area, Pingbei costs CNY 5,000- 10,000 per mu, Nutgall costs 4,000-5,000 per mu. Ginseng cost CNY10,000-20,000

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per mu in 5-7 year a production cycle. Although ecotourism development taking the advantages of local cool weather in summer and good environment is another way to improve the local workers’ living condition, it is also need intensive investment on facilities and roads.

• Higher costs of farming. For villagers, they received grain production subsidy from the central government. It was around CNY 50 per mu in 2008. In reverse, the forestry farm workers can not get these subsidy, but need to pay farmland rent fee which costs around CNY 50 a year. In other words the forestry farm workers have to pay around CNY100 more for one mu farmland. The forestry bureau is applying the same policy on grain production subsidy.

C. POVERTY IMPACT ASSESSMENT

1. Beneficiary Groups Identification

67. The PPTA Social Team and Heilongjiang Academy of Social Science (HASS) have conducted interviews with the stakeholders, as summarized in Table 27. Table 27: Poverty Impacts of Future Road Project Who Benefits? Gender Issues Impact What Type of Comment or Example M F Benefits? Decreased cost of Rural households Benefit more Fertilizer price will go down agricultural involved in due to more products agriculture. male migrant Reduced cost for out as seasonal materials. labor Increased number Farmers benefit. Benefit more Fewer products go to waste for of agricultural Higher number due to more example the onions that women buyers of interested buyers male migrant had to replant in two villages. in products out as seasonal labor Develop new Farmers and Men Women Greenhouses maybe introduced crops families benefit learn participated and year round products sold along the corridor. new more than the such as chilies, tomatoes, Increased total plantin no-project cucumbers and shallots. Other family income. g situation new products such as techn watermelons with a known market ology will be developed and will not be spoilt due to improved road conditions Increase market Farmers benefit and Particularly Women’s groups will go to county trips transport providers benefit women and other county markets more e.g. bus companies. more frequently if road conditions are Income potential improved. through the sale of goods and high number of bus fares sold. Microcredit loans Farmers benefit. Men Women benefit In some cases two additional paid back faster Less interest paid to benefi more due to WF months of interest is paid microcredit t for provide women because of the time waiting for

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Who Benefits? Gender Issues Impact What Type of Comment or Example M F Benefits? organization. produ microcredit load agriculture goods to get to market ction in the project due to poor roads and few trucks develo area willing to take roads. pment Small business People of villages Set up Female owners Increased number of small development living near the road. family due to longer at businesses such as food Increased family grocer home processing were identified. incomes. y Higher number of Family’s benefit. Benefit female Girls attend higher education at girls attending Social benefits. more same rates as boys without secondary school security issue or extra transport expense. HIV/AIDS cases No counties Follow up with DOH in provincial increase surveyed thus far capital to discuss the provincial identified any strategy. General shortage of HIV/AIDS cases. HIV/AIDS public awareness and promotional material at the village clinics visited. Better emergency Communities Time to reach hospital is reduced. health services benefit. Life saving measures improve e.g. Ambulance and vehicles can transfer patients swiftly. Improved Village population Benefi Benefit women More government and training extension and benefit. t for more due to organizations will visit villages if training services Increased skills and future women has less the road is better to provide potential of develo opportunities go relevant training courses for men increased income. pment out and women. Can produce and Increased Benefit women Women found that getting the sell more crops opportunities to more market demand information early and products, make money on and accurate is important to make Particularly NTFP agriculture if the profit, such as black fungus in forestry farm road is improved producing in 2008. The varieties areas. of most household produced are not the market favored anymore. Source: Field Survey, Interview and Focus Group Discussion.

Rural people, agricultural workers and forest workers

68. The rural people, as the agricultural workers and the forest workers in the Project area, are likely to benefit from transport of agricultural material inputs and product outputs such as fertilizer, plastic, rice, soybean and other cash crops. In the case of Cuiluan, Tongbei and Suiling forestry farms, with the development of the NTFP in the forestry farms, convenient transport will assist them to sell the products in better prices with increased numbers of buyers, and to collect market information and technology dissemination. In the case of Wudalianchi City and Cuiluan District of Yichun City, ecotourism development due to accessibility improvement by the proposal highway could benefit the local farms and local forestry farm workers who could

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have more opportunity for employment in the tourism sector. Therefore, they would have major impacts from the project.

Poor people

According to the analysis on causes of the poverty in the DPA, part of reasons include limit of farmland and transportation conditions for the poverty villages and the laid-off of forest workers in forest farms. The proposed highway construction and rural road development at the same time will improve local road network, and will benefit for improvement of current poverty status in the DPA. In addition, better transportation conditions would promote farmers with little farmland and laid off workers to find opportunity of off-farm work.

Bus passengers

69. It was noted that there was approximately equal number of female and male passengers by county. Women consulted felt safe and there appeared no problems of security or harassment for female passengers. There were complaints from passengers regarding less frequency of bus service due to poor road conditions which are expected to change with the new project completion.

Grocery store owners

70. Female and male grocery store owners were interviewed in 50% of the villages. Transportation improvements with the new project will improve their service through more stock items being available according to those interviewed. It appeared that profits will also increase for these small business owners with road improvements. Usually, village groceries procure goods from near towns or townships, so rural roads play important role for their transport. However, for town or county groceries or departments, the proposed highway will help to import goods.

Transport providers/drivers

71. This is a direct benefits group and would receive major impacts from the project. Transport providers can gain benefit from the proposed road due to reduction of vehicle operation cost (VOC), while drivers can save time driving between Yichun and Bei’an due to due to straight connection of the two cities and between Bei’an to Nenjiang due to upgraded road conditions. It is estimate that the time saving is about 4 hours between Yichun and Bei’an and about 1 hour between Bei’an and Nenjiang. The proposed road will establish a straight transport between Yichun and Bei’an and connect Cuiluan, Suiling and Tongbei forestry bureaus together. Products from NTFP in the bureaus will be easily transported to Bei’an City and more western area, in which agricultural products are major economic resources. In addition, travel time saving will attract more tourists visiting Yichun City, a famous scenic area of “Natural Oxygen Bars” and eco-forestry tourism, and Wudalianchi Scenic Area, a famous national Geo-Park. Both passenger drivers or bus providers and freight drivers or truck providers will gain directly the benefits from the proposed roads.

Women

72. The gender analysis pointed out that women were as disadvantaged as men with poor transport. In fact, women’s income would significantly be raised if the road were improved as the women’s focus groups had already identified new markets and would reduce the high levels of agriculture spoilage of their crops. Women are likely to be engaged in on-farm sideline

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production, so they would benefit from skill training and improved marketing information. In this manner, they will benefit more for the transportation improvements and have major impacts from the project.

Groups subject to potential adverse impacts and mitigating measures

73. The PPTA Social Team and HASS did not identify any single group that the project may adversely impact so far. Although there have not been any HIV/AIDS cases identified in the Project area, prevention measures should be considered during the project implementation with increased construction workers gathering to the project area. This issue is addressed in the SDAP. The RP of the proposed project accommodates for people who will be resettled within the same village and standard compensation will be used.

2. Identification of Benefits to the Poor

74. The purpose of this section is to analyze the nature and extent of poverty impact on the population in the DPA as a result of the project.

75. There is no poverty counties or poverty township in the project area. But there are 50 poverty villages along the highway corridor of the project. Total poverty population in the project area are 44,531 (around 8.7% of the total population of the DPA). Out of them, 24,566 are rural poor in the 50 poverty villages, 5,779 are rural poor scattered in the non-poverty villages in the DPA, 3,153 poor forest workers in the state forestry farms, 6,388 poor agricultural workers in state farms and the rest 4,645 urban poor in the townships/towns of the DPA.

76. The potential project benefits to the poor population are essentially the economic and noneconomic impacts. Economic benefit basically equates to higher incomes while non- economic benefit includes improved living conditions and rural capacity building, to help raise the social conditions and quality of life.

Economic impact

77. Economic impact is estimated as the increased income from three (3) major sources: • Increased crops, livestock and NTFP production due to improved inputs supply and technical services. • Increased profitability to farming due to improved marketing opportunities. • Increased non-farm incomes due to improved information service and traveling convenience. Non-economic impacts

78. There are various non-economic impacts resulted from this road project, including the following types: • Improved access of villagers to social services (i.e. access to education, health care). • Improved access to production services, i.e. technical personnel, local officials. • Social impacts from increased employment (i.e. better income accompany with harmonious family). • Increased awareness and interactions with the outside world. • Improved safety, environment and ease of transportation along the existing muddy road as diversion to the new high class road results in a marked reduction of traffic.

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Poor Beneficiaries

79. Compared to other beneficiary categories rural people and the workers of the state farms and state forestry farms are the groups upon which the project impacts are the largest. These categories receive multiple benefits such as a farmer being benefited from the improvement of basic living conditions such as education, health, access to information, etc. As many farmers are also sellers of crops and livestock in local markets, they will also benefit from the easy access to marketing. Increased frequency and quality of bus services and number of stations will increase mobility and convenience for the elderly, patients and handicapped persons.

80. The proposed road and service improvements are likely to increase labor mobility and travel outside villages. Labor mobility in China has been increasing for many years; indeed it is a component of the national poverty reduction strategy. This mobility has led to substantial income flows to many rural areas and, frequently, households with members working in the cities have greater awareness of the outside world and place greater emphasis on their children's education. Development of human skills such as carpentry or masonry are some of the useful talents that can be acquired by migrant workers in the villages. They eventually become an important part of the local labor force in urban areas.

3. Overall Poverty Reduction Role of the Project

81. The proposed roads will not include the improvement of existing rural roads (or local roads). However, the existing rural roads will be improved and upgraded by Heilongjiang Provincial Government during the period that is similar to the proposed project implementation period based on the state and provincial road development plans. The proposed expressway will provide better connectivity for the rural road network, which will improve local travel conditions such as saving travel time and perhaps saving travel cost. In addition, the proposed bus stations will improve quality of travel services. Women, the elderly, the disabled and children are more sensitive to travel conditions and services than men. The improvement will increase their expectation for travel and they will find more opportunity to work or to access better public facilities in urban areas.

82. The overall poverty reduction role of the project include help the transition of the forestry farm workers through promoting ecotourism by the establishment of direct road connection between Wudalianchi Scenic Area to Yichun forestry ecotourism areas, unskilled labour employment during construction, better flow of the agricultural products and NTFP development, and easy travel among the traversed counties/cities. The indirect benefits of the poor include better market information and employment caused by macro economic development stimulated by the road.

83. The improvement in essential social facilities such as health care, education, and access to information, etc. will be helpful for poverty reduction. Health care improvement will reduce medical expenditure in addition to enhancement in the capacity for physical work. Increased education for children is a significant investment leading to human capital formation. Women’s access to information and their capacity building will directly lead to the empowerment of the poor. Hence, contribution of the indirect measures of poverty reduction directly attributable to the project cannot be under-valued. Some impacts are not easy to measure and put a monetary value but, their contribution to poverty reduction in the DPA is substantial.

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4. Benefits and Impacts of Bus Stations

84. People benefit from these bus stations mainly are those who travel to outside for non- farming jobs. It is estimated by the villagers and local officials that at least one third of the households have at least one member is experiencing migrant labours. Income by migrant labor is one of the most important cash income source. In addition, the local poverty alleviation direction office (PADO) provides training and connecting service to the poor household and helps them to get non-farming outside. This enhancement measures link the poor to the road closer.

85. Transportation of small amount of family products such as NTFP in Suiling and agricultural products from Bei’an, Tieli and Hailun will become more convenient with bus station operation. Farmers could trade easily their products in near markets and gain a good price.

86. Bus stations will improve travel conditions of local residents. The project areas are very cold in winter. It is extremely difficult for passengers to wait bus outdoor for long time. In addition, bus stations will provide the passengers not only a warm space, but also other services such as shopping, entertainment, and accommodation services in some cases.

87. The impacts of the bus station construction include new land to be occupied for 16 new bus stations is about 13,547 square meters. The impact caused by the land acquisition is addressed by the RP.

88. Another potential risk is the HIV/AIDS and other communicable diseases. Although there have been no HIV/AIDS cases happened in the project areas so far, posters and other means to raise awareness of the people should be considered when the bus stations start operation. It is suggested that the local government and the EA implement prevention actions.

89. In summary, bus stations are an efficient component to help local residents including poor and ethnic minorities benefit more from the proposed expressway and highway project. No significant other negative impact.

VI CONSULTATION AND PARTICIPATION

A. PARTICIPATION AND CONSULTATION IN DESIGN STAGE

90. There are total 1600 people (900 male and 700 female) participated the consultation process during the design phase. The participation and consultation process started in the early stage of the design phase. During the PPTA, a number of participation processes to solicit the input of different stakeholders related to the project. A socio-economic survey was undertaken from 15 to 31 December 2008, and a complementary households survey was conducted during March and early April 2009 according to the alignment options identified. To 10 April, a total of 510 households surveyed. In addition, 16 focus group discussions were held with both women and men, specially with vulnerable groups in different parts of the area to discuss in an open ended manner topics related to the PPTA. A number of key informant interviews were also held with various bureaus, including Women’s Federation in county and township levels, and other groups, to inform of this project design. Table 28 summarized the participation and consultation process and results.

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Table 28: Public Consultation and Participation Activities Date and No. of Agencies Purpose(s) Main Issues Discussed Location Participants

Before 2007, HPCD, Design Around 50, 10 ƒ Initial discussion of the proposed road ƒ Completion of the Heilongjiang highway Meetings in institute, leadership of female, 40 ƒ Rational of the proposed road network Harbin Heilongjiang Province male. ƒ Principles of the alignment selection ƒ Maximize the role of ecotourism development ƒ Generate alternative options of the ƒ Stimulate economic development through cross road border trade facilitation ƒ Minimize the environmental impacts

2007-2008, Heilongjiang General Around 500, ƒ Introduction of the proposed road ƒ Maximize the beneficiaries along the road, Meetings in of State Farm, 200 female, ƒ Initial location of alignment particularly the state farms and state forestry Harbin, Yichun, Heilongjiang General 300 male. farms ƒ Generate suggestions and comments Suling, Bei’an, of State Forestry Farm, on the road and the alignment. ƒ Expressway vs class II highway Wudalianchi and Yichun, Suiling, Bei’an, ƒ Alternatives of the alignment Nenjiang Wudalianchi and Nenjiang ƒ Issues of Wudalianchi Geo-park, nature governments. reserves, wetland and water source protection

Dec. 2008, County level 160 participants ƒ Update the proposed road ƒ Compensation rates Key informants government, state with 60 female ƒ Collect data of the county level, ƒ Approaches of land acquisition and interview and forestry farm divisions and 100 male in township level and village level resettlement and farms, state farm focus group focus group ƒ Generate comments and suggestions ƒ Expressway vs class II highway. divisions and farms, discussions and discussion in from local gross roots level regarding township or town key informants ƒ Location of interchanges county level, the road alignment township level government. interview. ƒ Measures to strengthen poverty reductions along the initial ƒ Measures to facilitate eco-tourism development alignment

Dec. 2008, Socio- 513 HHs interviewed 700 ƒ Household socioeconomic & transport ƒ Roads and transport service availability and economic in 26 Villages, state respondents survey affordability Household farms and state (with 350 F and ƒ Exploring NTFP producing, ƒ Problem faced of transport service surveys forestry farms 350 M) agriculture, and other development ƒ Positive and negative impact of the proposed potentials project and the measures to deal with

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Date and No. of Agencies Purpose(s) Main Issues Discussed Location Participants

ƒ Access to roads and transport ƒ HIV/AIDS and human trafficking awareness and services prevention strategies ƒ Income levels ƒ Expectations and support needs ƒ Generate comments and suggestions ƒ Compensation rate, procedures and early on measures to strengthen the disclosure of information benefits and mitigate negative impacts ƒ Participation of construction

Dec.15-30, 2008 16 Villages leadership 40 (30 M. 10 F) ƒ Introducing the route of proposed ƒ Local road network availability and its interview project, relationship with the proposed project ƒ Collecting village level statistics data, ƒ Land acquisition and compensation ƒ Consultation the village leaders regard ƒ Local roads status and improvement priorities the impact (including positive and from villagers’ perspective negative) of the project and ƒ Income source and it’s implication relation to development potentials of the village. proposed project ƒ Generate comments and suggestions ƒ Comments and suggestions to maximize the on the proposed project. positive impact and minimize the negative impacts ƒ Suggestions on road safety issues ƒ Priority needs include road development, bus stations and other transportation service.

Jan 2-Feb 28, Provincial and county 30 key ƒ Update introduction of proposed ƒ Current poverty line defined by government 2009 in Haribin, level Poverty informants (with project, ƒ Poverty population under MLSS Yichun, Suiling, alleviation office, state 10 F and 20 M) ƒ Collection information of poverty ƒ Role of the proposed project in poverty Bei’an, farms and state situation in the project area alleviation Wudalianchi and forestry farms ƒ Generate suggestions and comments Nengjiang ƒ Existing poverty alleviation project and its to maximize the poverty alleviation impacts impact ƒ Incorporation of the future poverty reduction project to the proposed road ƒ Comments and suggestions towards

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Date and No. of Agencies Purpose(s) Main Issues Discussed Location Participants maximizing the poverty alleviation impact of the proposed road.

March 1-31, 2009 2 Health 4 (2 M, 2F) ƒ Update introduction of the proposed ƒ Availability of health care facilities in both urban Bei’an and Institutes/Bureaus project and rural area Wudalianchi ƒ Generate comments on prevention of ƒ HIV/AIDS situation and prevention efforts epidemic diseases ƒ Comments and suggestions on epidemic diseases include HIV/AIDS spread

Jan 2-Feb 28, WFs, ethnic minority 70 participants ƒ Introduction of proposed project, ƒ Benefits and impact on ethnic minority groups 2009 in Haribin, and religion affairs (with 30 F & 40 ƒ Ethnic minority populations and their ƒ Existing ethnic minority development projects Yichun, Suiling, bureaus, some 5 M) economic situation and potentials of incorporation of the future Bei’an, ethnic minority ƒ Generate suggestions and comments ethnic minority development project to the Wudalianchi and concentrated villages to maximize the benefits towards proposed highway project. Nengjiang ethnic minority groups ƒ Cultural difference among nationalities and its implication towards road development measures.

April 1-14, Poverty alleviation 30 (15 M. 15 F) ƒ Update the alignment changes. ƒ Local bus stations Cuiluan, Suiling, offices, WF offices, ƒ Raise issues concerned to PPTA. ƒ Process of public consultation on proposed Bei’an, townships with poverty ƒ Collection poverty village data and project Wudalianchi and villages, poverty poverty data in state forestry farms ƒ Compensation rates comparing to other Nengjiang villages and state farms construction project, such as urban expansion, ƒ Consultation of SDAP commercial area development, manufactory construction, etc. ƒ Generate comments and suggestions related to poverty reduction

Feb 7,2009, Meetings with WF 6 persons (2 F ƒ Update introduction of the proposed ƒ Road development and the relationship with the Yichun representative of and 4 M) project. development of women’s livelihood Yichun, State Forestry ƒ Generate the comments and ƒ Women’s participation in the whole project Farm Division of suggestions ensure women’s process Yichun, participation and benefit from the ƒ Pro-women measures in the proposed project, Communication

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Date and No. of Agencies Purpose(s) Main Issues Discussed Location Participants Bureau of Yichun project such as skilled and unskilled labor service in the project.

Dec, 15-31, 2008, 4 Wholesale traders, 2 10 (6 M 4 F) ƒ Introduction of the project. ƒ Comparison of advantages and disadvantages Yichun, Suiling, Market management ƒ Identify potential opportunities for of toll gate road and non-toll gate road Bei’an, vulnerable group ƒ Factors affect transport costs of trade the Wudalianchi and ƒ Generate comments and suggestions implication to proposed project Nenjiang. on the proposed project towards ƒ New market place development provide better service to the traders ƒ How to benefit poor, women and minorities and market management ƒ Linkages of expressway to market places

March 1-31, 2009 2 Shop owners and 5 (2 M 3 F) ƒ Introduction of the project. ƒ Coping strategies restaurant owners, ƒ Collect information of employment of ƒ Transport demands and service between rural 1 Bus and freight poor, women and minorities and urban area companies ƒ Assess impact towards the shops ƒ Epidemic Diseases includes HIV/AIDS spread ƒ Generate comments and suggestions and prevention on the proposed highway ƒ Opinions on local road or bus station development and running improvement or development, include priorities management and reasons

Source: PPTA field survey

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B. PARTICIPATION AND CONSULTATION STRATEGIES

91. Public awareness of the project is high and generally very positive. Development of the Environmental Management Plan (EMP), EIA，RP and SDAP involved two rounds of public consultations in March and April 2009. The purpose was to introduce the Project and the relevant components to a range of stakeholders, and to solicit their views on the Project and its potential social and environmental implications, so that the EMP, RP and SDAP could take these into account during impact assessment. Most stakeholders already had good knowledge of the project, due to the preparation work undertaken by design institutes and the PMO. Both the RP and EMP set out detailed ongoing public participation plans. Public participation is also planned for in project monitoring and evaluation.

92. Throughout the project, it is necessary to establish a sound public participation mechanism, including channels of information disclosure and complaint. A community/village project management/monitoring team is proposed to help select project construction labors, conduct education on environment protection awareness, HIV/AIDS and other transmittable disease control, maintain the public security of the construction site, coordinate relations of all parties concerned, reflect opinions and advice of villagers/residents, and monitor the social action plan implementation.

93. The PMO shall cause the IAs to conduct information, education, and consultation communication campaigns via appropriate government bureaus and/or approved service providers concerning health, hygiene and managing solid waste disposal and wastewater in project areas. It is suggested that such activities be integrated into safety management of the contractors and subcontractors. The public participation and consultation is shown in Table 29.

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Table 29: Establishment of Public Participation Mechanism (Action Plan) Responsible Stage Activity Description Methods Participants Remarks Party • Identifying team members • Selecting and managing construction • The whole labors participating in the project community/villag • maintaining the public security of the • Community/village Community/villa e With construction site committee Implementation ge, project • Community/villag The whole assistance • Formulating policies • Community/village stage management / e committee village of local • Environmental protection awareness project monitoring monitoring team • PMO TABs education team • related local • Coordinating relations of all parties bureaus concerned, reflecting opinions and advice of villagers/residents • Members involved in • Determining the jobs available from the construction, project including women, • Determining the criteria of selection of ethnic minority, project construction staff, including poor • Community/village poor families QNPMO, With Project families, ethnic minorities and women committee local TABs and • Resettled families assistance construction • Monitor the payment of the land • Community/village related local of EPB • Residents/villager participation compensation and house demolition project monitoring bureau(s) ACWF and s/ hosts • Technical training and safety system team PADO • project office training, and environmental protection • IAs awareness education • project • Participating in project construction constructor related bureau • Community/village PMO • EMP monitoring committee • Community or QNPMO, local With Project Community/ • RP monitoring • Community project village committee assistance TABs and monitoring and village project • Social Development Action Plan monitoring team, • Community of EPB, related local feedback monitoring team monitoring including reps of poor project ACWF and bureau(s) • monitoring results reporting families, women and monitoring team PADO other special groups

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Responsible Stage Activity Description Methods Participants Remarks Party • Printing “project complaint leaflet” and issuing to each community, so that villagers/residents can With easily give feedback • Community/villag QNPMO and assistance Complaint Establishing the community member • Setting up a complaint e project local TABs of EPB, , channel feedback system hotline at the project monitoring team IAs ACWFs, office and PADO • Community monitoring team collects advice and opinions at any time • Safety information collection and safety awareness building though posters, information signs, TVs Community/village project monitoring team • Community/villag With and Radios. Operation Project assisting the EA in the operation stage of e project assistance • Community/village QNPMO, and stage maintenance the community-related safety issues, monitoring team; of EPB, committee local TABs management participation transport services, transport facility • QNPMO, and ACWF, • Meetings by maintenance, etc local TABs PADO Community/village project monitoring team (including poor families, women and other special groups)

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VII GENDER AND DEVELOPMENT

94. In the project affected area, females account for almost 50% of the total population and labor force. As indicated in the beneficiary table, the major benefits of the project include (i) general benefits from economic development, (ii) improved west-east road direct connection among the project counties/cities, and (iii) job creation.

95. In the project areas, particularly in the forestry farm area, the Project likely will increase the role of women in farming activities: (i) many household tried to shift their income generation from forest worker to NTFP producing, ecotourism services, or other small business operating. Compared to logging, these other activities are carried out more by women which has increased opportunities for women and men work together in household income generation. Ecotourism shares the similar situation of getting more women involved. (ii) Many men seek off- farm work as migrant labour or strengthen off-farming business in the project cities. As women take on more of the in home town base work of farming and housework (given more men participating in off-farm work or as migrants in seasonal labour), women will benefit more from the improved local road network to access markets and outside information.

96. Any negative impact of this increased workload on women may well be offset by increased household income and empowerment, especially, given that it is usually the woman’s responsibility to budget household expenditure. However, this potential expansion of the role of women in farming reinforces the need for women to be fully integrated into any income restoration program established for resettled households.

97. If off-farm employment does increase among men from the village, this will increase the women’s share of the farm workload. According to the village leaders interviewed, when a woman’s husband works outside the village or engages in a non-agricultural job for months at a time, the woman and older children in the family assume most of the responsibilities for cultivating the land and caring for animals.

98. Although off-farm labour is undertaken by significantly men more than women, some young women from project area also undertake casual work. Female migrant workers are mainly employed as hotel waitresses in towns, particularly in Yichun City, Wudalianchi Scenic Area. They also run small businesses in the wholesale markets and street shops, or do child care and/or domestic work. Women in the villages are keen to work outside the village, and want assistance from the Women’s Federation and Labor Bureau to enter the labour force.

99. Moreover, although it is estimated that approximately 70% of the construction work will require unskilled labour, this work is likely to involve heavy digging and carrying. It has been suggested that it will not be suitable for women and that it would therefore be unrealistic to set a target for women’s employment in unskilled work. Nonetheless, the PMO believe it would be realistic for 30% of these jobs to go to the poor including women, many of whom could be recruited from the forestry farm and poorer village households.

100. Participation of women in general in skilled jobs in the construction and engineering sector is also limited in northern China. Thus, the scope for employment of women from either the town or outside the county in any skilled construction jobs is likely to be limited. Nonetheless, in order to promote women’s employment in project activities, it is recommended that a percentage target is agreed upon between the contractors and the PMO for the

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employment of women to undertake skilled construction jobs if suitably qualified women can be found.

101. In addition to construction work, 790 (440 for road operation and management, and 350 for road cleaning) new jobs including skilled and unskilled jobs will be created in relation to operations and maintenance of the road. The PMO recommends a target of 30% of the vulnerable including women to be employed in unskilled jobs. Some special training of women may be needed to fulfil this target.

102. During the Project implementation, both EA and IA should pay attention to the potential impacts on local women and take following actions: (i) coordinating contractors to hire woman labours when the project construction and the road operation; (ii) associating with local women federation to recommend women to the project; (iii) monitoring (a) number of woman labours hired during the project construction operation; (b) number of women in selected villages or farms to do off-farm work before and after the project completion; (c) number of women to participate in technical training; (d) household income contributed by women; and (iv) organizing women consultation and participation on the project implementation and employment. These actions are included into the social development action plan (SDAP) designed for this project.

VIII SOCIAL SAFEGUARDS ISSUES AND OTHER SOCIAL RISKS

A. INVOLUNTARY SETTLEMENT

103. The construction of the project will require amount of 16,593 mu land acquisition with 7,913 mu farm land and 8,680 mu forestry land. The farmland belongs to two groups: 43.2% farmland from traversed townships/towns, and 56.8% from state farms and state forestry farms. All the 8,680 mu forestry land owned by state forestry farm. Total house demolish will be 1,496 m2, 10 households will be affected by it. Overall, the land acquisition and resettlement impacts for the Project will be limited because they are spread over a large area and land resources are abundant.

104. A full resettlement plan in line with ADB safeguard policy and PRC resettlement policy for the project was developed to address the resettlement issues. The primary objective of the land acquisition and resettlement plans is to ensure that the affected persons (APs) will improve their standards of living, or at least not be made worse off because of the project. This better off or no worse off objective is consistent with the laws and regulations of the People’s Republic of China (PRC) and the ADB’s Involuntary Resettlement Policy.

B. ETHNIC MINORITY

1. Population and Distribution

105. Heilongjiang is a region of multiple ethnic minority groups. There are total of 53 ethnic minority groups with a population of close to 2 million. This represents 5.2% of the total population. There are 5 ethnic minority groups with population over ten thousand. Manzu is the largest ethnic minority group with total population of around 1.18 million, makes up 59% of the total ethnic minority population. Korea is the second largest group with 0.45 million population,

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Mongolia is the third largest group with population of 0.14 million. Hui has 0.14 million population, ranks on forth, and Daur ranks fifth with population of 40,000. The provincial government established 1 ethnic minority autonomous county, 59 autonomous townships and 668 ethnic minority villages based on the concentration of minority groups. Table 30 has the details. Table 30: Ethnic Minority Population in Heilongjiang Province (2007) (‘0000) Ethnic Minority Population As % of total Ethnic Minority Population As % of total Group population Group population Total Population 3,824 100 Daur 4.36 0.11 Sub-total of Han 3,624 94.77 Xibe 0.96 0.03 Sub-total of 200 5.23 Elunchun 0.39 0.01 Minority Manzu 118.43 3.10 Hezhe 0.39 0.01 Korea 44.96 1.18 Ewinke 0.27 0.007 Mongolia 14.57 0.38 Keerkezhi 0.15 0.008 Hui 13.93 0.36 Other 43 groups 1.59 0.042 Source: Heilongjiang Ethnic and religion affairs bureaus.

106. However, minority population in the project area is limited. A total of 9,040 ethnic minority population lived in the DPA, made up only 1.76% (much lower than the provincial average of 5.23%) of the total population of DPA. Most (7,489 persons) are widely dispersed in towns, state farms and state forestry farms. The rest, a total of 1,551 persons in 444 household, are centralized in 5 ethnic minority villages. Out of the 5 ethnic minority group centralized villages or sub-villages, 2 are Hui centralized, 1 is Korean centralized, 1 is Manzu centralized and 1 is Daur centralized. Details see tables 31 and 32.

107. In terms of distribution by administrative territory minority population percentage of its total population has no big difference, ranges from 1.24%-1.85%. Nenjiang has the highest of 1.85% while Suiling has the lowest of 1.24%. In terms of management units, towns/townships have the highest of 1.89% while the state forestry farms have the lowest of 1.31%. In summary, ethnic minority population is small and its distribution is balanced except the five ethnic minority sub-villages.

Table31: Ethnic Minority Population in DPA by Administrative Area (2007) (‘0000) No. of No. of Ethnic Project Townships/Towns/ Total No. of Ethnic As % of Minority County/City/District Farms/Forestry Population Villages Minority Population Population Farms Villages Cuiluan District 3 2,730 0 0 50 1.83 Suiling 9 12,767 0 0 158 1.24 Bei’an 17 134,396 26 2 2,309 1.72 Wudalianchi 10 120,808 55 0 2,116 1.75 Nenjiang 9 241,495 69 3 4,457 1.85 Total of DPA 48 512,196 150 5 9,040 1.76 Source: State Forestry Farm Bureaus, State Farm Bureaus and county/city statistical yearbooks 2007.

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Table 32: Ethnic Minority Population in DPA by Management Units (2007) (‘0000) N0. of No. of Ethnic Project Townships/Towns/ Total No. of Ethnic As % of Minority County/City/District Farms/Forestry Population Villages Minority Population Population Farms Villages Sub-total of township/towns 17 367,892 150 5 6,940 1.89 (rural) Sub-total of state 9 119,631 0 0 1,827 1.53 farms (Urban) Sub-total of forestry 22 2,673 0 0 323 1.31 farms (urban) Total of DPA 48 512,196 150 5 9,040 1.76 Source: State Forestry Farm Bureaus, State Farm Bureaus and county/city statistical yearbooks 2007.

2. Living Pattern and Minority Culture

Korea nationality

108. In the whole DPA, there is only 1 Korea Minority village in Nenjiang town of Nenjiang county with 178 persons in 45 household. The village is very close to Nenjiang county seat, and it is almost fully integrated into the county seat indeed. Off-farming has become the main income source of this village. Out of the 45 households, 5 households entirely work in Korea as migrant labours, around 20 households have 1-2 member work in Korea, more than 10 households run business in Dalian City, China. The average income of the village was CNY7,800 in 2007, which is around 130% higher than the average income of Nenjiang town (CNY3,400).

109. Engaged in the paddy rice production. Looked from the history that, Heilongjiang's Korea Minority is not the local indigenous nationality, but migrated gradually from the eastern Yalu River, started from 17 century's ends on to have the fragmentary migration.

110. Now, the Korea Minority marriage is quite free, the parents are weakening gradually to the children marriage influence along with the economic society progress.

111. Korea Minority folk holiday, has "the new year's day" (Spring Festival), "first full-moon" (festival of lanterns), "spring beginning", "servants festival" (lunar calendar in February first day), "Hanshi festival"(Qingming Festival), "the fifth day of the fifth lunar month" (Dragon Boat Festival), "Liutou festival" (lunar calendar on June 15), "the seventh night of the seventh lunar month" (lunar calendar on July 7), "the fall evening" (the mid-autumn festival), "beginning day" (lunar calendar in October third day), "eighth day of the twelfth lunar month" and "lunar New Year's Eve" and so on.

Manzu nationality

112. Zihe Manzu sub-village in Erjin town of DPA is the only one Manzu nationality village. The sub-villages has Manzu population of 417 in 116 households. It located around 5 kilometres away from the Bei’an city.

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113. As a result of the historical reason, has been through repeatedly several hundred years fusion, Manzu nationality's custom mostly tended to consistently with the Han Nationality. Although Manzu nationality in the habits and customs, still was maintaining some nationalities' traditional features, but many aspects, have merged into one organic whole mutually with the main nationality.

114. Chinese dress is Manzu nationality's traditional clothing, In ancient time it is generally known as Qipao worn by male and female of Manzu, Mongolia and Han military’s generation. Nowadays, Chinese dress is evolved from archaic gown in Qing dynasty. And becomes the entire Chinese nation woman's traditional clothing, and having the change unceasingly along with the time development. In addition, the Manzu women worn with “inch shoes”, Shu shoes worn by men, which can only be seen on the stage and screen or in the distant village and countryside.

115. At present, Man nationality and the Han Nationality major part diet custom tended to same, now world famous "Manzu Han feast" has become the entire Chinese nation diet culture and important constituent.

Hui nationality

116. There are two Hui nationality sub-villages in DPA. Nenjiang Hui village located around 2 km from Nenjiang town with 253 Hui population in 80 households. The village is about 2 km away from Nenjiang town. It is designated by Nenjiang town as the slaughter plant for Muslims, the annual per capita income from slaughter itself for this village is 1,200 Yuan, and about 40 villagers work there. Almost every household breeds cattle, the per capita income for livestock breeding is around 3,000 Yuan. There are only four households that engage in agricultural production. Besides, the medical insurance for everyone of this village is undertaken by this plant.

117. Another Hui village is called Qianjing Hui sub-village in Zhaoguang town, about 10 km for Bei’an City and 18 from the proposed road. It has 325 Hui population in 93 households. The main income of this village in addition of farming is dairy cow raising. It almost every household raising milk cow in this sub-village except around 10 household dong animal buying and selling business and one household running mutton and beef in Bei’an city.

118. The Hui enjoy many privileges that characterize China's ethnic minorities: they receive government subsidies for the more expensive beef and mutton. They are allowed more than one child. The government has also subsidized the reconstruction of mosques and has given permission for Islamic literature to be published and sold. The Hui are essentially the same as the Han, except that they are Muslim, the Islamic religion having been introduced by Arab soldiers and merchants 1,200 years ago.

