The World Bank

Home , Donggang District, Sishui County, Wulian County

Document of The World Bank

Public Disclosure Authorized Report No: ICR00003941

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-78820)

Public Disclosure Authorized

ON A

LOAN

IN THE AMOUNT OF US$ 60 MILLION

TO THE

PEOPLE’S REPUBLIC OF CHINA Public Disclosure Authorized FOR A

SHANDONG ECOLOGICAL AFFORESTATION PROJECT

Jan. 31, 2017

Public Disclosure Authorized Environment and Natural Resources Global Practice China Country Office East Asia and Pacific Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective August 2016)

Currency Unit = Renminbi (RMB) Yuan RMB 1.00 = US$ 0.15 US$ 1.00 = RMB 6.47

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ACS Administrative and Client Support BP Bank Procedures CFB Country Forest Bureaus CPMO County Project Management Office CPS Country Partnership Strategy CO2 carbon dioxide DO development objective EA environmental assessment EACCF World Bank China Country Office EIB European Investment Bank EIRR Economic Internal Return Rate EMP Environmental Management Plan FIRR Financial Internal Return Rate GoC Government of China HS Highly Satisfactory Ha Hectares IA Implementation Agreement IBRD International Bank for Reconstruction and Development ICR Implementation Complementation and Results Report ISR Implementation Status and Results Report IP Implementation of Project M&E Monitoring & Evaluation MPMO Municipal Project Management Office MTR Mid-term Review OCC Opportunity Cost of Capital OP Operational Policy PAD Project Appraisal Document PES Payment for Environmental Services PCN Project Concept Note PDO Project Development Objective PLG Project Leading Group PMO Project Management Office

PPMO Provincial Project Management Office PPM Project Participatory Manual PMP Pest Management Plan QAG Quality Assurance Group QEA Quality at Entry Assessment QSA Quality of Supervision Assessment RMB renminbi (Chinese currency) S Satisfactory SA Social Assessment SEAP Shandong Ecological Afforestation Project SFB Shandong Finance Bureau SIL Sector Investment Loan SPP Species (plural) TF Trust Fund TTL Task Team Leader USD United States Dollar USA United States of America UK United Kingdom WB World Bank WTO World Trade Organization

Acting Senior Global Practice Director: Julia Bucknall Practice Manager: Iain G. Shuker Project Team Leader: Liu Jin ICR Team Leader: Garo Batmanian

China Shandong Ecological Afforestation Project

CONTENTS

Data Sheet A. Basic Information ...... i B. Key Dates ...... i C. Ratings Summary ...... i D. Sector and Theme Codes ...... ii E. Bank Staff ...... ii F. Results Framework Analysis ...... ii G. Ratings of Project Performance in ISRs ...... v H. Restructuring (if any) ...... vi I. Disbursement Profile ...... vi

1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 4 3. Assessment of Outcomes ...... 10 4. Assessment of Risk to Development Outcome ...... 20 5. Assessment of Bank and Borrower Performance ...... 21 6. Lessons Learned...... 23 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...... 24 Annex 1. Project Costs and Financing ...... 25 Annex 2. Outputs by Component...... 26 Annex 3. Economic and Financial Analysis ...... 30 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 37 Annex 5. Beneficiary Survey Results ...... 39 Annex 6. Stakeholder Workshop Report and Results ...... 40 Annex 7. Summary of Borrower's Completion Report and Comments on the Draft ICR 41 I. Project Overview ...... 41 II. Factors affecting implementation and outcomes ...... 43 III. Project Achievement ...... 45 IV. Evaluation of Bank and Borrower performance ...... 48 V. Experiences and Lessons Learned ...... 49 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 51 Annex 9. List of Supporting Documents ...... 52 MAP: Updated IBRD 37238 ...... 53

A. Basic Information

Shandong Ecological Country: China Project Name: Afforestation Project ID: P112759 L/C/TF Number(s): IBRD-78820 ICR Date: 01/31/2017 ICR Type: Core ICR People’s Republic of Lending Instrument: SIL Borrower: China Original Total USD 60.00M Disbursed Amount: USD 60.00M Commitment: Revised Amount: USD 60.00M Environmental Category: B Implementing Agencies: Shandong Provincial Forestry Department Cofinanciers and Other External Partners: None

B. Key Dates

Revised / Actual Process Date Process Original Date Date(s) Concept Review: 08/25/2008 Effectiveness: 09/01/2010 08/11/2010 Appraisal: 08/31/2009 Restructuring(s): - - Approval: 05/06/2010 Mid-term Review: 10/25/2013 10/31/2013 Closing: 07/31/2016 07/31/2016

C. Ratings Summary

C.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Low Bank Performance: Satisfactory Borrower Performance: Highly Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: S Government: HS Implementing Quality of Supervision: HS HS Agency/Agencies: Overall Bank Overall Borrower S HS Performance: Performance:

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No N/A at any time (Yes/No): (QEA): Problem Project at any Quality of No N/A time (Yes/No): Supervision (QSA): DO rating before S N/A Closing/Inactive status:

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Forestry 80 80 Public administration- Agriculture, fishing and forestry 20 20

Theme Code (as % of total Bank financing) Climate change 20 20 Land administration and management 80 80

E. Bank Staff

Positions At ICR At Approval Vice President: Laura Tuck James W. Adams Country Director: Bert Hofman Klaus Rohland Practice Iain G. Shuker Ede Jorge Ijjasz-Vasquez Manager/Manager: Project Team Leader: Jin Liu Susan Shen ICR Team Leader: Garo J. Batmanian ICR Primary Author: Richard Owen and Weiguo Zhou

F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To demonstrate effective afforestation models for environmentally degraded areas in support of Shandong's environmental afforestation programs.

