38 Appendix 2, page 1

POVERTY AND SOCIAL DIMENSIONS ANALYSIS, AND SUMMARY RESETTLEMENT ACTION PLAN

A. Introduction

1. The Project specifically targets poverty intervention by addressing critical agricultural and water supply constraints in a poor inland province. Because the water supply and irrigation component necessitates some resettlement from the pump site and regulating reservoir, a resettlement action plan was prepared.

B. Socioeconomic Profile of Potential Beneficiaries

2. Demographic features. Agricultural communities in West constitute about 83 percent of the total population, rising to 95 percent in Yichuan and Songxian. Twelve of the 32 counties in the project area are nationally designated poverty counties.1 While 98.4 percent of the population is ethnically Han, there are 18 different ethnic minority groups in the project area. Most counties have one or more ethnic minorities, on average 12 minority groups each. Almost 80 percent of the total minority population is accounted for by the three largest minorities: Muslim Hui, 61 percent of all minorities and 1 percent of total population, are concentrated in Zhengping, , Yuzhou, and counties; Manchus, 11 percent of minorities, are concentrated in ; and Mongols, 7 percent of minorities, are concentrated in . The average household size is 4.20, slightly smaller than the province average of 4.59. Average household sizes in counties range from 3.3 in to 5.0 in Yichuan. The average family size in Henan Province is 3.86, suggesting that, on average, most families have one additional household occupant (often a grandparent).

3. Settlement pattern and production systems. Population density in West Henan is 463 households per square kilometer (km²), or 1,945 people per km². Households range from 91 per km² in Songxian to 1,101 per km² in Yima. On average, 41 percent of the population live in mountainous areas with over 90 percent in Xichuan, Lushi, Songxian, Nanzhao and Luanchuan. More than half of the slopes in the mountainous areas are over 25 degrees and, thus, crop cultivation on them is officially prohibited.

4. Due to the uneven distribution of good and poor land under agricultural reform, most farms comprise several plots of varying quality, resulting in diversified farming systems rather than monoculture. In the project area, almost half of the arable land is wholly or partially irrigated.

5. Many villages in the hilly areas are difficult to access by road and lack electricity. In addition, 14.8 percent of the households in the project area lack adequate drinking water.2 The average household size in 332 sample families in the project area was 5.47,3 compared with the average of 4.2 in West Henan.

1 They are Yiyuang, Xin’an, Ruyang, Luoning, Yichuan, Songxian, Luanchuan, Lushan, Mianchi, Lushi, Nanzhao, and Xichuan. 2 With the exception of Mengxia, all counties and 27 percent of the townships (i.e., 13,484 villages) in the project area experience potable water shortages. The situation is most severe in Shanxian (24 percent of households) and Luanchuan (14 percent). 3 Minority families are exempted from strict family planning targets. 39 Appendix 2, page 2

6. Labor availability and gender issues. The labor force in West Henan is about 8 million people, or 45.5 percent of the population. Total employment in the People’s Republic of (PRC) increased by 9.46 percent from 1990 to 1998. At the same time, employment in Henan increased by 22.4 percent. Most new employment in Henan over 1990-1998 was absorbed in the rural areas, although not necessarily in agriculture.

7. The ratio of the male-to-female working population is 52:48. On-farm tasks are typically undertaken equally by men and women with few exceptions, such as men undertaking tree felling and women traditionally raising pigs. Survey data suggest that households relying primarily on their own labor are income maximizers, placing priority on increased economic activity over increased leisure. This work ethic contributes to effective labor availability.

8. There is a slight male bias in the total workforce, but the gender-biased seasonal migration of male labor to off-farm activities results in a developing female bias in farm labor. Women rarely undertake off-farm employment, using slack time for cottage industry and household tasks, but men increasingly take advantage of greater off-farm employment opportunities. Tree crops, requiring little labor input compared with arable crops except in harvesting, will increase the amount of slack time for both men and women. The result will be increased seasonal migration of male labor and increased farm-based activities, such as cottage industry, vegetable growing, and small livestock raising by women.