Daur nationality

119. There is only one Daur village in DPA with total population of 320 persons in 70 households. The village is about 16 km away from Nenjiang town. Close to Nenjiang, the village is originally the village of Pure Daur nationality, with about over 500 households. The village conducted a large-scale migration in the 60s of the last century. After migrated to the opposite bank of Nenjiang, it is under the jurisdiction of Inner Mongolia. In this migration, the majority of strong pure Daur people emigrated, while those who are old, weak, sick, and disabled

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remained. At present, only 70 households are Pure Daur nationality among the 526 households of this village. At present, the village established a new village with 20 million Yuan of resettlement fund due to construction of Nierji Reservoir. All old and dangerous houses have been demolished and replaced by new brick and tile houses. In addition, all village roads have been rehabilitated with cement paved roads. Average arable land of the village is only 4.76 mu per capita. However, the Daur residential place across the river has more arable land. They lease about 10,000 mu land to the Daur of this village each year. There are about 100 labours working in Dalian City and about 100 labours working in Changchun and Beijing cities. The average salary for those labours is about 8,000 per year. In addition, The village has become a tourism place for summer vacation because it is near Nenjiang. The tourism revenue accounts for 1/7 of whole revenue of the village.

120. Daur people are settled dispersedly in Molidawahaner Autonomous Banner, Owenke Autonomous Banner, Zhalantun Banner, and Arun Banner of Inner Mongolia, and Meilisi district, Fulaerji district of Qiqihaer city, Longjiang county, Fuyu county, Nenjiang county, and Aihui county of Heilongjiang province, as well as Tachen county of Xinjiang Autonomous Region. According to the 5th National census in 2000, total population of Daur was 132,394. They use Daur language but have no own character. Most of them use Chinese, while few of people use Man, Mongolian and Kazakstan characters. Daur people live with hunting and agriculture as well as fishing. They favourite dancing and sports such as hockey, etc.

121. Table 33 summarized the socio-economic characteristics of the five ethnic minority villages in DPA. Note the average income of all these minority villages are higher than the whole township average per capita income as well as of the whole county/city.

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Table 33: Summary Information of Ethnic Minority Villages in DPA Average Average Average No. of As % Name of Distance to Per Capita Population Annual Income of Income of Nationalit No. of Total Ethnic of Village/Sub- Proposed Farmland of Ethnic Income Per Belongs Belongs y HH popu. Minority Total village Road (km) (mu) Minority Capita Town County/City HH Popu. (CNY) (CNY) (CNY)

Xugaung Korea 2 48 1.88 178 48 178 100 7,800 3,400 4,025

Huizutun Hui 3 138 3.57 370 80 253 68.4 4,200 3,400

Fanrong village Daur 16 526 4.76 1780 70 320 18.0 4,750 4,100

Zihetun Manzu 5 231 6.48 396 231 396 100 4,360 3,952 4,003

Qianjingtun Hui 18 93 5.57 325 93 325 100 4,300 4,695 Source: Field interview and FGD discussion.

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3. Minority Policies

122. Laws and regulations of the PRC apply to ethnic minority rights and interests, including the Constitution of the PRC, Ethnic Minority Autonomous Religion Law of PRC, Village Committee Composition Law of PRC, Regulation of PRC for the Administration of Ethnic Minority Autonomous Townships, and the Tenth Five-year Scheme for Ethnic Minority Enterprise Development. Relevant contents of the laws and regulations are as follows:

• Except for the common rights that are shared equally by all local governments, the local autonomous governments share these additional rights: autonomously making laws, local political affairs self-administration, local economy self-administration, local finance administration, local science, education and culture self-administration, local public safeguard force self-composition, and the use and development of ethnic minority language, etc.;

• People of PRC have the right to practice their chosen religion, which is protected by the national government and local autonomous government;

• Development of administration systems and regulations should promote the development of the economy and culture of ethnic townships, assure ethnic minority legal rights and strengthen the union among all ethnic groups;

• Except those specifically deprived of political rights, all people over 18 years old share the right to vote or be voted for, regardless of their ethnic group, nationality, sex, occupation, family, religion, education, property, or residence period;

• The national government should assist in accelerating the development of the economy and culture of ethnic minorities;

• All ethnic groups have the right to use their indigenous language; they are guaranteed the freedom of using and developing their indigenous language, and the rules advocate and encourage all ethnic groups to learn their own language.

123. The major objective of the ADB ethnic minority policy is to guarantee that ethnic minorities benefit from projects. ADB notes that the socioeconomic conditions and living standard of ethnic minorities are generally lower than the dominant ethnic group; therefore measures should be taken to guarantee positive project outcomes for ethnic minorities. ADB projects that have a significant impact (both positive and negative) on ethnic minorities, must have an ethnic minority development plan (EMDP) to (i) ensure that development interventions are compatible in substance and structure with the affected ethnic minorities’ social, cultural and economic institutions, and consistent with the needs and aspirations of those peoples; (ii) design and implement projects which ensure that ethnic minorities are at least as well off as they would have been without development interventions; and (iii) make certain that ethnic minorities benefit from interventions. In addition, the EMDP includes relevant procedures for project implementation, monitoring and evaluation. The impact analysis in the new subsection helps to determine the categorization of impacts and requirements to satisfy ADB's Indigenous Peoples Policy.

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4. Impacts Analysis

124. The project will improve the road connection among the counties and cities. It will particularly benefit the Daur village in two aspects: First, as the proposed road will include a bridge to cross Nenjiang river to connect to Inner-Mongolia autonomous region in the near future. This will bring great convenience to this village for their farming by renting land from Daur village in the other bank of Nenjiang. Secondly, the better road connection is expected bring more tourists to the village as the villagers mentioned.

125. The projects will promote the development of local socio-economic and tourism, which can provide local vulnerable groups, including ethnic minorities, with enhanced employment opportunities and income generation. In total,19,795 job opportunities, covering both unskilled and skilled labor, will be created during the project construction (6,335 per year during 3 years period) and operation stages (790), of which about 30% unskilled employment opportunities will target vulnerable people, including ethnic minority groups.

126. There are no land acquisitions and house demolition impacts on ethnic minorities. Ethnic minorities in DPA are not characterized by any marked difference in income level or other economic characteristics from the Han majority. In terms of cultural differences, Hui people have food prohibitions not shared with Han and other groups, Daur, Korean, Man and Mongolian have their own traditions. In conclusion, there is no evidence that the proposed project will have any significant positive or negative impact on existing living patterns. As such, this Project would be a category B which means no ethnic minority development plan is required for this project; however, some special measures are formulated to enhance project benefits.

127. During the Project implementation, both EA and IA should pay attention to the potential impacts on the Daur village and take following measures: (i) associating with local ethnic minority and religious bureaus to recommend minority labours to the project; (ii) monitoring (a) number of minority labours hired during the project construction operation; (b) area of land to be rented; (c) number of tourists coming and (d) tourism revenue; and (iii) organizing minority consultation and participation on the project implementation and employment. These measures are incorporated into the SDAP designed for this project.

C. LABOR

128. Existing Chinese labour policies in themselves should protect labour employed on the Project construction. Labour laws enforce equal pay for equal work. National regulations exist in order to protect the labour rights of women and children. Article 46 of the PRC Labour Act guarantees distribution of wages according to the principle of equal pay for equal work. The Regulation of Female Workers Labour Protection establishes the principle of equal pay for equal work, regardless of sex. There are two levels of legislation regarding payment of minimum wages. The PRC Labour Law (1999.7.5) specifies that basic minimum wages should be paid in accordance with local regulations. Heilongjiang Province regulations passed 2007.1.3 specify that in Heihe prefecture, basic minimum wage is CNY 5 per hour or CNY 525 per month. In Suihua City it is 4.5 per hour or 460 per month. In Heilongjiang county level city (including Yichun), county level city is CNY 4.3 per hour or CNY 440 per month, other counties in Heilongjiang, include the project county Suiling and Nenjiang, the basic minimum wage is CNY 4.2 per hour or CNY 420 per month.

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129. There is a risk that subcontractors who can disappear without paying all wages will be involved indirectly with Project construction, however the PMO is confident that their contracts with contractors will not permit such subcontracting. The Construction and Management Department will have supervisory staff who will monitor the contractors’ observance of labour regulations and timely payment of workers.

D. OTHER RISKS AND/OR VULNERABILITIES

130. Heilongjiang Province is classified as low AIDS epidemic region. By October 2008, there are 786 AIDS cases in the province. Patients infected by AIDS were due to unregulated blood transfusion several years ago, while in recent years, patients infected through sex have increased, accounting for more than half of total cases. Most of patients are rural young and middle-age men with marriage and low education. In addition, according to a internationally general statistic method, there are about 5,000 HIV people in groups of taking drugs, prostitute, blood transfusion, and their spouses. Table 34 shows the details. Table 34: AIDS Cases in Project Area Area AIDS Cases HIV Affected Nenjiang County 0 N.A Wudalianchi City 1 N.A Beian’city 1 N.A Suiling County 2 N.A Heilongjiang Province 786 5,000 Source: Local CDCs.

IX CONCLUSIONS

131. The social survey pointed out that all of the main stakeholders supported the project objectives at improving the roads in 5 counties/cities/districts of the Project area. There was genuine need expressed by all levels interviewed: households in the village; local officials, transport providers such as buses, trucks, minivans and other key social service agencies to start the project quickly in order to support the poverty alleviation program of the provincial and national governments.

132. Ecotourism: the project is likely to increase poverty reduction impact on state forestry farm workers by stimulating ecotourism development by connecting the two major tourism area, natural forestry tourism in Yichun and natural Geo-park in Wudalianchi in the project area.

133. NTFP producing is another alternative for increasing income of the state forestry farm workers. New technology adaptation, market information, long term investment encouragement policies and credit are four major challenges they faced. The proposed road is likely improve these aspects through strengthening measures. The proposed road would attract more buyers to access the forestry farms and procure the NTFP, which would increase competition of local products. With sale increase, the production would be increased and improve income of forest workers in the project area. Training on the NTFP is required and the local governments will provide the training.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

134. The project may provide the opportunity for state forest workers to transfer into nearby towns for urban employment. However, they would require government support to find suitable housing and employment. Training programs and job arrangement should be facilitated by forest farms and local governments.

135. The adverse impact of the project mainly will include land acquisition and house demolish. As the project has very limited number of house demolish and farm land resources in the project area is quite rich, the adverse impact would be very limited. A full RP will properly address it for the main expressway and highway and a short RP for the proposed 20 bus stations.

136. Women in the project area are likely benefit from the project equally. In addition, Women’s Federation has ongoing project to provide technology training, microcredit service to women to strengthening women’s participation in income generations, particularly in NTFP producing and ecotourism development. The PPTA Social Team was very pleased to identify women making excellent progress in the private sector aspects of transportation through the interviewing a female freight forwarder and the female manager and largest shareholder of a trucking company. Women are also competent bus drivers (percentages vary in the counties) but range from 10-30% with very good safety records according to three bus managers interviewed.

137. Microcredit findings. Microcredit was available to all households in the surveyed villages by an agriculture type corporation. The average year loan was CNY2,000-5,000 and covered mainly seeds and fertilizer. Borrowing is typically in January to February and repayment is usually in November. Interest rates are consistent in three counties and several directors were interviewed.

138. Ethnic minorities in the DPA are limited and scattered in the state farms, state forest farms and other organizations as “urban” residence. In the rural area of the DPA, there are only five minority villages with better economic conditions than township average and whole county/city average. There are no significant adverse nor direct positive impacts on the economic and cultural lifestyles of ethnic minorities in the Project area. Therefore, it is concluded that a separate EMDP is not required for the project but some strengthening measures for ethnic minority has been incorporated into SDAP.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Supplementary Appendix G Socioeconomic Profile and Economic Analysis

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table of Contents

Section 01 Socioeconomic Development Profile and Development Plans

Section 02 Multimodal Transport Development

Section 03 Road Sector Development

Section 04 Summary of Policies for Rural Sector Development

Section 05 Project Economic Rationales

Section 06 Road Administration Framework

Section 07 Project Performance Monitoring System

Section 01

Socioeconomic Development Profile and Plans

of Heilongjiang Province

Table of Contents

I. Socioeconomic Development Profile of Heilongjiang Province ...... 2

II. Socioeconomic Development Profile of the Project Areas ...... 3

1. Yichun Municipality ...... 3

2. Shuihua Municipality ...... 4

3. Heihe Municipality ...... 5

4. Qiqihar Municipality ...... 6

5. Great Xing’an Mountain Region ...... 6

III. Socioeconomic Development Strategy and Plans...... 7

1. Background and External Conditions ...... 7

2. Strategy and Principle ...... 8

3. Main Objective and Targets ...... 9

Socioeconomic Development Profile and Plans of Heilongjiang Province

I. Socioeconomic Development Profile of Heilongjiang Province Heilongjiang Province is located at longitude 1210-1350E and latitude 430-530N, with total area of 460,000 square kilometers. It is bordered Russia by Heilong River and Wusuli River in the north and east with a long border line of 3,045 km. It is neighbored with Inner Mongolia Autonomous Region in the west and with Jilin Province in the south. The topography of Heilongjiang Province is complicated with the Daxing’an Mountain in northwest, Xiaoxing’an Mountains in north, and many mountains in southeast. Altitudes of these mountains are about 300-1,780 meters, whose area account for 70 percent of the total area of the Province. Plains are at about 50-250 meter altitude, and their area account for 30 percent of the total. The distribution of mountains and plains makes Heilongjiang province high in northwest, north and southeast, low in northeast and southwest. Presently, Heilongjiang Province administrates 13 prefectures which cover 13 municipalities, 19 county level cities, 46 counties, 69 municipal districts, and 931 townships. In addition, Heilongjiang province has 10 state farms located dispersedly in its territory. The provincial capital is located at Harbin. In 2007, the total population in Heilongjiang Province was recorded as 38.24 million with natural increasing rate of 0.026%. Heilongjiang Province is endowed with abundant natural resources. Petroleum, graphite, yellow clay, basalt of cast, gold and others have the largest reserves in the 131 identified mineral resources in PRC. Mineral resources are widely distributed throughout the Province and relatively concentrated. Petroleum and natural gas are primarily produced in Daqing, which owns the China’s largest oilfield. Coal distributes at eastern areas such as Hegang, Shuangyashan, Qitaihe, Jixi, etc. The Province is also one of the first ten coal bases in China. Nonferrous metals and ferrous metals mainly distribute in Nenjiang, Yichun and Harbin. Gold deposits mainly come from Daxing’an Mountains, Xiaoxing’an Mountains, Yichun, Jiamusi, and Mudanjiang area. Nonmetallic minerals are mainly in eastern and the middle area. After 40 years of development, a relatively completed industrial system, characterized by resource-based economy, has been formed up, and now the Province becomes the country’s grain, oil, coal and wood reserve base. Grain, oil, coal, wood and other products occupy an important position in whole China. The Gross Domestic Product (GDP) in Heilongjiang Province kept a robust development trend in the last 30 years, with average annual increasing rate of 8.4% per year. In 2007, the GDP in Heilongjiang Province reached RMB 707.72 billion Yuan with annual increasing rate of 12%. The GDP scale is about 8.90 times than that of 1980. In the mean time, living conditions and standard has been also improved significantly. The GDP per capita in Heilongjiang Province reached RMB 18,150 Yuan per person in 2007, about 7.46 times than that of 1980. The socioeconomic development profile of Heilongjiang Province is set out in Table 1. The scale and structure of GDP development is shown in Figure 1.

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Table 1. Socioeconomic Profile of Heilongjiang Province Unit 2000 2001 2002 2003 2004 2005 2006 2007 Total Population '000 38,070 38,110 38,130 38,150 38,168 38,200 38,230 38,240 Gross Domestic Product billion yuan 315.14 339.01 363.72 405.74 475.06 551.15 620.14 706.50 Primary Sector billion yuan 38.32 43.56 47.42 50.48 59.33 68.46 75.01 91.54 Secondary Sector billion yuan 173.17 177.34 184.36 208.47 248.70 297.17 336.53 369.56 Tertiary Sector billion yuan 103.66 118.12 131.94 146.79 167.03 185.52 208.60 245.40 GDP Annual Growth Rate % 8.20 9.30 10.20 10.20 11.70 11.60 12.10 12.00 GDP per Capita yuan/person 8,294 8,900 9,541 10,638 12,449 14,434 16,228 18,478 Investment billion yuan 85.92 97.27 105.57 119.07 146.47 173.19 223.59 286.42 Annual Growth Rate % 7.60 14.30 11.50 12.00 22.10 25.40 29.10 28.10 Financial Revenue billion yuan 37.26 42.92 46.16 53.18 64.85 73.83 88.15 100.97 Financial Expediture billion yuan 40.87 51.34 56.59 60.62 75.85 86.14 106.48 132.56 Total Value of Import $ Export billion USD 2.92 3.39 4.35 5.33 6.79 9.57 12.86 17.30 Comsumer Price Index % 98.30 100.80 99.30 100.90 103.80 101.20 101.90 105.40 Rural Net Income yuan/person 2,148 2,280 2,405 2,509 3,005 3,221 3,552 4,132 Source: Heilongjiang Province Statistical Yearbook 2008

Figure 1. Scale and Structure of Gross Domestic Product (GDP)

800 700 600 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 Primary Sector Secondary Sector Tertiary Sector

II. Socioeconomic Development Profile of the Project Areas The Project is the most important section of Qianfeng-Nenjiang transport corridor in Heilongjiang Province, which directly goes through west part of Yichun Muncipality, north part of Shuihua Muncipality and south part of Heihe Municipality. Upon completion, this Project road will well facilitate the regional cooperation in the middle of Heilongjiang Province. That is, the Project direct influence area should also include Qiqihar Municipality, an industrial base and located in the west part of Heilongjiang, and Jagedaqi Prefecture, located in Inner Mongolia Autonomous Region. The following sections give a general picture of socioeconomic development status in these Project direct influence areas.

1. Yichun Municipality

Yichun Municipality is located in the heart of Xiaoxing’an Mountains. There are 40,000 square kilometers forests, a major forest area in PRC. Timber output occupies one third of the Province’s total output, and one tenth of the country’s total. It has provided the country with a total of 240 million cubic meters timber in the past 50 years. Yichun City is a famous tourist destination in China, with great and variety natural landscapes of mountains and trees. Yichun Municipality has become a main forest ecological tourism area of Heilongjiang Province. Yichun S1 - 3

City was named as National Garden City in 2005. In 2007, the total tourist received was 3.005 million person-times with an increase of 17.4%. The tourism revenues reached RMB 1.2 billion Yuan with an annual increase of 27.6%. The industry in Yichun Municipality is mainly timber industry. With implementation of the national natural forest protection project, Yichun has made a big effort to restructure its industries, paying more attention to logging operation industry, furniture manufacturing, ferrous metal smelting and pressing industry, electricity, gas and water supply industry etc. In 2007, the industrial added value realized RMB 4.892 billion Yuan with an annual increase of 16.8%. The GDP in 2007 reached RMB 15.384 billion Yuan, about 6.48 times than that of 1980, with an average annual growth rate of 7.17% over the last 30 years. The GDP per capita was RMB 12,050 Yuan per person in 2007, about 6.07 times than that of 1980, with an average annual growth rate of 6.91% per year. The socioeconomic development profile of Yichun Municipality is setout in Table 2.

Table 2. Socioeconomic Profile of Yichun Municipality Unit 2000 2001 2002 2003 2004 2005 2006 2007 Total Population '000 1,325 1,322 1,319 1,304 1,296 1,288 1,277 1,276 Gross Domestic Product billion yuan 7.26 7.34 8.01 8.90 10.13 11.59 13.03 15.38 Primary Sector billion yuan 1.18 1.97 2.02 2.22 2.57 2.88 3.24 4.00 Secondary Sector billion yuan 3.58 2.36 2.67 3.10 3.62 4.38 4.91 5.70 Tertiary billion yuan 2.50 3.02 3.31 3.57 3.95 4.33 4.88 5.68 GDP Annual Growth Rate % 7.60 8.20 9.10 9.50 10.30 10.50 11.10 11.50 GDP per Capita yuan/person 5,481 5,924 6,471 7,291 8,426 8,999 10,156 12,050 Investment billion yuan 1.18 1.35 1.52 1.68 2.15 2.98 3.90 5.07 Financial Revenue billion yuan 0.22 0.24 0.26 0.27 0.25 0.29 0.34 0.53 Financial Expediture billion yuan 0.60 1.00 1.08 1.24 1.59 1.58 2.04 3.03 Total Value of Import $ Export billion USD 0.03 0.04 0.04 0.04 0.05 0.07 0.09 0.14 Comsumer Price Index % 98.00 99.60 97.50 100.10 103.40 101.30 100.80 104.30 Rural Net Income yuan/person 2,400 2,600 2,730 2,861 3,391 3,791 4,135 4,627 Source: Heilongjiang Province Statistical Yearbook 2008 2. Shuihua Municipality

Suihua Municipality is located in the central and south of Heilongjiang Province and Hulan River basin of Songnen Plain, with total area of 34,063 square kilometers. Suihua is wealth with food crops and economic crops due to its concentrated land, excellent soil, and high fertility of soil, long sunshine hours and abundant rainfall. Grassland is located in the heart of Songnen grassland, which is one of the three biggest grasslands in China. Suihua Municipality has currently 3 cities and 6 counties, with total population of 5,760,900 in 2007. Shuihua is rich with underground resources besides buried oil and natural gas, non-metallic ore, as well as lots of clays and sands which can be used to make brick and tile. In recent years, Shuihua has speeded up its industrial development pace and initially formed up an industry system with rational pattern including food, medicine, chemicals, building materials, electrical and mechanical, and textile. The industrial added value of above-scale industrial enterprises reached RMB 4 billion Yuan with an annual increase of 23.7% in 2007. The GDP of Shuihua Municipality reached RMB 45.79 billion Yuan in 2007, about 20.9 times than that of 1980. The GDP growth rate was 11.91%, ranking the first in Heilongjiang Province. GDP per capita reached RMB 7,948 Yuan per person in 2007, about 18.2 times than that of 1980 and with average annual growth rate 11.35% in the last 30 years. The socioeconomic development profile is setout in Table 3.

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Table 3. Socioeconomic Profile of Shuihua Municipality Unit 2000 2001 2002 2003 2004 2005 2006 2007 Total Population '000 5,436 5,478 5,506 5,555 5,578 5,618 5,689 5,759 Gross Domestic Product billion yuan 21.20 23.61 25.44 27.86 31.42 35.08 38.79 44.72 Primary Sector billion yuan 8.83 9.45 9.99 10.12 11.33 12.37 12.84 15.29 Secondary Sector billion yuan 4.12 4.88 5.21 6.04 6.78 7.80 9.02 10.71 Tertiary billion yuan 8.25 9.28 10.25 11.70 13.31 14.90 16.93 18.71 GDP Annual Growth Rate % 3.10 9.20 8.10 9.00 11.00 10.50 11.70 11.50 GDP per Capita yuan/person 4,030 4,423 4,744 5,125 5,666 6,244 6,984 7,948 Investment billion yuan 3.04 3.04 3.14 3.25 3.94 5.26 7.27 9.33 Financial Revenue billion yuan 1.20 1.26 1.27 1.40 1.63 1.95 2.31 2.70 Financial Expediture billion yuan 1.82 2.22 2.77 3.05 3.69 4.59 6.28 8.39 Total Value of Import $ Export billion USD 0.02 0.03 0.01 0.03 0.03 0.04 0.05 0.04 Comsumer Price Index % 97.70 100.80 97.40 102.70 103.80 102.60 103.40 105.80 Rural Net Income yuan/person 1,980 1,956 2,024 2,125 2,495 2,712 2,910 3,182 Source: Heilongjiang Province Statistical Yearbook 2008 3. Heihe Municipality

Heihe Municipality is the north garrisoning frontier of China and the north gate of Heilongjiang Province with total land area of 68,726 square kilometers. Heihe has a border line of 184.3 km with Russia. Against the river, Heihe city faces Bulagewei which is the capital of Amur in Russia. Bei’an City, Wudalianchi and Nenjiang County are located along the alignment of the Project. In 2007, the total population of Heihe Municipality was 1,470,000 people. Heihe Municipality is rich in nature resources and arable land of 173 million acres, about 11 acres per person and 2.9 times of the provincial average. Heihe is the main producing area for wheat and soybeans. Forest area is 1,396 hectares, accounting for 4.1 percent of the provincial total. The total reserved forest is 33.25 million square meters. Heihe is also rich in lignite, gold and nonferrous metal reserves and production. Heihe Custom Port has a history of more than 100 years and still serves for international trade, regional trade, civil trade and tourism after re-opening in 1987. At present, there are six 1,000-ton wharfs with handling ability of 4,000 tons per day. The number of transit people ranks the first in north China. Border tourism is also well developed. The local industry, agriculture and other undertakings of Heihe Municipality has developed rapidly. With persisting in reform and opening-up, promoting the idea of rejuvenating agriculture through science and education, adjusting industrial structure, and speeding up deep reforming, the socioeconomic development in Heihe has kept sustainable and stable in recent years. The GDP increase rate kept 11.1% per annum since 2000 and reached RMB 15,959 billion Yuan in 2007. GDP per capita was RMB 9,206 Yuan in 2007, about 2.06 times than that of 2000. The socioeconomic development profile is setout in Table 4.

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Table 4 Socioeconomic Profile of Heihe Municipality Unit 2000 2001 2002 2003 2004 2005 2006 2007 Total Population '000 1,715 1,729 1,738 1,738 1,745 1,746 1,734 1,740 Gross Domestic Product billion yuan 7.18 7.76 8.43 9.14 10.59 12.05 13.65 16.00 Primary Sector billion yuan 2.39 2.59 2.84 2.90 3.78 4.48 5.14 6.30 Secondary Sector billion yuan 1.35 1.33 1.38 1.52 1.61 1.89 2.24 2.64 Tertiary billion yuan 3.44 3.83 4.21 4.72 5.21 5.68 6.27 7.06 GDP Annual Growth Rate % 8.90 8.70 9.50 10.40 11.60 10.80 10.70 11.40 GDP per Capita yuan/person 4,231 4,511 4,863 5,264 6,098 6,911 7,795 9,206 Investment billion yuan 1.80 2.01 2.19 2.43 2.82 2.90 3.29 4.12 Financial Revenue billion yuan 0.35 0.37 0.39 0.41 0.41 0.38 0.46 0.67 Financial Expediture billion yuan 0.87 1.15 1.38 1.61 1.89 2.43 3.20 3.98 Total Value of Import $ Export billion USD 0.15 0.13 0.14 0.11 0.29 0.58 1.58 2.36 Comsumer Price Index % 97.00 101.50 99.30 101.00 104.50 101.50 101.60 105.80 Rural Net Income yuan/person 2,152 2,225 2,393 1,831 2,609 3,323 3,505 3,947 Source: Heilongjiang Province Statistical Yearbook 2008 4. Qiqihar Municipality

Qiqihar Municipality is located in west part of Heilongjiang Province. It is the second biggest municipality in the Province and also the political, economic, technologic, education, trade and transport center in west Heilongjiang. Qiqihar Municipality administrates 7 districts, 8 counties and 1 city, with total area of 42,400 square kilometer and population of 560,000 people in 2007. Qiqihar is an industrial base in China. The main industries include heavy machinery and metallurgy. Also, there are variety industries of chemistry, light industries, textile, construction material, food, electronics, medical, etc. Qiqihar is a transport hub connecting Heilongjiang, Jilin and Inner Mongolia with a completed transport network of railway, highway, inland waterway and civil aviation. By taking the opportunity of developing “HaDaQi” industrial corridor, the socioeconomic development of Qiqihar has entered a new booming period. In 2007, the total GDP reached RMB 55.6 billion Yuan with annual increase of 11.5% per year. The total government fiscal revenue was RMB 4.6 billion Yuan with 26.9% annual increase. The socioeconomic development profile of Qiqihar Municipality is setout in Table 5.

Table 5. Socioeconomic Profile of Qiqihar Municipality Unit 2000 2001 2002 2003 2004 2005 2006 2007 Total Population '000 5,596 5,601 5,611 5,411 5,520 5,570 5,632 5,678 Gross Domestic Product billion yuan 26.68 28.19 30.87 31.46 36.84 42.24 48.16 55.60 Primary Sector billion yuan 8.44 8.14 9.20 7.23 9.85 10.94 12.11 12.21 Secondary Sector billion yuan 6.79 7.05 7.33 8.08 9.25 11.41 14.19 18.60 Tertiary billion yuan 11.45 13.00 14.34 16.15 17.74 19.90 21.85 24.80 GDP Annual Growth Rate % 2.80 5.30 9.70 0.60 14.80 12.80 11.70 11.50 GDP per Capita yuan/person 4,739 5,036 5,507 6,026 6,920 8,003 8,714 10,302 Investment billion yuan 4.42 5.22 5.71 6.69 7.79 9.80 12.59 16.31 Financial Revenue billion yuan 1.95 2.09 2.48 2.58 2.86 3.42 3.62 4.60 Financial Expediture billion yuan 2.35 3.35 3.90 4.25 5.23 6.24 7.83 10.11 Total Value of Import $ Export billion USD 0.10 0.06 0.06 0.07 0.08 0.10 0.14 0.27 Comsumer Price Index % 97.70 99.10 99.20 101.70 103.60 101.60 101.60 104.80 Rural Net Income yuan/person 2,589 2,734 2,865 2,847 3,297 3,463 3,670 4,459 Source: Heilongjiang Province Statistical Yearbook 2008 5. Daxing’an Mountain Region

Daxing’an Mountain Region is located in the northern border of China, adjacent to Xiaoxing’an Mountains in east, Huun Buir League in west, Songnen plain in south, and against Russian S1 - 6 across river. The Region's total area is 84,600 square km, and the population was 550,000 in 2007. Daxing’an Mountain administrate 4 prefectures, 3 counties, and 10 forestry bureaus. The region capital is located at Jiagedaqi. Currently, the land of this region belongs to Inner Mongolia Autonomous Region, but its administration belongs to Heilongjiang Province. Daxing’an Mountain Region is rich in ground and underground resources. Gold deposits distribute all around the area and its output ranks the first in the Province. This region is also very rich in coal reserves and other underground resources including copper, iron, aluminum, phosphorus, titanium, tungsten, zinc, molybdenum, lead, graphite, crystal stone, marble, limestone, peat, and other 30 kinds of minerals. The potential of mineral resources development and utilization is enormous. Daxing’an Mountain has its unique ice and snow, forest, border-river, the ancient inn, north pole lights, and other natural landscapes. In recent years, with accelerating the pace of opening to the outside world, forest tourism has been developed substantially. Daxing’an Mountain receive nearly 3 million Chinese and foreign tourists in recent year. In the last few years, the socio-economy of Daxing’an Mountain Region has been greatly strengthened. The GDP growth rate kept average 11.9% per annum in the 2001-2006 and reached RMB 5.03 billion Yuan in 2006. In the same time, GDP per capita was RMB 9,437 Yuan, about 2 times than that of 2000. The socioeconomic development status is listed in the following table.

Table 6. Socioeconomic Profile of Daxing’an Mountain Region Population GDP GDP per Capita Year ('000) (RMB billion) (Yuan/person) 1995 549 1.72 3132 1996 545 2.01 3691 1997 545 2.19 4016 1998 540 2.38 4402 1999 537 2.46 4577 2000 536 2.56 4773 2005 535 4.61 8617 2006 533 5.03 9437 Average Annual Increase Rate 1996-2000 -0.48% 8.28% 8.79% 2001-2006 -0.09% 11.91% 12.03% Source: Feasibility Study Report of Qian-Nen Highway Project

III. Socioeconomic Development Strategy and Plans Heilongjiang Province is experiencing a robust socioeconomic development period. The target of Provincial 11th Five Year Plan1 is to build a comprehensive well-off society and realize the revitalization of old industrial bases by taking the opportunity of favorable external environment to the development.

1. Background and External Conditions

The implementation of the plan of revitalizing the northeast old industrial base2 has brought an excellent historical opportunity to the economic development of Heilongjiang Province, which is

1 “11th Five-Year Socioeconomic Development Plan and Prospective Target Outlines to 2020 of Heilongjiang Province”, Heilongjiang Provincial Government, 2005 2 “Grand Plan for Revitalizing the Northeast Region”, China State Council, 2007 S1 - 7 an important economic growth region in northeast China. The 16th National Party Congress clearly put forward to supporting the northeastern region and other old industrial bases to speed up adjustment and transformation, and support the cities mainly in mining resources to develop sustainable industry. Through effective coordination of regional labor division and cooperation, three provinces in northeast China will promote intra-regional trade liberalization and elements free flow, further obtain economic gathering and complementary effect in regional inland, raise the efficiency of market allocation, promote the specialized labor division and industrial structure optimization, and enhance the regional competitiveness. Northeast area is expected to be China’s new economic pole. The strategic role of Heilongjiang Province is to improve the promotion of the cooperation and development of Northeast-Asia economic zone. With the development of economic globalization and regional economic integration, international economic cooperation becomes more and more important. China, Japan, South Korea, North Korea, Mongolia and Russian Far East region pay unprecedented attention to the cooperation of Northeast-Asia regional economy. As the geographical center of Northeast-Asia economic zone, Heilongjiang Province is the frontier of China’s participation in economic cooperation and all-directional opening up. In strategic pattern of opening north China up, Heilongjiang Province has obvious advantages of geopolitics and economic location, and highly complementary in trade, resources, investment with other countries around, especially in resources utilization and development of oil, forest, natural gas, etc. Located at the intersection of China’s 21st century revitalizing old industrial base and building Northeast-Asia economic zone, Heilongjiang Province is becoming an important gate of northeast China and the bridge connecting China and northeast Asia. The cooperation among northeast regions will further promote the exchanges between Heilongjiang Province and northeast Asian countries, improve the socioeconomic development vitality and strategic position of Heilongjiang Province, and provide an opportunity to the economic development of Heilongjiang Province.

2. Strategy and Principle

By taking such an opportunity, the strategy of socioeconomic development of Heilongjiang Province is to build 4 special economic zones: Harbin-Daqing-Qiqihar industrial corridor, the eastern coal-generated power base, border development belt, and Daxing’an and Xiaoxing’an Mountains ecological region. • Continue to promote the development of Harbin-Daqing-Qiqihar industrial corridor, strengthen implementation of various policies, speed up infrastructure construction, upgrade industrial level, focus on the development of high-tech industries, and construct new industrialization zone. • Accelerate the construction of eastern coal-generated power base, stabilize coal production, consolidate coal-based electricity production, extend coalification industry, increase resources reserves, and expand non-coal industries. • Speed up the construction of border development belt; give priority to textile, machinery, food, building and decoration materials, which have more market demand in Russia. Build good intercity trade zones, accelerate the construction of infrastructure of port processing zones and trade access, and expand the scale of electricity import. • Enhance the development of Great and Small Xing’an Mountains to build up ecological function region and ecological economic zone, continue to implement ecological engineering such as natural forest protection, and strive to promote the system reform of Yichun forest region.