Revised Project Development Objectives (as approved by original approving authority) Not revised.

(a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Increase of vegetation cover in project sites (%): a) Degraded mountainous areas Value quantitative or 16 60 - 73 Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Achieved. Increase of 57% over baseline exceeded target increase (44%) by Comments almost 30%. Sites were planted with a mixture of at least 4 indigenous species (incl. % (spp) of trees & shrubs. Better-than-expected coverage with 95% survival and achievement) diversified spp now thriving in planted areas. Indicator 2 : Increase of vegetation cover in project sites (%): b) saline coastal area Value quantitative or 7 55 - 59 Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Achieved. Target increase over baseline exceeded by 8%. Sites were planted with Comments a mixture of between 4 and 9 spp of trees & shrubs with 85% survival. The use of (incl. % genetically superior seedlings resulted in better-than-expected coverage by achievement) improving the growth and salt tolerance of selected tree spp. Increased number of plant species growing on project sites (No.): a) Degraded Indicator 3 : mountainous area Value quantitative or 10 30 - 40 Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Achieved. Target increase over baseline exceeded by 50%. Diversified local spp Comments were brought to the sites. The nurse effect of these spp has encouraged the natural (incl. % regeneration of additional spp. In some areas, where only 4 spp were planted, 10 achievement) spp were found to be growing 5 yrs later. Increased number of plant species growing on project sites (No.): b) Saline Indicator 4 : coastal area Value quantitative or 3 15 - 18 Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Comments Achieved. Target exceeded by 20%. Planted trees lowered soil salinity and (incl. % provided protection from the desiccating effect of wind. This favored the achievement) development of ground vegetation and contributed to species diversification. Improvement in environmental conditions: a) decrease in soil erosion in Indicator 5 : mountainous area (percentage of baseline) Value quantitative or 100 80 - 32 Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016

iii

Comments Achieved. Target exceeded by a factor of 3.4. Data in monitoring plots showed a (incl. % much higher-than-expected reduction in run off in mountainous areas due to tree achievement) growth very fast and ground cover restored far denser than expected. Improvement in environmental conditions: (b) decrease in wind velocity at 5-10 Indicator 6 : time of tree height (percentage of baseline) Value quantitative or 100 85 - 48 Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Achieved. Target exceeded by a factor of 3.5. A judicious selection of species Comments coupled with the use of superior seedlings ensured that both the growth and (incl. % survival of planting stock were good, and the resulting wind-breaks proved very achievement) effective in reducing wind speeds.

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Areas of degraded mountain revegetation established: a) limestone mountain Indicator 1 : areas (ha) Value (quantitative 0 18,600 - 19,341 or Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Comments (incl. % Achieved. Target exceeded by 4% with 95% survival rate. achievement) Areas of degraded mountain revegetation established: b) granite/sandstone Indicator 2 : mountains (ha) Value (quantitative 0 19,400 - 17,556 or Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Partially Achieved. 91% of target achieved with 95% survival. The 10% shortfall Comments in planting was due to the withdrawal from the project of Julai Forest Farm and (incl. % Binzhou Economic Development Zone. Areas designated for planting in these achievement) two areas were transferred to saline coastal sites.

Indicator 3 : Areas of wind protection plantations in saline coastal areas established under the project (ha) Value (quantitative 0 27,600 _ 30,018 or Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Achieved. The target was exceeded by 9 %.

Indicator 4 : Length of road and dike/canal protection plantation established (km) Value (quantitative 0 1,900 - 2,150 or Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Comments Achieved. The target was exceeded by 13%, helped on by an adequate supply of (incl. % seedlings and strong political support to address the problem of wind erosion and achievement) wind born dust. Indicator 5 : Number of different local tree and shrub species available in the project areas Value (quantitative 15 44 - 50 or Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Achieved. The target was exceeded by 13%. This increase was made possible by Comments (a) having adequate native spp seedling production capacity in some existing (incl. % nurseries (b) training, and (c) an upsurge in demand for native spp which provided achievement) the nurseries with the incentive to expand and diversify their output. Indicator 6 : Number of draft technical recommendations/guidelines developed and adopted Value (quantitative 0 10 - 10 or Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Comments Achieved.. All 10 recommendations/guidelines have been extended to and are (incl. % being applied in the field, all of which will result in efficiency gains. achievement) M&E system for physical and financial inputs and outputs established and Indicator 7 : operational Value (quantitative - Achieved - Achieved or Qualitative) Date achieved 12/31/2009 07/31/2016 - 07/31/2016 Comments Achieved. The M&E system was operational from Year 1 of the project (incl. % implementation and provided project management with the necessary tracking, achievement) control and monitoring data throughout implementation.

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/28/2011 Satisfactory Satisfactory 11.35 2 03/26/2012 Satisfactory Satisfactory 20.44 3 12/20/2012 Satisfactory Satisfactory 25.67 4 06/24/2013 Satisfactory Satisfactory 47.82 5 12/17/2013 Satisfactory Satisfactory 53.72 6 06/24/2014 Satisfactory Satisfactory 56.21 7 12/19/2014 Satisfactory Satisfactory 56.21 8 06/15/2015 Satisfactory Satisfactory 58.51 v

9 12/11/2015 Satisfactory Satisfactory 58.51 10 10/31/2016 Satisfactory Satisfactory 60.00

H. Restructuring (if any) No restructuring.

I. Disbursement Profile

1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. The negative environmental impacts of two decades of unprecedented economic growth in China were becoming apparent, not least of which were air and water pollution and soil erosion. The increasing frequency of natural disasters was also raising some uncomfortable questions about the sustainability of unbridled growth. This situation encouraged the government of China (GoC) to consider ways and means of achieving a better balance between economic growth, the environment and sustainable natural resource management. A combination of factors helped move opinion in this direction. First, income, living standards, and tax revenues had reached levels where, in addition to introducing policies aimed at correcting this imbalance, the government could also afford to provide the funds to make it happen. Second, public awareness of the consequences of pollution and environmental degradation (health, climate change, natural disasters, declining water quality, and erosion) was becoming more acute. Consensus was emerging that more attention needed to be paid to environmental conservation if the gains of the past two decades were to be protected.