9. Current income status. The latest detailed income survey of the project area was undertaken in 19954 (Table A2.1). In 1995, about 36 percent of the horticulture households had incomes in the band immediately above the poverty threshold, corresponding to the international poverty standard. In total, almost 70 percent of the target horticulture households were below or only marginally above the international poverty standard.5 Around 61 percent of target livestock households were below or only marginally above the international poverty line.6

10. The per capita net income of rural dwellers in the PRC increased 46.8 percent from 1990 to 1998. The growth rates of farmers' income in the project area and Henan Province were 119 percent and 72.4 percent, respectively, during the same period. The disposable income of residents in urban areas in the PRC and Henan increased 66.5 percent and 61.1 percent, respectively, from 1990 to 1998. Despite this growth, the majority of the project beneficiaries have annual incomes below the average rural incomes in the PRC and below the Henan annual average rural income of Y1,864.7

4 Although there have been changes in project design since 1995, the target group of beneficiaries has remained the same. 5 In 1995 prices, the officially determined poverty threshold income for Henan was Y530 per capita (currently Y700). In target groups for horticulture development, 32.7 percent of households had incomes below Y530, including 17 percent with incomes below Y400 per capita. 6 The proportion of households below the official poverty level in 1995 was 23.1 percent. About 38 percent of livestock households were in the marginal group above the poverty level. 7 One third of beneficiaries were estimated to be below the official absolute poverty level in Henan Province of Y700 per annum (compared with 29.9 percent in 1995). This suggests that the distribution of poverty among potential beneficiaries remains as in the 1995 survey. 40 Appendix 2, page 3

Table A2.1: Income Status of Farmer Households in the Project Area (1995)

Water Supply Item Horticulture Livestock and Irrigation Total Total Households 185,222 21,000 18,645 218,367 Persons 775,034 89,073 51,277 916,104

Per Capita Income in 1995 (yuan) <400 Households 31,780 1,381 0 33,101 Persons 136,804 5,383 0 142,267

400 – 530 Households 28,814 3,467 0 32,281 Persons 121,660 13,874 0 135,534

531 – 850 Households 66,118 7,905 210 74,233 Persons 280,065 33,301 840 315,000

851 - 1,232 Households 40,799 3,020 2,422 49,041 Persons 164,576 26,261 10,210 201,047

1,232 – 1,578 Households 11,269 2,207 5,404 18,880 Persons 43,421 9,261 21,580 74,262

> 1,578 Households 5,442 200 4,609 11,331 Persons 20,428 993 18,647 40,068

11. Social development. Social development has progressed significantly in Henan and the PRC after the economic reforms. From 1978 to 1998, life expectancy at birth rose from 68.2 to 70.8 years in the PRC, and from 68 to 70 years in Henan. The adult illiteracy rate declined from 22.8 to 15.78 percent in the PRC, and from 21 to 14.44 percent in Henan.

C. Poverty Focus

12. Poverty in the PRC. The PRC has made significant progress in reducing the incidence of poverty and improving the living standards of the majority of its population. From 1990 to 1998, the input of funds from the central Government to poverty reduction increased almost three times. Using international standards, currently about 106 million people, or around 13.5 percent of the rural population, live in poverty.8 Only 0.8 percent of the urban population live below the poverty line of $1 per day, but consumption requirements are higher and a poverty line of at least $2 per day is more relevant. As a by-product of enterprise and other structural reforms, poverty is reappearing in urban centers and non-income poverty indicators may be more important.

8 In this period, the incidence of official absolute poverty declined from 9.4 percent to 4.6 percent in the PRC. Such absolute poverty is concentrated in the remote and interior provinces. The latest official statistics suggest that currently about 34 million inhabitants live in absolute poverty. 41 Appendix 2, page 4

13. Government policy toward poverty reduction has followed an area-based concept rather than beneficiary targeting. In 1994, 592 counties were identified as particularly poor, and Government investments were concentrated in these areas. The Poverty Alleviation and Development Office (PADO) was set up at the national, provincial, and county levels to promote area-based development in poverty counties. Funds were used according to local plans for labor-intensive infrastructure (particularly farm-to-market roads and irrigation), agricultural development, and livelihood and rural micro-credit projects.9 PADOs at the local levels are responsible for identifying projects and beneficiaries and maintain a very good recording system of poor households.