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3. Main Objective and Targets

The 11th Five-Year Socioeconomic Development Plan and Prospective Target Outlines to 2020 of Heilongjiang Province put forward the socioeconomic development trend of Heilongjiang Province in the near future, which is mainly to revitalize the old industry base, and establish a province with fairly complete market mechanism, prominent advantages and features, strong overall economic strength, peace and good ecological living environment, and harmony society environment. Heilongjiang province will become an important economic growth region with the main objectives as follows: • Economic strength will be further enhanced. The average annual growth rate of the province’s GDP will be increased by more than 10% per annum and to reach RMB 1 trillion Yuan in 2010; GDP per capita reach US 3,000 dollars per person. The average annual fiscal revenue will increase by 11% per year or more. Up to 2020, the Province’s economy will be more development; democracy will be sounder; science and education will be more progressive; culture will be more prosperous, society will be more harmony; and people’s living standard will be more improved. The province’s GDP will be doubled, reaching RMB 2 trillion Yuan and GDP per capita reach about US 6,000 dollars. • The mode of economic growth will have been further improved. The proportion of R & D investment accounting for the whole society’s GDP will be increased to 1.5 percent; the proportion of high-tech industries revenue accounting for the total industrial output value will be increased to 30%; comprehensive energy consumption per ten thousand Yuan will be decreased to 18%; and then water consumption per thousand Yuan industrial added value will be reduced to 120 cubic meters. • The industrial structure will be further optimized. The structure of three industries will be adjusted to 9:58:33. Modern agriculture will be basically formed up with six production bases; tourism and modern service industry will be further developed; infrastructure construction will be strengthened; and the overall level of industrial competitiveness will be improved significantly. • The coordination of socioeconomic development will be enhanced. The level of urbanization increased to 58%, and urban and rural visage will be further improved; urban residents per capita disposable income and farmers per capita net income will respectively reach RMB 11,860 Yuan and RMB 4,650 Yuan with an average annual growth of 8% and 8%; Engel coefficient will drop to 35%; social security will be further improved; public service will become sounder; national education will increase to 10 years; and average life will reach 73 years. Gini coefficient will be controlled under 0.4. By 2020, the level of urbanization will increase to 65%. • The capacity of sustainable development will be enhanced. The natural population growth rate will be controlled under 0.5%, and forest coverage rate will increase to 47%. Excessive consumption of resources and ecological deterioration trend will be under control. Up to 2020, the forest coverage rate will reach 51.5%. • Reform and opening up will be in progressing. The ownership structure will be significantly changed, and the proportion of individual, private and other non-public ownership in the economy will increase to over 50%; the economic extroversion degree will be markedly improved, and import and export volume will reach US 24 billion dollars with an average annual increase of 24%. Total foreign capital actual utilization is expected to achieve US 10 billion dollars.

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Table 7. Main Indicators and Targets in the 11th Five-Year Plan Average Annual Index Unit 2005 2010 Increase Rate (%) Gross Domestic Product (GDP) RMB 100 million 5,510 10,000 Over 10% GDP per capita US Dollar 1,762 3,000 Fiscal Revenue RMB 100 million 318.2 540 11 Total Fix-Asset Investment in 5 Years RMB 101 million 17,000 Over 20% GDP Structure 12:54:34 8:54:38 R&D Fund in GDP % 0.6* 1.1 Induction of Energy Consumption per GDP % 20 -4.4 Water Consumption per IAV M3/10,000 Yuan 200 150 -5.6 Agriculture Irrigation Coefficient 0.47 0.5 Urbanization Rate % 52.8* 56 Total Import and Export Value USD 100 million 95.7 240 20 Actual Foreign Fund Utilization in 5 Years USD 101 million 66.4 100 Total New Urban Employment in 5 Years 10,000 persons 300 Transferred Rural Labor in 5 Years 10,001 persons 600 Years of Compulsory Education Years 9.5 New Medical Service Coverage % 80 Urban Disposable Income Yuan/person 8,273 12,160 8 Rural Net Income Yuan/person 3,321 4,520 7 Urban Unemployment Rate % 0.45 0.5 Natural Population Increase Rate % 1.95 5 Farming Land 1,000 Ha 1,170 1,171 Forest Coverage % 43.6 47 Major Emission Reduction % 10 Note: Data with * is 2004 data Source: “11th Five-Year Socioeconomic Development Plan and Prospective Target Outlines to 2020 of Heilongjiang Province”, Heilongjiang Provincial Government, 2005

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Section 02

Multimodal Transport Development and Plans

of the Project Area

Table of Contents

I. Transport Network Development ...... 2

1． Railway ...... 2

2． Road ...... 2

3． Inland Waterway ...... 3

4． Civil Aviation ...... 3

II. Traffic Development ...... 3

1． Traffic Development by Modes ...... 3

2． Characteristics of Traffic Development ...... 4

3． Transport Vehicle Development ...... 5

III. Transport Development Strategy and Plans ...... 6

1． Comprehensive Transport Development Plan of Heilongjiang ...... 6

2． National Expressway Network Development Plan ...... 6

3． Trunk Highway Network Development Plan of Northeast Area ...... 8

4． Trunk Highway Network Development Plan of Heilongjiang ...... 11

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Multimodal Transport Development and Plans of the Project Area

I. Transport Network Development Heilongjiang Province is located in the northern area of China. The transport network of Heilongjiang Province takes very important role in whole China’s integrated transport system. The overall layout of Heilongjiang Province’s comprehensive transportation network is centered by Harbin, connecting to regional central cities as nodes, and radiating to the border areas. This transportation network also connects to Jilin Province in the south and Inner Mongolia Autonomous Region in the west. Within the Province, this network connect the cities of Mudanjian and Suifenhe in east, Jiamusi and Tongjiang in southeast, Daqing and Qiqihar in west, and Yichun and Heihe in north. This transportation network is composed of five modes of railway, highway, waterway, aviation and pipeline. The transport network development by modes is listed in following table.

Table 1. Transport Network Development of Heilongjiang Province (kilometers) 2000 2001 2002 2003 2004 2005 2006 2007 Railway 5,465 5,465 5,465 5,373 5,432 5,499 5,503 5,563 Highway 50,284 62,979 63,046 65,123 66,821 67,077 139,335 140,909 Inland Waterway 5,057 5,057 5,057 5,528 5,528 5,528 5,528 5,528 Civil Aviation 112,000 123,416 117,406 108,716 127,486 116,624 138,845 208,119 Pipeline 985 985 985 985 985 985 985 985 Note: rural road is involved in the highway mileage since 2006 Source: Heilongjiang Province Statistical Yearbook 2008 1． Railway Heilongjiang is one of the provinces with high density of railway network in China. There are 27 national railway lines, mainly including Binzhou line, Binsui line, Pinqi line, Hachang line, Binbei line, Suijia line, and Jiatu line. There are also some local railway lines including Nenbao line, Beihei line, Youbao line, and Fuqian line. In addition, there are about 30 railway branches and connector lines. These railway lines have formed up a railway network which is centered at Harbin, Qiqihar, Mudanjiang, and Jiamusi, radiated to around and other provinces, connected to the country’s railway system, large and medium-sized cities and major foreign ports. By the end of 2007, the Province’s railway operational mileage amounted 5,563 km (include 723 km of local railways), and total extended length of main lines reached 7,250 km, which connect 62.8% of the cities in Heilongjiang. Railways play an important role in the Province’s economic development, especially for the transportation of energy, mineral materials and other staple cargoes. These railways are not only the backbone of Heilongjiang Province’s transport network, but also the connections to whole China, which occupies an important position in the country’s railway network.

2． Road In the last 30 years, the road network and facilities have been substantially improved in Heilongjiang Province. Currently, there are 4 national truck highways, 8 national highways, 30 provincial highways, 220 county roads and numerous rural roads and special highways for oil fields, forestry and farms. By the end of 2007, the total mileage of road accumulated to be 140,909 kilometer, and the density of road network was 31 km per hundred square km, lower

S02 - 2 than the country’s average level. By technical classification, there were 1,044 km expressways, 1,435 Class I highways, 7,443 km Class II highways, 33,207 km Class III road, and 50,883 km Class IV roads. Classed highways and roads took about 66.6% of the total road mileage. In addition, there wew 47,059 km out-class roads. Among these highway and roads, the mileage of paved road was 43,008 km, simple paved road was 2,031 km, accounting for 30.52% and 1.44% of the total mileage respectively, and non-paved road was 95,869 km, accounting for 68.04%. (see separate report for more discussion on road sector development)

3． Inland Waterway Inland waterway in Heilongjiang Province is mainly in Heilongjiang River, Wusuli River, Songhua River and Nenjiang River. The total navigation mileage was 5,528 km in 2007. Water ports are mainly located along Songhua River and Heilongjiang River, including the main ports at Harbin, Jiamusi, Heihe, Tongjiang and Fuyuan. Among the total mileage, waterways above Class III was 1,942 km, which may serve for 1,000t ships, accounting for 34.8% of the navigation mileage. There were 172 passenger and freight berths, with annual capacity of 15 million tons for freight and 1.8 million person-times for passenger. Because of located in Frigid Zone, ice fall period is more than six months a year, and the season impacts greatly on the navigation. Water transportation has comparative advantages in the transportation of energy, mineral materials, oil and other stable cargoes and foreign goods due to its low transport cost and price.

4． Civil Aviation Currently, Heilongjiang Province has five civil airports, respectively located at Harbin, Qiqihar, Mudanjiang, Jiamusi and Heihe. Of which, Harbin Taiping Airport serves as an international airport and also is the second largest airport in the northeast of China. The Harbin Taiping Airport had a substantial expansion in 1994 and now has a designed annul passenger capacity of 6.66 million person-times. In Heilongjiang Province, there are more than 60 air routes, which form up an aviation network to all provinces of China in the south, to Russia in the north, and to Japan and South Korea in the east.

II. Traffic Development

1． Traffic Development by Modes Along with robust socioeconomic development and significant transport infrastructure improvement, the traffic for both passenger and freight in Heilongjiang Province has also experienced a booming period. In the last 8 years (from 2000 to 2007), the total passenger traffic increased by 30% with an average annual increasing rate of 3.96% per year; the total passenger traffic volume increased by 55% with an average annual increasing rate of 6.67%; the total freight traffic increased by 28% with an average annual increasing rate of 3.62%; the total passenger traffic volume increased by 38% with an average annual increasing rate of 4.71%. Table 2 presents the traffic development of Heilongjiang Province in the period of 2000-2007.

S02 - 3 Table: 2. Traffic Development in Heilongjiang Province Unit 2000 2001 2002 2003 2004 2005 2006 2007 Passenger Traffic million person-time 498.06 507.21 510.26 479.61 514.25 556.19 604.70 648.20 Railway 98.19 96.92 91.88 82.07 87.24 82.51 88.01 94.95 Road 398.64 409.00 414.90 393.47 421.70 468.08 510.23 545.92 Waterway 0.45 0.39 1.37 1.76 2.33 2.40 2.53 2.57 Civil Aviation 0.78 0.81 2.11 2.31 2.98 3.20 3.93 4.76 Passenger Traffic billion person-km 38.88 39.62 40.03 38.99 44.47 47.86 53.65 60.38 Railway 16.09 16.33 16.32 14.92 17.10 17.52 19.25 21.06 Road 21.45 21.90 22.18 20.33 22.58 25.43 28.06 31.39 Waterway 0.01 0.01 0.01 0.03 0.03 0.03 0.03 0.03 Civil Aviation 1.33 1.38 1.52 3.69 4.76 4.88 6.31 7.90 Freight Traffic million ton 572.13 580.50 580.06 574.91 599.68 646.12 688.80 731.22 Railway 129.59 136.71 132.58 141.18 149.75 159.59 158.59 165.99 Road 396.85 399.00 403.17 390.31 407.12 443.76 483.89 519.96 Waterway 7.88 7.50 7.08 10.52 11.56 13.01 13.89 12.50 Civil Aviation 0.02 0.01 0.04 0.05 0.06 0.04 0.05 0.05 Pipeline 37.79 37.28 37.19 32.85 31.19 29.72 32.38 32.72 Freight Traffic Volume billion ton-km 94.30 97.50 97.62 101.51 112.20 118.06 122.86 129.77 Railway 71.85 74.72 74.83 78.86 85.69 89.87 91.78 95.61 Road 16.19 16.60 16.75 16.31 20.38 22.76 25.21 28.99 Waterway 1.95 1.75 1.62 1.93 1.89 2.00 2.12 1.36 Civil Aviation 0.03 0.03 0.03 0.10 0.11 0.08 0.10 0.11 Pipeline 4.28 4.40 4.39 4.31 4.13 3.35 3.65 3.70 Source: Heilongjiang Province Statistical Yearbook 2008

2． Characteristics of Traffic Development The traffic development in Heilongjiang Province presented the following characteristics and trends: • Optimization in transport and traffic structures. The different transport modes complement each other and play their roles to meet variety needs of the transportation requirements. The railway provide low cost transport means for long distance freight transportation, which contribute a lot to the heavy, mining and forest industries in the Province; The road traffic development has become very active in recent years, which provide fast and convenient means for socioeconomic development needs, especially contribute significantly in the rural area; The waterway provide the most low cost transport means, especially contribute greatly to the ports along rivers and to the international shipping between Heilongjiang and Russia. The civil aviation has also become an popular transport means, but mainly for long distance passenger transport; The pipeline is mainly for oil field and petrol-chemical industries in the Province • Despite competition among the transport modes in recent years, railway transportation is still dominant in freight transportation due to its low price and high reliability. However, lots of passenger traffic of medium and short-distance have diverted away from railway. As the electrification innovation and train speed-upgrading in recent years as well as improving in promotion activities, the railway traffic for freight traffic has kept a relatively steady level with an average annual increasing rate of 3.66% for traffic and 4.19% for traffic volume in the period of 2000-2007. However, the share of railway passenger traffic in total traffic declined from 19.7% to 14.6% for passenger traffic in 2000-2007 and from 41.4% to 34.9% for passenger traffic volume. Nevertheless, railway still provide a low cost transport means for low income population, especially in peak holiday seasons. • The road traffic has developed sharply and actively in recent years. In the period of 2000-2007, the road traffic increased by annual average of 4.72% and 4.03% per annum respectively for passenger and freight traffic. The road traffic volume increased by annual average of 4.03% and 9.03% per annum respectively for passenger and freight.

S02 - 4 The faster increase in traffic volume means that better road transport condition, especially expressways, promoted long distance transportation. The share of road traffic in total traffic increased from 80.0% to 84.2% for passenger traffic. The share of the road freight traffic also had sharp increase, especially for freight transport volume, from 17.2% to 22.3%, but not as high as the passenger traffic. It is perceived that the road traffic will dramatically increase once the road network is fully completed with a high efficient highway system and adequate rural road. • International transport corridors in Heilongjiang Province are still under development. The Province plays as an economic and trade frontier to Russia and other northeast Asia countries. Several international corridors have been initially formed, which include mainly the land and sea transportation channel of Harbin to Dalian, Suifenhe (Dongning) to Haicenwei, Harbin to Manzhouli, water transport from Heihe, Tongjiang, Fuyuan to Russia and then to Pacific Ocean. Many small and medium-sized water and custom ports are located along the rivers to facilitate the international transportation. However, such international transport corridors need to be better improved to serve cross-border traffic, including its infrastructure and trade facilitations. • However, the transportation network is still not fully completed to meet the growing needs of robust socioeconomic development. The density of the highway network is not high; the transport convenience and security is not adequate; the layout of highway network is mainly dendrite distributed, lack of network connectivity, especially in the east-west direction; the expressway is still not networked; the technical standard of the highway and road is relatively low. Up the end of 2007, the highway density of the province was only 31 km per hundred square kilometers, lower than national average. Highway overall technical condition is relatively backward and high grade road only take 7.05% of the total road mileage and paved road rate was 30.52%. Therefore, big effort is badly needed to speed up the development of transport network in Heilongjiang Province.

3． Transport Vehicle Development In the mean time of fast socioeconomic and traffic development, the number of transport vehicle possession has also significantly increased, especially with the government policy of promoting private vehicle utilizations. Up to the end of 2007, the Province owned 1,123 railway locomotives; the registered civil vehicles reached 1.083 million units, about double than that of 2000; the registered motor vessels was 1,161 units, about 3.79 times than that of 2000; and the operational airplanes increased to 89 units, about 8.09 times than that of 2000. The following table presents the development of transport vehicles in Heilongjiang Province.

Table 3. Transport Vehicle Development Unit 2000 2002 2003 2004 2005 2006 2007 Railway Locomotive unit 1,161 1,208 1,127 1,157 1,123 1,121 1,123 Civil Vehicle '000 unit 545 624 889 762 882 962 1,083 Passenger Vehicle '000 unit 315 359 480 486 577 658 761 Freight Vehicle '000 unit 214 235 367 239 263 258 276 Other Vehicle '000 unit 16 30 42 37 42 46 46 Motor Vessels unit 306 533 1,027 1,100 1,123 1,143 1,161 Aircraft unit 11 66 77 84 95 87 89 Source: Feasibility Study Report of Qian-Nen Highway Project

S02 - 5 III. Transport Development Strategy and Plans For supporting the robust socioeconomic development, several comprehensive transport development plans were made in recent years to guide the development including its network and policies in financing, operation, maintenance, etc. The most important transport development plans are described below.

1． Comprehensive Transport Development Plan of Heilongjiang Province For constructing a well-off society and keeping the socioeconomic sustainable development, Heilongjiang Province made and implemented a comprehensive transport development plan1 for the “11th Five-Year” period (2006-2010). The principle of the plan is to 1) harmonize different transport modes; 2) enhance international transport corridors; 3) support development in border and rural areas; and 4) develop a comprehensive and three-dimensional transport network. The objectives are: • Railway: accelerate passenger line construction and railway electrification, realize technology innovation, enhance existing rehabilitation, and improve transport capacity and efficiency. Complete “one horizontal and tree vertical” railway trunk network, which is centered at Harbin and supported by Shuifenhe and Manzhouli border ports, composed of the railway lines of Binzhou, BinShui, Qitaihe-Mudanjiang, Jiamusi-Harbin, Jagedaqi-Tailai, etc. In this period, the primary tasks include to construct the first passenger-only line, which is from Harbin to Dalian, enhance railway border port at Shuifenhe, complete coal transport corridor in eastern Heilongjiang, build connecting lines for some heavy industrial bases, and double tracks for all main lines and realize the capacity of above 5,000 ton. • Highway: accelerate the construction of expressway network and trunk highway network. The plan focus on completing the expressways from Harbin to other big cities; constructing Class II roads to connect big cities with county seats; and accelerating rural road development. The target is, by end of “11th Five-Year” period the total mileage of highway and road would reach 70,000 km (including 2,000 km expressway and 12,000 above Class II highway), basically complete the expressways from Harbin to all big cities, rehabilitate 12 big transport terminals, connect 55% of the administrative villages with paved roads, and start to construct Harbin Longyun container logistic terminal. • Waterway: enhance development of trunk waterways and custom ports. Accelerate canalization of Songhua River and development of River-Ocean associated transportation to achieve the target of realizing Class III waterway standard for main sections of Songhua River; enhance the constructions of custom ports, focusing on Tongjiang, Heihe, Fujin and Fuyuan; improve the infrastructure of River-Ocean associated transportation; and complete the construction of Harbin Water Rescue Center with advanced telecommunication system. • Civil Aviation: establish the function of Harbin Airport as gateway and transport center of Heilongjiang Province; accelerate the construction branch airport at major big cities and tourism centers; accomplish an airport transport network within the Province with efficient connections with other province and abroad; complete the construction of Jixi and Yichun airport, and finish the preparation of Daqing Airport.

2． National Expressway Network Development Plan On December 17, 2004, a new national expressway network development plan was approved by the State Council. This network is composed of 7 radiated expressways from Beijing, 9

1 “11th Five-Year Comprehensive Transport Development Plan of Heilingjiang Province”, Heilongjiang Government, 2005

S02 - 6 north-south expressways and 18 east-west expressways, so called “7918 expressway network”, with a total length of 85,000 km. This network covers all provincial capitals and major cities in China. It was planned that this expressway network would be constructed in 30 years with total investment estimation of RMB 2,000 billion Yuan. Up to the end of 2008, 60,300 km of the 85,000 km expressway had been completed, about 70.9% of the total. Figure 1 shows the network map. The targets of this National Expressway Network System include: • Connect all provincial capitals; • Facilitate regional development by connecting large economic zones and neighboring provincial capitals, specially in western and northeast areas; • Promote urbanization and tourism development by connecting major cities and tourism destinations; • Construct international transport corridors to support the development cross-border highways and Asian Highway Network; and • Support modern logistic development by efficiently connecting with major highways, railways, airport and seaports.

Table 4. National Expressway Network System 1 radiative Route 2 vertical route 3 horizontal route Distance Distance Distance No。 Origination Designation No。 Origination Designation No。 Origination Designation in km in km in km R1 Beijing Shanghai 1,245 V1 Hegang Dalian 1,390 H1 Suifenhe Manzhouli 1,520 R2 Beijing Taipei 2,030 V2 Shenyang Haikou 3,710 H2 Huichun Wulanhaote 885 HongKong & R3 Beijing 2,285 V3 Changchun Shenzhen 3,580 H3 Dandong Xilinhaote 960 Macao R4 Beijing Kuning 2,865 V4 Jinan Guangzhou 2,110 H4 Rongcheng Wuhai 1,820 R5 Beijing Lhasa 3,710 V5 Daqing Guangzhou 3,550 H5 Qingdao Yinchuan 1,600 R6 Beijing Urumchi 2,540 V6 Erlianhaote Guangzhou 2,685 H6 Qingdao Lanzhou 1,795 R7 Beijing Harbin 1,280 V7 Baotou Maoming 3,130 H7 Lianyungang Huoerguosi 4,280 V8 Lanzhou Haikou 2,570 H8 Nanjing Luoyang 710 V9 Chongqing Kunming 838 H9 Shanghai Xi'an 1,490 H10 Shanghai Chengdu 1,960 H11 Shanghai Chongqing 1,900 H12 Hangzhou Ruili 3,405 H13 Shanghai Kunming 2,370 H14 Fuzhou Yinchuan 2,485 H15 Quanzhou Nanning 1,635 H16 Xiamen Chengdu 2,295 H17 Shantou Kunimg 1,710 H18 Guangzhou Kunming 1,610 Source: Ministry of Transport Among this National Expressway Network, four main routes go through Heilongjiang Province, including: • R7: Beijing – Tangshan – Qinhuangdao – Jinzhou – Shenyang – Siping – Changchun – Harbin (1,280 km) • V1: Hegang – Jiamusi – Jixi – Mudanjiang – Dunhua – Tonghua – Dandong – Dalian (1,390 km) • V5: Daqing – Songyuan – Shuangliao – Tongliiao – Chifeng – Chengde – Beijing –

S02 - 7 Bazhou – Hengshui – Puyang – Kaifeng – Zhoukou – Macheng – Huangshi – Ji’an – Ganzhou – Longnan – Lianping – Guangzhou (3,550 km) • H1: Shuifenhe – Mudanjiang – Harbin – Daqing – Qiqihar – Arongqi – Manzhouli (1,520 km)

3． Trunk Highway Network Development Plan of Northeast Area Accelerating transportation network construction is a pre-condition of revitalizing the old industrial base in northeast area of China. In March 2005, the Ministry of Communications (now called the Ministry of Transport) approved and issued the Outline of Highway and Waterway Development Plan for Revitalizing the Northeast Old Industrial Base (the Plan), which promotes regional coordination in transport development in highway and waterway, and provide reliable supports and protection to the revitalization of old northeast industrial base and the development goal of comprehensively constructing a well-off society. The objectives of the Plan include: 1) highway and waterway transportation will meet the needs of revitalizing old northeast industrial base by 2010; and 2) highway and waterway transportation will meet the needs of fully constructing a well-off society, and Liaoning province will first basically realize the modernization of highway and water transportation by 2020. In addition, the Plan also defined an infrastructure development framework with trunk highway network, coastal ports, inland waterway transport and regional highway transportation hub, etc. The trunk highway network for the northeast region is composed of five vertical highways, eight horizontal highways, two rings, and ten connections. The total mileage of this trunk highway network is 14,000 kilometers, including 4,160 km in Liaoning Province, 4,200 km in Jilin Province, and 5,780 km in Heilongjiang Province. A plan map of this trunk highway development is shown in Figure 2. Among the network, five vertical lines, three horizontal lines and three connection lines go through Heilongjiang Province. The first horizontal line in the northeast trunk highway network goes though Yichun to Nenjiang. Upon completion of this line, it will substantially promote and facilitate the development in agriculture, industry, mining, wood production, tourism, and urbanization in the project area.

S02 - 8 Figure 1. National Expressway Network System

S02 - 9

Figure 2. Plan Map of Trunk Highway Development in Northeast of China

S02 - 10

4． Trunk Highway Network Development Plan of Heilongjiang Province In order to meet the needs of robust socioeconomic development, a Trunk Highway Network Development Plan was made and implemented aiming to build a completed highway network in the period of 2006-2020. The objective of the network is to connect the provincial capital with all big cities in the Province, except Heihe and Jiagedaqi, by expressways; basically connect big cities with all county seats by Class II highways or above; and enhance the transport corridors connecting neighboring provinces and abroad. This Trunk Highway Network is composed of “two rings”, “seven radiations”, “six verticals”, and “three horizontals” lines, so called “2763” highway network, with totally 130,000 km (not including mileages repeated). Of which, 9,200 km is main trunk and 3,900 km is branch lines. Expressway would be 4,661 km, about 35.5% of the total network and 3,406 km of these expressways are included in the national expressway network; Class I highway would be 2,177km, accounting for 16.6%; Class II highway would be 6,276 km, accounting for 47.9%. The details of these highways are listed below and a plan map is shown in Figure 3. • Two Rings: Harbin Bypass Ring Road and Ring Road for Harbin Economic Development Zone. • Seven Radiation Lines: They are from the provincial capital to Gannan, Heihe, Jiayin, Fuyuan, Suifenhe (Dongning), Wuchang, and Shuangcheng. • Six Verticals Lines: There are Fuyuan-Mishan (Dangbi town), Fujin-Dongning, Hegang-Xingshan, Mingshui-Zhaoyuan, Daqing-Zhaoyuan, and Luoguhe-Tailai. • Three Horizontal Lines: They are Luobei-Jiagedaqi, Qianfeng Farm-Nenjiang, and Raohe-Nahe. The proposed project with ADB financing is one important section of the second horizontal line, which from Qianfeng Farm to Nenjiang (Heilongjiang and Inner Mongolia border). It was also planned that 4,113 km of the trunk highway would start construction in the 11th Five-Year period, including 1,165 km expressway, 521 km Class I highway, and 2,727 km Class II highway, with total cost estimation of RMB 48 billion Yuan. (see separate report for details on road sector development in Heilongjiang Province)

S02 - 11 Figure 3. Plan Map of Trunk Highway Network of Heilongjiang Province

S02 - 12

Section 03

Road Sub-Sector Development in Heilongjiang Province

Table of Contents

I. Road Sub-Sector Development Status ...... 2 1. Road Network Development ...... 2 2. Road Traffic Development ...... 2 3. Road Transportation Vehicles ...... 3 II. Road Sector Administration Framework ...... 3 1. Provincial Communication Department ...... 3 2. Functioning Bureaus under HPCD ...... 3 III. Road Development Planning...... 4 1. National Expressway Network ...... 4 2. Trunk Highway Network in Northeast China ...... 4 3. Trunk Highway Network Development Plan of Heilongjiang Province .... 5 IV. Road Development Financing ...... 5 1. Road Sector Financing ...... 5 2. Road Development Fund Sources ...... 6 3. Private Sector Participation ...... 7 V. Road Operation and Maintenance ...... 7 1. Road Operation Arrangement ...... 7 2. Road Maintenance Scheme ...... 7 VI. Rural Road Development ...... 8 1. Rural Road Development Responsibilities ...... 8 2. Rural Road Development Status ...... 8 VII. Recent Road Development Programs ...... 8

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Road Sub-Sector Development in Heilongjiang Province

I. Road Sub-Sector Development Status 1. Road Network Development

In the last 30 years, the road network and associated facilities have been substantially improved in Heilongjiang Province. Currently, there are 4 national trunk highways, 8 national highways, 30 provincial highways, 220 county roads and numerous rural roads and special highways for oil fields, forestry and farms. By the end of 2007, the total mileage of road accumulated to be 140,909 kilometer, and the density of road network is 31 km per hundred square km, lower than the country’s average level. By technical classification, there are 1,044 km expressways, 1,435 Class I highways, 7,443 km Class II highways, 33,207 km Class III road, and 50,883 km Class IV roads. Classed highways and roads take 66.6% of the total road mileage. In addition, there are 47,059 km out-class roads. Among these highway and roads, the mileage of paved road is 43,008 km, simple paved road is 2,031 km, accounting for 30.52% and 1.44% of the total mileage respectively, and non-paved road is 95,869 km, accounting for 68.04%.

Table 1. Highway and Road Development in Heilongjiang Province (kilometers) 2000 2001 2002 2003 2004 2005 2006 2007 Total Length 50,284 62,979 63,046 65,123 66,821 67,077 139,335 140,909 Expressway 285 413 413 413 722 958 958 1,044 Class I 387 548 707 925 1,040 1,118 1,325 1,435 Class II 4,643 5,638 5,821 6,623 7,034 7,140 7,279 7,443 Class III 22,757 33,320 33,132 33,083 33,169 32,806 33,611 33,027 Class IV 21,551 17,842 17,809 18,555 19,339 19,669 40,373 50,883 Out of Class 661 5,217 5,164 5,524 5,518 5,386 55,789 47,059 Source: Heilongjiang Province Statistical Yearbook, 2008 2. Road Traffic Development

The road traffic also developed in a high speed. In the period of 2001-2007, the road traffic was increased by average annual rates of 4.72% and 5.85% per year for passenger traffic and passenger traffic volume respectively, 4.03% and 9.03% per year for freight traffic and freight traffic volume respectively. The traffic increase present an accelerating trend, In 2007, the road traffic increased by 6.99% and 11.87% for passenger traffic and passenger traffic volume; 7.45% and 14.99% for freight traffic and freight traffic volume respectively. All of these rates were higher than that of seven year average (2000-2007). It reflects the booming in socioeconomic and traffic development, caused by implementing the grand plan for revitalizing northeast region. The higher increase rates for traffic volume (ton-kilometers) than traffic (tons) presented that the average traffic distance is getting longer due to road infrastructure improvement and tightening of regional cooperation.

Table 2. Road Traffic Development in Heilongjiang Province Unit 2000 2001 2002 2003 2004 2005 2006 2007 Passenger Traffic million person-time 398.64 409.00 414.90 393.47 421.70 468.08 510.23 545.92 Passenger Traffic billion person-km 21.45 21.90 22.18 20.33 22.58 25.43 28.06 31.39 Volume Freight Traffic million ton 396.85 399.00 403.17 390.31 407.12 443.76 483.89 519.96

Freight Traffic Volume billion ton-km 16.19 16.60 16.75 16.31 20.38 22.76 25.21 28.99 S03 - 2

Source: Heilongjiang Province Statistical Yearbook, 2008 3. Road Transportation Vehicles

In the mean time, the transport vehicle possession and road logistics also had significant development. The average increase rate of registered civil vehicles was 11% per year in the period of 2000-2007. The increase rate for 2007 was 13%. Among which, the passenger vehicle increased in a much fast speed, about 16% in 2007 and average 14% for the period of 2000-2007.

Table 3. Vehicle Possessions in Heilongjiang Province (‘000 units) 2000 2002 2003 2004 2005 2006 2007 Total 545 624 889 762 882 962 1,083 Passenger Vehicle 315 359 480 486 577 658 761 Freight Vehicle 214 235 367 239 263 258 276 Other Vehicle 16 30 42 37 42 46 46 Source: Heilongjiang Province Statistical Yearbook, 2008

II. Road Sector Administration Framework 1. Provincial Communication Department

In Heilongjiang Province, Heilongjiang Provincial Communication Department (HPCD) is responsible for the planning, development, maintenance and administration of the road and waterway sub-sectors on behalf of the provincial government. Ministry of Transport (MOT) provides policy guidance and technical support through national policies and regulations, national trunk and expressway network plans, and design and construction standards. HPCD is mainly responsible for national and provincial highways, including its planning, financing, construction, operation and maintenance. Prefecture and county communications bureaus are responsible for construction and maintenance of local roads. Under HPCD, there are several functioning bureaus. The Heilongjiang Province Expressway Construction Bureau is responsible for construction of expressways and high-class highways. The Heilongjiang Province Tolled Highway Administration Bureau is responsible for toll collection, operation and maintenance of most of the tolled expressway and highways. In recent years, the HPCD has started to use non-government funds to construct and/or operate some road sections through BOT, refinancing, joint-venture, and concessions. For such road sections, the non-government investors manage the road, including toll collection and maintenance. The HPCD provide allover monitory and guidance to the investors and operators.

2. Functioning Bureaus under HPCD

Under the administration of HPCD, there are several functioning bureaus, including: • Heilongjiang Province Expressway Construction Bureau. Implementing expressway and high class highway construction projects. • Heilongjiang Province Tolled Highway Administration Bureau. Operating tolled expressway and high class highways, including operation, maintenance, toll collection and property protection. • Heilongjiang Province Road Administration Bureau. Administrating local roads including construction and maintenance. • Heilongjiang Province Road Transportation Administration Bureau. Administrating road transportation market and enterprises. S03 - 3

• Heilongjiang Province Waterway Administration Bureau. Administrating waterway development and transportation market. • Heilongjiang Province Toll and Fee Inspection Bureau. Monitoring and inspecting toll and fee collection and its administration. • Heilongjiang Province Waterway Public Security Bureau. In responsible for public security for vessels, water ports, and relevant working and management areas. Figure 1 shows the organization chart of HPCD. A separate report will provide details of the organization framework for road sub-sector in Heilongjiang Province, as well as the implementation arrangement for the Project.

III. Road Development Planning 1. National Expressway Network

On December 17, 2004, a new expressway network development plan was approved by the State Council. This network is composed of 7 radiated expressways from Beijing, 9 north-south expressways and 18 east-west expressways, so called “7918 network”, with a total length of 85,000 km. This network will cover all provincial capitals and major cities in China. It was planned that this expressway network would be constructed in 30 years with total investment estimation of RMB 2,000 billion Yuan. Up to end of 2008, 60,300 km of the 85,000 km expressway has been completed, about 70.9%. Among this National Expressway Network, four main routes go through Heilongjiang Province, including: R7: Beijing – Tangshan – Qinhuangdao – Jinzhou – Shenyang – Siping – Changchun – Harbin (1,280 km) V1: Hegang – Jiamusi – Jixi – Mudanjiang – Dunhua – Tonghua – Dandong – Dalian (1,390 km) V5: Daqing – Songyuan – Shuangliao – Tongliiao – Chifeng – Chengde – Beijing – Bazhou – Hengshui – Puyang – Kaifeng – Zhoukou – Macheng – Huangshi – Ji’an – Ganzhou – Longnan – Lianping – Guangzhou (3,550 km) H1: Shuifenhe – Mudanjiang – Harbin – Daqing – Qiqihar – Arongqi – Manzhouli (1,520 km) See report of Multimodal Transport Development in Heilongjiang Province for the network map of China National Trunk Expressway Network.

2. Trunk Highway Network in Northeast China

In March 2005, the Ministry of Communications (now called the Ministry of Transport) approved and issued the Outline of Highway and Waterway Development Plan for Revitalizing the Northeast Old Industrial Base (the Plan), which promotes regional coordination in transport development in highway and waterway, and provide reliable supports and protection to the revitalization of old northeast industrial base and the development goal of comprehensively constructing a well-off society. The trunk highway network for the northeast region is composed of five vertical highways, eight horizontal highways, two rings, and ten connections. The total mileage of this trunk highway network is 14,000 kilometers, including 4,160 km in Liaoning Province, 4,200 km in Jilin Province, and 5,780 km in Heilongjiang Province. See report of Multimodal Transport Development in Heilongjiang Province for the network map of Trunk Highway Network in Northeast of China. Among the network, five vertical lines, three horizontal lines and three connection lines go through Heilongjiang Province. The first horizontal line in the northeast trunk highway network

S03 - 4 is from Yichun to Nenjiang. Upon completion of this line, it will substantially promote and facilitate the development in agriculture, industry, mining, wood production, tourism, and urbanization in the project area.