2. In the forestry sector, development work in the 1990s focused mainly on timber production, with heavy emphasis being put on the expansion of industrial monoculture plantations, with insufficient attention being paid to biodiversity conservation and ecological stability. One of the consequences of this was that pest incidence increased, productivity fell, and biodiversity was lost. This development, coupled with a growing public awareness of the importance of environmental conservation, prompted a rethink of policies pertaining to natural resources management and forestry. The first major shift came in 2006 with the government’s 11th five-year plan for the period 2006-2010. This plan aimed at sustaining the development of China’s “socialist market economy” while achieving important balances, including those between people, nature, and the environment. The scene was now set to reorient forestry development away from plantation monocultures towards environmental conservation and ecological stability.

3. Moves to refocus forestry development came fastest in the economically more advanced provinces such as Shandong where water shortages and declining water quality were becoming serious issues. Shandong Province has a low forest cover of only 13.4 percent, ranking as the 22nd among the provinces in China with total forest area of the whole province of 2.54 million ha at the project appraisal. Soil erosion, droughts, desertification and flooding are frequent problems in the province. This not only affects land productivity and people’s living conditions but also continues to degrade the natural resource base in large areas of Shandong. Remarkable efforts by the provincial government have brought an increase in the forest resources. However, as a reflection of the combined factors of the growing pressure on the environment, the changing preferences of the people, and the higher living standards, environmental services of forests have gained increasing recognition and importance in government’s policies and priorities.

4. In line with the national strategy, the provincial efforts are shifting towards the environmental and public good functions of forest development and to include afforestation of less productive and highly degraded lands. Five major environmental forestry programs

were included in Shandong Provincial Forestry Development 12th Five-year Plan (2010- 2015) with around 786,000 ha ecological afforestation being developed in this period, which include: (i) afforestation of mountainous areas with a poor vegetative cover; (ii) establishment of a protection forest system in coastal zone areas combined with engineering measures; (iii) farmland protection forest system project with focus on sand control and the establishment of a farmland forest protective network in the old Yellow River bed area and the northwest of Shandong; (iv) greenery and beautification for the urban and rural areas; and (iv) new establishment and improved protection of wetlands and nature reserves. The Bank financed Shandong Ecological Afforestation Project was designed to support the first two most important afforestation programs of promoting the establishment of environmental forests with a primarily public goods function in the most challenging areas.

5. Environmental afforestation with mainly public goods outcomes requires a different approach in terms of technical design, funding and management. Shandong’s Government therefore sought the World Bank’s financial and technical assistance to tackle the technical challenges of forest establishment in marginal land and switching from monoculture for timber plantations to mixed structured ecological plantations. The support was sought to assist with adjusting the institutional arrangements to reflect the rural villages and farmers’ preferences and needs and generate win-win results, as the vast majority forest land belongs to villages in rural areas.

6. Rationale for Bank involvement. Prior to the project, the Bank had been supporting forestry in China for over 20 years, with most assistance being focused on improving timber output, quality, and standards. Building on this experience, the Bank was able to tap international and national experience in environmental forest management to help tackle the challenges associated with the afforestation of marginal lands, and to enhance the environmental and social efficacy of the new afforestation programs. Given that Shandong had very limited local experience in the establishment of forests for environmental purposes, the Bank’s role was crucial to success by introducing new technology, and facilitating access to international experience.

7. At appraisal the project was consistent with the Bank’s China Country Partnership Strategy (CPS 35435-CN, May 23, 2006) and directly contributed to achieving the CPS’s objective of “managing resource scarcity and environmental challenges.” which focused on improving the management of natural resources such as land, grasslands, forests, and water resources. During implementation and at completion the project continued to be relevant as it was fully consistent with the Country Partnership Strategy for China for FY2013–2016 (CPS 67566-CN, October 11, 2012). In particular, the project supported Outcome 1.5, “Demonstrating sustainable natural resources management,” of Strategic Theme 1, “Supporting Greener Growth.”

1.2 Original Project Development Objectives (PDO) and Key Indicators 8. The Project Development Objective (PDO) was to demonstrate effective afforestation models for environmentally degraded areas in support of Shandong's environmental afforestation programs. It was to do this by establishing site specific mixed species

demonstration models on degraded mountain and coastal sites to reduce soil erosion, and runoff, improve soil quality and reduce wind speeds.

9. The key indicators used to measure the achievement of objectives were: (i) percentage increase of vegetative cover in project sites; (ii) percentage increase in the number of plant species growing on project sites; and (iii) improvements in environmental conditions of project sites such as decreases in soil erosion and wind velocity.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 10. There were no changes to the PDO and key indicators.

1.4 Main Beneficiaries 11. The primary direct beneficiaries were the 26,556 farm households participating in the establishment of environmental plantations under the project. Of the participating households, more than 20 percent were headed by women. The main benefits enjoyed by these households included employment in tree planting, and the additional benefits from economic tree crops (nuts, fruits, and tea), non-wood forest products (seeds, mushrooms, and poultry and understorey livestock) and wood products (thinning and pruning). Farmers also benefitted from training, as did staff in the provincial and County Forestry Bureaus (CFB).