14. Particularly vulnerable households such as those of the disabled,10 the elderly, those without shelter, (i.e., the five guarantee households) are supported by the Civil Affairs Bureau (CAB), which undertakes welfare work, distributes grain to households in need, undertakes some livelihood training, and provides disaster relief.

15. Poverty incidence in Henan Province. The rate of reduction of rural poverty in Henan has been much higher than in the PRC as a whole. Henan reduced its official rural poverty incidence from 16.5 percent in 1989 to 4.1 percent in 1998. However, the incidence of absolute poverty in the project area was 50 percent higher than in Henan and the PRC in 1998, indicating that the area needs special attention to poverty reduction. Henan has 10 percent of the poor in the PRC, and 10 percent of the rural population.11 Between 12 million and 18 million people in Henan are seasonal surplus laborers, and 6 million are employed in industry and services.

16. The provincial government of Henan (PGH) is highly committed to reducing poverty. Of the Y18.3 billion budget provision for poverty reduction in 1997 from the central Government, Henan received Y1 billion, of which about Y360 million was allocated for the 12 poverty counties in the project area. In addition, the province, prefectures, and counties raised Y30 million from their own revenue to complement the budget in the poverty counties. Thus, each poverty county has a budget of about Y60 million for poverty reduction.

17. The remaining absolute poor and welfare households (about 0.25 million) in West Henan are often located in isolated upland regions with few natural resources and lack the human and physical assets to benefit from or make use of economic growth. New approaches to poverty reduction programs and more sensitive targeting mechanisms may help to bring them into the economic and social mainstream.

18. The standards for defining poor townships and villages have changed with time. The standards were Y1,280 and Y1,000, respectively, in 1998 current prices. Poor townships and poor villages in Henan were 237 and 2,962, respectively. In 1998, 1.52 million poorest of the poor rural dwellers lived in neither national nor provincial poor counties, and accounted for 47.6 percent of the total poor rural population in the province. The poor population in nonpoor counties were in 1,540 villages of 53 counties.

9 Although the Government program has achieved remarkable poverty reduction, there are some criticisms about the sustainability of the subprojects and the spending of funds. An evaluation by the former State Planning Commission showed that out of the Y10 billion special funds for poor counties allocated in 1994, Y2 billion was not properly allocated or was misused 10 Generally, the rural disabled are not included in the statistics of rural poor. 11 In 1997, about 4 million people in Henan (5 percent of the provincial population) lived below the official provincial per capita annual poverty threshold of Y700 ($85), down from 13.8 million in 1986. 42 Appendix 2, page 5

19. Poverty in the project area. The poor population in Henan is unevenly distributed. Of the 17 regions at prefecture level, 5 (Nanyang, Luoyang, , , and ) are considered particularly poor (Table A2.2). Three of the five regions in which the poor population is concentrated are in the project area. According to the international poverty threshold, about 70 percent of the targeted households for horticulture and 61 percent of those for livestock in West Henan are living in relative poverty.

20. Of the 22 counties and three other administrative areas or districts currently committed to participating in the Project, 9 are officially designated national poverty counties, but poverty is spread throughout all the project counties, even in the urban areas. About 12 percent of the 12.6 million population in the project area live below the international poverty threshold, compared with 9 percent nationwide.

Table A2.2: Distribution of Rural Poverty in Henan (1998)

Region Poor counties Poor townships Poor villages (%) (%) (%) Total 100.0 100.0 100.0 Xingyanga 26.5 25.7 14.4 Luoyanga 20.6 13.9 11.2 Zhumadian 14.7 9.7 11.0 11.8 1.7 3.3 Nanyanga 8.8 9.7 10.1 8.8 12.2 7.8 Sanmenxiaa 5.9 2.1 5.2 Pingdingshana 2.9 9.7 9.1 0 2.1 4.1 0 7.6 7.4 Xinxiong 0 4.2 5.2 0 0.4 3.0 Kebi 0 0.8 2.5 Jiyuana 0 0 2.5 0 0 1.4 Jiaozhuo 0 0 1.2 0 0 0.5 a County within the project area. Source: Henan Provincial PADO.