3. Trunk Highway Network Development Plan of Heilongjiang Province

In order to meet the needs of robust socioeconomic development, a Trunk Highway Network Development Plan of Heilongjiang Province was made and implemented aiming to build a completed highway network in the period of 2006-2020. The objective of the network is to connect the provincial capital with all the big cities, except Heihe and Jiagedaqi, by expressways; basically connect big cities with all county seats by Class II highways or above; and enhance the transport corridors connecting neighboring provinces and abroad. This Trunk Highway Network is composed of “two rings”, “seven radiations”, “six verticals”, and “three horizontals” lines, so called “2763” highway network, with totally 130,000 km (not including mileages repeated). Of which, 9,200 km is main trunk and 3,900 km is branch lines. Expressway would be 4,661 km, about 35.5% of the total network and 3,406 km of these expressways are included in the national expressway network; Class I highway would be 2,177km, accounting for 16.6%; Class II highway would be 6,276 km, accounting for 47.9%. The details of these highways are listed below and a plan map is shown in Figure 2. • Two Rings: Harbin Bypass Ring Road and Ring Road for Harbin Economic Development Zone. • Seven Radiation Lines: There are from the provincial capital to Gannan, Heihe, Jiayin, Fuyuan, Suifenhe (Dongning), Wuchang, and Shuangcheng. • Six Verticals Lines: There are Fuyuan-Mishan (Dangbi town), Fujin-Dongning, Hegang-Xingshan, Mingshui-Zhaoyuan, Daqing-Zhaoyuan, and Luoguhe-Tailai. • Three Horizontal Lines: They are Luobei-Jiagedaqi, Qianfeng Farm-Nenjiang, and Raohe-Nahe. The proposed project with ADB financing is one important section of the second horizontal line, which from Qianfeng Farm to Nenjiang (Heilongjiang and Inner Mongolia border). Currently, HPCD is working hard to develop this trunk highway network under the overall guidance of the Provincial Government. The status of constructing this network is shown in Figure 3.

IV. Road Development Financing 1. Road Sector Financing

Under the 1998 National Highway Law, responsibility for road management is decentralized. Within MOT’s national guidelines, provincial and autonomous region communication department is fully responsible for the planning, development, maintenance and administration of the highway network in its jurisdictional region. In each province or autonomous region, the provincial communication department makes the long-term (10-20 years) and short-term (1-5 years) highway development plans and raises funds for implementing the plans. In the last 30 years, most of the road development funds have been used for constructing national and provincial trunk highway networks. Substantial funds have been used for rural road development. However, road maintenance fund appears to be not adequate. For development of national highway network and some important highway, the HPCD receives project grant from MOT to supplement self-raised funds and commercial bank loans. The provincial government is the owner of all roads. All fees and tolls (including tolls on roads other than expressways) collected from road users on government financed and operated roads are submitted to the provincial finance. The costs for road management and operations are funded mainly from transfers of the province government fiscal expenditure. For better financially S03 - 5 supporting road development, commercial bank loan, from international and domestic banks, has been well utilized, especially for expressway development. As a general regulation, the equity fund should not be less than 35% of total investment while using commercial bank loan.

2. Road Development Fund Sources and Expenditure

Table 4 is the road sector actual revenue and expenditure of Heilongjiang Province in 2006-2008 and projections for next three years (see following section on recent road development programs). It presents the following main characteristics: • The revenue kept a high increase rates, about 33.1% and 20.9% in 2007 and 2008. The revenue in 2006-2008 mainly came from bank loan (29.4%), tolls (19.1%) and road maintenance fee (13.8%). • In the revenue, transportation administration fee and tolls kept higher increase rates, due to active development in traffic and transport service. The participation of local government in road development also presented sharp increasing. • In the expenditure of 2006-2008, about 70.3% of the fund was spent for constructions and 15.4% was spent for loan repayment. Only 3.1% and 1.3% was spent on maintenance and transportation service. • In the next three years (2009-2011), Heilongjiang Province will speed up road development. The fund will be mainly from bank loan (35.4%), MOT subsidy (15.9%), tolls (12.1%) and road maintenance fee (12.0%). About 53.7% of the expenditure will be for key project construction and 21.6% will be spent for general project construction.

Table 4. Road Sector Revenue and Expenditure (CNY million) 2006 2007 2008 2009 2010 2011 Total Revenue 15,138 20,154 24,361 31,018 37,933 26,245 1. Fee 2,952 3,234 3,551 3,438 4,253 4,565 Road Maintenance Fee 2,437 2,790 3,023 2,995 3,510 3,800 Passenger and Freight Transportation Surcharge 320 204 239 204 427 440 Transportation Administration Fee 195 240 289 239 316 325 2. MOT Subsidy 3,728 3,710 3,967 4,164 7,369 3,460 3. Tolls 2,342 2,580 2,868 3,212 3,620 4,050 4. Bank Loan 4,716 6,920 5,895 8,445 15,540 12,450 5. Provincial Government Subsidy 1,400 2,249 1,281 1,060 6. Transport Development Fund 400 900 900 500 7. Local Government 1,400 3,710 6,280 8,610 4,970 160 Total Expenditure 15,138 20,154 21,066 31,437 38,552 26,105 1. Management and Operation 600 610 658 671 700 700 2. Maintenance Engineering 595 610 669 683 1,000 1,000 3. Passenger Transportation Infrastructure Developmen 320 204 239 204 427 440 4. Transportation Service Administration 195 240 289 239 316 325 5. Construction 10,825 15,390 15,731 24,470 31,109 18,690 Key Projects 5,453 5,710 6,420 19,030 22,390 16,380 General Projects 5,372 9,680 9,311 5,440 8,719 2,310 6. Loan Repayment 2,603 3,100 3,480 3,670 4,000 4,950 Principle 1,372 1,270 1,030 1,160 1,300 1,480 Interest 1,231 1,830 2,450 2,510 2,700 3,470 7. Contingency 1,500 1,000 Balance - - 3,295 2,876 2,257 2,397 Source: Heilongjiang Province Communication Department Starting from January 1 of 2009, the central government issued and implemented a new policy, which is to abolish the collection of road maintenance fee and other five types of transportation fees, and to start collection of fuel tax. According to the new policy, the fuel tax totally turns to

S03 - 6 central government fiscal revenue. However, the central government will allocate the fund to each province with likely some special supports and subsidies to poverty area, development zones and transport business. A rough estimation shows that such road development fund is much large than that from road maintenance fees, which will ensure that the road development fund is larger than before and the government has more ability to provide special supports for road development.

3. Private Sector Participation

As a supplementary way of raising fund for road development, most of the provinces started to use the funds from non-road and/or private sectors by the ways of BOT, joint-venture, list in stock market, and operation right concession. Currently in Heilongjiang, there is one stock-listed expressway operation company, Northeast Expressway Co., which operates and maintains the expressway from Harbin to Daqing. There are two expressways are constructed and operated using the mode of BOT with total length of 94.2 km. In two years ago, the central government implemented a regulation to suspend highway concession for anticorruption purpose. In October 2008, the central government issued “Methodology for Concession of Tolled Road”, which regulated the terms and conditions for toll road concession. (see report on policy notes for details) In Heilongjiang Province, some roads connecting tourism attractions, factories and state farms are financed by the business themselves.

V. Road Operation and Maintenance 1. Road Operation Arrangement

In Heilongjiang Province, Provincial Tolled Highway Administration Bureau (HPTHAB) is responsible for operating most of expressways and high class highways. Currently, HPTHAB administrate ten tolled road management divisions. Each division operates and maintains several sections of expressways and/or high class roads. Tolls for expressways are collected at expressway entrance and exits. Tolls for other roads are collected at on-road toll plaza. The collection of expressway tolls is fully computerized and networked within the Province. User only pays once while getting out the expressway network no matter where it entered. A provincial toll resettlement center keeps the record for the toll sources by expressway sections. All tolled revenue goes to provincial fiscal revenue for the government financed and operated expressways and highways. Fund for operation and maintenance are allocated by provincial government budgetary according plans made by HPCD and fund availability. The management divisions are also responsible for road maintenance. Beside these ten tolled road management divisions, there several independent highway operation companies, including the management companies for Ha-Da expressway and the Harbin airport expressway. In addition, there are two BOT highways in Heilongjiang Province.

2. Road Maintenance Scheme

In Heilongjiang Province, road maintenance generally include 1) routine maintenance, like cleaning and small repair; 2) medium size maintenance, like repairing pavement and facility damage and replace traffic sign and marks; 3) periodical maintenance, like repavement of road surface in certain period of time; and 4) snow cleaning in winter. For tolled road, routine maintenance is done by maintenance center of corresponding division or company. Large maintenance projects have to go through public bidding according to national and provincial regulations. Rural road maintenance is done by local road maintenance stations and/or companies using road maintenance fund which are allocated and transferred from HPCD. Village and enterprise roads are maintained by themselves.

S03 - 7

VI. Rural Road Development 1. Rural Road Development Responsibilities

In general, rural road networks are planned, developed and maintained by prefecture and county communications bureaus. Since the fund resources of local governments are constrained. Provincial communications department generally provides budgetary support for county road construction and improvement. However, an increasing proportion of provincial road budgets are being used to meet the national and provincial priority for expressway and highway construction. The funding for roads improvements in rural areas present inadequate and need to be supplemented by poverty reduction funds and other sources. The central government has implemented special policy in recent years to support rural road development by providing substantial subsidy. The funds for local road development and maintenance are from different government agencies and sources, including higher level or road administration bureaus (HPCD’s key projects and poverty alleviation programs), planning commission (national bonds and “work for food programs”), national budget (vehicle purchasing surcharge), local government finance, enterprises and others.

2. Rural Road Development Status

As part of recent economic stimulation and development strategy and plan, Heilongjiang Province has enhanced rural road development. In 2008, totally 24,799 km rural roads were constructed with total investment of RMB 10.7 billion Yuan. Such roads connect 89 townships and 1,737 administration villages. Up to the end of 2008, the ratios of townships and villages with connected roads reached 91.6% and 71.9% respectively. It is planned that the total investment for rural road development in the next three years (2008-2010) will be RMB 23.17 billion Yuan to construct 59,265 km rural roads, including 29,721 km “connection improvement engineering” roads and 9,544 km “connecting through engineering” roads. By end of 2010, the total rural road length will reach 100,000 km and basically form up a regional network. Also, it targets to that 100% of administrative village will have road connections.

VII. Recent Road Development Programs For stimulating and keeping high socioeconomic development, Heilongjiang Government approved, in June 2008, a three year plan for speeding up road development. It is planned that the government will enhance efforts and investment for road development in the period of 2008-2011. The government will invest RMB 90 billion Yuan to develop 2,207 km expressways, 731 km Class I highways, 3,252 km Class II highways, and 60,799 km rural roads. By end of 2008, this plan was adjusted to further enhance the efforts, including increasing the total investment to RMB 100 billion Yuan for constructing 2,840 km expressways, 422 km Class I highways, 2,930 km Class II highways, and 2,930 km rural roads. The key construction projects under the plan include: • 20 expressway projects, total 2,840 km, investment of 61.3 billion Yuan. Among which 14 projects are for the development of National Expressway Network (1,744 km) • 5 Class I highway projects, total 422 km, investment of 5.6 billion Yuan. • 12 Class II highway projects, total 1,930 km, investment of 7 billion Yuan. • 1 highway rehabilitation project, 0.9 billion Yuan. • Border roads, total 1,000 km, investment of 2 billion Yuan. • Rural roads, total 60,799 km, investment of 23.3 billion Yuan. It is planned that the fund sources for accomplishing this plan are from MOT subsidy (19 billion),

S03 - 8 provincial finance (8.7 billion), commercial bank loan (41.6 billion) and local government and enterprises (30.7 billion). Up to the end of 2008, all the survey and most of feasibility study and preliminary design had completed. The HPCD also developed a series of institutional mechanism to ensure the projects successfully and timely implemented.

S03 - 9

Figure 1. Organization Chart of Heilongjiang Provincial Communication Department (HPCD)

S03 - 10

Figure 2. Plan Map of Trunk Highway Network of Heilongjiang Province

11 Figure 3. Status of Trunk Highway Network Development

12

Section 04

Summary of Policies for Road Sector Development

Table of Contents

I. Development Planning ...... 2

II. Project Financing ...... 2

III. Fuel Tax ...... 3

IV. Operation and Maintenance ...... 3

V. Rural Road Development ...... 4

VI. Environment Protection and Energy Saving ...... 4

VII. Transport Modernization and Information Technology ...... 5

S04 - 1

Summary of Policies for Road Sector Development

I. Development Planning Under the 1998 China Highway Law1, responsibility for road development is decentralized. Under MOT’s national guidelines, provincial and autonomous region communication department is fully responsible for the planning, development, maintenance and administration of the highway network in its jurisdictional region. In each province or autonomous region, provincial communication department (PCD) makes long-term (10-20 years) and short-term (1-5 years) highway development plans and raises funds for implementing the plans. In 1991, a National Trunk Highway System (NTHS) was designed to connect all provincial and regional capitals with populations of at least 500,000 with high class roads. The core of the network is 12 major highway transport corridors, chosen by the Ministry of Communications (MOC2) on the basis of population, production, and socioeconomic criteria. The NTHS comprise about 36,000 km of high class road of which approximately 20,000 km would be expressway. Construction of the NTHS was planned to take 30 years up to 2020. However, the actual highway development was much faster than planned, especially expressways. For meeting the requirements of fast socioeconomic and highway development, a new expressway network development plan3 was approved by the State Council in 2004. This network is composed of 7 radiated expressways from Beijing, 9 north-south expressways and 18 east-west expressways, so called “7918 network”, with total length of 85,000 km. This expressway network would cover all provincial capitals and major cities in China. It was planned that this expressway network would be constructed in 30 years with total investment estimation of RMB 2,000 billion Yuan. Up to end of 2008, 60,300 km of the 85,000 km expressway had been completed, about 70.9%.

II. Project Financing The China's road investment need from 1996 to 2010 was estimated at $504 billion. Available revenue was estimated at $302 billion from road user charges, and $29 billion from toll collections, leaving a financing gap of $173 billion or about $12 billion per year. Expenditures in highway infrastructure have been financed mainly from dedicated user charges, Government grants, domestic bank loans and bonds, and foreign loans and investments. Two dedicated user charges, the road maintenance fee and the vehicle purchase fee, provided much of the financing for the road sub-sector. MOT provided supplementary financing to construct national highway network and to develop rural roads in poverty areas. In the last 20 years, most of the funds were used in the development of national and provincial trunk highway networks. Substantial funds were used in rural road development. However, road maintenance funds appear to be not so adequate. For better financially supporting road development, commercial bank loan, from international and domestic banks, has been well utilized, especially for expressway development. As a general regulation, equity fund should not be less than 35% of total investment while using commercial bank loan. Consistent with ADB's policy dialogue, the Government has been creating a framework to attract private sector finance for road construction. While private sector is willing to participate under concession agreements, or in refinancing, leasing and securitization, it is also willing to participate in the case of build-operate-transfer (BOT) type projects that entail taking the initial risks of construction and traffic demand. However, private sector financing is to be available to

1 “Highway Law of People’s Republic of China”, approved by China People’s Congress on 3 July 1997 and affective on 1 January 1998. 2 MOC has been renamed as Ministry of Transport (MOT) 3 “Plan for National Expressway Network System”, Planning and Research Institute of MOT, September 2004

2 finance only a small proportion of the high-grade and provincial road networks. For enhancing market administration, the MOT resumed road operation right concession by issuing and implementing a regulation in 20084.

III. Fuel Tax As part of tax reform to bring off-budget revenues and expenditures within the framework of national budget, the National People’s Congress passed amendments to the Highway Law on 31 October 1999. These amendments laid the foundation for future legislation providing for national taxes to replace provincial and local fees. The vehicle purchase fee was replaced by the vehicle purchase tax effective in January 2001. Starting from January 1 of 2009, the central government issued and implemented a new policy5, which is to abolish the collection of road maintenance fee and other five types of transportation fees (waterway maintenance fee, road transportation administration fee, road passenger and freight transportation surcharge, waterway transportation administration fee and waterway passenger and freight transportation surcharge), to start collection of fuel tax, and to gradually eliminate toll collections for Class II highways. According to the new policy, the fuel tax totally turns to central government fiscal revenue. The central government will allocate the fund to each province with likely some special supports and subsidies to poverty area, development zones and transportation business. A rough estimation shows that such road development fund is much large than that from road maintenance fees, which will ensure that the road development fund is more sufficient than before and central government has more ability to provide special supports and subsidies for road and transportation development. As a general arrangement, the central government will likely allocate such fund to each province according to its amount of road maintenance fee collection in 2007 with likely 10% increase for each following year.

IV. Operation and Maintenance According to the China Highway Law, three types of roads are eligible to collect tolls, generally including 1) financed using bank loan; 2) with operation right by concession; and 3) invested by domestic or foreign economic entities. In 2004, the State Council approved and issued China Toll Road Management Ordinance6. In which, all aspects relating to toll road construction and operation are regulated, including construction projects, toll stations, right concession, toll level, operation and maintenance, legal frameworks, etc. There are currently different modes among provinces to operate government financed toll roads. Some provinces operate such roads by a designated high-class road management and operation bureau, which is under the administration of province communication department. Some provinces have established one or several corporations to operate tolled roads. In addition, there are many toll road operation companies of non-road sub-sector, which invest and operate roads by the modes of BOT, refinancing, joint venture or concession. Some of such companies are listed in stock markets. The China Highway Law indicates that road administration authorities at different level of government take the responsibilities to maintain the roads in their administration areas and ensure the roads in good condition in accordance with national standard. Local governments also have the responsibility to protect the road and road property. For regulating maintenance, the MOT issued a guideline and procedure specially for road bridge maintenance management7 in 2007, in which administration responsibilities, maintenance engineering, inspection and evaluation, etc. are well set out.

4 “Methodology for Road Operation Right Concession”, approved by MOT on 15 June 2007 and affective on 1 October 2008. 5 “Notice of Implementing Fuel Price and Taxation Reform”, State Council, No. 37 [2008] 6 “China Toll Road Management Ordinance”, the State Council, approved on 18 August 2004 and affective on 1 November 2004. 7 “Regulation of Road and Bridge Maintenance Management”, the MOT, 9 June 2007

3 V. Rural Road Development In general, rural road networks are planned, developed and maintained by prefecture and county communications bureaus. Since the fund resources of local governments are constrained. Provincial communications department generally provides budgetary support for county road construction and rehabilitation. However, an increasing proportion of provincial road budgets are being used to meet national and provincial priority for expressway and highway construction. The funding for roads improvements in rural areas present inadequate and need to be supplemented by poverty reduction funds and other sources. Currently, the funds for local road development and maintenance are from different government agencies and sources, including higher level or road administration bureaus (HPCD’s key projects and poverty alleviation programs), planning commission (national bonds and “work for food programs”), national budget (vehicle purchasing surcharge), local government finance, enterprises and others. County and township administrations also receive a portion of the road funding from the central government, via provincial governments. After many years of leaving provinces to find their own funds for local roads, the central government is now developing mechanisms for contributing national funds for developing village and other local roads, and has approved a national program of up to $25 billion for the period 2006-2010. In 2005, a Rural Road Development Plan8 was approved by the State Council, in which development principles, targets, key areas, standards, policies were well indicated. The targets of rural road development for 2010 and 2020 are 3.10 million km and 3.70 million km respectively. In March 2008, MOT issued a notice9 to all provinces and regions in China to promote rural road development, which was based on overall national policy and arrangement for rural road development. The notice emphases to enhance rural road development, promote reform of rural road administration and maintenance, develop rural road transportation service, complete “green channel”, etc. In April 2008, the MOT issued a guideline for rural road maintenance administration10, which technically arranged the methodology and procedure for administrative responsibility, fund management, technology application, engineering standard, road property management of rural road development.

VI. Environment Protection and Energy Saving For the purpose of enhancing environment protection, the MOT issued and has implemented a guideline11 for environment protection of road construction project. In which, administrative responsibilities, approval procedure for EIA, road facility requirements for environment protection, and punishment regulation for road construction projects are clearly described. For environment protection and energy saving, the MOT developed an outline of medium and long-term plan for energy saving in transport sector12 in 2008. The strategy is to complete and optimize transport infrastructure system, promote energy-saving vehicles manufacture and utilization, restructure energy structure and apply high technology, improve monitory and management level, etc. The target for 2015 is to reduce energy consumption by 12% for freight transport and 3% for passenger transport in comparing with that in 2005; the target for 2020 is to reduce energy consumption by 15% for freight transport and 5% for passenger transport in comparing with that in 2005. In the plan, it is mentioned that upgrading road class may reduce energy consumption by 15-41% and alleviating road congestion may reduce energy consumption by 7-10%. Under the assistance of ADB, the MOT has just completed a research project on “green

8 “Rural Road Development Plan”, approved by China State Council in 2005 9 “Suggestions on Rural Road Development in 2008”, MOT, 27 March 2008 10 “Notice of Temporary Guideline for Rural Road Maintenance Administration”, MOT, 24 April 2008 11 “Guideline for Environment Protection of Transport Project”, the MOT, affective on 16 June 1990 12 “outline of medium and long-term plan for energy saving in transport sector”, the MOT, 23 September 2008

4 transport” development 13 in China. The report provides guidelines, methodology and parameters for estimating energy consumptions and emission reduction by different type vehicles and operation speeds.

VII. Transport Modernization and Information Technology In 2006, the MOT developed a strategy for science and technology development in road and waterway sub-sector14. The key areas for development up to 2020 include 1) intelligent transport technology; 2) construction and maintenance technology for special environment conditions; 3) integrated transportation system; 4) decision support technology; 5) transport safety and security; and 6) green transport technology. In 2008, the MOT issued another policy to promote modern transport development15. The objective of this policy is to significantly improve transport efficiency and quality; and enhance transport service capacity and level. The key areas include 1) optimizing transport structure; 2) speeding up transition of development modes; 3) promoting modern logistical development; 4) efficiently upgrading passenger transport service quality; 5) totally rising public service capacity; and 6) enhance new technology application. The MOT also developed a 5-year plan for information technology development in road and waterway sub-sectors16. The main tasks of the plan is to construct 1) information systems at both central and provincial levels with information exchange and sharing functions; 2) three information platforms including road transport integrated information platform, waterway transport integrated information platform, and comprehensive management information platform, which would integrate related information and provide information service; 3) develop three application systems, including information analysis system for transport operation, emergency response system for road and waterways, and public information service system for transport and traffic; and 4) build up three safeguard institutional frameworks, including construction and operation framework for informatization, information security framework, and standardization for information system development.

13 “Green Transport – Resource Optimization in the Road Sector in People’s Republic of China”, ADB and MOT of China, 2008 14 “Strategy of Science and Technology Development in Road and Waterway Sub-Sectors”, the MOT, 8 October 2006 15 “Suggestion and Policy for Accelerating Modern Transport Development”, the MOT, 9 January 2008 16 “11-5 Year Plan for Informatization Development in Road and Waterway Sub-sectors”, the MOT, 22 May 2007

5

Section 05

Project Economic Rationales

Table of Contents

I. Socioeconomic Development and Traffic Demand ...... 2 II. Highway Network Completion ...... 2 III. Regional Development and Cooperation ...... 3 IV. International Transport Corridor and Trade Development ...... 3 V. Tourism Development in the Project Area ...... 4 VI. Social Development and Poverty Alleviation ...... 4 VII. Energy Saving and Environmental Protection ...... 5

Project Economic Rationales

The proposed road project has high relevance with the local socioeconomic development. Upon completion, the Project road will substantially and efficiently support the robust socioeconomic development, contribute to trunk highway network completion, facilitate regional development and cooperation, improve international trade and transport corridors, promote tourism development, benefit social development, and realize energy saving and environment protection target of Heilongjiang Province. This report describes main economic rationales of the Project.

I. Socioeconomic Development and Traffic Demand Heilongjiang Province has experienced a robust socioeconomic development period in the last 30 year, especially in recent years. From 2000 to 2007, the GDP growth rates of Heilongjiang Province kept an average of 10.66% per annum, which brought enormous improvement in infrastructures and significant changes in living standard. In the same period, road mileage increased from 50,285 km in 2000 to 140,909 km in 2007, including 1,044 km expressways. The fast economic development and transport infrastructure improvement has stimulated booming in transport demands. In the period of 2000- 2007, the passenger traffic volume and freight traffic volume increased by average of 6.67% and 4.71% per annum respectively (for all transport modes). In the Heilongjiang Province’s 11th Five-Year and Long Term Socioeconomic Development Plan1, it was planned that the GDP growth rate would keep at least 10% per annum in 2006-2010. Especially the implementation of the Grand Plan for Revitalizing the Northeast Region2 has brought the socioeconomic development in Heilongjiang Province into a new age. These need a fully completed, multi-modal and high efficient transport network to support it. According to the statistics, the actual GDP growth rate in 2006 and 2007 were 12.1% and 12.0% respectively, which were higher than what planned. Currently, the government is making the outline for 12th Five-Year Socioeconomic Development Plan (2011-2015). The primary economic development target might be slightly lower in considering the impact of global financial crisis. However, the GDP growth rate will be likely still keeping an average annual rate of 10% in the period (the 12th Five Year Plan is still under preparation). In any case, the socioeconomic development will likely keep sustainable and robust, which will bring about expansion of traffic demand and also need strong support from improved transport infrastructure. It is estimated that such socioeconomic development will bright about 10%-5% traffic demand annually increasing in the period of 2013-2032 (see report on traffic analysis and forecast for details). For stimulating and keeping economic development, the provincial government has recently adjusted its plan and investment to speed up road development. A three-year program for speeding up road construction3 has just developed and implemented by the government, which will invest RMB 90 billion yuan to build 2,207 km expressway, 3,983 km Class I & II highways and 60,799 km rural road in three years time of 2008-2011. (see report on road sector development for details)

II. Highway Network Completion In 2006, a Heilongjiang Province Trunk Highway Network Development Plan was developed and implemented. This network is composed of trunk highways of “two rings, seven radiation lines, six vertical lines, and three horizontal lines” (so called 2763 network). The second

1 “Outline of 11th Five-Year and Long Term (2020) Socioeconomic Development Plan of Heilongjiang Province”, Heilongjiang Provincial Government, 2000 2 “Grand Plan for Revitalizing the Northeast Region”, China State Council, 2007 3 “Plan for Speeding Up Road Development”, Heilongjiang Government, June 2008 S05 - 2 horizontal line goes through middle of the Province, starting from Qianfeng Farm in the east of the Province and ending at Nenjiang County at the west with total length of 824 km. This corridor is currently with bad road condition. Especially, the section from Yichun to Bei’an is almost disconnected. This proposed Project will build 208.87 km expressway, 110.05 km Class II road and 12.96 km Class I road along this corridor. Upon completion, this Project will basically realize the target of constructing “second horizontal line” and facilitate this corridor with high class roads. As past experience, completion of highway network may significantly change traffic pattern and generate substantial traffic demand (see traffic analysis report for more discussions on induced traffic by the Project). Currently, the horizontal transport corridors in Heilongjiang are mainly located in the south and east part of the Province. The traffic movement in north Heilongjiang is mainly in north-south direction. Upon completion of the Project, it will open a transport corridor in middle Heilongjiang and in east-west direction. From the “2763” network, it can be clearly seen that this Project will significantly change the traffic pattern in Heilongjiang Province and so much as to the fast-east of Asia.

III. Regional Development and Cooperation Based on the National Grand Plan for Revitalizing the Northeast Region, Heilongjiang Province government also developed and has implemented a plan for revitalizing old industry base4. In this plan, four economic development barycenters have been identified, including 1) HaDaQi industrial corridor; 2) East coal, electricity and chemical industry base; 3) border development belt; and 4) Great and Small Xing’an Mountain ecology and zoology zone. A location map of these economic barycenters is shown in Figure 1. The government has implemented and will also implement series policies and programs to enhance the regional cooperation among these economic development barycenters. Upon completion of the Project, it will efficiently facilitate the development of these development barycenters, especially to set up a bridge to cross the Province in east-west direction and to well support the border development. Currently, the central government is making a plan for developing “Heixiazi Island”, which is located at the northeast of Heilongjiang Province. This island likely will be developed as a free economic zone by both the Chinese and Russian governments. The direct influenced areas of the Project, including Yichun Municipality, Shuihua Municipality, Heihe Municipality and Qiqihar Municipality, have strong industrial mutual complementarities. Yichun area is wealth with nature resources, like coal and lumber; Qiqihar area is very strong in heavy and manufactures industries; Heihe is a grain production base in China and is also abundance with crude oil. Currently, there are no direct railway and road linkages between these areas. Most of the traffic has to go by Shuihua and/or Harbin. Upon completion, this Project will play as a bridge to link up these barycenters. The linkages and regional collaboration in the Province will be significantly tightened, which will definitely bring about huge benefits to these areas. It is estimated that the Project will generate about 4%-12% traffic on the Project roads in early years of project opening, which is the induced traffic of enhanced industrial linkage and regional cooperation due to improved road infrastructure. (see report on traffic analysis and forecast for details)

IV. International Transport Corridor and Trade Development Heilongjiang Province has a long border line with Russia, about 3,400 km. Heilongjiang Province currently has 25 Class I custom ports, including 14 border ports. Foreign trade development has kept a high increasing trend in the Province, especially border trade. In 2007, total foreign trade value of the Province reached 17.3 billion USD. Most of the foreign trade is with Russia, taking about 62% of the total foreign trade value. Upon completion, the Project will efficiently facilitate the freight transportation among ports in the north, west and east areas.

4 “Grand Plan for Revitalizing Old Industry Base in Heilongjiang Province”, Heilongjiang Government, 2008 S05 - 3

Three lines of Asian Highway Network go through Heilongjiang Province5 (No. 6, No. 31 and No. 33), including one highway connecting with Inner Mongolia and Russia, serving as one section of the international transport corridor in far-east of Asian. The Project road will link these international highways and will certainly change the traffic pattern in this area. For an example, one international transport corridor might be built, which is from Ulaanbaatar to Khabarovsk via Nenjiang and some land ports in the northeast of Heilongjiang Province (Tongjiang, Fuyuan, etc.). Part of the Asian Highway Network in this area is shown in Figure 2. Both the Heilongjiang Province’s 11th Five-Year Socioeconomic Development Plan and the Grand Plan of Revitalizing the Northeast Region emphasized the geographic and economic location of Heilongjiang Province in international cooperation, especially with the far-east area of Russia. The China and Russia governments have reached common understanding to promote the regional development in the Project area, which will provide a vast space to further develop trade and technology collaborations between Heilongjiang Province and the far-east area of Russia. The development of “Heixiazi Island” will also play an important role in such international cooperation and transportation. The Project road will efficiently facilitate the traffic from the border ports of Zhaoxing, Tongjiang and Fuyuan as well as some inland custom ports of Fujin, Shuibin, Huachuan and Jiamusi, to the west of Heilongjiang Province and then to Inner Mongolia and the border ports in the north of Heilongjiang. The target is that the total import and export value will reach US 30 billion dollar in 2010 and Heilongjiang Province will become one of the biggest foreign trade provinces in China.

V. Tourism Development in the Project Area In the 11th Five-Year Socioeconomic Development Plan, it was emphasized that tourism should be developed gradually as and to a backbone industry in Heilongjiang Province. Heilongjiang Province is wealth with tourism resources, especially in winter sports, forest tourism, summer vacation, border sightseeing, etc. The target is to develop Heilongjiang Province as an international tourism destination jointly with neighboring provinces. In the Heilongjiang Provincial Plan for Revitalizing Old Industry Base, it was planned to enhance the tourism development of six zones (Harbin, Mudanjiang, Nengjiang, Sanjiang, Heihe and Yinchun), five corridors, six border cities (Heihe, Shuifenhe, Mishan, Tongjiang, Dongning and Raohe), and eight key destinations (Jingbo Lake, Wudalianchi, Xingkai Lake, etc.). Yichun and Wudalianchi are two major tourism destinations in Heilongjiang Province and in China. Yichun’s tourism development focuses on forest tourism. The target is about 3 million person-times in 2010 and 4 million person-times in 2020. Wudalianchi is called as “natural volcano museum”. It is predicted that the total tourists will exceed 1 million in 2010. In Heilongjiang Province, Yichun, Wudalianchi and Harbin form a golden triangle for tourism development. However, it is very inconvenient currently for tourists to travel among these three places, due to there is no road connection between Yichun and Wudalianchi. At present, tourists from Harbin to Yinchun have to come back to Harbin and then go to Wudalianchi. Upon completion of the Project, tourists will be able travel among these three places much more efficient. It is estimated that tourists will save at least half of the time than now, about 3 days, for traveling between these three tourism destinations. It is estimated that the tourism induced traffic will be about double of normal tourism traffic between Yichun and Wudalianchi in early years of project opening due to improved and road infrastructure and much shorter travel distance. (see report on traffic analysis and forecast for details)

VI. Social Development and Poverty Alleviation The Project alignment goes through one municipality and four counties (or county level municipalities). In this Project direct impacted area, the total population was 2.487 million people and total area was 56,053 square kilometer in 2007. This is a relatively poverty area in

5 http://en.wikipedia.org/wiki/Asian_Highway_Network S05 - 4

Heilongjiang Province. In 2007, the GDP per capita was only 8,914 yuan, about half of the provincial average of 18,478 yuan. The average fiscal revenue was only about 165.8 yuan, which is much lower than the provincial average of 1,515 yuan. The average rural net income per person is also lower than the provincial average. Especially, the rural net income was only 2,800 yuan per person in Shuiling County, which was much lower than the provincial average of 4,132 yuan. During construction, the Project will bring large amount of requirements for local labors, construction materials, agriculture products and variety services, which will substantially simulate the expansion of local socioeconomic activities and bring fast cash income for local residents. Upon completion, this Project will completely improve the transport condition and will bring significant changes in the socioeconomic development of the Project areas, especially in employment, education, health care, poverty alleviation, etc. It is estimated that the operation of the Project roads need at least 400-500 staffs for toll collection, management and maintenance of the roads. Also, the project roads need large numbers of local farmers to do daily cleanness. By developing feeder roads, improving transport services, and implementing proper government policies, the benefits of the Project will quickly and eventually transfer to poverty population and to broader area. (see separate report for details on social impacts of the Project)

VII. Energy Saving and Environmental Protection In the 11th Five-Year Socioeconomic Development Plan, one of the principles for the development is to speed up the improvement of economic growth mode. That is, to develop recycle economy, protect ecology environment, and construct energy saving and environment sound society. One restrict pre-condition of the development is to reduce major emissions by 10%. For achieving such a target, Heilongjiang Province plan to enhance the research and manufacture for energy saving automobile and trucks. Up to 2010, the production scale of energy saving automobiles and trucks will reach 600,000 units per year. In the mean time, the government will also make and implement a series of policies and measurement to control emissions. The opening of the Project road will not only provide a high class transport infrastructure in middle of the Province, but also will significantly alleviate traffic congestions in the whole Project area. Due to higher traveling speed on the Project road and relevant roads, the vehicle emission will be substantially reduced. In 2006, the Ministry of Transport made and implemented a long-term plan for energy saving in road and waterway sub-sectors6. In which, it was estimated that the energy saving would be about 15-41% by upgrading road class and 7-10% by alleviating road congestions. The Feasibility Study of the Project estimated that the total fuel saving of the Project would be about 6.5 billion litter in 20 years operation. The corresponding emissions would be also substantially reduced. Some study estimated that the vehicle CO2 emission might be reduced by 20%-30% for different traveling speeds of 40 and 80 km/hour. That is, the Project will contribute considerable benefits in energy saving and environment protections. During the PPTA, the consultant did calculations of energy savings and emission reduction using the methodology and parameters recently developed by the ADB7. The results show that the Project roads would save about total 6,055 million litter of fuel for the normal and road diverted traffic in the period of 2013-2032. The total CO2 reduction was estimated to be about 5.65 million ton for the same traffic and in the same period.