12. The project provided indirect, but very important benefits to the entire province, as well as tourists and other visitors, in the form public goods (improved environmental services). Various communities and subsets of the provincial population are also expected to receive more specific medium- and long-term benefits as a result of increased tourism, growth of the nurseries sector, employment as forest guards, possible future environmental protection subsidies or management payments for established plantations, as well as improved livestock management conditions and better functionality and lower maintenance costs of canals and roads in areas protected from wind-blown sand and salt.

13. As a demonstration project, longer-term and more far-reaching benefits of the reforestation/afforestation and revegetation approaches implemented, and the beneficial effects demonstrated, are leading to their adoption in other degraded areas.

1.5 Original Components 14. The project comprised two components:

Component 1 (U$90.62 million) - Environmental Plantation Establishment 15. This component comprised two sub-components, namely:

(a) Revegetation of Degraded Mountainous Areas which aimed at establishing tree and shrub vegetation on 38,000 hectares of highly degraded hillsides with shallow sandstone- and limestone-derived soils. On such sites, mixed species tree and shrub planting was used to produce a dense, multistory vegetative cover. The objective was to

create a diverse, multistory vegetative cover to reduce soil erosion and runoff, and to produce a diversified landscape over the longer-term; and

(b) Protective Plantations on Saline Coastal Areas which aimed at establishing multistory, mixed species tree cover on 28,000 hectares of saline soils in the Yellow River Delta. Planting focused in areas where agriculture was important and where the government had already invested in infrastructure such as roads, dykes, drains, and irrigation canals, much of it designed to reduce soil salinity. Mixed species tree and shrub planting were used to protect agriculture from desiccating winds, improve soil productivity, and stabilize newly created alluvial lands.

Component 2: Technical Support and Project Management (US$6.35 million). 16. This component financed: (i) infrastructure and equipment to help diversify and upgrade nursery seedling production; (ii) applied research to monitor project impact, develop new technology, improve cost-effectiveness and fill information gaps; (iii) extension to disseminate innovative project practice (mixed species afforestation for ecological rehabilitation) and promote best forestry practice; and (iv) training, technical services and equipment to strengthen project management capacity in implementing agencies and communities; and (v) monitoring and evaluation (M&E) to report on project performance, evaluate progress on the achievement of the PDO, and confirm compliance with environmental and social safeguards.

1.6 Revised Components 17. No changes were made to project components.

1.7 Other significant changes There have been no changes to the scope of activities, the PDO or the Results Framework during project implementation. However, one state owned forest farm (Ju Liashan) and one district (Binzhou Development Zone) withdrew in year one when local government programs assumed responsibility for activities originally planned for the project, thereby leaving 28 participating counties in total (rather than 30). In addition, four of the eleven nurseries originally included in the project were found to be capable of satisfying the project’s seedling requirements without project help. At the time of the midterm review (MTR), the funds originally assigned to the entities which withdrew and to the nurseries which did not need assistance were reassigned to coastal area planting, within the same financing category.

2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 18. Project preparation took around one year from project concept note (PCN) review to Bank appraisal. This is a reasonable timeframe for a large and widely geographically distributed project requiring a good deal of field work. The quality of preparation was good in that it was analytical, identified the right issues and came up with carefully dimensioned, innovative proposals relevant to Shandong’s environmental requirements. Above all, it was

highly supportive of the Chinese government’s 11th five-year plan 2006–2010, and of Shandong’s Forestry Development Strategy.

19. Assessment of the project design. Project design provided the correct balance of activities, with most emphasis being put on the establishment of demonstration planting models. Design was also strong on innovation, and this provided the practical support needed to help bring about a change of mindset from monoculture plantations toward mixed, multistory planting for ecological restoration. The “demonstrating by doing” approach proved to be an effective way of convincing risk-averse farmers and skeptical decision makers both inside and outside the project area that ecological afforestation was a viable way of restoring ecological balance in degraded areas. Site selection criteria also ensured that field activities were directed to sites with high demonstration potential, and the geographical coverage ensured that most site conditions in Shandong were covered. Adequate provision for training, technical back-up, research and extension also helped build farmer confidence and strengthen their interest in the project.

20. Project indicators were functional and easy to measure. Those aimed at assessing the achievement of the PDO proved to be robust and useful. However, M&E revealed that the project’s positive impacts were far broader than anticipated, and at the time of the MTR, it was decided that those data should also be used to demonstrate the achievement of the PDO. This was especially true of the project’s environmental and social impacts, and of the very valuable achievements made under research which generated data highly relevant to the achievement of the PDO. This information proved very useful to assess the impact of project activities on, for example, soil characteristics and fertility, biodiversity conservation, sedimentation, and farmer income (employment, and income from crops, poultry and non-wood products).

21. Assessment of government commitment and stakeholder involvement. Preparation correctly assessed the implementation capacity of participating institutions, and practical and effective institutional arrangements were put in place to guarantee smooth implementation. Lessons learned from previous Bank natural resources management projects in China were also taken into account in preparation. The main lessons were: (i) project innovation can change the forestry paradigm; (ii) demonstration is an effective way of promoting change; (iii) training has a very positive impact on project outcome; (iv) well designed, simple M&E systems are the most effective way to assess project impact; and (v) outcome- and quality-based disbursements favor rapid implementation.