21. In the project area, 41.6 percent of the poor rural population reside outside the designated poor counties. The proportion of the poor population living in the nonpoverty counties has increased with time, mainly due to the effective regional targeting policy for poverty reduction. Since the mid-1980s, poor counties in Henan have received poverty reduction funds of Y5 billion, while the poor households in nonpoor counties received almost nothing before 1998. Compared with poverty in the officially designated poor counties, the situation of poor households in nonpoor counties is even worse. In 1998, the per capita income and consumption expenditure for the poor in nonpoor counties were 9.1 percent and 8.8 percent lower than those for the poor in the poor counties.

22. There is a clear correlation between non-income measures and poverty in the project area (Table A2.3). Poor families have less arable land, consume more than they earn, have 43 Appendix 2, page 6 smaller and poorer quality housing, and are more likely to be illiterate. Accordingly, per capita net income acts as an adequate proxy for other quality-of-life measures in the project area.

Table A2.3: Income distribution and variation of non-income welfare in project area (1998)

Y700- Y962- Y1,924- Y3,140- > Y6,280 Item Average < Y700 Y962 Y1,924 Y3,140 Y6,280 Per capita net income 1,912.7 550.9 842.4 1,437.0 2,388.9 4,030.3 8,320.1 Per capita arable land (mu) 1.25 0.98 1.01 1.19 1.38 1.48 1.23 Per capita consumption expenditure 1,234.1 799.7 824.7 1,039.1 1,422.9 2,141.4 3,082.3 Per capita housing area (m2) 24.3 17.8 18.6 23.0 26.2 32.8 36.4 Adult illiteracy rate (%) 4.2 7.0 6.8 4.3 3.9 1.4 1.6 Source: Henan Provincial Rural Social and Economic Survey Team

D. Poverty Reduction as a Secondary Project Objective

23. Strategic thrust. Sustainable poverty reduction must structurally address the socioeconomic conditions that prevent poor people from creating opportunities for themselves and allow the Government and other stakeholders to include vulnerable groups in the socioeconomic mainstream. Hence, projects with poverty reduction as a strategic development objective need to change the underlying conditions that cause poverty, in addition to including poor people as project beneficiaries.

24. Baseline socioeconomic information and the PGH commitment to poverty reduction have been used to determine the new poverty classification most appropriate to the Project. The Asian Development Bank’s (ADB’s) current classification system requires that in a project with poverty as a secondary development objective, at least one third of direct beneficiaries must be poor, or one or more of the project components and 20 percent or more of the total project budget must be designed specifically for the poor. This Project meets these requirements and adds a specific poverty targeting and monitoring mechanism.

25. ADB’s Poverty Reduction Agreement with the central Government will be prepared in 2000. PGH indicated its strong support for the Project’s help to the poor and noted that ADB's new strategy is in line with current Government policy calling for sustained efforts to eradicate absolute poverty. The project area poverty agencies and the Rural and Urban Investigation Teams of the Statistics Bureau will assist the implementing agencies (IAs) to select at least 40 percent of the direct rural and urban beneficiary households with an annual per capita income level below $1 and $2, respectively. The agencies will use the established poverty recording system to monitor the contribution of the Project to poverty reduction. The agencies will prepare an annual progress report to be integrated in the progress report of the Project Management Office (PMO), which can be used for further beneficiary targeting and adjustment of the project design.

26. Generating income and employment. Project components are integrated to benefit the poor. By (i) focusing on labor-intensive production in horticulture and livestock, (ii) assuring a fair mechanism of income distribution between pilot enterprises and households, and (iii) addressing problems in the rural marketing system, the Project will significantly reduce poverty and promote equitable growth on a sustainable basis. The Project will also stimulate rural economic growth (primary objective) and will directly benefit about 0.9 million people in West Henan. 44 Appendix 2, page 7

27. During implementation, project impact data need to be generated: (i) the increase in the average per capita income in West Henan during the project period, (ii) the number of households in the target area lifted out of poverty, and (iii) the Project’s contribution to reduction of the incidence of poverty in the province.