6 “Outline of Medium and Long Term Plan for Energy Saving in Road and Waterway Sub-Sectors”, Ministry of Transport, 2006 7 “Green Transport – Resource Optimization in the Road Sector in People’s Republic of China”, ADB and MOT of China, 2008 S05 - 5

Figure 1. Locations of Economic Development Barycenters

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Figure 2. Asian Highway Network in the Project Area

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Section 06

Road Sub-sector Administration Framework

Table of Contents

I. Road Sub-sector Administration in China ...... 2

II. Road Sector Administration Framework in Heilongjiang Province ...... 2

III. Functioning Divisions within HPCD ...... 2

IV. Functioning Bureaus under HPCD ...... 3

V. Heilongjiang Province Expressway Construction Bureau and Project Construction Engineering Command-Stations ...... 4

VI. Expressway Operation and Maintenance ...... 4

VII. Implementation Arrangement of the Project ...... 4

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Road Sub-sector Administration Framework

I. Road Sub-sector Administration in China China has a decentralized system for road development and administration, with provincial agencies having considerable autonomy within the context of laws, guiding principles and plans set by the national government. The most important of these is a series of national Five-Year Socioeconomic Development Plans prepared by the National Development and Reform Commission (NDRC) in consultation with industries, representatives of transport users and service providers and relevant line ministries. For transport development, (i) the Ministry of Transport1 (MOT), responsible for development of national highways, inland waterways, coastal shipping, major ports and civil air transport and airports; (ii) the Ministry of Railways (MOR), responsible for railway development. With exception of national policy formulation, strategic planning and operational guidelines, MOT, like other ministries, has devolved most of its functions to Provincial Communications Departments (PCDs) at the administrative level of provinces and autonomous regions, which come under the authority of provincial or autonomous region governments. Also, there are corresponding communication bureaus at municipal and county levels. Each of these PCDs and communication bureaus implements MOT's policies, guidelines and plans, including national design standards for roads, at their respective levels but enjoy some degree of autonomy in setting priorities for projects for which they provide majority of the funds. The MOT also provides financial support for development of national and key highways, as well as regional and rural roads and waterways.

II. Road Sector Administration Framework in Heilongjiang Province In Heilongjiang Province, Heilongjiang Provincial Communication Department (HPCD) is responsible for planning, development, maintenance and administration of the road and waterway sub-sectors on behalf of the provincial government. MOT provides policy guidance and technical support through national policies and regulations, national trunk and expressway network plans, and design and construction standards. MOT also provides financial subsidies for the development of national trunk highways and rural roads. HPCD administrates primarily national and provincial highways, including its planning, financing, construction, operation and maintenance. Prefecture and county communications bureaus are responsible for construction and maintenance of local roads. Under HPCD, there are seven functioning bureaus. Among which, the Heilongjiang Province Expressway Construction Bureau is responsible for construction of expressways and high-class highways; and the Heilongjiang Province Tolled Highway Administration Bureau is responsible for toll collection, operation and maintenance for most of the tolled expressway and highways in the Province. In recent years, HPCD has started to use non-government funds to construct and/or operate some road sections through BOT, joint-venture, and operation right concessions. For such road sections, the operators manage the road, including toll collection and maintenance. The HPCD provide sector administration to these investors and operators. Figure 1 shows the organization chart of HPCD.

III. Functioning Divisions within HPCD Within HPCD, there are currently nine functioning divisions and offices. Including: • Administration Office. Responsible for organizing meetings, file management, daily secretariat, asset management, security, coordination with other government agencies, etc. • Policy and Regulatory Division. Responsible for organizing research and development of

1 The Ministry of Transport was formed up in March 2008, which was organized from previous Ministry of Communication (MOC) incorporating the functions of administrating civil air transport and urban transport. S06 - 2

strategy and policies for road and waterway in the province; implementing enforcement of regulation and reform, etc. • Planning and Statistics Division. Responsible for organizing development of sector long-term and annual plans; administrating large investment projects; collecting and publishing statistical data; etc. • Financial Management and Audit Division. Responsible for developing sector regulation for financial management; providing guidance for toll and fee collection and financial management; implementing national and provincial audit regulations; etc. • Personnel Management Division. Responsible for organization framework enhancement; personnel management; salary and wage management; etc. • Construction Management Division. Responsible for project management and quality control; organizing research on important engineering subjects; examining and approving feasibility study and project design; administrating construction enterprises and market; etc. • Technology and Education Division. Responsible for making strategy and policy of technology promotion and utilization; administrating standard and quota; managing education and training programs; etc. • Emergency Response Division. Responsible for developing long and short term plans for emergency road and waterway construction and maintenance; managing corresponding materials preparation, allocation and transportation; etc. • Inspection and Discipline Division. Responsible for inspecting the implementation of national policy and regulations; enhancing anti-corruption measurements; providing corresponding education and training; etc. Beside these divisions and offices, HPCD also administrate several special offices and stations, e.g. pricing and quota station; quality monitory station; road engineering consulting company; China-Russian associated transportation coordination office; motor-vehicle driver management office, etc.

IV. Functioning Bureaus under HPCD Under the administration of HPCD, there are several functioning bureaus, including: • Heilongjiang Province Expressway Construction Bureau (HPECB). Implementing expressway and high class highway construction projects, including project preparation, bidding and procurement, contract management, quality control, project design, etc. • Heilongjiang Province Tolled Highway Administration Bureau (HPTHAB). Operating tolled expressway and high class highways in the Province, including operation, maintenance, toll collection, asset management and property protection. • Heilongjiang Province Road Administration Bureau (HPRAB). Administrating local roads under the management of HPCD, including construction and maintenance, providing sector development guidance to prefecture and county communication bureaus. • Heilongjiang Province Road Transportation Administration Bureau. Administrating road transportation market and enterprises in the Province, including planning, regulatory and standards. • Heilongjiang Province Waterway Administration Bureau. Administrating waterway development and transportation market, including planning and construction as well as statistics and information publication.

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• Heilongjiang Province Toll and Fee Collection Inspection Bureau. Monitoring and inspecting toll and fee collection, and corresponding administration. • Heilongjiang Province Waterway Public Security Bureau. Responsible for public security for vessels, waterway, water ports, and relevant working and management areas.

V. Heilongjiang Province Expressway Construction Bureau and Project Construction Engineering Command-Stations Heilongjiang Province Expressway Construction Bureau (HPECB) is a functioning agency under HPCD, specially focusing on construction of expressways and high class highways in the Province. The primary functions of HPECB include project preparation, bidding and procurement, contract management, quality control, preliminary and construction designs, etc. HPECB is also responsible for raising funds for key projects and managing BOT projects. For each key project, HPCD establish a Project Construction Engineering Command-station, which prepare and implement that project. Upon completion, these projects are handed over to other functioning bureau under HPCD for operation and maintenance. HPECB provide technical support to command-stations and monitory project implementation progress. Currently, there are 9 sections and offices within HPECB headquarter, with total staffs of about 40 people. (see Figure 2 for HPECB organization chart) In 2008, there were 16 on-going key road projects in Heilongjiang Province, with totaling 1,948.8 km including 845.26 km expressway, 386.51 km Class I highway, 670.31 km Class II highway, 46.72 km Class III and supplementary roads. The total investment for these projects was RMB 30.632 billion Yuan. Among the 16 on-going projects, 11 of them were under construction and 5 of them are under preparation. For better managing and regulating the organizational arrangement, HPCD issued a temporary guideline about the institutional framework for command-stations (see Figure 5). It clearly indicates that the total staffs for a command-station should generally not exceed 30 or 40 people for the projects less or above 100 km.

VI. Expressway Operation and Maintenance In Heilongjiang Province, Provincial Tolled Highway Administration Bureau (HPTHAB) is responsible for operating and maintaining most of expressways and high class highways. Currently, HPTHAB administrate twelve tolled road management divisions. Each division operates and maintains several sections of expressways and/or high class roads. Tolls for expressways are collected at expressway entrance and exits. Tolls for other roads are collected at on-road toll plaza. The collection of expressway tolls is fully computerized and networked within the Province. A user only pays once while getting out the expressway network no matter where it entered. A provincial toll resettlement center keeps the record for toll sources by expressway sections. For the government financed and operated expressways and highways, all toll income goes to provincial fiscal revenue. Fund for operation and maintenance of such government roads are allocated by provincial government budgetary according annual plans made by HPCD and fund availability. Beside these road management divisions, there is an independent highway operation company under the management of HPCD, Northeast Expressway Co., which is a stock-listed expressway company operating the expressway from Harbin to Daqing. In addition, there are two BOT highways in Heilongjiang Province, which were constructed and are now operated by two external companies respectively. A full list of the national and provincial highways is set out in Figure 3, which contains highway name, distance, class, opening year, investor, operator, etc.

VII. Implementation Arrangement of the Project For preparing and implementing this Qian-Nen Highway (Yinchu – Nenjiang section) project, a project engineering command-station, called Qian-Nen Highway (Yichun-Nenjiang Section) Construction Engineering Command-station, was established in March 2008. It also acts as the

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Project Implementation Unit (PIU) for this ADB financed project. According to the general arrangement of organization framework, this Command-station has currently 1 chief commander, 3 deputy commanders, 1 general engineer, and 5 functioning departments including administration office (13 staffs), engineering department (1 staff), planning department (2 staff), financial management department (1 staff), and quality and safety department (1 staff). An organization chart of this command-station is shown in Figure 4. Along with the procession of project preparation and implementation, more staffs will be recruited, especially for the technical departments. The leaders of command-station are normally pointed by HPCD, the key technical staffs with strong engineering background are selected and shifted from other command-stations, and other supporting staffs are recruited publicly from society.

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Figure 1.

Organization Chart of Heilongjiang Provincial Communication Department (HPCD)

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Figure 2.

Organization Chart of Heilongjiang Expressway Construction Bureau (HECAB)

Heilongjiang Province Communication Department

Administration Office

Chief Engineer Office

Project Office

Harmonize Office

Bidding Office

HECAB Personal Office

Technology Office

Financial Office

Inspect & Audit Office

Other Office

Project Management Office

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Figure 3. National and Provincial Highways in Heilongjiang Province Road Highway Length Opening No. Level Name From-To (km) Class Year Investor Operator Tongjiang/Fujin border - Jiamusi (Class II), Jiamusi - Jilin G010 National Sanjiang-Sanya 675.8 Class II, border (Expressway) Expressway 1998-2005 HPCD HPTHAB Suifenhe (China/Russian border) - Gannan (Heilongjiang/IMAR G015 National Suifenhe - Manzhouli 875.3 Class I, II, border) Expressway 1995-2007 HPCD HPTHAB Among which Harbin - Daqing Harbin - Daqing 132.7 Expressway 1992-1997 HPCD Northeast Expressway Ltd. Co.

G102 National Beijing - Harbin Harbin - Shangcheng (Heilongjiang/Jilin border) 72.3 Class II 1989-1990 HPCD HPTHAB

G111 National Beijing - Jiagedaqi Tazicheng (Heilongjiang/IMAR border) - Nengjiang (Heilongjiang/IMAR border) 426.6 Class I, II, III 1998-2007 HPCD HPTHAB G201 National Hegang - Dalian Hegang - Jingbo Town (Heilongjiang/Jilin border) 548.9 Class II 1969-2003 HPCD HPTHAB

G202 National Heihe - Dalian Heihe - Panjiapu (Heilongjiang/Jilin border) 652.8 Class I, II 1985-2005 HPCD HPTHAB

G203 National Mingshui - Shenyang Mingshui - Zhaoyuan Port (Heilongjiang/Jilin border) 236.6 Class I, II, III 1964-2007 HPCD HPTHAB

G221 National Harbin - Tongjiang Harbin - Tongjiang 641.3 Class I, II, III 1980-2002 HPCD HPTHAB

G222 National Harbin - Yichun Harbin - Yichun 343.5 Class I, II, III, Expressway 1997-2000 HPCD HPTHAB S101 Provincial Harbin - Zhaoxing Harbin - Zhaoxing 565.3 Class II, III 1960-2206 HPCD HPTHAB

S102 Provincial Harbin - Airport Harbin - Airport 25.6 Expressway 1960-1981 BOT Gongda Group Ltd.

S202 Provincial Suihua - Bei'an Suihua - Bei'an 212.7 Class II 1998 HPCD HPRAB

S209 Provincial Heihe - Luoguhe Heihe - Luoguhe 702.3 Class II, III, IV, out Class 1969-2005 HPCD HPRAB S301 Provincial Nenjiang - Heihe Nenjiang - Heihe 242.8 Class II, III 1998-2004 HPCD HPRAB

S302 Provincial Nianzishan - Bei'an Nianzishan - Bei'an 365.7 Class I, II 2000-2006 HPCD HPRAB

S305 Provincial Suihua - Zhaozhou Suihua - Zhaozhou 193.1 Class I, II 1988-2004 HPCD HPRAB

Among which Zhaodong - Zhaozhou Zhaodong - Zhaozhou 54.4 Class II 1996-1998 BOT Guanyang Group Ltd.

S310 Provincial Jiagedaqi - Heihe Jiagedaqi - Heihe 356.6 Class II, III, IV 1997-2004 HPCD HPRAB

S311 Provincial Heihe - Jiayin Heihe - Jiayin 368.1 Class I, II, III, Source: Heilongjiang Provincial Communication Bureau IV 1980-2006 HPCD HPRAB Note: HPCD = Heilongjiang Provincial Communication Department, HPTHAB = Heilongjiang Province Tolled Highway Administration Bureau, HPRAB = Heilongjiang Province Road Administration Bureau

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Figure 4. Organization Chart of Project Implementation Unit

Figure 5. General Organization Arrangement and Personnel Management of Key Highway Project Construction Engineering Command-Station

黑龙江省重点工程建设指挥部（协调推进组）机构设置和人事管

理暂行办法

第一章 总则 第一条 为加快我省公路重点工程项目建设，确保实现“三年决战”的工作 目标，按照战时新体制的要求，结合工作实际，制定本办法； 第二条 公路重点工程建设指挥部（以下简称指挥部）、协调推进祖（以下简 称协调组）的机构设置和人事管理，由省高速公路建设局（以下简称省高建局） 统一管理； 第三条 本办法适用于省高建局所管理建设项目的指挥部和协调组。

第二章 机构设置和人员配备 第四条 机构设置要本着精简、高效的原则。指挥部原则上内设五个只能部 门，即工程部、计划部、质量安全部、财务部和综合办公室。指挥部成立同时设 立党的组织。 第五条 根据工程实际，确需设立分指挥部的，根据具体情况另行确定。 第六条 指挥部领导班子配备一名指挥、两名副指挥、一名总工程师。党组 织负责人由指挥兼任，组成人员以兼职为主。协调组配备一名组长。指挥部班子 成员和协调组组长的选拔配备，按干部管理权限，由交通厅统一管理，选任工作 依据《黑龙江省交通厅党组关于印发黑龙江省交通厅选任交通运输重点工程建设 指挥部指挥暂行办法》实施。 第七条 建设里程 100 公里以内或独立特大桥梁的，配备管理人员不得超过 20 人；建设里程 100 公里以上的，配备管理人员不得超过 30 人。协调组配备管 理人员2到3人。 第八条 指挥部临时工原则上不得超过 10 人；

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Section 07

Project Performance Monitory System (PPMS)

Goal and outcomes Issues Indicators Baseline Frequency Goal: 1. Promote • economic For Heilongjiang Province and to be at start of construction economic growth development project counties: established in Heilongjiang • social development • GDP by sector at start of every Year during Province and the • economic • GDP per capita construction Construction Project area. efficiency • rural income per capita • poverty reduction • poverty incidence (income at project completion 2. Reduce poverty • transport and << 900) in Project area trading • annual production of main yearly intervals for 3-5 cash crops years after completion 3. Facilitate trade • % villages with telephone and tourism connections development • % village with bus services • vehicle ownership by type • primary school dropout rate (selected poor villages) • middle school attendance rate (selected poor villages) • home deliveries (unattended birth) • number of tourists • trading volumes Heilongjiang-Russia • No. of trucks originated from other provinces • number of tourists in Project area Objectives:

1. Improve • traffic volume • traffic volume average to be at start of construction, transport efficiency • congestion and annual daily traffic (AADT) established at and safety in the safety by vehicle type on the start every year during project area • Travel Speed project road and relevant construction construction, • bus services roads • transport costs • vehicle ownership by type in at project completion, • Asset the project counties three years after management • number of accidents on completion • ITS project road categorized by • financial injury and death sustainability of • bus frequency on project operations roads • bus freight fares/rates project roads • asset management plan • ITS Management Plan • toll level per vehicle type • EIRR • FIRR 2. Improve access for the poor rural • all-weather • number of villages without to be annually, starting one Goal and outcomes Issues Indicators Baseline Frequency population in the access roads all-weather access roads established at year after commence project area • availability and • Number of start of of construction until costs of transport townships/villages with bus construction three years after services for the services project completion poor • expressway bus • affordability stops/terminals • access to other • passenger fares on selected social services local roads • rural bus station • cost of selected goods in development poor townships • vehicle owned by type in selected townships and villages • frequency of visits of rural women to markets and hospitals in selected villages • portion of transport costs to overall expenditures 3. Promote • non-government • continued private investment To be at project start corporate financing in Heilongjiang Province in established governance in • enhancing road road sector including BOT before at project completion expressway safety • training of HPCD staff construction and three years after. operations • other road • Management regulations policies 4. Promote local • local • number of unskilled workers To be at project start economic employment employed locally established at development • local construction • (taxes) contribution to local start of the at project completion during expressway materials government revenues Project and three years after. construction • tertiary industrial • tertiary industry employment development • quantity of local materials • agriculture used products • quantity of local agriculture product used by type • wage levels of temporary labor • participation in • number of consultation at project start 5. Promote local design and sessions participation implementation • number of agency/people at project completion consulted • environmental • major emissions Environment at project start, 6. Safeguard protection • percentage of poor laborers social, annually, and during negatively affected • vulnerable in unskilled labor force resettlement three years after people and groups • percentage of women in total monitoring completion prevent negative • income recovery labor force reports impacts of resettlement • a set of indicators for the population resettlement population Note: Successful resettlement and restructuring of income will be monitored as per the resettlement plan monitoring system. Details of environmental monitoring are contained in the environmental management plan in the SEIA

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Supplementary Appendix H Regional Development Analysis

S App H - 1

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

ABBREVIATIONS

ADB – Asian Development Bank ARB Agricultural Reclamation Bureau (State Farms) BOT – Build-Operate-Transfer CNY – Chinese Yuan CAREC – Central Asia Regional Economic Cooperation DFR – Draft Final Report EA – Executing Agency EIA – Environment Impact Assessment EIRR – Economic Internal Rate of Return EMP – Environmental Management Plan FIRR – Financial Internal Rate of Return FSR – Feasibility Study Report GDP – Gross Domestic Product GNP – Gross National Product HPDRC – Heilongjiang Provincial Development and Reform Commission HPEPB Heilongjiang Provincial Environmental Protection Bureau HPG – Heilongjiang Provincial Government HPSDI – Heilongjiang Provincial Survey & Design Institute HPDOT – Heilongjiang Provincial Department of Transportation IA – Implementing Agency IPSA – Initial Poverty and Social Analysis LAR – Land Acquisition and Resettlement MOF – Ministry of Finance MOT – Ministry of Transportation (communication previously) Mu – Chinese Land Measuring Unit (1 hector = 15 mu) NDRC – National Development and Reform Commission NGO – Nongovernment Organization O&M – Operation and Maintenance PCU – Passenger Car Unit PIU – Project Implementation Unit PLR – Provincial Land and Recourse Bureau PMO – Project Management Office PPMS – Project Performance Management System PPTA – Project Preparatory Technical Assistance PRC – People’s Republic of China PSA – Poverty and Social Analysis PSP – Private Sector Participation RP – Resettlement Plan SEIA – Summary Environmental Impact Assessment SEPP – Soil Erosion Prevention Plan TBD – To be determined TOR – Terms of Reference

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

REGIONAL DEVELOPMENT SECTOR

Table of Contents 1. INTRODUCTION ...... 4 2. DEVELOPMENT PLANS ...... 7 3. PROVINCIAL CONNECTIVITY AND DOMESTIC TRADE ...... 13 3.1 INTRA-PROVINCIAL CONNECTIVITY AND DOMESTIC TRADE...... 13 3.2 INTER-PROVINCIAL CONNECTIVITY ...... 24 3.3 LOCAL CONNECTIVITY AND TRADE ISSUES ...... 26 4. CROSS-BORDER CONNECTIVITY AND TRADE ...... 28 4.1 NORTHEASTERN CHINA-RUSSIAN BORDER CROSSINGS...... 28 4.2 BORDER FACILITIES AND INFRASTRUCTURE ...... 28 4.3 CROSS-BORDER TRADE ...... 30 4.4 GENERAL BORDER PROCESSING PROCEDURE ...... 33 4.5 ASSESSMENT ON BORDER CROSSINGS ...... 40 5. CONCLUSIONS AND RECOMMENDATIONS ...... 44 5.1 RECOMMENDATIONS ON LOCAL CONNECTIVITY AND TRADE ...... 44 5.2 RECOMMENDATIONS FOR CROSS-BORDER IMPROVEMENTS ...... 47 APPENDIX 1 – ADDITIONAL STATISTICAL DATA ...... I APPENDIX 2 – MEETINGS AND CONSULTATIONS ...... XII APPENDIX 3 – 12TH & 13TH FIVE YEAR PLAN SKELETON HIGHWAY NETWORK ARRANGEMENTS OF HEILONGJIANG PROVINCE ...... XIII

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1. INTRODUCTION

1.1 REGIONAL PROJECT BACKGROUND

1. Heilongjiang province is located in the northeast part of China, bordered by Inner Mongolia on the west, Jilin and Liaoning provinces on the south, and Russia Far-Eastern States of Amurskaya Oblast, Jewish Autonomous Oblast, Khabarovsky Krai and Primorsky Krai across Heilongjiang River on the north and the Wusuli River on the east. Heilongjiang is the 6th largest province in the country with an area of 454,000 km2, noted for its fertile land and abundant natural resources. Around 43.6% of its area is forestland, while 25.37% (11.516 million hectares) are cultivated lands. Its Gross Domestic Product in 2007 was estimated to be 7065 Million Yuan (USD 954.71 million) with the largest contribution coming from the secondary sector (52.3%), followed by the Tertiary sector (34.7%) and the least from the primary sector (13%) 1 . The province is known to be the traditional base for industrial manufacturing, petrochemical industy, agriculture, mining, and forestry.

2. Recognizing such potentials for growth the PRC focused to develop Heilongjiang as part of the Northeast China Revitalization policy, which aimed at revitalizing the region's traditional industry, while speeding up development in the aspects of structural regulation, regional cooperation, economic reform, the construction of an environment-friendly economy, and increasing efforts in education, healthcare, and cultural projects. Accordingly, the Ministry of Transport approved in 2006 the northeast regional transport network development plan involving three provinces. In line with the plan, the Heilongjiang Road Network Plan for 2006– 2020 was developed by the Heilongjiang Provincial Communications Department (HPCD) in 2006, with the aim of building the 2763 network comprising two rings, seven radial, six north– south, and three west–east high-class highways totaling 13,000 kms. As of the end of 2007, 16% of this plan had been achieved.

3. The Project Road will be part of the second of the three key west–east corridors (known as the WE2) of the 2763 network. Upon completion the WE2 will stretch a total of around 824 kms form Nenjiang to Qiangfeng Farm and will become a major route connecting the Sanjiang Plain agricultural area, coal mines and wood industry in the northeast and Songnen Plain farm, pastoral area, and Wudalianchi GeoPark in the northwest. The Project Road will be around 377.6 kms and starts from the west at the Inner Mongolian bank of the Nenjiang River, pass through Nenjiang County, Wudalianchi Scenic Area, Wudalianchi City, Bei’an City, Suiling County and finally into Yichun City.

4. On the regional level, the project is expected to bring direct social and economic development of three prefectures namely Yichun Prefecture, Suihua Prefecture and Heihe Prefecture; four counties and/or county level cities such as Suiling County of Suihua Prefecture, Bei’an City, Wudalianchi City, Nenjiang County of Heihe Prefecture. In addition, traversed by the alignment are three forest zones under the Heilongjiang General Bureau of Forest Industry; six farms supervised by the Heilongjiang General Bureau of Agricultural rehabilitation; three farms under Heilongjiang Judicial Authority; and two agricultural bases under the Heilongjiang Military Area. The total area of influence covers around 68,667 square kilometers, with a population close to three million.

1.2 REGIONAL DEVELOPMENT SCOPE AND OBJECTIVES

5. The regional development sector focuses on spurring economic growth in the rural as well as the urban areas in Heilongjiang. Coupled with this intent is the protection of the environment within the framework of sustainable development. Hence, the overall objective of the regional

1 Heilongjiang 2008 Statistical Year Book

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report development is to provide a balanced growth in both the rural and urban areas while protecting the environment.

6. The major scopes in the regional development for the project study are as follows:

• Review current status of inter-province transport connectivity and transport services, and trade between Heilongjiang and neighboring northeast region provinces of PRC and countries in the Northeast Asia. This includes an assessment of the regional dimensions of the project road to foster exports within PRC and foreign trade in the short term and long term and provide a rationale for funding the proposed project in the northern region of the PRC and how this fits within the broader ADB Country Partnership Strategy of 2008.

• Evaluate the potential of trade development between the Inner Mongolia and Russia after the completion of the Project. This would include: assessment of how much Qiangfeng Farm and Nenjiang corridor does help to the Heilongjiang with tax collection and as well as other provinces in the northeast region; review of Heilongjiang’s highway and water port development plan and suggest further improvements; assessment of physical and non-physical barriers to the cross-border traffic movement on all ports on the border with the Russian Federation (Russia); work out significant impacts to the project road, and recommend various options to remove the barriers in Heilongjiang in general and in the Fuyuan port in particular.

• Assess the provision of trucking and public transport services between Heilongjiang Province and neighboring provinces in general and in the project area in particular in terms of pricing, quality and frequency of service. This would entail an examination of how such services could be improved to provide efficient services on Qiengfang Farm and Nenjiang corridor; recommendation of a suitable component to include in the project for improving/developing long-distance bus services and freight distribution center; and any others measures to foster flow of goods through the region and increase vehicle utilization, for inclusion in the Project.

7. On 6-12 February 2009, a Technical Assistance Inception Mission (the Mission) from the Asian Development Bank (ADB) visited Heilongjiang to review the progress of the consultants’ work under the TA, confirm status of preparation and approval of government documents, and hold discussions with the Government and the consultants on the Project components, scope, implementation schedule, and financing plan. On the aspect of regional development an emphasis was given to the border cross points with the Russian Federation which are within the influence area of the project. Within the scope of the Project, a review of the current condition of other border crossing points will be done to come up with measures that can be undertaken to improve cross-border traffic movement including (i) improving transit treaties, (ii) applying an automated system for customs data, (iii) enhancing customs legislation, (iv) suggesting reform of border and inland controls and procedures, (v) promoting private sector participation in cross-border trade and investment in border port facilities, and (vi) preparing institutional risk- management plans for transport and customs sectors by examining procedures, regulations, planning stage, operations, and practices within each sector, in order to prevent any opportunities that might lead to corruption. On the aspect of inter-province connectivity, passenger services and freight logistics between Heilongjiang and neighboring provinces will be studied to explore possible ways to improve the situation under the project.2

8. A second Technical Assistance (TA) Review Mission was undertaken on 17-20 March in Heilongjiang Province, The general purpose of the Mission was to review implementation progress of the project preparatory TA; discuss the Interim Report; and discuss and agree with the Government on the project components, scope, cost, financing plan, implementation

2 ADB. 6-12 February 2009, Memorandum of Understanding of an Inception Mission of the Asian Development Bank for Ta 7117-Prc: Heilongjiang Roads Development II Project (Yichun-Nenjiang)

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report arrangements, and implementation schedule. The ADB Mission members deliberated certain items on the Interim Report and brought forth comments for considerations of respective consultants. For the regional development aspect, it was agreed that the consultants will narrow down their focus on this aspect to (i) identify whether there are any significant bottlenecks on the cross border points that adversely impact on project road traffic; and (ii) determine how much of the traffic that is expected to use the project road will cross the border at these points. If it is found bottlenecks are significant and improvement is needed, and these could realistically be addressed under the Project (taking into account implementation arrangements), then the TA consultants will prepare proposals for support under the project. To assist this work the HPCD agreed to provide cross-border traffic data to the consultants. On inter-provincial transport connectivity the consultants were asked to provide clear information on current inter-province connectivity and transport services including long-distance bus and goods transportation and logistics development. The consultants will prepare recommendations for improvement that will serve as a basis for planning of inter-province transport service development in Heilongjiang for the 12th FYP. 3

3 ADB. 17-20 March 2009, Memorandum of Understanding of an Inception Mission of the Asian Development Bank for Ta 7117-Prc: Heilongjiang Roads Development II Project (Yichun-Nenjiang)

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2. DEVELOPMENT PLANS

2.1 NATIONAL PLAN

9. In the People’s Republic of China, the economy is molded and shaped by Chinese Communist Party through the plenary sessions of the Central Committee and national congresses whereby a series of “Five-Year Plans” are produced for the entire country, which normally contains detailed economic development guidelines for all its regions. As the country transformed itself from “planned economy” into a “market economy”, the “11th Five-Year Plan” has been referred to as the “11th Five-Year Guideline”, and this establishes economic policy directions within the country from 2006-2010.

10. Under the 11th Five-Year Guideline the efforts will be in promoting development through the following - (i) expanding domestic demand; (ii) optimizing industrial structure; (iii) conserving resources and protecting the environment; (iv) strengthening the capacity of independent innovation; (v) deepening reform and opening-up; and (vi) people-centered approach. An emphasis has been given to promoting balanced development among regions based on the sustaining capacity of the resources and environment, development status and potentials, and regional comparative advantages. This is undertaken through overcoming existing weaknesses, so as to form a pattern of balanced structure of regional development based on clear development zoning, synergistic interaction among regions, equitable allocation of public services and reducing the gap of living standards among regions. In addition, major tasks are on improving overall agriculture production capacity, promoting agriculture restructuring, strengthening the building of agricultural service system and improving rural circulation system.

11. As the economy experienced robust growth, the demand for transport grew for the movement of goods and people. In a concerted effort to boost the country’s road capacity, massive investments in road infrastructure was done guided by the following government development policies for national and rural roads:

• constructing expressways to expand the national trunk highway system to link all cities with a population of more than 500,000;

• developing secondary roads, particularly those that will help reduce poverty and promote rural markets;

• link all county centres through high-class highways (High-class highways include expressways and Class 1 and Class II roads);

• connect all township centres with paved roads; and

• ensure that all administrative villages are serviced by all-weather roads.

2.2 NORTHEAST REGIONAL PLAN

12. The Northeastern (NE) Region of China consists of provinces of Liaoning, Jilin, and Heilongjiang, as well as the eastern part of Inner Mongolia (which consists of five cities/leagues including Hulunbeier City, Xing’an League, Tongliao City, Chifeng City and Xilinguole League). Recognizing the need to improve the competitiveness of the northeastern region of China in order to catch up with the more progressive regions and premier cities of the country, the Central People’s Government formally launched, in September 2003, the Strategy for Revitalising Northeast China (the Strategy).

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13. In order to sustain and enhance the effectiveness of the Strategy, the State Council promulgated the Plan of Revitalising Northeast China (the Plan) in August 2007, aiming at achieving a comprehensive rejuvenation of the Northeast Region in 10 to 15 years. In general, the Plan aims to develop the Northeast into “four bases and one strategic area” of the country, namely “an internationally competitive equipment manufacturing base, a state base for new materials and energy supply, a key state base of grain commodities and agricultural and animal husbandry production, a key state base of technological development and innovation, as well as a strategic area for national ecological safety”.4 The plan involve six aspects:

(i) To transform development philosophies and enhance economic vitality through deepening reform and open-up;

(ii) To improve independent innovation capability and promote restructuring while centering on revitalizing old industrial bases;

(iii) To solve demanding economic and social problems by accelerating economic transformation in resource-depleted cities;

(iv) To start with raising peoples' living standards and gradually establish a moderately well- off society in an all-around manner;

(v) To promote balanced development between urban and rural areas and address regional disparity with establishing a new socialist countryside as a priority; and

(vi) To enhance capability of sustainable development by boosting a recycling economy.

14. The objective of revitalization within 10-15 years is to transform the Northeast Region into an important growth engine featuring impressive economic strength, relatively complete institutions and systems, rational industrial structure, balanced regional growth, sound development of resource-based cities and harmonious social environment. As a broad strategy to fully realize revitalization of this region, the area should be expanded as an internationally competitive equipment manufacturing base, a state base for new materials and energy supply, a key state base of grain commodities and agricultural and animal husbandry production, a key state base of technological development and innovation, as well as a strategic area for national ecological safety. Accordingly a number of major measures were to be adopted to rationalize the revitalization process as follows:

(i) The pace of reform and open-up will be accelerated. NE areas must deepen institutional reforms by establishing modern enterprise system and ownership structure, promoting strategic restructuring of state-owned sector, and cultivating non-public economy. NE areas must increase development vitality by opening up more in both domestic and foreign markets.

(ii) Efforts will be enhanced in restructuring and upgrading of industries. NE areas must enhance independent innovation capability by upgrading and optimizing industrial structure. NE areas must also enhance overall competitiveness of industries by spreading the use of information technologies and adopting new models of industrialization.

(iii) Regional cooperation will be intensified. Efforts should be made to establish regional coordination and interactive mechanisms, remove administrative barriers, and promote fast flow of resources and factors of production. In addition, NE areas must also enhance regional cooperation and balanced development by co-building and co-using infrastructure facilities.

4 Commission on Strategic Development. (14 April 2008) Economic Development of the Northeast Region of the Mainland and Opportunities for Future Cooperation with Hong Kong. Paper Ref: CSD/3/2008

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(iv) Economic transformation in resource-depleted cities will be accelerated. Measures will be taken to establish compensation system for resources development and aiding system for sunset industries, and cultivate the growth of alternative industries. NE areas must also boost more employment and deliver more complete urban functions, thus making resource-based cities experience sustainable development.

(v) A resources-saving and environment-friendly society will be constructed. State policies of resources conservation and environment protection must be fully enforced. NE areas must also strengthen efforts in developing recycling economy, ecological development and environmental conservation so as to achieve coordinated development of economy, society and environment.

(vi) Education, healthcare, culture, sport and other social undertakings will be advanced. NE areas must improve social security net, expand employment, and promote democracy and rule of law. By promoting social stability and harmony, NE areas must also let more people share the benefits of revitalization as well as all-around individual development.

15. The major thrust under the Plan of Revitalising Northeast China consist of (1) Promoting upgrading of industrial structure; (2) Actively promoting modern agriculture; (3) Actively developing Tertiary industry; (4) Coordinating regional and urban-rural development – (i) Optimizing regional spatial structure, (ii) Promoting balanced development between urban and rural areas, (iii) Coordinating construction of key inter-regional infrastructure and (iv) Promoting sustainable development of resource-based cities; (5) Enhancing economy support capability; (6) Enhancing development vitality; and (7) Policy measures and implementation mechanisms.

16. Also, within the Plan, a number of specific projects with relevance to transport and regional development were identified. The projects which have direct impact or influence to Heilongjiang are summarized below:

Table 1: Projects in the NE Revitalization Plan with Relevance to Heilongjiang Transport Project Title Project Description (Major Thrust in the Plan) Harbin and Dalian and coastal To function as first-grade axis in the NE (Optimizing economic belt regional spatial Structure) Harbin-Daqing-Qiqihar industrial To promote industrial clusters, and build world-leading corridor manufacturing industrial belts (Optimizing regional spatial Structure) Road Project: Qiqihar – Chifeng (Inner To form part of the second-grade axis - Eastern Mongolia), and Suifenhe River – Corridor of Northeast Region (Optimizing regional Manzhouli (Inner Mongolia) spatial Structure) Heihe-Beijing corridor and Suifenhe- Part of the 6 corridors to form comprehensive Manzhouli (Inner Mongolia) corridor transportations system for coal-power, oil transporation, grain transportation (Coordinating construction of key inter-regional infrastructure) Harbin - Dalian(Liaoning) Railway Railway Infrastructure Projects (Coordinating passenger line; container load centers construction of key inter-regional infrastructure) in Harbin; and Jinzhou(Liaoning)- Qiqihar railway rehabilitation Expressway: Daqing – Tongliao (Inner Key components in national expressway network Mongolia) – Chifeng (Inner Mongolia) plan. (Coordinating construction of key inter-regional – Chengde (Hiebe); Jilin-Heihe infrastructure) Harbin Airport Expansion; New Airport Construction (Coordinating construction of key airports in Daqing, Jixi, Yichun inter-regional infrastructure) Daqing City for oil industry and Yichun As part of the economic transformation in Six City for natural forest protection Resource-based Cities. (Promoting sustainable

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Project Title Project Description (Major Thrust in the Plan) project development of resource-based cities) Water pollution control in Songhua To strengthen industrial waste control, avoid serious River valley accident, and accelerate pollution treatment facilities infrastructure urban areas (Enhancing economy support capability) Sanjiang, and Songnen Liao River Area Irrigation Projects (Enhancing economy support plains Irrigation capability) Border Economic Cooperation Accelerating institutional reforms and procedural innovations, expanding opening-up and actively promoting independent innovation. (Enhancing development vitality) Railway from Suifenhe to Vladivostock Part of Construction of Port Corridors to Russia (Enhancing development vitality) Regional partnerships among forming coordinating mechanisms for win-win Northeast China, Eastern, Central and cooperation (Policy measures and implementation Western regions mechanisms)

2.3 PROVINCIAL PLANS AND OTHER SUB-REGIONAL PLANS

17. On the provincial level, Heilongjiang also drafted their five-year plan referred to as Heilongjiang’s 11th Five-Year-Plan of Social and Economy Development Plan consistent with PRC’s 11th Five-Year Guideline. The plan focuses on the following:

• Developing modern agriculture which includes development of high quality goods and organic production, stockbreeding, agro-technology, agri-industrial operation, agricultural infrastructure and agricultural modernizing.