22. A social assessment (SA) was undertaken to ensure that best practice was followed, a part of which involved a participatory planning exercise to make villagers aware of the project and to reassure them that participation would be strictly voluntary. A project participatory manual (PPM) was provided for to ensure that transactions and decision making were transparent. Training was provided for beneficiaries, and preparation ensured that the needs of vulnerable, marginalized groups were identified and properly addressed. The risk of women and poorer households being marginalized was reduced by inviting them to participate in village-level consultations. Site selection criteria screened out lands in dispute, and the project’s technical design was adjusted to better adapt it to local requirements.

23. Assessment of risks. At the time of appraisal, risks were appropriately rated as Moderate, these being; (i) project planting might not deliver additional environmental functions in terms of soil and water conservation in areas with an existing dense grass/shrub cover; (ii) afforestation models and species planted are not suitable for the marginal soil and climatic conditions in project sites; (iii) implementation agreements between county/city governments and households and/or planting entities may not be transparent, or insufficiently clear in terms of roles and responsibilities; and (iv) sufficient counterpart funds may not be available and disbursements may be delayed. In actual fact, none of risks identified posed threats to the project. This was because (i) criteria used for site selection excluded areas with dense undergrowth so tree planting produced significant incremental ecological benefits; (ii) models proved sufficiently flexible to accommodate demanding site conditions; and (iii) adequate institutional capacity, coupled with strong political commitment, proved more than capable of dealing with risks related to clarity and transparency of implementation agreements and availability of counterpart financing and fund flows.

24. No significant environmental impacts were anticipated, and none occurred. However, as a precaution, possible negative impacts were identified and mitigation measures put in place to deal with them. In addition, safeguards were also embodied in the Environmental Management Plan (EMP), including Environmental Protection Guidelines (EPG) and the Pest Management Plan (PMP).

25. A risk not identified during preparation was rising labor and material costs, and appreciation of the Chinese renminbi (RMB) which reduced the value of the project financing in local currency. These factors put pressure on project finances and could have caused problems. However, strong political commitment and farmer interest in the project served to mitigate this risk. Cost-cutting measures and innovative field practices such as smaller planting holes, smaller seedling size and lower planting density (the three smalls) also helped to lessen this impact somewhat.

26. Quality at Entry: The Quality Assurance Group (QAG) did not carry out a Quality at Entry Assessment (QEA) for the project.

2.2 Implementation 27. Ten multidisciplinary supervision missions visited the project at six monthly intervals between 2010 and 2016, with subject matter specialists being provided by the Bank, FAO, University of Alberta, and three Chinese Universities/Research Institutions. These missions provided guidance to the client on the technical aspects of project design, silviculture in mountainous terrain, afforestation of saline soils, and compliance with the Bank’s environmental and social safeguard policies, and financial probity.

28. In the early stages of the project, supervision missions detected a lack of local project staff and farmers understanding the PDO of new afforestation technical approach demonstration. So a considerable effort was put into explaining the PDO with focus on the transition of traditional afforestation practice and ensuring that local people fully understood what was meant. In addition, supervision missions made sure that project staff appreciated the importance of evaluating the cost-effectiveness of different models, and of

the need to continually assess the impact of training. To help project staff keep abreast of new project related technologies, the Bank organized three international workshops to discuss the latest developments in project related activities.

29. Studies have been conducted to improve water retention, reduce runoff and sediment loads in rivers, and analyze the implications of these improvements for downstream water treatment costs. Preliminary conclusions indicate that conifers make a more limited contribution to soil quality improvement than do broadleaf trees, and that multistory stands with good ground cover have the greatest positive impact on soil quality improvement. Such work will help to refine technological packages in the future and improve the cost- effectiveness of ecological afforestation. Through research, jujube producers in Dongzao have also benefitted from obtaining accreditation under the Sustainable Producers scheme (green labelling). This accreditation enables them to obtain a price premium of between 30 and 50 percent for certified produce. An additional project benefit to emerge is that the number of pest species in the project sites has been reduced, thereby demonstrating that mixed species plantations with a mixed structure are far more resilient to pests and diseases than are traditional monocultures. A comparison of data from traditional monoculture plantation and the project’s mixed species stands also revealed that pest incidence in project sites on rocky mountainous areas was between 5 and 15 percent lower in project plantations.

30. A MTR was conducted in 2013, and no major issues were identified which might compromise the realization of the PDO. Few recommendations for follow-up were made. The most important revelation was that project research was generating a wealth of information that could be used to complement that being collected during monitoring. In MTR discussions with the client, it was agreed that research data on such parameters as soil quality, run-off and biodiversity should also be used to assess the technical project’s impact and the realization of its PDO.

Factors outside the Control of the Government or Implementing Agency 31. On one hand, high rates of economic growth in China in the last decade favored the project by increasing government revenues and improving the capacity of implementing agencies to meet additional counterpart funding requirements. On the other hand, wages increased from RMB 60 per day at the time of appraisal to RMB 100 at closing, which substantially increased project costs, especially for planting. During the same period, the RMB appreciated against the US Dollar and this reduced the amount of local currency available under the loan. This, together with an increase in fertilizer and transport costs, led to a significant increase in planting costs. The shortfall in counterpart funding was made up by county governments and beneficiaries (see Section 3.3 for details).

32. The drought of 2013 reduced survival rates in some plantation areas, but the replanting took place by using counterpart funds.

Factors Generally Subject to Government Control 33. The policy framework put in place by the national and provincial governments in 2008 created a solid foundation for the project by providing a clear ecological focus for forestry development.

34. The shift towards ecological forestry requires a long term commitment from farmers and, for this, security of tenure is essential. The Forest Tenure Reform Program, which permits thinning, regeneration cutting and the harvesting of non-wood forest products and understorey activities, provided this security by granting farmers a 70-year lease over their land.