28. Targeting poor beneficiaries. PADO and other poverty agencies will work together with PMO to ensure that at least 40 percent of the beneficiary households are currently poor according to international poverty definitions. However, selection needs to be carefully done so as not to threaten the economic viability of the subprojects. The selection process will be transparent and villagers will be able to comment on whether the process is equitable and accurate.

29. Financing ongoing poverty reduction. The Project will generate at the county level a sustainable mechanism to finance poverty reduction. By establishing a revolving fund, the Project will enable the county governments to generate additional income that can be targeted for additional poverty reduction projects in agriculture. Early repayments from onlending to end users will be channeled through the Provincial Finance Bureau (PFB) to supplement the budget of PADO and/or the participating technical agencies. For example, the provincial poverty reduction budget for the 99 Henan counties is currently about Y60 million: Y30 million from the central and Y30 million from the local governments. The Project could generate about Y40 million per year as additional agricultural funds for 22 counties in West Henan.

E. Summary of Resettlement Action Plan (RAP)

30. Land totaling 2,448 mu (1 mu = 0.06 ha) will be acquired for the Project, and 367 households (1,603 people) will need to be resettled. The RAP formulates measures to alleviate adverse impacts in accordance with national and regional laws and regulations and the resettlement policies of ADB. The objective is effective land acquisition and resettlement activities so that the production and livelihood of the affected population can be restored to the pre-project level (if not higher).

31. The pump site works affect Xipo village, Chencun Xiang, , and the whole village has to be relocated. Xipo has 29 households and a population of 130. The average family size is 4.13 persons, and the average farmland is 1.6 mu per person. It is very difficult to get drinking water, and the villagers fetch water 3 km away from the village. Accommodations are poor, and most villagers live in mudbrick and wood houses and caves. In 1996 (before relocation), the average annual household income was Y5,200: Y1,800 - Y3,000 for 4 households, Y3,000 - Y6,000 for 19 households, and Y6,000 - Y9,200 for 6 households.

32. The Xiduan village regulating reservoir affects Xiduan village of Chidi Xiang, Houhe and Chencun villages of Chencun Xiang. There are 338 resettlement households (1,473 people). The average farmland is 2.4 mu, and the average family size is 4.01. The average income per person is Y2,295, 19 percent higher than the average for the countyY1,927.

33. A detailed land acquisition and resettlement design was completed in 1996 and a Resettlement Management Office was set up at Huaiba Water Resources Bureau. The draft resettlement plan was reviewed by ADB consultants (and staff) at least three times since 1996 and has been substantially improved by the time of appraisal. Two of the five planned new resettlement villages have already been set up, and 125 households (496 people) have been 45 45 Appendix 2, page 8

resettled. Of the four planned schools, two have been set up and put into operation. To date, an area of about 1,000 mu has been acquired.

34. The RAP preparation encompassed the following steps.

(i) Set up resettlement management organization. (ii) Determine the scope of land acquisition and relocation according to the project design. (iii) In accordance with the requirements of Reservoir Inundation Treatment Design Specification for Hydropower Projects and the Physical Index Investigation Guidelines for Reservoir Inundation by Hydropower Projects issued by the Ministry of Water Resources, investigate the physical conditions in the land acquisition area. The social and economic conditions in the affected area of the Project are also to be investigated. (iv) Determine the appropriate rates of compensation for land acquisition and resettlement. (v) Verify the results of physical index investigation and household questionnaires. (vi) Select relocation destinations for the people to be resettled. (vii) Formulate livelihood resettlement plan for new settlers. (viii) Formulate production resettlement and income restoration plan for the new settlers. (ix) Formulate a resettlement implementation plan. (x) Before implementing the resettlement plan, provide systematic training to the staff at the resettlement office. (xi) Formulate reporting mechanisms and hire a monitoring and evaluation organization. (xii) Prepare to organize for implementation. (xiii) Publicize the resettlement plan and seek feedback from affected persons.