• Optimizing and upgrading industry’s structure - The activities include enhancement of manufacturing equipment, rapid development petrochemical and coal industry, further development of energy resource, active development of organic and special goods industry, expansion of pharmaceutical industry, regulated development of forestry industry, advancement of high-tech industry, and speedy construcion of information systems.

• Strengthening infrastructure and facility construction - The activities include constructing comprehensive transport network, irrigation works and facilities, and improvement of infrastructure and facilities in cities.

• Accelerating regional harmony and development - First is the enhancement of regional planning, which includes establishment of HaDaQi industrial corridor, setting up base for coal to electricity east of Heilongjiang, establishment of Daxinganling-Xiaoxianling ecology-economy districts, and establishment of border-crossing areas. Second is the active and steady thrust for urbanization. The third is on county area develoment.

• Deepening system reform and opening up - The trade volume with Russia is estimated to be USD14 billion by 2010 and the investments to Russia will be USD 0.8 billion. This will consist of the following: (1) More efforts on the cooperation of resources, power and raw materials; (2) Promotion of the export industry bases and construction of export processing base for Russia; (3) Support the China-Russia science and technology cooperation; and (4) Encouragement of other various types cooperation.

• Diversification of trade structure, for the purpose of optimizing trade and goods exchange - Heilongjiang will speed-up development of export base on competitive production cost while maintaing quality on a larger scale. By 2010, trade volumes will

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be as follows – 30% for electromechanical products, 20% high-tech production, and 50% for local manufactured products.

• Other activities will include boosting foreign investment and promotion of the country- wide investment through economic and technological cooperation

18. In addition, within Heilongjiang province are a number of development areas and zones which contribute to the overall regional development as follows:

• HaDaQi (Harbin-Daqing-Qiqihar) Industrial Corridor – The corridor is headed by Harbin, supported by Daqing and Qiqihar, and in the future to include Zhaodong and Anda. The corridor’s primary feature consists of its relatively high economic productivity, high level of technology, and good pool of labor resource. The development plan for the corridor will consist of (i) utilizing non-productive areas (saline land); (ii) attracting capital investments and modern technology for its current industrial and labor bases; and (iii) developing economic zones for high-tech, export oriented and eco-friendly industries. The Plan will follow principles such as integration for regional economy, developing a new pattern of industrialization by adoption of systems and mechanisms, science oriented and within the legal and institutional framework of the local and central government. The industry corridor will have the following layout – (a) Harbin’s development will focus on high tech industries, such as auto industry, aviation industry, mechanical and electrical industry, modern pharmaceutical industry, environmental industry, communication industry, organic foods industry and modern logistic industry; (b) Daqing City will put emphais on high additional value petrochemical industry, natural gas chemical industry, deepening progressing of agriculture, cotton, new material, machine manufacture and electronic communication industry; (c) Qiqihar City’s strength will be on manufacturing industrial equipment, organic foods industry, coal, petrochemical, electronic communication, environmental industries, energy source, paper making, metallurgy, and construction material industries; (d) Zhaodong City will develop a biotech industry pertaining to food processing, agriculture production, Chinese traditional medicine and herbal medicine processing; and (e) Anda City will become a Comprehensive Development Zone and will be processing zones for farm products and by-products, a logistics and distribution zone and light chemical industrial zone. In addition, five other project districts will be set up consisting of the Zhaodong Economy Technical Developing District, Songzhan, Anmin, Jiangjia and Hazhaolianyi

• State Farms in Hielongjiang – Hielongjiang has nine agriculture management bureaus under the provincial farm system,, which are now supervisiong 104 farms and 44 livestock farms. In 2005, the total grain output reached 20.53 billion kilograms, of which commodity grain was 18 billion kilograms, constituting around 87.6 percent of the total. The state farms in Heilonjiang are noted for the following: the highest integration level of agricultural equipment in China; have a great potential for processing of agriculture and animal husbandry products; and have developed 7 leading products of rice, oil, milk, wheat (the malt), meat and medicine.

• State Forests in Hielongjiang – The Yichun and the Great Xing'an Mountains are national major timber production bases, with 10.3 million hectares of forest area and 740 million m3 of timber stand volume, which contributed greatly to the economic construction of New China. Due to the state policy of protecting natural forests in recent years, the quantity of felled trees decreased; however the Great and Small Xing’an Mountains will continue to be the most important forestry reserve in China in the future

• Songneng and Sanjiang Plains - The Songneng plain was named after the Nenjiang and Songhua Rivers as this area was primarily influenced by these rivers. The northern areas (Nenjiang plain) are mainly farm and pastoral areas while the sourthern parts are the oil producing, equipment manufacturing and petrochemical industry areas. The Sanjiang plain is a vast low lying alluvial floodplain of about 50,000 square kilometres in

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the apex of the Heilongjiang (Amur) and Wusuli rivers and is primarily agricultural, coal- based and resource-based economy. In the past 30-40 years much of the wetlands of Sanjiang Plains have been reclaimed for agriculture yielding cereals (wheat, rice), soy beans and other crops. Around 52 State Farms exist in the area and a national policy was promulgated to encourage people to come to the Northeast to farm the lands.The Songneng plain is connected to the Sanjiang Plain through the Songhua River Valley; a small plain lies north of Xingkai Lake in the east.

• Tourism Areas – There are a number of tourism spots in Hielongjiang most notable of them are Wudalianchi World Geo-park and Yichun City. Wudalianchi World Geo-park is an approved UNESCO site featuring a volcanic geological relic, which is the most complete preservation, the most typical and the newest volcanic group in China. Within the park there are 14 volcanoes, 12 of which were formed from 1200 to 100 million years ago. The other 2 volcanoes, covering an area of over 60 square meters erupted in 1719 to 1721, and are the latest formed volcanoes in China. Yichun is known as "City (or Prefecture) of forest," "Korean pine home," "Dinosaur home"; located in the hinterland of Small Xing’an Mountains and between the Songhua river and Heilongjiang River, and is the main forest eco-tourism region in north-east area. Yichun has abundant forest tourism resources, with forest coverage of 82.2%. It is the largest and has the most completely preserved original Korean pine forest. In Jiayin County, the first dinosaur fossils, Heilongjiang Mandschurosaurus, was discovered, and known to be the first dragon in Shen islet. In the nearby the county, large numbers of hadrosaur, tyrannosaurs, coelurosauria and other fossil groups were also found. In addition, the area is noted for picturesque nature surroundings with abundant pristine springs and creeks.

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3. PROVINCIAL CONNECTIVITY AND DOMESTIC TRADE

3.1 INTRA-PROVINCIAL CONNECTIVITY AND DOMESTIC TRADE

Connectivity in Heilongjiang

19. In 2006, a Heilongjiang Province Trunk Highway Network Development Plan was developed, referred to as the "2763" Network. This network is made up two (2) belt lines, seven (7) radial roads emanating from the capital city of Harbin, six (6) north to south lines and three (3) east to west lines. The length of the major network is around 13,100 kms consisting mainly of 9,200 kms of main trunk highways and 3,900 kms of feeder highways. In terms of China’s Road Classification this is made up of around 36.5% (4,650 kms) expressways, 16.6% (2,175 kms) of Class I road and 47.9% (6,275 kms) of Class II roads. Aside from these, minor roads and other roads make up around 127,809 kms; thus the total length of road within the province is 140,909 kms (2008 Statistical Yearbook).

20. The "2763" Network base will connect all cities in Heilongjiang and important cities between Jilin, Inner Mongolia and Russia. It has the following attributes:

• Interconnection of Harbin, Daqing, Qiqihar, Suihua, Heihe, Yichun, Mudanjiang, Jiamusi, Hegang, Shuangyashan, Qitaihe, Jixi, Jiagedaqi.

• Connection between important cities, especially focusing on connectivity between Daqing and Qiqihar, Daqing and Suihua, Qiqihar and Jiagedaqi, Mudanjiang and Jixi, Yichun and Hegang, Hegang and Jiamusi, Jiamusi and Shuangyashan, Jiamusi and Qitaihe, Jixi and Qitaihe.

• Connection with neighboring provinces and other countries which is based on the importance of the other provincial cities and foreign border cities.

21. With a total of 4500 kilometers of road network base, the technical criterion for the expressways consist primarily of providing connectivity to (i) cities, cities and their counties, cities and their important neighboring counties; (ii) Class I ports; (iii) important transport hinge; (iv) important industry base; (v) main tourism cities; and (vi) implementing the frontier defense routeway.

22. The "2763" Network is the focus of upgrading and improvement in the each of the “Five- Year Plans”, the aim of which is to facilitate intra-provincial connectivity. This is referred to as the Skeleton Highway Network Implementation Arrangement. A detailed description of current and expected upgrading for 2006 to 2010 or within the 11th Five Year Plan is shown below with the corresponding map (accompanying Figure):

Table 2: Roads in 11th Five Year Plan of Hielongjiang Road 11th Five Year Plan (2006-2010) C1: Harbin Ring Road Built Expressway C2: Harbin Economic Tertiary and Secondary Highway Circle Loop Line R1: Harbin to Gannan Harbin to Anda - Built Expressway; Anda to Ganman - Secondary Highway R2: Harbin to Heihe Harbin to Xian - Built Artiary Highway; Xian to Mingshu -ongoing ongoing Artiary Higwhay; Minghu to Heihe - Secondary Highways R3: Harbin to Harbin to Suiha - Built Expressway; Suiha to Yichun-ongoing

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Road 11th Five Year Plan (2006-2010) Jiameng Expressway; Yichun to Xinqing – ongoing Secondary Highway R4: Harbin to Fuyuan Harbin to Jiamusi – Expressway; Jiamusi to Shuangyashan – ongoing Expressway; Shangyashan-Fujin-Tongyang to Fuyuan – Secondary Highway R5: Harbin to Harbin to midway of Shangzhi & Halin – built Expressway; midway of Suifenhe (Dongning) Shangzhi & Halin to Suifenhe (Dongning) – ongoing Expressway R6: Harbin to Built Expressway; ongoing Expressway and Artiary Highway Wuchang R7: Harbin to Built Expressway Shuangcheng V1: Fuyuan to Mishan Secondary and Tertiary Highway V2: Fujin to Dongning Secondary and ongoing Secondary Highways V3: Hegan to Artiary and ongoing artiary Xingshan V4: Mingshui to Ongoing secondary Zhaoyuan V5: Daqing to Ongoing Expressway Zhaoyuan V6: Louguhe to Tailai Louguhe to Wodu – Tertiary Highway; Wodu to Nehe – ongoing secondary; Nehe to Taila – ongoing artiary H1: Loubei to Jagdaqi Loebei to Jagdaqi – built Tertiary; H2: Qianfeng Farm to Qianfeng to Fujin – built secondary; Fujin to Loubei – ongoing Nenjiang secondary; Loebei to Yichun – built secondary; Yichun to Bei’an – ongoing secondary (Project Road); Bei’an to Wudalanchi – built secondary; Wudalanchi to Nenjiang – ongoing Secondary Highway (Project Road) H3: Raohe to Nehe Raoche to Baoqing - Ongoing Secondar Highway; Bouqing to Qitaihe – Secondary Highway; Qitaihe to Yilan – ongoing Expressway; Yilan to Mulan – Secondary Highway; Mulan to Qing’an – Tertiary Highway; Qing’an to Baiquan – Ongoing Secondary Highway; Baiquan to Yi’an – Secondary Highway; Yi’an to Nehe – Ongoing Secondary Highway.

23. The improvement and upgrading of this identified network is being done every five years within the suceeding Five-Year Plans, up to the year 2020 (13th Five Year Plan). By that time it is expected that the lowest road category will be Secondary Highways (Class II) as all the Tertiary Highways will then be upgraded. There will also be an increase of Expressways and Artiary Highways to better facilitate access and mobility within Heilongjiang. The 12th and 13th Five-Year Plans Skeleton Highway Network Implementation Arrangements are shown in Appendix 3

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Figure 1: 11th Five Year Plan Heilongjiang’s Skeleton Highway Network

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

24. Generally in Heilongjiang, the vehicle types operating follow the type of roads such that higher class roads is dominated by motorized vehicles while the lower class roads is dominated by non-motorized vehicles. Each county/city has one passenger transport company owned by the state and at least one passenger station for the service of passengers. Most of these bus companies have the bus route to Harbin, county/city or township with some routelinks to the villages with considerable population. As of 2007 there are 770,121 passenger coaches operating within the province out of which, 494,083 are privately owned.

25. Harbin, as the capital and most important city in Hielongjiang, is the focal point of public transport. The major cities in Heilongjiang as well as those in Jilin and Inner Mongolia can be reached by public buses as shown below:

Table 3: Public Transport (Buses) Services from Harbin to other Cities Destinations Number of Buses Route Distance (km) Heilongjiang Heihe City 10 G202(R2) 599 Qiqihaer City 16 G105(R1) 329 Daqing City 75 G105(R1) 173 Suihua City 35 G222(R3) 128 Yichun City 17 G222(R3) 354 Hegan City 10 G010(R4\V3) 440 Jiamusi City 27 G010(R4) 364 Shuangyashan City 13 G010(R4) 467 Qitaihe City 33 G010(R4\V3) 437 Jixi City 10 G010(R4\H3) 410 Mudanjiang City 51 G015(R5) 318 Nenjiang City 5 G015-G111(R1\V6) 565 Jiagedaqi City 2 G015-G111(R1\V6) 696 Wudalianchi City 6 G202-S303(R2\H2) 392 Huma County 1 G015-G111-S208-S209(R1\V6) 827 Tahe County 3 G015-G111-S207(R1\V6) 962 Jilin Jingyu County 2 No Data 549 Liaoyuan County 2 No Data 404 Panshi County 1 No Data 436 Tongyu County 1 No Data 380 Longjing County 1 No Data 609 Yushu County 1 G202(R2) 150 Songyuan 15 G301(R1)-S305(V4)-G203 224 Yanji City 2 621\608 Inner Mongolia Hailaer 1 G105(R1)-G301 810 Jagdaqi City 2 G202-S303-S207(R2\H2\V6) 892

26. There are about eleven (11) major state-owned freight corporations in Heilongjiang Province hauling goods both within and outside the province. Current statistical data show that there are 279,591 trucks in Heilongjiang, of which, 203,866 are ordinary trucks and 75,725 are Special Trucks. Also, out of the total number of trucks, 133,977 (49%) trucks are privately- owned while the rest are state-owned. Most of these trucks use major highways and are quite sensitive to fuel cost and hauling time.

27. In addition, major bus services between cities in Heilongjiang and including those that are adjacent to the provincial boundaries with Jilin, Inner Mongolia and places in Russia were

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report obtained from Hielongjiang Bus Company. Most of these buses use national road and are rated as Super Express, and Classes 1-3. There are three (3) bus services that can be used to get to the borders with Russia like in Heihe, Fuyuan, and Jixi. These information are shown in the Table below:

Table 4: Public Transport (Buses) City to City Long Distance Bus Transport for Heilongjiang Bus Company No. Origin Destination Route km Hr Class Remarks 1 Harbin Daqing G010 201 2 Super Intra-provincial Express Daqing Qiqihaer G1/ 136 2.5 Super Intra-provincial G301 Express Qiqihaer Gannan G301 112 1 Class 2 / 3 Adjacent to Provincial Boundary (Arun Qi, Inner- Mongolia) 2 Harbin Beiquan G202/ 224 3.5 Class 2 Intra-provincial G203 Baiquan Beiquan G202 89 1.5 Class 1 / 2 Intra-provincial Bei’an Heihe G202 289 4 Class 1 / 2 Adjacent to Boundary with Russia 3 Harbin Suihua G111 122 1.5 Class 1 /2 /3 Intra-provincial Suihua Tieli G222 99 1 Class 2 Intra-provincial Tieli Yichun G222 135 1.5 Class 2 Intra-provincial Yichun Jiayin S204 180 3.08 Class 2 Intra-provincial 4 Harbin Fangzheng G101 185 1.5 Super Intra-provincial Express Fangzheng Jiayin G101 208 2 Super Intra-provincial Express Jiamusi Fuyuan S306/ 255 3.58 Super Adjacent to G101/ Express/ Boundary with S313 Class 1/2/2 Russia 5 Fangzheng Jixi G101/ 273 2.5 Class 2/3 Close to Boundary S309 with Russia 6 Harbin Mudanjiang G301 339 3.5 Super Intra-provincial Express Mudanjiang Suifenhe G301 194 2 Super Adjacent to Express/ Boundary with Class 2/3 Russia 7 Harbin Wuchang G202/ 122 1.5 Class 1/2/3 Intra-provincial S222 Wuchang Jilin S205/ 151 1.5 Class 2/3 Intra-provincial G202 8 Harbin Fuyu G010/ 109 1 High /Class 2 Intra-provincial G102 9 Harbin Tongjiang G221 678 13.78 Class 1/2/3 Intra-provincial

28. Traffic counts and estimation of annual average daily traffic (AADT) was done for some existing roads relevant to the Project Road. Based on the results, the busiest in terms of volume of vehicles is G222 or the Harbin-Yichun Road. In terms of passenger vehicle volume, the busiest is G203 (Mingshui – -Shenyang), followed by S202 (Shuihua – Bei’an) and G202 (Heihe - Dalian).

29. For freight truck traffic the most favored is G222 (Harbin - Yichun), followed by S202 (Shuihua – Bei’an), and G111 (Beijing – Jiagadaqi). These indicate that passenger transport

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report terminal can be located at Bei’an as this can be a major transport node for passengers, while freight logistics services can be established in Yichun, Bei’an and Nenjiang.

30. The estimated traffic volumes (in AADT) is shown in the Table below5:

Table 5: Traffic Count on Relevant Roads to Project Road (AADT) Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 Harbin- Small Freight 328 210 193 198 109 276 222 891 Yichun Medium Freight 335 276 268 202 116 142 184 174 G222 Large Freight 450 363 346 265 284 200 304 163 Super Large Freight 37 42 51 111 110 197 70 139 Trailer 206 164 Container 62 41 Small Passenger 910 738 735 1143 1059 904 1227 784 Large Passenger 89 86 100 136 101 170 200 221 Sub-total 2885 2343 2325 2711 2392 2639 3647 3626 Shuihua- Small Freight 145 135 135 150 130 198 233 277 Bei'an Medium Freight 231 217 176 195 147 214 136 298 S202 Large Freight 167 161 165 150 231 301 172 395 Super Large Freight 36 19 26 29 24 11 31 40 Trailer 21 28 Container 9 16 Small Passenger 601 533 445 431 583 807 927 1073 Large Passenger 66 65 60 63 62 112 106 152 Sub-total 1634 1470 1342 1355 1561 2129 2050 3067 Heihe- Small Freight 235 263 265 330 578 201 222 214 Dalian Medium Freight 237 283 280 242 270 126 139 134 G202 Large Freight 351 390 416 371 442 221 194 198 Super Large Freight 74 68 84 122 158 114 21 89 Trailer 50 53 Container 16 33 Small Passenger 129 815 911 920 1329 766 878 931 Large Passenger 74 140 151 203 328 159 188 191 Sub-total 1755 2697 2907 3026 4162 2179 2240 2554 Mingshui- Small Freight 223 219 241 277 317 296 292 238 Shenyang Medium Freight 164 169 192 218 214 252 241 217 G203 Large Freight 172 162 185 200 185 215 162 138 Super Large Freight 139 129 140 151 128 157 63 65 Trailer 68 18 Container 8 11 Small Passenger 899 873 1140 1229 1267 1226 1108 1157 Large Passenger 71 73 99 108 115 100 108 137 Sub-total 2236 2166 2608 2848 2832 2951 2665 2484 Nianshanzi- Small Freight 31 512 477 319 312 202 Bei'an Medium Freight 13 436 408 117 110 92 S302 Large Freight 8 101 95 182 133 77 Super Large Freight 0 47 46 58 42 21 Trailer 29 12 Container 16 5 Small Passenger 58 2873 2924 769 571 492

5 Table obtained from TA 7117 Draft Final Report, Annex 06 - Traffic Analysis and Forecast,

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Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 Large Passenger 15 593 546 134 105 74 Sub-total 147 5272 5160 0 0 2003 1733 1211 Beijing- Small Freight 175 165 178 212 216 220 192 163 Jiagedaqi Medium Freight 241 200 182 227 218 202 199 184 G111 Large Freight 276 248 232 284 275 276 197 176 Super Large Freight 102 72 69 106 122 140 93 113 Trailer 126 98 Container 38 49 Small Passenger 400 436 232 428 461 467 492 528 Large Passenger 65 60 449 61 62 57 63 59 Sub-total 1892 1703 2028 1958 2013 2048 2242 2188 Nenjiang- Small Freight 43 51 35 54 92 96 82 84 Heihe Medium Freight 55 57 36 50 86 96 101 95 S301 Large Freight 124 125 151 87 132 198 159 130 Super Large Freight 12 15 14 10 8 12 68 37 Trailer 13 22 Container 6 12 Small Passenger 213 215 187 174 282 301 239 213 Large Passenger 29 28 32 26 32 32 28 27 Sub-total 666 689 668 546 839 1021 1094 953 Heihe- Small Freight 51 73 46 58 69 85 87 96 Jiayin Medium Freight 76 96 78 71 78 74 69 80 S311 Large Freight 39 74 55 57 58 66 56 75 Super Large Freight 5 3 25 26 27 28 35 54 Trailer 23 15 Container 1 8 Small Passenger 217 331 177 261 248 413 415 399 Large Passenger 14 17 18 19 18 21 24 23 Sub-total 496 731 552 646 658 857 931 1031

Domestic Trade

31. Statistical data show that trade has been increasing over the years. The total retail of consumer goods has more than doubled, from 1,094 to 2,331.1 hundred milliin yuan since the year 2000 to 2007. The highest growth was registered in cities where the total retail revenues jumped from 785.2 hundred millon yuan in 2000 to 1799.9 hundred millon yuan in 2007, which is around 2.3 times. The other industry locational categories such as the county and below county levels showed more than 150% increase on the same year comparison.

32. By industry sector “Wholesale and Retail” category dominated against services and other sectors, making them the top industries contributing the most to the provincial trade revenues. On the “Product” category, food-related businesses had the highest yield on a year- to-year basis. However, Fuel and Articles have the biggest jump from their 2000 levels to 2007 levels. Fuel increased by more than three (3) times and Articles increased by 2.4 times. High fuel consumption indicates high demand for energy which corresponds to more goods and services being produced, moved and sold. More Articles produced means increased manufacturing output. These data also show a heightened capacity of the manufacturing sector to produce goods in response to rising demands, and generally indicate a robust domestic growth. A summary table is presented below:

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Table 6: Hielongjiang’s Trade Statistics (By Location and Sector) (in 100 million yuan) YEAR Item 2000 2005 2006 2007 Total Retail Sales of Consumer Goods 1094.0 1760.0 1997.7 2331.1 By Locality City 785.2 1323.0 1524.7 1799.9 County 160.6 226.3 237.8 273.0 Below County Level 148.3 210.7 235.2 258.2 By Sector Wholesale and Retail Trade 1518.0 1718.6 2008.5 Hotels and Catering Services 204.1 241.2 284.4 Others 37.9 37.9 38.2 By category Food 486.1 720.8 797.7 930.3 Clothing 231.5 364.6 398.2 467.8 Articles 330.4 568.0 685.9 794.3 Fuel 46.0 106.6 115.9 138.7 Source: 2008 Heilongjiang Statistical Data

33. By examining the location (in terms of prefecture) where trade was the highest, Harbin, Qiqihar and Daqing were at the top. Their combined output is two-thirds (2/3) of the entire provincial trade output making these prefectures an important trade hub. Hence, the creation of the Harbin-Daqing-Qiqihar (HaDa-Qi) Corridor is a step in the right direction, as this can be a competitive provincial region which can match other manufacturing regions in China. The productivity in these prefectures is centered in their main cities where Harbin is the top-grosser city for consumer goods production and sale, followed by Daqing and Chichihar. The other important cities where manufacturing is quite strong are Mudanjiang and Jiamusi. On the prefecture level, Heihe and Yichun are sort of at the same productivity rank, which is expected to increase with the realization of the Road Project

34. Inspecting the statistical data by sector, Harbin, Daqing and Qiqihar still dominate the local trade within Heilongjiang. However in the services, Qiqihar lagged behind Mundanjiang, Suihua, and Jiamusi. This indicates that these cities are themselves service centers, with Mundanjiang in the southwest and not too far from Russian border and bordering with Jilin; Suiha has close proximity to Harbin and may be capturing some of the spill-over requirements which were unmet by Harbin; and Jiamusi is at the eastern par, which may be servicing adjacent prefectures. Their roles may be more due to their locational advantages. It is somewhat notable that Heihe is comparatively not as active in services with the other cities in Heilongjiang considering that it is bordering with the Russian city of Blagoveshchenk, the capital city of Amurskaya Oblast. Heihe itself has notable improvements in terms of commercial activity. With the ease of crossing the border, Russians are attracted to the city for shopping and leisure activities. It is anticipated that revenues in services will increase in the coming years. A summary statistical Table of the above mentioned observations are shown below:

Table 7: Hielongjiang’s Trade Statistics (By Region) (in 100 million yuan) Total Retail By Region By Sector Sale of Below Wholesale Hotel & Region Consumer City County County & Retail Catering Others Goods Level Trade Services Harbin 1036.0 908.4 54.2 73.4 912.0 117.9 6.1 Qiqihar 210.5 143.4 33.8 33.3 193.0 15.5 1.9

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Jixi 72.6 62.8 4.1 5.6 57.2 13.9 1.5 Hegang 42.6 36.2 4.6 1.8 35.0 7.4 0.2 Shuangyashan 39.6 23.9 12.4 3.4 32.6 5.6 1.4 Daqing 302.0 253.7 17.7 30.5 268.3 32.2 1.6 Yichun 33.3 30.6 1.7 1.0 24.8 8.5 Jiamusi 120.4 88.5 17.8 14.1 102.8 16.1 1.5 Qitaihe 30.0 23.4 4.5 2.1 25.6 4.3 0.1 Mudanjiang 157.9 116.5 15.8 25.7 122.2 23.7 12.0 Heihe 33.3 17.1 9.3 6.9 26.2 6.8 0.2 Suihua 153.5 83.7 29.4 40.4 128.0 18.5 7.1 Daxinganling 21.4 18.6 2.8 15.0 3.7 2.8 ARB 78.0 11.7 49.1 17.2 66.5 10.4 1.1 (ARB= Agricultural Reclamation Bureau or state farms) Source: 2008 Heilongjiang Statistical Data

35. Goods traffic can also be inferred by products produced in a certain locality and the demand for them in other areas. Such was indicated in statistical data where certain cities’ prime goods are more likely in demand for economic activities or consumption in another. As an example, coal producing areas of Jixi, Hegang and Shuangyashan will be brought to power plants and industries along the HaDaQi Corridor. Existing national and provincial roads are being used as the primary routes (e.g. R4). With the implementation of the Project Road, goods traffic will be attracted from the areas of origin to a more direct path for economic reasons, ease of travel and time savings to their destinations for usage. Most of these goods traffic facilitation can be experienced via the east-west connectivity as faciliated by the improvement of EW2 or H2. This goods traffic scenario is shown in the Table below.

Table 8: Indicative Goods Traffic and Routes (By Region) Possible Products Origin/Source Destinations Routes Jixi H2, R1 Harbin, Qiqihar (for power plants), Coal Hegang H2, R1 Daqing for industries Shuangyashan H2, R1 Harbin (for power plants) and R1 Crude Oil Daqing processing, and Daqing for industries ARB H’s & R’s Population centers: Harbin, Rice Jiamusi R4, H2 Suihua, Qiqihar, Daqing Hegang R4, H2 ARB H’s & R’s Purified Edible Population centers: Harbin, Shuangyashan R4, H2 Vegetable Oil Suihua, Qiqihar, Daqing Qiqihar R4, H2 Finished Product: Population centers: Harbin, R1 Qiqihar Sugar Suihua, Qiqihar, Daqing Harbin C1, C2 Population centers: Harbin, Dairy Products Qiqihar R1 Suihua, Qiqihar, Daqing ARB H’s, R’s Population centers: Harbin, R1 Cigarettes Harbin Suihua, Qiqihar, Daqing Harbin C1 & C2 Population centers: Harbin, Liquor Qiqihar R1, R2 Suihua, Qiqihar, Daqing Suihua R1, R2

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Possible Products Origin/Source Destinations Routes Harbin C’s, R1, R2 Qiqihar Population centers: Harbin, R1 & R2 Beer Suihua, Qiqihar, Daqing R5, C’s, R1 Mudanjiang & R2 Daqing Population centers: Harbin, R1 & R2 Gasolene Harbin Suihua, Qiqihar, Daqing C’s, R1, R2 Population centers: Harbin, C’s, R1, R2 Motor Vehicles Harbin Suihua, Qiqihar, Daqing Yichun H2, R3, V4 Population centers: Harbin, Crude Steel Shuangyashan R1, R2 Suihua, Qiqihar, Daqing Qiqihar R1, R2 Metal-cutting Qiqihar Harbin, Suihua, Daqing, Qiqihar, R1, R2, R5 Machine Tools Mudanjiang Mundanjiang R1, R2, R5 Metal-rolling Harbin, Suihua, Daqing, Qiqihar, R1, R2, R5 Qiqihar Equipment Mundanjiang Small-sized ARB, Jiamusi, Hegang, H2, R4, R1 Jiamusi Tractors Suangyashan, Harbin, Qiqihar

36. City to city goods transport were obtained from Harbin Goods Transportation Company. Like in public (bus) transport data, these data also indicate heavy usage of national roads within the province. The longest intra-provincial transport is from Harbin to Tonjiang with a distance of 678 km using G221 or R4. The most probable affected truck route will be G222 and G301, which can be diverted to the Yichun-Bei’an segment of the Project Road. These information are summarized in the Table below.

Table 9: Goods Transport (Trucks) City to City Cost No. Origin Destination Route km Hr Transport: Remarks (Yuan) 1 Harbin Daqing G1 201 2 100 Intra-provincial G1/ Daqing Qiqihaer 136 2.5 120 Intra-provincial G301 Adjacent to Provincial Qiqihaer Gannan G301 112 1 100 Boundary (Arun Qi, Inner-Mongolia) 2 G202/ Harbin Beiquan 224 3.5 150 Intra-provincial G203 Baiquan Beiquan G202 89 1.5 120 Intra-provincial Adjacent to Boundary Bei’an Heihe G202 289 4 220 with Russia 3 Harbin Suihua G111 122 1.5 100 Intra-provincial Suihua Tieli G222 99 1 100 Intra-provincial Tieli Yichun G222 135 1.5 120 Intra-provincial Yichun Jiayin S204 180 3.08 150 Intra-provincial 4 Harbin Fangzheng G101 185 1.5 140 Intra-provincial Fangzheng Jiayin G101 208 2 160 Intra-provincial S306/ Adjacent to Boundary Jiamusi Fuyuan G101/ 255 3.58 190 with Russia S313

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Cost No. Origin Destination Route km Hr Transport: Remarks (Yuan) 5 G101/ Fangzheng Jixi 273 2.5 200 Intra-provincial S309 6 Harbin Mudanjiang G301 339 3.5 240 Intra-provincial Adjacent to Boundary Mudanjiang Suifenhe G301 194 2 140 with Russia 7 G202/ Harbin Wuchang 122 1.5 120 Intra-provincial S222 S205/ Wuchang Jilin 151 1.5 120 Intra-provincial G202 8 G010/ Harbin Fuyu 109 1 100 Intra-provincial G102 9 Harbin Tongjiang G221 678 13.78 300 Intra-provincial Source: Harbin Goods Transportation Company

37. Logistics company based in Harbin also indicate that their favoured routes to their destinations are the governement roads. Places where signifaicant effects of truck traffic will those using G222 and G301 with the construction of Yichun to Bei’an segment of the Project Road. These information are shown in the Table below.

Table 10: Goods Handled at Logistics Company No. Destination Line km Hr Remarks 1 Daqing G010 201 2 Intra-provincial 2 Qiqihaer G010/ G301 136 2.5 Intra-provincial 3 Gannan G301 112 1 Adjacent to Provincial Boundary (Arun Qi, Inner- Mongolia) 4 Beiquan G202/ G203 224 3.5 Intra-provincial 5 Beiquan G202 89 1.5 Intra-provincial 6 Heihe G202 289 4 Adjacent to Boundary with Russia 7 Suihua G111 122 1.5 Intra-provincial 8 Tieli G222 99 1 Intra-provincial 9 Yichun G222 135 1.5 Intra-provincial 10 Jiayin S204 180 3.08 Intra-provincial 11 Fangzheng G101 185 1.5 Intra-provincial 12 Jiayin G101 208 2 Intra-provincial 13 Fuyuan S306/ G101/ 255 3.58 Adjacent to Boundary with S313 Russia 14 Jixi G101/S309 273 2.5 Intra-provincial 15 Mudanjiang G301 339 3.5 Intra-provincial 16 Suifenhe G301 194 2 Adjacent to Boundary with Russia 17 Wuchang G202 /S222 122 1.5 Intra-provincial 18 Jilin S205/ G202 151 1.5 Intra-provincial 19 Fuyu G1/ G102 109 1 Intra-provincial 20 Tongjiang G221 678 13.78 Intra-provincial Source: Harbin Inland Container Terminal

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3.2 INTER-PROVINCIAL CONNECTIVITY

WITH JILIN

38. Jilin province lies in the central part of northeastern China, bordering the far eastern state of Primorsky Krai in Russia and North Korea in the east and southeast respectively. Connectivity from Heilongjiang province into Jilin is described by a number of roads crossing the provincial boundary such as expressways, national highways, provincial roads and other minor roads. The major connecting road between the two provinces is the Harbin-Changchun Expressway. The old national highway between the two capital cities still exists and serves as alternate road. In addition, there are minor roads coming down from Harbin into Jilin such as the Tailai to Baicheng road, the Datong to Daan road, the Zhaoyuan to Songyaun road, and the Wuchang to Dehui and the Doning to Wangqing road to name a few.

39. The Harbin-Changchun Expressway is part of the PRC’s national trunk highway system consisting of the Hashuang Expressway, the Heilongjiang portion of the expressway; and the Changyu Expressway, the Jilin portion of the expressway. This was funded by the Asian Development Bank and the executing agencies were the Heilongjiang Hashuang Expressway Corporation (HHEC) for the Hashuang Expressway and Jilin Provincial Expressway Corporation (JPEC) for the Changyu Expressway.