35. Staff stability within the provincial project management office (PPMO), county project management offices (CPMO) and the Shandong Forestry Science Research Institute, the Shandong Academy of Forestry, and the Shandong Agriculture University provided the continuity needed to ensure smooth implementation. It also facilitated constructive relations between the client and the Bank.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 36. M&E design. Project monitoring and evaluation design produced data adequate to monitor progress and the achievement of the PDO. The key indicators were: (i) increases in vegetative cover; (ii) increases in the number of plant species growing at project sites; and (iii) improvements in environmental conditions, namely decrease in soil erosion in mountainous areas and a decrease in wind velocity in coastal saline areas.

37. Measurable impact values were available for both indicators in the Key Performance Indicators Table, and for the monitoring program (See tables in Annex 2). The latter generated valuable data on environmental improvements and impacts, together with those pertaining to physical progress and expenditure. In addition, M&E generated valuable data to assess the project’s impact on communities, pest incidence, soil quality, seedling survival, cost effectiveness of models and changes in soil salinity.

38. M&E implementation. Impact and performance indicators proved to be robust and effective. Data collection and evaluation were undertaken by the Shandong Agriculture University using parameters set out in the Project Appraisal Document (PAD) and the Project Implementation Plan (PIP). M&E progressed smoothly, baselines were established in year one and information was gathered thereafter in a timely manner.

39. M&E utilization. Monitoring data were used to: (i) evaluate physical progress, calculate costs, assess efficiency, determine impacts, and measure progress towards the realization of the PDO; and, (ii) establish a stronger results chain linking project activities and outcomes, and in particular to gather more detailed data on a wider range of dimensions related to environmental and social improvements. Consequently, parameters such as soil porosity, water retention, runoff, sedimentation, soil organic content, biodiversity, and farmer income were also used to measure project progress and the realization of the PDO.

40. M&E also performed a key role at the field level through “check and acceptance,” or quality control. This not only ensured that the quality of planting was up to standard, but also ensured that the provisions of the EMP and PMP were being complied with. In addition, it obtained beneficiary feedback on project interventions to identify any possible negative social impacts.

41. Given the amount of valuable environmental data collected by project M&E activities, the MTR mission agreed that this should also be used to reflect the broader impacts of the project, especially with regard to wind speed, soil salinity, soil water retention capacity, soil biological activity, water quality and employment.

2.4 Safeguard and Fiduciary Compliance 42. Safeguards. Project preparation and supervision ensured that the project complied fully with the Bank’s safeguards and fiduciary requirements and safeguards were carried out in a satisfactory manner. The project was classified as a Category B, and triggered the safeguards for Forestry (OP 4.36), Environmental Assessment (OP 4.01), and Pest Management (OP 4.09). During preparation an Environmental Assessment was carried out, and an Environmental Management Plan (EMP), including Environmental Protection Guidelines (EPG) for Plantation Establishment and Management and Pest Management Plan (PMP), were prepared. In addition, a Social Assessment was conducted. Most social and environmental concerns were integrated into the project design and were implemented appropriately. The Bank supervision missions worked closely with the provincial PMO on the relevant monitoring to ensure that there were no deviations of safeguards compliance issues.

43. There were no interventions in native forests and rigorous site selection ensured that plantations did not impair either forest ecology functions or biodiversity. The potential environmental issues associated with soil disturbance and erosion during planting, possible use of herbicides and pesticides, watering, were minimized through technical measures such as: (i) using small planting holes; (ii) using large number of local species; (iii) planting mixed structure stands; (iv) not using any invasive species; and (v) providing EMP trainings to local staff and participating farmers. The implementation of PMP ensured that pest and disease outbreaks were tightly controlled and that, wherever possible, Integrated Pest Management was used to replace chemicals.

44. The combined efforts of government authorities and local farmers resulted in a win- win situation where eco-forest rehabilitation and local livelihood development was achieved by the project. For their part, farmers enjoyed the benefits resulting from project employment (planting and tending) and from the income generated from forest products such as fruits, nuts, seeds, mushrooms, poultry raising, tree thinning, and ecotourism, etc. They also enjoyed the benefits resulting from reduced soil erosion and improved water quality, together with the social benefits resulting from capacity building and skills enhancement. Women were especially well placed to take advantage of the latter.

45. Fiduciary. All project audits were unqualified. A procurement assessment and a financial management assessment carried out during preparation concluded that the organization, structure, skills and control systems at provincial, county and forest farm levels were adequate. Financial Management Manual and Procurement Guidelines were developed to guide the project implementation and, to supplement these, annual training courses were provided to staff of provincial and county PMOs and project entities. Bank supervision missions regularly reviewed procedures being followed in the project to ensure that Fiduciary and Safeguards requirements were being complied with at all levels. Counterpart funding was found to be in arrears on occasions, and/or not recorded correctly,

and misunderstandings occasionally arose in financial management, especially at county level soon after project start-up. However, these shortcomings were quickly rectified through guidance and training provided during supervision.

2.5 Post-completion Operation/Next Phase 46. Plantation establishment inputs comprise mainly tree planting and tending (weeding and fertilizing) in the first two years, most of which has been completed during the project. Post-project maintenance will consist mainly of pest management and fire prevention and control. The capacity and procedures to handle these are very well established in existing forestry institutions, with additional support being available at provincial and county government levels should it be needed. As ecological forest plantations, national and provincial governments have already put in place an annual grant of 225 RMB/ha for ecological forests management and this will help ensure the continuity of the program after project closure. In addition, in plantations needing more intensive management, additional funding is available through the National Forest Management Program which provides RMB 1,500/ha for tending and thinning operations aimed at improving plantation quality. With support available from these sources, villagers and forest farms will be able to handle future forest management needs.