35. The county resettlement office formed a property measuring team with the townships, villages, and production teams concerned, and the properties of the people to be resettled have been measured, calculated, and verified according to different categories. The settlers are involved in the measuring process, the results are publicized on the spot, and the settlers concerned acknowledge the results by signing the documents. The results are posted as bulletins, so that the settlers can monitor the calculated property results for the village. The compensation rates and the amount for each household are publicized on bulletin boards, and after verification by the resettlement household concerned, registration cards are filled out for each item and each household. Then the household, production team, village, township, and county sign and stamp the card. One copy is kept in archives, the other copies are kept by the resettlement household concerned, the Relocation Branch. and the Finance Branch of the County Resettlement Office, respectively.

36. The survey shows that 367 households (1,603 people) must be relocated, and production resettlement carried out for 1,551 people. The Project needs to acquire 2,448 mu, including 2,061 mu farmland, accounting for 84 percent of the total amount of land acquired. Channel construction requires the lease of 613 mu. Houses totaling 48,046 m2 will be relocated, including 4,476 m2 brick-cement houses, 20,027 m2 brick-wood houses, 1,248 m2 brick caves, 9,160 m2 earth caves, and 2,703 m2 houses of other types. 46 Appendix 2, page 9

37. The land compensation rate for permanently acquired land is determined at six times the unit output, plus a resettlement subsidy at four times, giving a total land compensation rate of ten times the unit output. The farmland compensation rate was calculated to be Y2,570 per mu. The annual output value of fruit orchards was calculated on the basis of produce and price, and a mature fruit garden ready for harvest was estimated at Y15,000 per mu, while an immature orchard was Y4,500 per mu. The compensation for land for housing and public work areas is the same as for dry land. In addition, each resettled household receives resettlement subsidies for moving and transportation, material loss, loss of work, and others.

38. Five new resettlement villages are planned: Xipo of Huaiba village, Dongling of Duancun village, West Slope of Duancun village, South Slope of Houhe village and North Slope of Houhe village. The new villages have advantageous locations and flat surfaces. Vacant land surrounding the villages ensures the potential for future development. More important, the new villages are within 1 km of the original villages, so that the transportation, power, and water supply facilities are easily upgraded.

39. The following preferential policies apply to the resettled persons: (i) projects related to industrial and agricultural production in the project area are given priority, and in the recruitment process, the workforce of the resettled and the residents of the relocation destinations are given priority; (ii) agricultural aid, poverty-aid fund, and other social development funds such as transportation, post, education and health services are provided to support the livelihood and production activities of the resettled: (iii) housing construction for the resettled households is exempt from the farmland utilization levy, land utilization levy, real estate taxes, and other fees; (iv) the industrial, agricultural, and animal farming levies of the townships are adjusted according to the impact after relocation; (v) stone, sand, and roof tiles for the construction of the settlers' new houses are exempt from the mineral resource levy; and (vi) a support fund is set up as a poverty-aid fund for the new settlers in later stages, to ensure that they can make a living even in special circumstances. The settlers from the reservoir area also benefit from the reservoir area maintenance fund and the reservoir area construction fund. The direct compensation for such settlers (land, houses, relocation, and house construction subsidy) totals Y22.3 million. Relocation of public facilities costs Y4.8 million, while other costs are Y1.8 million. Combined with price and physical contingencies, the total resettlement cost is Y27.9 million ($3.4 million), which has been incorporated in the project costs.

F. Summary

40. In summary, the Project is expected to bring direct benefits to approximately 205,000 households. The plan is to have at least 40 percent of poor peopleaccording to the international poverty standardamong the Project area beneficiaries. About 340,000 people12 are expected to increase their per capita income above Y1,000 as a result of the Project.

12 The total number of beneficiaries is derived from the production models. Counties responded to a questionnaire identifying the poor townships and villages they would include in the Project, and the proportion of poor people within those poor areas identified for each project activity.