40. During its conceptualization the expressway was intended to complete a 262-km missing link between existing expressways in the northeast corridor section and to complement and enhance previous investments. The Harbin-Changchun Expressway was expected to stimulate domestic employment, production, specialization, and trade through infrastructure investment and transport cost reductions. It aimed at promoting economic growth in northeastern PRC, and was in line with ADB’s overall strategic objective of promoting growth and reducing poverty6.

41. A number of potential additional road links can be developed to enhance inter-provincial connectivity. On the southwestern side the Anda-Zhaoyuan to Songyaun road can be developed since it has a direct link to Changchun. On the southeastern side, the road from Shangzhi to Wuchuan-Dehui connects also to the Chanyu Expressway. These two existing links are actually part of the China’s National Trunk Highway System non-major route, which can be further enhanced.

42. Further inspecting the existing roads between Jilin and Hielongjiang, a number of provincial and national roads can be developed or improved for inter-provincial connectivity. These roads are:

(i) S206: Jixi-Tumen (Laoheishan-Heiji Jie)

(ii) G102: Beijing-Harbin (Hashuang Jie-Shuangzhouchadao)

(iii) G201: Hegan-Dalian (Jiangshanjiao-Heiji Jie)

(iv) G202: Heihe-Daqing (Lalin Town-Province Boundary)

(v) G203: Mingshui-Shenyang (Zhaozhou Town-Jiangdi)

(vi) S321: Nancun-Wangqing (Yangming-Heiji Jie)

6 ADB. Dec. 2006. Performance Evaluation Report. People’s Republic of China: Changchun–Harbin Expressway Project

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

(vii) S221: Tailai-Zhenlai

43. HPCD’s traffic data book on Historical Traffic data were obtained and used to examine their traffic situations of the above mentioned roads, where the traffic were taken at or near the provincial border. Traffic breakdowns in terms of vehicle types (in terms of Small Freight, Medium Freight, Large Freight, Super Large Freight, Trailer, Container, and Small Passenger) were presented and analyzed. These tables are shown in Appendix A.

44. For passenger inter-connectivity (based on data for Small Passenger and Large Passenger data) to get to Jilin passenger vehicles use more often G102 (Beijing – Harbin), followed by G203 (Mingshui - Shenyang) and S221 (Keli - Jieji). For freight trucks into Jilin, using data on all trucks, the frequently used road is G102 (Beijing – Harbin), followed by S206 (Jixi - Tumen) and S321 (Nancun-Wangqing). This is shown in the Table below.

Table 11: Hielongjiang and Jilin Inter-provincial Road Ranking (2007) Max. Traffic Total Inter-provincial Road Ranking by Vehicle Types Volume (AADT) Traffic (AADT) Volume Small Freight G102, G202, S206 & 902 1998 S321 Medium Freight 253 1063 S206, S321, G102 Large Freight 264 1306 G102, S206, S321 Super Large Freight 237 976 S206, S321, S221 Trailer 102 162 G102, S303, S221 Container 53 125 G102, G203, S221 Small Passenger 2634 5346 G102, G203, S221 Large Passenger 189 368 G102, G202, G203 Sub-total (in PCU) 21011 32103 G102, S321, G203

WITH INNER MONGOLIA

45. Inner Mongolia borders, from east to west, the provinces of Heilongjiang, Jilin, Liaoning, Hebei, Shanxi, Shaanxi, Ningxia Hui Autonomous Region, and Gansu. On the north it borders with Mongolia and Russia. Access between Inner Mongolia and Heilongjiang province is found at its eastern tip. The primary access road is Harbin-Hailar Road, which is part of the China’s National Trunk Highway System major route. It traverses a major part of the HaDaQi corridor to Ganan then onto Arongchi in Inner Mongolia and proceeds westerly to Hulunbeir, all the way to Chita in Russia. From Harbin, this road proceeds further to the east passsing through Acheng, Shangzhi, Mudanjiang up to Suifenhe, near the Russian Border. In effect this trunk road provides direct connection from Inner Chita Oblast of Russia, Inner Mongolia, through Heilongjiang, to Ussurisk and Vladivostik in Far-eastern Russia.

46. The other minor routes into Inner Mongolia are found at the northern part of Heilongjiang. The first one starts at the endpoint of the Project road at Nenjiang and proceeds up north to Jagdaqi. This road proceeds further north, exits Inner Mongolia and enters the northern territories of Heilongjiang at Mohe.

47. Another minor road into Inner Mongolia is part of the H1 route, from Heihe going westerly to Jagdaqi. This road provides connection from Jagdaqi to the riverport cities and towns in Heilongjiang such as Heihe, Xunke, Jiayin and Mingshan. Its eastern end point at Loebei connects with H2 which is part of the corridor of the Nenjiang-Yichun Project Road.

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48. Further looking at the existing roads between Inner Mongolia and Hielongjiang there are a number of roads which can be identified as potential roads to be developed or improved for inter-provincial connectivity. These roads are:

(viii) S207: Jiagedaqi-Mohe (Jiagedaqi Area-Jiasong);

(ix) S310: Jiagedaqi-Heihe (km 73-Jianen Jie)

(x) S302: Liajzishan-Bei'an (Liannei Jie-Lianlong Jie); ()

(xi) G111: Beijing-Jiagedaqi (Neijia Jie-Jiagedaqi)

(xii) G301: Suifenhe-Manzhouli (Changshan-Gongqu)

49. Historical traffic data were obtained from HPCD’s traffic data book (where the traffic were taken at or near the provincial border) to examine their traffic situations. Traffic breakdowns in terms of vehicle types (in terms of Small Freight, Medium Freight, Large Freight, Super Large Freight, Trailer, Container, and Small Passenger) were presented and analyzed. These tables are shown in Appendix A.

50. For passenger inter-connectivity (judging data for Small Passenger and Large Passenger data) with Inner Mongolia, data show that G301 (Suifenhe-Manzhouli) is the mostly frequently used, followed by S207 (Jiagedaqi-Mohe) and S302 (Liajzishan-Bei'an). For freight (all trucks) interconnectivity with Inner Mongolia, the frequently used road is G301 (Suifenhe- Manzhouli), followed by S302 (Liajzishan-Bei'an) and S207 (Jiagedaqi-Mohe). This is shown in the Table below.

Table 12: Hielongjiang and Inner Mongolia Inter-provincial Road Ranking (2007) Max. Traffic Total Inter-provincial Road Ranking by Vehicle Types Volume (AADT) Traffic (AADT) Volume Small Freight 174.3 458.3 G301, S302, S207 Medium Freight 241.8 406.8 G301, S302, S207 Large Freight 411.7 610.7 G301, S310, S302 Super Large Freight 34 82 G111, S207, S310 Trailer 274.5 287.5 G301, G111, S207 Container 8 9 S310, G111, S302 Small Passenger 404.5 1550 G301, S207, G111 Large Passenger 146 228 G301, S302, S207 Sub-total (in PCU) 1985 4439 G301, S302, S207

3.3 LOCAL CONNECTIVITY AND TRADE ISSUES

Transport and trade are interrelated and have complementarity of function. Transport plays an important role in promoting trade and thus economic development. It was observed that low trade volumes may lead to situations where the supply of transport services becomes uneconomic, leading in turn to decreasing demand and corresponding to hampering improvement in supply of transport system.

Generally, trade issues are interrelated with connectivity issues and that efficiency and cost on transport infrastructure are major determinants for trade to flourish. Thus, the access to

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The difficulty in access also becomes an impediment not only to reach out to constituents but can also be a disadvantage in improving tax collection which is due the government in providing a more acceptable economic environment. Officials involve in the collection of taxes find it difficult to collect taxes from more economically well-off constituents residing in areas where access is difficult. The cost on services is not properly recouped resulting in an imbalance between input investment against revenue output.

51. Heilongjiang, being a landlock province with no direct access to major sea port is put to a disavantaged position vis-à-vis the coastal provinces. On the other hand, since it was a base of traditional industries and with rich energy resource such as coal, has some competitive advantage. Currently, the industrial bases of Heilongjiang and in some areas in the northeast are having some basic pronounced issues which were recognized in the “Revitalization of Northeast China” needing for effective measures7. as follows:

• Certain institutional obstacles need to be removed for the revitalization to be stimulated appropriately. The private economic sector in the region is still underdeveloped and the market still needs to play a bigger role in the regional economy to stimulate growth.

• Structural contradictions are still prominent. The proportion of high-tech industry againsts modern tertiary industry remains small, and the equipment manufacturing industry needs to produce more compatible products and improve its capability for system of integration. Futhermore, the intensive and downstream processing capacity in raw materials industry is very low and many enterprises are weak in terms of independent innovation.

• Strong pressures are building up for job creation to respond to unemployment and provision of social security. Considerable members of the local population are still having low standard of living.

• The region is experiencing declining quantity of certain resources and water pollution is becoming severe on surface waters.

• There is a lack of sustainable strategies in place for resource-based cities and resource- depleted cities in particular, with slow development of alternative industries and mounting social and ecological problems.

The connectivity within Heilongjiang is being responded to in a series of “Five-Year Plans”. However, one of the key issues here are the financing aspects of the roads. There should be better and more proactive way of obtaining funding from the national government as well as from the private sector in terms of public-private partnership.

52. Inter-provincial connectivity needs to be rationalized such that investment within Heilongjiang province has to be complemented by matching or linking transport infrastructure investments in adjacent province. There seemed to be a need to have a more active integration of the northeast region in terms of provision of transport infrastructure.

7 Plan of Revitalizing Northeast China

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4. CROSS-BORDER CONNECTIVITY AND TRADE

4.1 NORTHEASTERN CHINA-RUSSIAN BORDER CROSSINGS

53. China shares around 4,300 kms of border with Russia. In Heilongjiang province the border is defined by the Heilongjiang River and the Wusuli River stretching at the north and east of the province respectively for around 3,038 kilometers along which 25 cities are located. On the Heilongjiang side the most prominent border cities are Suifenhe, Heihe and Tongyan.

54. Over the past years the most prominent exports of Far-Eastern Russia are timber species such as larch (larix in the Chinese specification) and Mongolian Scotch pine, which are both softwoods. In addition, other species of pine, such as the protected and highly valued Korean pine, are also exported to China. Most of these were timber logs with some semi- processed wood.

55. From China, the major export products to Russia included textiles, garment, electronic parts, soybeans and footwear. In addition, other products exported light industrial products, textiles, food, electronic equipment, vegetables, agricultural by-products and ornaments.

56. Residents of the border city of China and Russia easily cross the borders (across Heilongjiang and Wusuli Rivers) to visit the opposite bordering cities. Russians cross over into Heihe to purchase Chinese merchandize which can be sold back to Blagoveshchenk or for individual use. Chinese cross-over the border for business, tourism and socio-cultural purposes.

4.2 BORDER FACILITIES AND INFRASTRUCTURE

57. There are twenty-five (25) active ports located within Heilongjiang that serves as entry- points categorized as Border Port and In-land port. There are 15 Border Ports which are made up of one (1) railway port, four (4) highway ports and ten (10) waterway ports. The In-land ports consist of three (3) aviation ports, one (1) railway and five (5) waterways. These basic port information are summarized below:

Table 13: Border Port Basic Information Port Port Administrative No Port Name Port Site Category Type City Suifenghe Port 1 Suifenghe City Railway (Railway) Suifenghe Port Mudanjiang 2 Suifenghe City Highway (Highway) City Sanchakou Town Dongning 3 Dongning Port Highway County 4 Mishan Port Dangbi Town of Mishan City Highway Jixi City Border 5 Hulin Port Jixiang Town of Hulin City Highway Port Raohe Town of Raohe Shuangyashan 6 Raohe Port Waterway County City 7 Fuyuan Port Fuyuan County Waterway Jiamusi City 8 Tongjiang Port Tongjiang City Waterway Luobei Twon of Luobei 9 Luobei Port Waterway Hegang City County Chaoyang Town of Jiayin 10 Jiayin Port Waterway Yichun City County

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Port Port Administrative No Port Name Port Site Category Type City 11 Sunwu Port Siji Town of Sunwu County Waterway Bianjiang Town od Xunke Heihe City 12 Xunke Port Waterway County 13 Heihe Port Heihe City Waterway Huma town of Huma 14 Huma Port Waterway County Daxinganlin Xinan Town of Mouhe District 15 Mouhe Port Waterway County Harbin Port 16 Harbin City Aviation (Aviation) 17 Harbin Land Port Harbin City Railway Harbin City Harbin Port 18 Harbin City Waterway (Waterway) 19 Fujin Port Fujin City Waterway Yuelai Town Huachuan 20 Huachuan Port Waterway County In-land Jiamusi Port Jiamusi City port 21 Jimusi City Waterway (Waterway) Jiamusi Port 22 9 km East of Jiamusi City Aviation (Aviation) 23 Qiqihar Port 13 km Eastsouth of Qiqihar Aviation Qiqihar City 24 Suibin Port Suibin County Waterway Hegang City 9 km weastsouth of Mudanjiang 25 Mudanjiang Port Aviation Mudanjiang City City Source: Port Development Plan

58. Waterway Ports are of two classes: Class I and Class II. Class I ports were established by State Council (including those under the management of the central government and part of ports which are under the management of provinces and municipalities). Class II ports are those established and managed by provincial governments.

59. For the Project Road (Yichun to Nenjiang) there are five (5) Border Crossing waterway ports within a distance of around 160-250 kms. These ports are Heihe, Sunwu, Xunke, Jiayin and Loebe (port is located in Mingshang town). The descriptions of these ports are as follows:

• Heihe Port was opened and started its operation after liberation in 1957. During the months from May to October, the main transport facilities being used are passenger ship and ferry for cargoes and vehicle. In the months of November to December hovercraft is used as the primary means of transport. From January to March, the Heilongjiang River remains frozen, such that passenger and cargo vehicle transportations run over this frozen river making Heihe port a perennial port. Currently it is a Class I port and it is the biggest and most important among the five ports near the Project Road.

• Jiayin Port became Class I port in 1989. In 1992, Jiayiin Port and Paskovo (Russia) Port were established as international passenger and cargo transport port and Union Transport port respectively for both river and sea. Jiayin Port processed transport volume of 200,000 tons in 1992 after CNY 21 million was invested on infrastructure of the port. It was opened formally in May 1993. The main goods processed here are steel, lumber, beans and fruits.

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• Sunwu Port is a Class I port established in 1993. It has four docks, ship station, grain depot, oil depot, timberyard and coal yard. Currently it is not in operation since it is still awaiting demand to peak up as the economy improves.

• Luobei Port is located in Mingshan Township in Luobei County. It was established as Class I port in 1989 with China and Russia co-signing its formation. Luobei Port became an international passenger and freight transport port primarily for its counterpart city, Amurzet in Russia. It is primarily utilized as ship transport when water is flowing and as vehicle port when the river is frozen. Its transport capacity reached 300,000 tons in 2004 and is the largest port for coal transport. It has the shortest river width at the other bank in Amurzet, Russia and second to Heihe Port in terms of infrastructure, and the nearest of the five ports to Harbin. In 2007, the cargo trade processed was at 180,000 tons.

• Xunke Port is located in Xunke County of Heihe Prefecture. It was a temporary site for freight crossing in 1989 and became Class I port in December of the same year. It was opened formally in 1990 and allowed to operate as international passenger port in 1992. Border mutual trade district was set up in Xunke County in July 2004.

4.3 CROSS-BORDER TRADE

60. In the previous decades China’s performance in foreign trade has been remarkable. Statistical data show that trade has been increasing over the years. The total volume of import and exports in 2007 (21.7373 billion USD) is almost 4.5 times (4.7429 billion USD) compared to that in 2000 with an average increase of 46.37% anually. Exports jumped 4.5 times with an annual average increase of 50.42 %, outdoing the imports by 3.9 times and a corresponding annual average increase of 41.88 % within 7 years.

61. Within the same period, on the export side, the manufactured goods outperformed the primary goods with a magnitude increase of 2:1. Manufactured goods leaped 5 times in 7 years while primary goods only increased by almost 2.5 times. In 2007, manufactured goods sector is more than 18 times the primary goods indicating a really strong manufacturing capacity of the country. A summary table is presented below:

Table 14: China’s Annual Imports and Exports YEAR Item 2000 2001 2002 2003 2004 2005 2006 2007 Tot. Value of Imports & 39273.2 42183.6 51378.2 70483.5 95539.1 116921.8 140971.4 166740.2 Exports (RMB100 million yuan) Total Exports 20634.4 22024.4 26947.9 36287.9 49103.3 62648.1 77594.6 93455.6 Total Imports 18638.8 20159.2 24430.3 34195.6 46435.8 54273.7 63376.9 73284.6 Balance 1995.6 1865.2 2517.6 2092.3 2667.5 8374.4 14217.7 20171.1 Tot. Value of Imports & 4742.9 5096.5 6207.7 8509.9 11545.5 14219.1 17604.0 21737.3 Exports (USD100 million) Total Exports 2492.0 2661.0 3256.0 4382.3 5933.2 7619.5 9689.4 12177.8 Primary 254.6 263.4 285.4 348.1 405.5 490.4 529.2 615.1 Goods Manufactured 2237.4 2397.6 2970.6 4034.2 5527.7 7129.2 9160.2 11562.7 Goods Total Imports 2250.9 2435.5 2951.7 4127.6 5612.3 6599.5 7914.6 9559.5 Primary 467.4 457.4 492.7 727.6 1172.7 1477.1 1871.3 2430.9 Goods Manufactured 1783.5 1978.1 2459.0 3400.0 4439.6 5122.4 6043.3 7128.6 Goods

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YEAR Item 2000 2001 2002 2003 2004 2005 2006 2007 Balance 241.1 225.5 304.3 254.7 320.9 1020.0 1774.8 2618.3 Source: 2008 China Statistical Data

62. On the national level, the total annual import and export values of goods from Heilongjiang grew 4.6 times, which is almost identical to the national performance. Correspondingly Jilin experienced a 3.6 growth while Liaoning had a 3.24 growth. For the northeast region, on the over all gross figures for the 2007 import and export values, Lioning was the highest at 65.18 billion USD, followed by Heilongjiang at 18.4 billion USD and then by Jilin at 11.3 billion USD.

63. Since Russia is the biggest country bordering with China, international trade with Russia is vital. By the end of 2008, there are 43 international road transport routes including passenger and freight transport developed along the border between China and Russia. Out of this, twenty-two (22) are passenger international transport routes while twenty-one (21) are freight transport routes. Correspondingly, seven (7) international road transport routes have been opened where around 38 shuttle buses operate.

64. Also in 2008, freight transportation volume and passenger transportation volume of international transport reached 1.1 million tons and 2 million person-trips respectively. This emphasizes that road transport is one of the most important transport modes to Russia from Heilongjiang. Road transport remains an active driving force for trade and people interaction with Russia.

65. In the previous years, the volume of annual export to Russia has been increasing dramatically. On the other hand, although imports were generally increasing through the years, there were instances when it had comparatively dropped. This indicates that there is a net surplus of export against imports from China to Russia. These information are summarized in the Table below:

Table 15: Trade with Russia (Unit: 10,000 USD) Year Export % Increase Import %Increase Export & Import %Increase

2007 817,046.70 79.98 255,742.36 19.10 1,072,789.06 60.43 2006 453,956.38 17.91 214,736.81 -27.42 668,693.19 -1.79 2005 385,017.56 75.55 295,855.49 38.57 680,873.04 57.31 2004 219,322.12 27.80 213,499.72 53.75 432,821.84 39.41 2003 171,619.29 75.94 138,858.25 -2.24 310,477.55 29.59 2002 97,543.82 25.11 142,034.16 39.34 239,577.98 33.17 2001 77,968.94 67.68 101,934.61 12.04 179,903.55 30.86 2000 46,499.79 90,983.16 137,482.94 Source: 2008 China Statistical Data

66. The northern ports close to the Project Road are being used actively as entry points for both China and Russia. As explained in the previous chapters, passengers and goods that pass through the river ports cross the Hielongjiang River. At times when the water is navigable, people use boats and ferries in order to cross the river. At other times when the river is frozen shuttle buses and cargo trucks drive over the ice to cross. The following Tables below show traffic of goods and trucks through the northern ports.

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Table 16: Border Port Passenger Transport Volume by Transport Mode, Unit = Persons/year Important Ports Lesser Important Port Year Heihe Tongjiang Fuyuan Luobei Jiayin Xunke Ship Vehicle Ship Vehicle Ship Ship Vehicle Ship Vehicle Ship Vehicle 2000 439791 131961 8783 3290 43913 1995 9065 -- 32 20016 3290 2001 376607 134373 10657 4077 81983 7875 3144 42 -- 29968 13524 2002 368334 83872 13159 4181 93156 10875 2972 462 90 13131 6076 2003 308440 98660 12141 4904 66985 7271 4505 616 709 5542 5931 2004 513025 114898 21117 6911 111269 14062 4710 2772 1003 18403 73014 2005 750812 169213 53267 14107 128317 13121 4023 2467 3533 29346 10775 Source: Port Development Plan

67. As shown in the table above, for the year 2005 the passenger volume transported or crossing the border is increasing through the years in all of the ports. The greatest number is in Heihe Port which indicates that this is the most active among the chosen northern ports, servicing passengers all year round. This is followed by Fuyuan Port which carries passengers mainly by ship operating only when the river is not frozen. The third busiest is Tongjiang which is a perennial port for passenger crossing.

Table 17: Border Port Goods Transport Volume by Transport Mode, Unit = Tons /year Important Ports Lesser Important Port

Year Heihe Tongjiang Fuyuan Luobei Jiayin Xunke

Ship Vehicle Ship Vehicle Ship Ship Vehicle Ship Vehicle Ship Vehicle

2000 242154 99868 119446 4490 28440 3365 4224 -- 232 62030 9400

2001 213301 97359 147792 5375 61720 63924 5819 198 -- 23161 27893

2002 131715 64285 204387 1439 37920 103108 11388 1850 420 1187 1901 2003 148134 68766 230053 2462 75134 100178 14277 1875 2084 2577 1945

2004 264247 107828 383586 10268 51901 124239 14338 693 2068 6682 4962

2005 308618 135323 523691 25892 206828 154179 8286 6856 11713 8580 2109 Source: Port Development Plan

68. In terms of goods transported for the year 2005, the busiest among the northern port is Heihe followed by Tongjyang and the third is Fuyuan. This indicates the high level of trade that these border cities and their outlying regions with their counterparts in Russia.

69. For the Border Ports in Heilongjiang, the most active now in terms of passenger and cargo traffic is Suifenhe Port. Heihe Port is second in terms of person traffic, but third in cargo traffic. Donning is third in passenger traffic while Tongyang is third for cargo traffic. See tabulation in Appendix B (Border Port Passenger Transport Volume by Mode, unit: Person/year; and Border Port Goods Transport Volume by Mode, unit:Ton/year).

70. Freight and passenger cross border traffic data from HPCD for 2007 [Appendix A: Statistics of Freight Volume for International Road Transport of Heilongjiang Province by 2007 (Unit: Tonnes)] indicate that the highest in terms of freight is Dongning Port which is around 42% of the entire province. For the ports near the Project Road, Heihe is still the largest garnering around 14% of the provincial cross border frieght traffic. As indicated, the traffic in Heihe is around 22 trucks/ day. Accordingly, Xunke will have 1 truck/ day, 1.2 trucks for Loebei, and 2.3 trucks for Jiaying. This will likely be the number of trucks that can potentially use the Project Road. This may of course increase in the future, but only Heihe’s traffic will be significant.

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Jianyin’s traffic is still low, but bottlenecks may occur as roads from Yichun to Jiaying will not be improved.

4.4 GENERAL BORDER PROCESSING PROCEDURE

71. When the goods for export arrive at any border crossing facilities the exporter or agent registers the cargo for customs export declaration. The Commerce Department determines if the goods for export are within the quota and accordingly issues the document/s allowing the said items to be exported. Likewise, live animals and plants are inspected by quarantine and forestry inspectors along with the verification of pertinent documents, after which, the driver presents his “border pass” or passport to the immigration officers at the checkpoint stations. If everything is in order, a transport permit is issued by the officer-in-charge of the Department of Commerce. A last checking will then be done at the gates by the immigration and customs officers before exiting and the trucks then proceed to the border port to roll on barges or on the frozen river depending on the season of the year.

72. Upon arrival at the Russian side the driver reports and presents his documents and passport for verification and stamping. The cargo report containing the listing of the cargo being imported and customs declaration documents are presented to Russian customs for processing and for the payment of duties and taxes. Then the Chinese truck proceeds to a transfer area where the cargo is transferred to a Russian vehicle under customs supervision. At the same time, final inspection will be done by the customs and other agencies as may be required, after which, the goods are allowed to be transported to their destination. The Chinese trucks, after some verification, are driven back to the Chinese side either empty or with Russian goods depending on the transaction. Similar customs and border inspection will be done by both countries’ customs and border officers until the goods are delivered to the destinations in China. Russian trucks are allowed to get into border cities or town. However, a special permit is required for out of town trips.

73. Passengers and people departing from the China side into the Russian side using the Chines border crossing facilities undergo similar and usual customs and immigration procedures. As observed and as per discussion with the Chinese border operations managers during the field visit,8, border formalities are quite simple. Chinese people need to show visas to get into Russia. However, from time to time, this regulation is being relaxed to encourage travel into both countries.

74. Russian residing at border cities with China need not have visa. A passport will be sufficient to show to the Chinese border officers and entry will be permitted. This is conversely true for Chinese residing at Chinese border cities with Russia. As a matter of fact, in Heihe a Russian can come into the city as many times as possible within the day. Because of this there are a lot of Russians coming over to purchase goods from malls and shopping centers that sprout out in the vicinity of the port. Commercial activity is booming in Heihe City with this openness on the part of the Chinese and has greatly enhanced the city’s economy. A duty free shop, comparable to any international commercial airport, also exists within the port complex.

75. During the site visit at the Heihe Port, it was noticed that there is a substantial number of people crossing the border into Russia. The normal proceedure takes three steps. The first is a scanning of body temparature, followed by x-ray scan of carry-on luggage, then finally the immigration checking or passport control processing. After this a spot-checking of luggage is done by Chinese officers on the items being carried by people crossing into Russia. For a normal processing, the duration from step 1 to step 3 takes only one minute per person. Finally, travellers board any of the shuttle buses waiting ourside (the Chinese gets into Chinese shuttle

8 Field visit by the research team was done on 15-21 February 2009 and discussed County Officials, Customs officials and with border crossing facility managers.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report buses while the Russians board Russian shuttle buses) and are driven to the other side over the ice in winter. In non-winter time when the Hielongjiang River is navigable, the people use the ferries to cross the river to the Russian side.

76. In Jiayin border crossing terminal, billboards are posted as guides for passengers and traders for facilitation of processing and fulfilling of requirements. The inspection procedure for departing passengers and goods are as follow:

1. Ocean shipping company (i) Fill in the passenger lists (ii) Pay passenger tickets

2. Inspection and Quarantine (i) Temperature measurement (ii) International travel health certificate (iii) Ckecked baggage

3. Border Checking (i) Passport, list of tour groups, a copy of confirmation (Russia groups) (ii) Passport, a list of tour groups (Chinese groups) (iii) Passport, visas, immigration registration card (Russia visitors) (iv) Passports, visas (visitors)

4. Customs (i) Declaration form for departing passengers (ii) Baggage inspection

77. In Fuyuan, LoeBei Port (in Mingshan), and Jiayin principles on border crossing processing are posted entitled “China Inspection Notice” to boost professionalism, promote goodwill and to improve services to people crossing the border. As stated passengers should not be processed no more than 25 minutes and that the officials should endeavor to facilitate processing of inviduals. The “China Inspection Notice” billboard reads as follows:

China Immigration Inspection Notice:

1. With the aim of putting passengers first, while remaining professional and ensuring national security and border integrity, we are committed to providing profession, efficient and friendly immigration clearance services.

2. We strive to expedite the immigration clearance processes and ensure that over 95% of total passengers will take no longer than 25 minutes to go through immigration clearance formalities.

3. In order to ensure convenient and efficient immigration clearance services, please abide by the relevant laws and regulations of the People’s Republic of China and cooperate with the immigration authorities.

4. The special lane for immigration clearance is available for diplomans, APEC Business Travel Card holders, Deputies of the National People’s Congress of China, members of the National Committe of Chinese People’s Political Consultative Conference, and people in need of assistance such as senior citizens, children, patients, people who are physically challenged and pregnant women.

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5. Your opinions on our work are highly valued. Please use any of the following means to send your complaints and/or suggestions. We will use your feedback to improve our services. We will ensure to respond to your complaints within 30 days.

78. In Xunke border crossing terminal, notice boards are posted as guides for passengers and traders for facilitation of processing and fulfilling of requirements. These notices provide information, hasten processing, provide some sort of transparency and eliminate “red tape” in the system. The inspection procedure for departing passengers and goods in Xunke are as follow:

1. The frontier station shall enforce the law strictly and serve passengers warmly during inspection

2. Enough inspection passageways shall be opened to ensure rapid clearance of passengers.

3. When punishing those who violate the exit and entry administrative laws or the frontier inspection regulations, the frontier inspector shall furnish them with legal documents such as decision of punishment and receipt of fines accordingly.

4. The frontier inspection station shall be on duty 24 hours

5. The frontier inspection starion shall immediately issue the documents applied to fas lon as the required papers are presented, if not explanation should be given. When means of transportation leaving or entering the country change their stopping or berthing plans for special reasons, the frontier inspection station shall immediately exercise inspection and supervision of them according to relevant regulations.

6. The names of the station section leader(s) on duty shall be made known to the bublic in the inspection hall; all inspectors shall wear duty badges when on duty.

7. The frontier inspectors shall refuse all kinds of presents which may have affects on inspection. Passengers may inform against the frontier inspectors who take bribes or abuse his power on personal consideration

79. Additional guidelines are further stipulated as follows - “The following regulations are made public with a view to safeguard the People’s Republic of China, maintaining its security and social order facilitating the exit and entry of persons and means of transportation.”

1. Persons and means of transporation leaving or entering the country shall abide by the laws and administrative regulations of the People’s Republic of China, and subject themselves to frontier inspection and control.

2. For exit from and entry into China, persons shall fill in arrival or departure cards in accordance with the relevant regulations and present to the frontier inspectors for examinations their passports or other exit or entry documents when they leave or enter the country after the frontier inspectors have examined and approved their documents.

3. The frontier inspection has the power to apprehend persons and means of transporation who violate the laws of the People’s Republic of China and exercise penalty according to law.

4. If a person refuses to accept the penalty decision made by the frontier inspection station, he may apply for reconsideration to the local public securty department within the designated time.

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5. In order to safeguard the sovereignty of the state and maintain its secury and order at the border the frontier inspection station shall guard the restricted areas in ports.

6. No organization or individual may obstruct the frontier inspector from lawfully executing his duties.

80. In order to improve border service, the government has come up with measures to simplify and streamline the documentary process which is generally applied in border crossing facilities. Known as the “Twelve (12) Measures of Border Checking Service”, the service personnel are expected to assist and facilitate the processing of individuals. This measures are displayed inside the border facility in Fuyuan as follows:

“The Ministry of Public Security Twelve (12) Improved Measures of Border Checking Service To further enhance the level of border services and provide convenient, comfortable and secured clearance for entry-exit passengers and vehicles, better implementation of the “Law Enforcement for the People” idelogy, services to economic development and promote the building of a harmonious society, the Ministry of Public Security decided to implement the 12 service measures for the open ports in whole country.

1. Free of filling registration card for Chinese citizens.

2. Free of filling entry-exit registration card for Chinese and transient foreign visitors;

3. Promote electronic evaluation system for passenger satisfaction, and take the initiative to receive supervision;

4. Issue the “Guide to Landing” for providing convenience to the entry of landing crew of ships;

5. Implement “ plus opening channel in advance”system, reduce the waiting time for passengers in the peak traffic time;

6. Set up “Bule Line for Reminding”system, minimize the long lines for passengers;

7. Set up “ Emergency Access” to resolve the emergency demand for passenger;

8. Implement “Queue-free” service for late visitors, avoid delays to means of transport;

9. Promote the waiting checking mode of “snake-like queue”, balanced the waiting time for passengers;

10. Open “Enquiry room” to reduce the pressure of passengers;

11. Set up “Hotline Line of Border Checking” and “Consulting Desk” for consultation with passengers;

12. Promote passenger traffic information system gradually, and to enable travelers to choose appropriate entry and exit time.

81. To facilitate the inspection and checking of luggage or cargo entering of departing individuals through the border crossing, in Jiayin a flowchart of the process is displayed on billboards for the public and officers alike for better understanding. There are two major divisions – the first one is where no item is needed to be declared for the customs; while the second is where the individual needs to declared goods to be brought in or out of China.

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82. The Non-Declaration route for cargoes and luggage may not undergo inspection or maybe inspected by X-ray scanners. If objects were spotted warranting actual inspection, customs officers may require un-packing and thorough luggage checking. If due to the type and/or quantity of items being crossed through are subject to customs regulation, the individual is required to fill out declaration forms which either thoroughly checked or needing full declaration. Depending on the result of the inspection, whether found in order or in violation of customs regulations, the luggage or cargo is hereby released or returned and can be subject to appropriate sanctions. This flowchart is shown in the following figure.

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Entering/ Departing Passengers’ Luggage

Non-Declaration Declaration

Diversion Filing of Customs Declaration Form

Release Spot Check Going through cargo formalities

X-ray Unpacked Examination Check

Subject to Further Examinations

Release or Return

Figure 2: Luggage Inspection FlowChart in Jiayin Border Crossing

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83. Most of the border crossing facilities are provided with the necessary equipment such as computers, surveillance camera, metal detectors and X-ray scanners, to perform efficient processing. Among the border crossing inspected in this Project, the most modern and high- tech is the facility located in Heihe, which is housed in a contemporary style building, spacious lounge, parking grounds, passenger temperature scanner, multiple X-ray scanners, surveillance cameras and a classy duty free boutique. Basic facilities were found in Loe Bei Port consisting of surveillance camera, computers and immigration processing booths. The observed equipment and facilities found in the border crossing visited are shown in the following Table:

Table 18: Border Crossing Observed Facilities and Equipment Port Name/ Facilities Equipment Features Location Fuyuan Port Building; Processing Booth, Close Circuit Separate Parking areas; Docking areas for the Camera, Metal processing for boats/ ferries/ ships; port Detector incoming and administration building outgoing and for foreigners; Notice billboards; With Special lane; with express lane Fujin Yard for shipment; perimeter fence; conveyors Especially used for Storage building; rails timber receiving. Loebei (in Port building; Processing Booth; No X-ray Information desk; Mingshan) Parking area; waiting area for equipment, Separate passengers/ travelers; perimeter Close-Circuit processing for fence; small duty free shop; ramp for Camera incoming and the trucks to get onto ferries or roll outgoing over ice (Heilongjiang River) Jiayin Port building; Processing Booth; With X-ray Information desk; Large Parking area; perimeter wall; equipment (1); Separate ramp for the trucks to get onto ferries weigh bridge; processing for or roll over ice (Heilongjiang River) Close-Circuit incoming and Camera outgoing travelers Xunke Port building; Processing Booth; With X-ray Information desk; Parking area; waiting area for equipment (1); Separate passengers/ travelers; perimeter Close Circuit processing for fence; ramp for the trucks to get onto Camera incoming and ferries or roll over ice (Heilongjiang outgoing travelers River) Heihe Modern Port building; Processing With (3) or Separate sections Booth; Parking areas; waiting area for more X-ray for incoming and passengers/ travelers; perimeter equipment; outgoing travellers; fence; ramp for the buses to get onto Close-Circuit Quick processing; ferries or roll over ice (Heilongjiang Camera multi-lingual notice River); modern duty free wing; boards Separate customs processing building for freight equipped with systems and staff Source: PPTA Consultants Fieldwork

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4.5 ASSESSMENT ON BORDER CROSSINGS

84. A field visit was conducted at the four ports at Heihe, Xunke, Jiayin and Loebe (port is located in Mingshang town) on 16-20 February 2009 to have technical discussions with County Officials, Customs officials and with border crossing facility managers. The meetings were arranged by the PIU with the local officials, customs and border management officers. The purpose of the meeting was to obtain information, discuss issues and concerns, and observe port operations. Sunwu Port was not visited since the facility is not operating.