47. In addition to the above incentives, plantation owners will be able to realize returns from such products as fuel and posts from thinning and pruning, together with the sale of non-wood forest products such as fruits and nuts from economic tree crops, understory activities such as poultry, and ecotourism. Income from these activities should help sustain project activities over the longer term.

3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Relevance of the objectives Rating: High 48. The objectives, which were captured clearly and concisely in the PDO, were “to demonstrate effective afforestation models for environmentally degraded areas in support of Shandong’s environmental afforestation program.” These models, and the government’s program, were more specifically aimed at reducing soil erosion, run off, biodiversity loss and wind speeds through the promotion of mixed species afforestation. The project supported this by providing impetus to farmers to make the much needed shift away from commercially orientated monoculture plantations toward mixed stand forestry for ecological restoration. The objectives were also directly supportive of the Shandong Provincial Development Strategy by developing, demonstrating, and disseminating technically sound and cost-effective environmental afforestation models that target soil conservation, protection of agriculture, landscape rehabilitation, water management, and biodiversity conservation.

49. The objectives were, and still are, highly relevant to the national government’s existing Five-Year Development Plan (2016-2020) aimed at achieving more sustainable development by incorporating environmental conservation into development. Most

importantly, the Shandong afforestation program that was directly supported by the project, as well as other provincial and national afforestation efforts indirectly supported by the same demonstration models, are extremely relevant to achievement of China’s Nationally Determined Contributions (NDCs) under the Paris Agreement (ratified by China on September 2016). One of the four key actions in the China NDCs is a commitment to increase forest stock volume by around 4.5 billion cubic meters by 2030 compared to the 2005 level (an increase of about 2.3 billion cubic meters compared to 2014). This target would be achieved through policies and measures to “vigorously enhance afforestation” as a means of increasing carbon sinks, including the scaling up of the models demonstrated in this project.

50. In particular, the objectives were highly relevant to Shandong’s provincial forestry development strategy, which focuses on environmental afforestation. For example, it developed and demonstrated effective afforestation models in degraded mountainous areas and saline coastal sites, provided relevant experience in how to do the job, and generated valuable lessons learned in support of the Shandong Government’s Barren Mountain Afforestation Program and Coastal Protection Forest Development Program. The latter comprises a key part of Shandong’s 12th Five-Year Forestry Development Plan (2010- 2015) which aims at greening marginal land and promoting the transition from monoculture plantation to mixed species forest plantations with improved environmental functions and higher resilience to pest and diseases. In addition, technical models developed by the project were disseminated over an area of 84,000 ha, and project afforestation models, together with the relevant technical guidelines for their use have been included in the Shandong Provincial 13th Five-Year Forestry Development Plan (2016- 2020).

51. Finally, the PDO and design were entirely consistent with the Bank’s objectives of the previous and current CPS (CPS 67566-CN, October 11, 2012) and Bank’s Policy on forestry.

Design and Implementation Rating: Substantial 52. The demonstration approach of the project was highly appropriate given the innovative nature of many project activities, the large area to be covered, and the uncertain attitudes of farmers towards mixed species planting for ecological purposes. Project design also proved flexible enough to incorporate farmers’ needs, especially the inclusion of species intended to cater for their financial needs.

53. Information generation and dissemination were key to promoting ecological forestry in Shandong, and in this respect, the provision of clearly focused, project-related information, together with dissemination and skills upgrading, helped the project gain acceptance in rural areas and, therefore, proved to be a highly relevant aspect of the project design. The development and use of the Participatory Planning Manual also proved to be an effective instrument to strengthen farmer confidence to the project, and to encourage farmer participation; it also helped foster a strong sense of ownership. The inclusion of economic tree crops in models was a prudent design feature which enhanced participation

and prospects for sustainability. At project closure, all farmers expressed their satisfaction with project outcomes, especially the provision of employment and improvements to their environment and livelihoods, which speaks to the relevance of both project objectives and design.

54. The project’s institutional arrangements proved robust and functional. The Shandong Forestry Bureau proved to be a capable institution, as was its Provincial Project Management Office (PPMO). The Project Leading Group at provincial and county levels also functioned well, especially when the need for a 27 percent increase in counterpart funds arose.

55. Including carbon emission reductions as a possible financial benefit may have appeared ambitious at time of preparation given the declining price for carbon. However, it proved to be a very useful exercise to demonstrate that the economic benefits of the project could be significant. In any case, carbon finance was only one of many possible environmental services or benefits, and was not critical to the project rationale, efficiency, or economic/financial analysis. Regardless of the carbon market, or eligibility of the project activities for such finance, the increase in tree mass does sequester carbon. China is preparing to launch its own domestic carbon market in the near future. This project provides an interesting demonstration for forest based carbon sequestration.

3.2 Achievement of Project Development Objectives Rating: High

56. The rating for achievement of objectives is based on a single objective as captured in the PDO: “to demonstrate effective afforestation models for environmentally degraded areas in support of Shandong’s environmental afforestation program.”

57. While only one objective is formally rated, various dimensions of the objective, such as the demonstration value, effectiveness of models, and success in supporting the Shandong afforestation program that are critical to achievement of the objectives are also discussed in detail below and their achievement would also have been considered high if they had been treated as distinct objectives.

58. The project either achieved or exceeded all the PDO indicator targets, and was highly supportive of Shandong’s Environmental Afforestation Program, as shown in the table below. The project demonstrated effective afforestation models for environmentally degraded areas by: (i) increasing vegetative cover in degraded mountainous and saline coastal areas; (ii) increasing the number of plant species growing in project sites; (iii) increasing vegetative cover in targeted watersheds; and (iv) improving environmental conditions by decreasing soil erosion in mountainous areas and decreasing wind velocity in coastal areas. These indicators provide clear evidence of the demonstration models effectiveness in improving forest and vegetative cover and other measures of environmental conditions in different types of highly degraded forest land.