85. The meetings were conducted sucessfully as issues were discussed and information provided. The busiest port is Heihe Port. Xunke port is partly open. The rest of the other ports had slow operations and nothing much was observed except the port complexes.

86. A recapitulation of the meetings are presented below as findings:

1. Luobei Port • Luobei port was founded by the State Council in 1988. It is an international passenger and freight Class I port. It is opened and operated formally in May 1993. Located east of Suibin, west of Hegang, north of Jiayin and south of Huachuan, Loebei Port in Mingshan Township provides a good access to Amurzet Port in Russia, which is 1.5 kms away. Access to Luobei Port is provided by Hulao road which is 530 kms to Harbin. Railway can reach up to Hegan which is 50 kms from Loubei. Luobei port has three docks which are used primarily as coal dock, timber dock and ferry dock, with a total capacity of 430,000 tons. The Coal dock has a capacity is 400 tons per hour, which is the biggest coal exporting port along Heilongjiang River bank.

• Freight transportation through Luobei port reached 154,000 tons in 2006 and 182,000 tons in 2007. Passenger transportation traffic reached 27,190 persons in 2006 and 28,556 person in 2007.

• The main issue besetting Luobei port is related to transport. There are too much crossings along the road from Hegang City to Luobei Port primarily due to the coal trucks hauling coal from the area. Safety is a serious concern especially during the autumn season. Due to road bottlenecks in Luobei and since Tongyang has expressway connection to Harbin, most vehicles prefer to use Tongyang port even though the distance from Harbin to Loebei may be shorter.

• There is one international transportation Company in Luobei County. The company captures more than 90% of freight transportation and 60-70% of passenger transportation.

• There is no economic zone in the aea and only one small duty free shop is available at Luobei Port.

• Sometimes the pre-lodgement process, wherein documentation for export goods are presented prior to bringing the goods to the port, is done for perishable items such as dairy products and farm produce

2. Jiayin Port • Jiayin Port was built by the State Council in 1989 and is Class I port. The infrastructure of the port was constructed from 1992 to 1994, with a total investmet of CNY 21 million. The County also invested CNY 2 million to build 10,000 sq.m of stocking yards and 1,000 sq.m of warehouse. From February 2007 to July 2008, the docks have been extended, thus increasing the dock capacity from 200,000 tons to 750,000 tons. These improvements enhanced the operations and functions of the port.

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• In 2001, friendly links and activities between Jiayin and Russia were encouraged and especially in the “Country Year” of 2006 and 2007. Export and import volumes at Jiayin port was less than 3,000 tons in 2004. But trade volume attained 24,122 tons in 2005, a 774% increased from that of the previous year. Passenger transportation started in February 2004. After popularizing and creating the new tourism route and resource, tourism has been developed. Passenger volume was 5,792 persons in 2005, 53% increased from that in 2004.

• For freight transportation, China captures around 90%, while for passenger transportation, China shoulders everything as Russia does not have a shuttle bus for passengers.

• The port provided pre-engagement or “pre-lodgement” service but occassions for such are rare.

• The main import goods from Russia include timber, board, scrap iron, scrap tyre, heavy oil, coal etc. The main export goods to Russia are construction materials, commodity, equipment for logging, and large-scale equipment for construction and mining activities.

• The imported timber and board are carried to Yichuan for processing. The imported iron scraps are sold in Yinchuan and scrap tyres were recycled; heavy oil is brought to Daqing and coal are sold in Jiayin County.

• The goods for export are stocked temporarily within Heilongjiang province, except for dump trucks, which were purchased at original production places and are exported by batch. Construction materials, upholster materials, and other commodities were sold to Amur province and Jewish Autonomous Oblast.

• The port management is undertaking a number of measures to improve the port’s environment and decrease customs processing time. The measures include providing efficient services and simplifying export and import processing.

• There are ten (10) officials manning the port but this number of personnel is not enough for efficient operations; training for port operations’ efficiency is needed

• For more efficient conveyance of goods railway will be needed in the future.

3. Xunke Port • Xunke Port, a Class I port, was established on 17 December1989 by the State Council. The infrastructure of port is inadequate and cannot keep up with developing demand. Import and export goods must be transported into other docks, while the capacities for the loading and unloading docks are low. There aren’t any hoisting equipment, and storage warehouse at the site.

• The port terminal’s passenger capacity is around 1000 person/day and for freight is 100,000 tons per year. From 2000 to 2007, the import and export goods totaled 79,000 tons, passenger volume reached 210,000 persons and trade volume reached USD 120 million.

• The main goods for import include timber and mine resource. The three (3) cities and five (5) districts” located at the middle of Russian Far East are rich in timber. The mining resources include golden, iron, aluminium etc.

• Nearly 90% of freight transportation is handled by the Russians.

• Infrastructure is key issue for Xunke Port, especially transport. There is only one highway bypass in Xunke connecting with Heihe city. The highway connection with Jiayin is Class III and unpaved. The highway connecting with Heihe consists of Class III

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4. Heihe Port • Heihe Port was established by theState Council in 1982 and is a Class I port. Vehicle transportation on ice was opened in February 1988. Since then, ferry vehicle transportation and hovercraft passenger transportation commenced. It was the first port opened between China and Russia border.

• From 1987 to present, the total investment for Heihe port infrastructure was CNY 120 million coming from the local provincial and national governments. There are two (2) docks consisting of the comprehensive dock and passenger dock.

• Currently, the port’s main infrastructure consists of freight and passenger docks; its import and export activities are linked with the national railway and highway thus forming an efficient network.

• Most passengers use the port on Fridays and Saturdays only. Most of them are Russians who come into Heihe to buy some goods and merchandise to bring back to Russia.

• There are around one million Russians who bought properties in Heihe.

• Passenger volumes reached 1.08 million in 2006, 1.26 million in 2007, and 1.399 million in 2008. More than 85% of these passengers are Russians. The freight volumes are 0.29 million, 0.386 million and 0.3 million tons in 2006, 2007 and 2008 respectively.

• According to the Heihe port plan, a bridge is envisioned for construction in the future as part of the MOU between China and Russia’s premiers.

• In the future the import freight will primarily consist of coal and iron. Currently, most of export freights consist of vegetables and fruits.

• The infrastructure and facilities in the Russian ports are poor compared to China’s.

87. As a summary from the fieldwork and data collection the following are noted:

• The customs processing in all inspected ports are the same.

• The processing for freight does not take a long time on the China side. If all the required documents are complete, the processing time usually takes only 20.

• For some special goods or a large amount of goods, longer time may be needed, but usually less than one hour.

• For passenger’s customs declaration, the time must be controlled in one minute.

• The longer processing time at the Russian side has been identified as among the constraints.

88. The Port Development Plan of Heilongjiang, which is in Chinese, is currently being studied. Further detailed items on the study can still be used in the analysis of the overall border port crossing situation which can be beneficial and complementary to the objectives of the Project Road. The preliminary items found in the Port Development Plan are as follows:

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• As general objective: To strengthen and guarantee quick development of trade between China and Russia, and for a revitalized cooperation strategy with Russia in various sectors including economy, business, science, technology, and to improve corridors to the sea from Heilongjiang, a push for a better port facility is necessary. Further recognizing the demand for port or river transport it is necessary to:

(i) Construct and improve the infrastructure of port highways and waterways in such a way for capacities to surpass reasonably the demand levels. (ii) Continuously improve service capacity and level of port highway and waterway and to link up other transportation channels well. (iii) Advocate for comprehensive and integrative port facilitation and transportation planning through formation of convenient and quick corridors for trade between China and Russia.

• The specific objectives are as follows:

(i) By 2010 - elevation of Class category of ports for improved capacity and removal of bottlenecks. (ii) By 2020 - the technical level of port highway will be improved further.

• Bridge Construction: for ports where large amount of passengers and freights by waterway exist, a bridge will have to be constructed in order for land transportation to be linked up efficiently between China and Russia. The purpose of this is to facilitate transport in winter months, extend the available period for freight transport by waterway as an alternative, improve capacity of port, and form quick and high efficient landway transportation network. The locations where bridges are envisioned to be constructed are in Heihe, Luoguhe, Raohe Wusulijiang, and Mingshan.

• Port Passenger Station or Terminal: the aims are: (i) to Improve current infrastructure of port highway station , (ii) to match with transportation demand of international road and national road, (iii) to build port passenger highway station and freight highway station which have enough establishment, effective information, perfect function, scientific management, high quality service, (iv) to build up good image of international and national transportation corridors which are convenient, quick, easy, safe, timely, economic and environment-friendly The locations where Port Passenger Stations or Terminals are envisioned to be constructed are in Suifenhe, Suifenhe Xicheng, Dongning, Heihe, Tongyang, Minshang, Huling, Moehe, Jiayin, Fuyuan, Loubei, and Raohe, Xunxe, Jiayin, Fuyuan, and Hum.

• Waterway Development: the purpose of this is to improve navigabilities of rivers. This area planned in places like Songhuajiang Dadingzshan Navigation and Hydropower Junction, Heilongjiang Tongjiang to Haba River-sea Channel Renovation, etc.

• Harbor Opening and Development: Port facility and infrasructure improvement such as Tongjiang Harbor, Heihe Harbor, Fuyuan Harbor, etc.

• Support from National government and recognition of some projects as part of the Northeastern Revitalization Plan

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5. CONCLUSIONS AND RECOMMENDATIONS

89. In conformance with the Terms of Reference for the Regional Development, Customs and Trade Facilitation, and Provincial Connectivity, more focus study was done on the analysis of obtained information on inter-provincial connectivity, trade and statistical data, and border port development plan. The overall objective of the study is to provide a clearer rationale for the Project Road as a vital infrastructure for the development of Heilongjiang Province in particular and the country in general.

5.1 RECOMMENDATIONS ON LOCAL CONNECTIVITY AND TRADE

90. In the light of the current scenarios in Heilongjiang, policy makers are faced with the challenge of reversing such negative effects of inadequate transport infrastructure such that trade is promoted through better and less costly transport services. Nevertheless, most of the efforts in revitalizing trade and improvement or provision of transport infrastructure need to be done by the public sector. Among the important steps toward this direction are as follows:

• The private sector should be encouraged to invest in the recognized industrial hubs through some incentives. However, it is notable that the private sector or private businesses are attracted to a place on account of the efficiency of infrastructure, less operational cost and complementary activities with existing business. The policymakers should be able to make this investment climate exist in the areas in Heilongjiang in particular and the northeast in general.

• Technological innovations need to be encouraged in the area. This can be done by strengthening the tie-ups between science and technology and people’s skills to come up with innovative techniques to respond to more sophisticated needs of the market. The government should be able to put to use the human and technical resources that exists within the province to solve its problems on unemployment, slacked productivity, diminished competitiveness and optimization of resources while protecting the environment.

• As experienced elsewhere due to current global economic crisis, job creation is necessary. This can be done by tapping on stimulus packages of the government where infrastructure provision and improvement can be undertaken. The construction of infrastructure provides direct employment to those who will directly undertake projects and downstream industry can benefit through provision of materials and other allied services.

• The depletion of resources can be an imminent outcome in certain resource extraction industry such as coal and oil as these resources are non-renewable. Measures should be established to regulate exploitation to avoid over-extraction. Protection of the environment is crucial and this aspect should be in place with the exploitation of resources within Heilongjiang to prevent environmental catastrophe that will jeopardize the growth of trade and discourage investments. Cities involved in these related resource extraction industries should be proactive in protecting their environment and balance it with immediate gains.

91. The issue of unrationalized connectivity should be tackled in the regional level particularly the “Northeast Revitalization Plan”. Although the current plan identified broadly certain transport projects such [Road Project: Qiqihar – Chifeng (Inner Mongolia), and Suifenhe River – Manzhouli (Inner Mongolia); and Expressway: Daqing – Tongliao (Inner Mongolia) – Chifeng (Inner Mongolia) – Chengde (Hiebe); Jilin-Heihe] there should be more proactive steps to have this project be implemented.

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92. In particular with the Sketchmap for Hieilongjiang Highway Construction (see following map) the analysis on the current traffic profiles on existing roads has identified certain inter- provincial roads to be upgraded into expressways in the future: three (3) roads into Jilin and three (3) into Inner Mongolia. Combining the necessity to move passenger and goods the interprovincial roads to be improved are as shown in the Table below:

Table 19: Road Prioritization for Improvement of Inter-provincial Connectivity Inter-connectivity Priority No. Road Name with 1 Jilin G102: Beijing – Harbin 2 Jilin G203: Mingshui – Shenyang & S206:Jixi – Tumen & Keli - Jieji 3 Jilin S221: Mingshui – S321:Shenyang & Nancun- Wangqing 1 Inner Mongolia G301: Suifenhe-Manzhouli 2 Inner Mongolia S207:Jiagedaqi-Mohe and S302: Liajzishan-Bei'an) 3 Inner Mongolia S302: Liajzishan-Bei'an and S207: Jiagedaqi-Mohe)

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S207

S310

G111

G301

G302

G111

S221

G203

G010 G202 G102 S222

Local road

Local road

S321 S206 G201 Inter-Connectivity with Jilin

Inter-Connectivity with Inner Mongolia

Figure 3: Sketch Map for Heilongjiang’s Highway Construction (Proposed Inter- Provincial Connectivity

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5.2 RECOMMENDATIONS FOR CROSS-BORDER IMPROVEMENTS

93. Based on the preliminary assessment a number of possible recommendations related to the ports for cross border facilitation can be brought forward. In general, these recommendations consist of infrastructural (“hardwares”) and management (“softwares”) measures which the local as well as the national government can implement.

94. The recommended Infrastructural measures are as follows:

• Improvement or upgrading of roads leading to the Ports – The ports serve only as gateways. The thoroughfares consisting of the provincial road networks must be improved to attract traffic into the port and enhance trading. The more efficient the transport system is within certain bounds of cost, the more attractive this will be for traders, importers and exporters. The roads that need attention in this aspect is the Yichun to Jiayin road as this is currently a partially Class II and Class III road to be upgraded to Class I.

• Extension of railway lines to port areas – Railways have the built-in capacities to move far more goods at longer distances and in a more economical way. However it lacks flexibility of changing routes as these are pre-defined by the tracks. Therefore, investments into railroads will have to be undertaken for trade to flourish as part of enhancement of the entire transport network.

• Construction of bridges over rivers – Bridges facilitate transport over natural barrier such as rivers. Land to land transport is faster as trucks takes shorter time to cross a waterway as compared to maneuvering onto and off a ferry including the travel time between banks of river. Transport over bridges is relatively safer and cheaper than that compared to truck-ferry transport.

• Port infrastructure Improvements – With the continuous operation and expansion of trading activities, port infrastructures need to modernize to respond to growing efficiency needs as well as magnitude. Hence, vis-à-vis the demand, the supply side of the infrastructure has to be improved and upgraded.

• Port facility improvement – Certain facilities and functions within the port should also be upgraded such as communications equipment, computers, scanners, security devices, etc.

• Designation of economic zone near the ports – Going beyond the port complex, port operations should be complemented by the manufacturing and industry sector. Goods coming in do not have to go a long distance to be processed and converted into higher value finished goods. In this context, an economic zone can be set up in the vicinity of the port complex which can turn into a production hub.

• Establishment of Logistics Services – With the port serving as gateways, the logistic services can function as the next stop, if areas near the port are not available. “Logistics services” is an integrated warehousing, material sourcing, packaging, fowarding, shipping and monitoring of shipment from origin to destination. This activity is complemented by state of the art communication equipment for real time tracking assuring clients of in-time delivery and maintenance of goods quality. This service can be embarked by private sector operators in coordination with port facility operators. The possible logistics services areas can be established at vicinity of the junctions at Yichun, Bei’an and Nenjiang.

95. The recommended management measures are as follows:

• Custom Systems Harmonization – The customs procedure and requirements in both countries should be harmonized to eliminate bureaucratic redtapes and documentary

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duplications and paperworks. As both countries try to achieve their objectives within the framework of open trade, procedures should be streamlined such that the best country division who can do such procedure be delegated to undertake it.

• Establishing Single-Stop/Single-Window Processing – In line with systems harmonization, establishment of procedural steps or facility for one-stop processing cuts the waiting and delay time to practically one-half. Most border countries with similar procedures undertake such single-stop/single-window (SS/SW) procedure wherein traders accomplish both exporting and/or importing requirements in one facility, complex or building. Customs officers, sanitation officers, etc. are housed in the same facility and freely exchange information in an efficient way to minimize delays. Both countries may identify areas to be developed at either side of the border wherever viable and practical. All weather access and support infrastructure at the SS/SW site should be constructed for efficiency and effectivity. Heihe can be a site for SS/SW facility as it is the busiest among the border ports close to the Project Road.

• Establishing Pre-Lodging System – Pre-lodging is performed by agents which entails processing of documentary requirements for goods to be transferred through the border prior to the arrival of goods. This is important especially for perishable items which are sensitive to atmospheric and environmental parameters such as moisture and temperature. This can be done manually or electronically through web portals or designated offices after submission of which the officials can alert agents of additional requirements prior to shipping. This procedure will minimize delay, avoid spoilage and ensure in-time delivery of goods to the customers. Stations for pre-lodging can be established in major cities and counties and even at identified logistics services areas. Nenjiang, Bei’an, and Yichun can be sites for placing pre-lodging stations.

• Professional Trainings for Personnel – As new legislations, procedures and agreements are drawn between countries and with the World Trade Organizations, personnel need to be updated of their implementation. Proper implementation is assured through training.

• System for Risk Management – Minimization of risk is achieved by proper performance of checking without constituting delays. Both security requirements trade facilitation should be balanced within the framework of risk minimization. One way of achieving this is cataloging sources of merchandize; full declartion of shipment contents on pre-lodgement wherein custom officials can do a pre-investigation prior to the start of actual goods custom processing. The guidelines should be drawn up to minimize corruption and optimize revenues and trade in general.

• Support to Policies for Trade Liberalization – Policies that promote trade facilitation and lowering of trade barriers should be supported. The national and local government should seek avenues within the country and with the bordering country for trade enhancement through minimizing hurdles in the entry of goods and foreign nationals into the country. Mutual agreement should be drawn up to allow vehicles from the other country to freely operate within the other country subject to existing rules and regulations.

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APPENDICES

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APPENDIX 1 – ADDITIONAL STATISTICAL DATA

Total Value of Import and Exports (Customs Statics) Total Value of Imports and Exports Total Exports (USD 10000) Category (USD 10000) 2000 2005 2006 2007 2000 2005 2006 2007 Total 298620 957216 1285729 1729858 145101 607202 843642 1226870 General Trade 128554 400918 655511 990572 82729 218252 398392 702929 Donation of Countries 436 110 89 1 403 108 83 1 and International Others Donation of 3 26 5 133 Overseas Chinese Compensation Trade 399 399 Processing and Assembling with 6643 16621 21538 21891 3900 9778 12475 12082 Customer's Materials Processing and Assembling with Import 27245 27634 26903 30622 16132 18288 18386 19400 Materials Little Amount Trade on 101365 368537 465210 540529 14476 224534 305965 351524 the Borders Export Goods of Contracted Projects with 1179 14056 21515 22586 1179 14056 21515 22586 Foreign Countries or Territories Import Equipments and Goods of Foreign-Funded 6668 5001 7271 2717 Enrerprises Barter Trade 52 46 42 42 47 16 3 12 Bonded Warehouse 464 1825 565 763 261 751 233 209 Others 25612 122442 87078 120003 25575 121419 86589 118127

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report Total Value of Import and Export by Region Total Value if Imports and Total Exports Total Imports Region Exports 2006 2007 2006 2007 2006 2007 Province 1285729 1729858 843642 1226870 442087 502988 Enterprises Directly under 30450 30852 17479 21560 12971 9291 Province Harbin 247345 298043 116202 165010 131143 133033 Qiqihar 14445 26879 11524 22009 2921 4869 Jixi 19339 36588 18272 35704 1067 884 Hegang 2706 3625 2362 3299 344 326 Shuangyashan 24997 73698 24441 72255 556 1443 Daqing 44336 67907 18542 38212 25794 29695 Yichun 9180 13508 7358 10482 1822 3026 Jiamusi 107523 169955 85539 149259 21985 20696 Qitaihe 1080 2775 756 2574 323 201 Mudanjiang 619513 763857 388297 477080 231216 286778 Heihe 158422 236423 148383 224902 10039 11521 Suihua 5446 4461 3820 3488 1626 973 Daxinganling 946 1288 668 1036 278 252

Border Port Passenger Transport Volume by Mode, unit: Person/year Category Port Mode Year 2000 2001 2002 2003 2004 2005 Important Suifenhe Train 387575 380585 383699 415325 534578 559126 Port Vehicle 571752 445024 509061 546469 637217 673728 Dongning Vehicle 256738 283307 321838 373088 483003 622152 Heihe Ship 439791 376607 368334 308440 513025 750812 Vehicle 131961 134373 83872 98660 114898 169213 Tongjiang Ship 8783 10657 13159 12141 21117 53267 Vehicle 3290 4077 4181 4904 6911 14107 Lesser Hulin Vehicle 11847 10294 11041 3377 4347 5458 important Mishan Vehicle 145891 212267 178060 119460 200222 283685 port Raohe Ship 10155 14772 20385 20359 31024 51439 Vehicle 1122 25325 3619 6362 6623 18843 Fuyuan Ship 43913 81983 93156 66985 111269 128317 Luobei Ship 1995 7875 10875 7271 14062 13121 Vehicle 9065 3144 2972 4505 4710 4023 Jiayin Ship -- 42 462 616 2772 2467 Vehicle 32 -- 90 709 1003 3533 Mouhe Ship ------Vehicle 3740 6177 6833 8508 11778 9887 Xunke Ship 20016 29968 13131 5542 18403 29346 Vehicle 3290 13524 6076 5931 73014 10775

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report Border Port Goods Transport Volume by Mode, unit:Ton/year Category Port Mode Year 2000 2001 2002 2003 2004 2005 Important Suifenhe Train 3052838 4077396 5149945 5472600 6064028 7425319 Port Vehicle 154908 175294 230894 312544 332430 286001 Dongning Vehicle 382437 301278 228992 284869 261814 277799 Heihe Ship 242154 213301 131715 148134 264247 308618 Vehicle 99868 97359 64285 68766 107828 135323 Tongjiang Ship 119446 147792 204387 230053 383586 523691 Vehicle 4490 5375 1439 2462 10268 25892 Lesser Hulin Vehicle 145168 146368 113854 96445 43371 51437 important Mishan Vehicle 151828 41668 85683 115423 48302 22366 port Raohe Ship 49200 162675 15369 19131 23587 77779 Vehicle 21100 19700 4655 14734 14007 13472 Fuyuan Ship 28440 61720 37920 75134 51901 206828 Luobei Ship 3365 63924 103108 100178 124239 154179 Vehicle 4224 5819 11388 14277 14338 8286 Jiayin Ship -- 198 1850 1875 693 6856 Vehicle 232 -- 420 2084 2068 11713 Mouhe Ship ------Vehicle 55714 74663 70571 88400 126309 99668 Xunke Ship 62030 23161 1187 2577 6682 8580 Vehicle 9400 27893 1901 1945 4962 2109

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report Historical Traffic Data for Hielongjiang-Jilin Inter-provincial Roads (AADT)

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 S206 Small Freight 58.1 66.6 33.7 128. 122. 115 205 219 4 3 Jixi-Tumen Medium Freight 87.2 74.6 78.6 147 123 135 283 253 (Laoheishan- Large Freight 126. 135. 88.5 206. 197. 239 233 257 Heiji Jie) 2 9 5 6 Super Large 0 0 0 0 0 0 190 226 Freight Trailer 6.9 3.7 5.3 4.7 4 6 7 10 Container 0 0 0 0 0 0 0 0 Small Passenger 147. 140 169. 189. 227 227 286 232 6 2 5 Large Passenger 10.9 8.5 154. 18.8 22.8 14 13 19 7 Sub-total (in PCU) 605 603 730 980 963 1044 1781 1825

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 G102 Small Freight 530. 476. 237. 243. 261. 707 848 902 1 5 1 3 6 Beijing- Medium Freight 2813 1572 400. 377. 408. 618 252 213 Harbin(Hash .5 .3 4 4 2 uang Jie- Large Freight 5537 571. 761. 824. 775. 246 323 264 Shuangzhou 5 4 2 9 chadao) Super Large 0 0 0 0 0 0 58 63 Freight Trailer 852. 569. 109. 109. 98.7 299 71 102 2 9 6 8 Container 0 0 0 0 0 0 61 53 Small Passenger 3244 2659 1165 876. 865. 1981 2717 2634 .5 .8 .6 9 1 Large Passenger 484. 813. 166. 91.4 91.4 358 167 189 6 1 4 Sub-total (in PCU) 9829 7857 3776 3472 3428 4644 1794 2101 9 1

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 G201 Small Freight 102. 110. 108. 102. 88.6 94 5 8 8 6 Hegan-dalian Medium Freight 40.7 44.3 39.5 39.4 34.3 41 (Jiangshanjia Large Freight 172. 160. 179. 167. 149. 170 o-Heiji Jie) 8 1 6 9 1 Super Large 0 0 0 0 0 0 Freight Trailer 0 0 0 0 0 0 Container 0 0 0 0 0 0 Small Passenger 346. 414. 420. 408. 388. 386 6 6 8 9 1 Large Passenger 41.6 45.7 45.1 45.2 47.6 48 Sub-total (in PCU) 918 981 1016 974 898 954

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 G202 Small Freight 124. 79.9 84.7 221 200 343 8 Heihe- Medium Freight 169. 102. 96.7 140 107 158 Daqing(Lalin 9 8 Town- Large Freight 213. 131. 112 384 212 178 Province 5 6 Boundary) Super Large 0 0 0 0 0 152 Freight Trailer 19.8 9.3 10 0 26 10 Container 0 0 0 0 0 1 Small Passenger 154. 122. 145. 239 243 375 4 2 3 Large Passenger 21.4 17.9 16.3 70 72 89 Sub-total (in PCU) 993 646 624 1543 1136 1779

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 G203 Small Freight 46 62 76 Mingshui- Medium Freight 42 55 73 Shenyang Large Freight 93 100 83 (Zhaozhou Super Large 0 64 81 Town- Freight Jiangdi) Trailer 4 9 4 Container 0 15 41 Small Passenger 843 993 1030 Large Passenger 80 97 77 Sub-total (in PCU) 1258 2016 2151

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 S321 Small Freight 21.5 2.9 41 182 219 Nancun- Medium Freight 42.3 14.5 38 198 221 Wangqing Large Freight 430. 563. 440 378 245 (Yangming- 8 1 Heiji Jie) Super Large 0 0 0 178 217 Freight Trailer 1.1 0 0 0 0 Container 0 0 0 0 0 Small Passenger 21.5 10.2 36 160 213 Large Passenger 8.4 9.6 9 12 12 Sub-total (in PCU) 1231 1466 1287 2326 2265

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 S221 Small Freight 140 170 145 Tailai- Medium Freight 88 127 104 Zhenlai Large Freight 207 149 109 Super Large 0 166 237 Freight Trailer 33 51 36 Container 0 23 30 Small Passenger 353 410 476 Large Passenger 9 24 23 Sub-total (in PCU) 1369 2048 2118

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report Historical Traffic Data for Hielongjiang- Inner Mongolia Inter-provincial Roads (AADT)

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 S207 Small Freight 71.7 0 59 0 0 67 64 71 Jiagedaqi- Medium Freight 105 0 85.9 0 0 46 45 48 Mohe Large Freight 102 0 118 0 0 65 42 39 (Jiagedaqi Area - Super Large 0 0 0 0 0 0 24 30 Jiasong) Freight Trailer 0 0 0 0 0 2 4 4 Container 0 0 0 0 0 0 0 0 Small Passenger 590 0 838 0 0 604 421 361 Large Passenger 7.8 0 12.1 0 0 31 22 20 Sub-total (in PCU) 1034 0 1281 0 0 917 718 672

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 S310 Small Freight 20.6 15.4 12.7 10.5 8.7 10 15 12 Jiagedaqi- Medium Freight 23.8 17.8 13.1 11 13.5 15 13 17 Heihe (km Large Freight 104 95.2 91.7 90.4 77 87 71 64 73 - Jianen Jie) Super Large 0 0 0 0 0 0 2 9 Freight Trailer 0 0 0 0 0 0 0 3 Container 0 0 0 0 0 0 2 8 Small Passenger 60.4 75.5 83.2 67.1 57.2 56 71 90 Large Passenger 2.1 2.1 2.1 2 2 2 4 10 Sub-total (in PCU) 401 375 361 334 293 322 315 377

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 S302 Small Freight 240 209 157 Liajzishan- Medium Freight 37 58 55 Bei'an Large Freight 65 60 51 (Liannei Jie- Lianlong Jie) Super Large 0 0 9 Freight Trailer 18 18 1 Container 0 0 1 Small Passenger 411 312 337 Large Passenger 41 40 36 Sub-total (in PCU) 898 788 754

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 G111 Small Freight 63 42 44 Beijing- Medium Freight 40 44 45 Jiagedaqi Large Freight 67 47 45 (Neijia Jie- Jiagedaqi) Super Large 0 25 34 Freight Trailer 1 3 5 Container 0 0 0 Small Passenger 278 302 357 Large Passenger 13 12 16 Sub-total (in PCU) 555 572 651

Name Vehicle Types 2000 2001 2002 2003 2004 2005 2006 2007 G301 Small Freight 126 174.31 Suifenhe- Medium Freight 175 241.80 Manzhouli Large Freight 298 411.69 (Changshan- Gongqu) Super Large 0 0.00 Freight Trailer 199 274.51 Container 0 0.00 Small Passenger 293 404.51 Large Passenger 106 146.02 Sub-total (in PCU) 1438 1984.61

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Statistics of Freight Volume for International Road Transport of Heilongjiang Province by 2007 (Unit: Tonnes) Proportion of the Heihe Xunke Tongjiang Suifenhe Dongning Hulin Mishan Jiaying Luobei Raohe Mohe Province's Chinese Year Statistics Carrier Ice Automobile Ice Automobile Ice Ice Ice Ice Ice Highway Highway Highway Highway with Entire Transport Ferry Transport Ferry Transport Transport Transport Transport Transport Province 1988 7250 7000 250 1989 103899.9 38.00% 77881.9 9000 5000 4018 8000 1990 133858 40.00% 63775.3 30575 9380.7 6367 10013 11438 2309 1991 228539.97 36.00% 109007 32004.47 9462 14961 6027 49853 7225.5 1992 514057 23.00% 129100 112246 7647 26207 135547 102606 704 1993 836716 15.00% 167761 108569 19408 61601 63000 177769 206055 22273 10280 1994 320360.9 10.00% 42677 56318.9 10943 7118 9970 51299 108854 1944 28683 2554 1995 228721 31.00% 12621 89083 2462 20514 295 16016 46528 5968 28209 766 578 5681 1996 427371.5 20.00% 55258.5 35797 9040 5798 1250 48445 219068 16033 31759 2169 1045 1709 1997 452759 23.60% 47442 70843 7916 8978 561 61990 197816 20601 23852 175 1213 11372 1998 503493 18.20% 44783 56445 4584 1606 78142 223543 57120 14069 100 2426 20675 1999 701655 17.00% 83241 76729 7857 2680 93540 265990 80153 26479 260 2426 42300 20000 2000 1003983 16.00% 86654 121445 8400 4490 154908 290646 117285 90887 100 3168 70300 55700 2001 950541 17.00% 98257 103088 3140 4350 175794 189972 102096 19464 64 69665 172295 12356 2002 1058685 20.00% 53904 55516 2850 1423 290897 273758 122475 80995 510 4407 91950 80000 2003 1086628 17.60% 133215 1780 2462 364971 224482 43993 107042 5476 19580 42349 141278 2004 1219975.91 27.00% 216267 4490 5783 340413 432564 24318.2 18854 2068 15372.71 37846 122000 2005 1305962.3 28.00% 244891 1951 33241 278032 496409 29560.35 12034.5 11744 8217.4 111509 78373.05 2006 1106397 36.00% 174849 3516 36611 194833 410883 47419 9813 39831 9273 87648 91721 2007 1112469 26.00% 165163 7350 16160 225638 473228 63694 32290 17252 9350 53473 48871 Source: HPCD Notes: 1. China and Russia delivered imports and exports with a total of 165,163 tons in Heihe Port, average 10 tons for per vehicle with a total of 16,516 times, 45 times per day, 22 times daily on the Chinese side, accounting for 45% of the total. 2. The automobile transportation for Heilongjiang Province to Russia began from 1998; 3. Automobile transport department and the shipping department combined the statistics into “Automobile Ferry” from 2003

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report Statistics of Passenger Volume of International Road Transport of Heilongjiang Province by 2007 Unit: (People/Times) The Proportion Year Heihe Xunke Luobei Tongjiang Raohe Mohe Suifenhe Dongling Hulin Mishan Jiaying Total of Chinese carrier 1991 6000 6000 1992 12000 12000 1993 111245 15440 126685 1994 55165 10200 700 200 117993 14347 198605 1995 98843 8564 1285 411 40150 8598 157851 1996 100573 2455 1370 712 370 180 64557 23396 464 8139 202216 1997 97078 1020 1052 890 335 97334 24830 1895 7919 232353 1998 63812 1158 944 2188 96220 24664 3092 4931 197009 1999 99612 1012 1231 13611 128443 27231 2441 4776 278357 2000 257140 3290 1895 3140 11277 311304 51604 2566 107967 750183 2001 80420 7566 2986 34636 369773 177283 7064 199732 879460 2002 83872 2434 2972 2588 28768 438503 231298 8317 164388 248 963388 45% 2003 98660 2794 4443 4791 6251 464529 369369 671 111128 1325 1063961 47% 2004 115936 6638 2291 5065 20436 561518 387297 245 190963 283 1290672 45% 2005 154888 9998 2100 16459 37313 595785 642727 42 268087 1108 1728507 44% 2006 241476 12789 4336 28381 15618 572469 490163 240937 5555 1611724 37% 2007 199506 34632 6698 29182 27136 708792 532017 0 257575 3447 1798985 38% Source: HPCD Notes: The passenger transportation for HLJ province to Russia began from 1991.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

APPENDIX 2 – Meetings and Consultations Person met for Technical Consultation Name Position Unit Emial Tel Luobei County (18 Feb,2009) Du Debin Director Luobei County 6823378 Communication Bureau Guo Assistance of Luobei Port Bingchuan the head of Committee county Sun Xiaoliang Deputy Luobei County 6828313 Director Communication Bureau Gao Fengbin Division Luobei Custom 6826981 Director Wang Division Luobei Transport 6822937 Yaozong Director and Management Bureau Zkao Le Deputy Luobei Trade and 6830551 Director Business Bureau Jiayin County ( 19 Feb, 2009) Tian Hongwei Deputy Jiayin County 13304580023 0458-6191537 Director Communication Bureau Wang Lijun Deputy Jiayin Port [email protected] 0458-2678083 Director Committee Yu Huijiang Official Jiayin Custom [email protected] 0458-2678903 Wang Jinkai Team leader International 0458-3835877 Transportation Team of Xinchuan Group Xunke County (20 Feb, 2009 morning) Ruan Jianqiao Deputy Xunke Government Director of County Guo Yu Director of Xunke Custom Xunke Custom Zhao Director Xunke Foreign Shuanglin Affair Port Office Lu Jingjin Deputy Xunke Foreign Director Affair Port Office Heihe City (21 Feb ,2009 Afternoon) Li Zeguo Director Heihe Port Office 13904568356 Huang Deputy Heihe Port Office 13845651695 Guochen Director Gong Wei Director Heihe 13845694111 Communication Bureau Ni na Division Heihe Port Office Director Wang Dechen Manager Port Hongyun Ganghang Co., Ltd

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

APPENDIX 3 – 12th & 13th FiVE Year Plan Skeleton Highway Network Arrangements of Heilongjiang Province

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

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