59. More important is that the project’s plantation models were untested and innovative and the effectiveness of the project’s demonstration function can be judged by how

effective it was in increasing public interest in project activities, how successful it was in mainstreaming project activities into development programs, and to what extent scaling- up took place outside the project area.

60. A clear indication of the overall impact and effectiveness is that the demonstration effect is already taking place, as about 84, 000 ha of project model plantations have been established on degraded and saline sites outside the project area. This is remarkable considering that prior to the project, deep skepticism existed at all levels on the viability of mixed species afforestation (as opposed to monocultures), and their use for rehabilitating degraded sites. However, as the project progressed, so did interest in its outcome. By the end of the project, 230 visitations had been made to the project by persons from some 20 different provinces in China. Having combined careful species selection with cost-effective field practice, good maintenance, and innovation, the project was able to demonstrate that mixed species planting was a viable option for the ecological restoration of degraded and saline sites. With the impact of these demonstrations, combined with an effective extension and training program, the project technology has been mainstreamed into the work programs of forestry institutions in the province, and into provincial development programs, including the provincial 13th Five-year Forestry Development Plan (2016-2020).

61. Further evidence of demonstration effectiveness can be seen in the efficiency gains resulting from project interventions, as compared with traditional practice. Compared with non-project areas, seedling survival in degraded mountainous areas is between 15 and 20 percent higher in project areas, whereas in saline areas, survival rates are between 20 and 25 percent higher. Losses from pests in both areas are between 5 and 15 percent lower than in non-project areas. Additional efficiency gains have also resulted from technological innovation (30 percent lower costs with the ‘three smalls’) and genetic improvement (see para. below).

Impact Indicator Baseline Target Actual Value (PAD) (ICR) 1. Increase of vegetative cover (tree, grass and shrub) in Project sites (%) a)Degraded mountainous area 16% 60% 73% b) Saline coastal area 7% 55% 59% 2. Increase in number of plant species growing on project sites (No.) a) Degraded mountainous area 10 30 40 b) Saline coastal area 3 15 18 3. Improvement in environmental conditions a) Decrease in soil erosion in mountainous area 100 reduced to 80 reduced to 32 (percentage of baseline=100) b) Decrease in wind velocity at 5-10 times tree height ( baseline=100) 100 reduced to 85 reduced to 48

62. Planting targets under Component 1 were exceeded slightly (101 percent or 66,915 ha planted), and all areas were tended in accordance with the tending schedule. The quality of planting was high, and survival rates met the required standards (95 percent in mountainous areas and 85 percent in saline coastal areas). Only minor adjustments were made to planting targets within sub-components, these being due to the withdrawal of two project

implementation units and the exclusion of the four nurseries which did not require upgrading. Funds not needed for these activities were allocated to planting in saline coastal areas.

63. Progress under Component 2 was also good. Field trials in degraded mountain areas demonstrated that optimum results can be obtained by using a combination of a planting hole of 40cm x 40cm x 30cm deep, a fish scale water harvesting depression above the planting hole, the use of one to two years old seedlings at 2m x 3m spacing and a grass mulch. This approach (“the three smalls” – smaller hole, smaller seedling, and lower planting density) can reduce planting costs by 30 percent and improve seedling survival by 10 percent. The use of 12 superior seed stock of Ulmus (elm) has also delivered significant improvements in its salinity tolerance. For example, its survival rate in soils with 0.35 percent salinity has been improved by 10 percent, whereas in soils with over 0.5 percent salinity survival rates of 85 percent are being achieved. Better species-site matching, provenance trials with Platycladus, and the direct seeding of black locust have also reduced costs significantly, and the introduction of environmentally benign biodegradable seedling containers eliminated the need to use plastic containers. Through research, four patents were obtained for the tissue culture varieties of Ulmus.

64. Plantation environmental sustainability was improved through the application of Environmental Protection Guidelines, site screening, and the adoption of a PMP, while the capacity and efficiency of institutions was much improved through training. Capacity and efficiency were also strengthened by having more precise information on species choice, access to the latest technological information on ecological forestry and conservation, and the creation of a range of demonstration models to extend best practice in ecological forestry to end-users.

65. Innovation, Demonstration and Dissemination. Using planting models, demonstration areas, research, extension and rigorous impact evaluation (financial and technical), the project succeeded in demonstrating that mixed species plantations are an effective way to restore ecological balance on degraded hillsides and saline coastal flats. It also demonstrated how cost-effectiveness can be improved through research and how farmer income can be improved by adjusting species mixtures, and incorporating understory activities and economic crops. This demonstration approach proved very effective in convincing farmers and decision makers that mixed species, tree and shrub planting can successfully restore ecology in degraded and saline areas. It also demonstrated that ecological forestry can also generate economic and financial benefits. These achievements will help provide impetus to farmers to shift away from production forestry with monocultures to mixed planting for ecological plantations. Further evidence of the effectiveness of the project’s demonstration impact lies in the planting of over 50 million patented white elm seedlings (developed under the project) in high salinity land in both project area and 10 other provinces in China.

66. Prospects for sustainability look promising because: (i) project activities have been main-streamed into provincial level operations with the necessary financial arrangements for plantation maintenance; (ii) passing ownership of planted areas to householders and communities will provide them with the incentive to undertake follow up management and

protection; (iii) institutional capacity has been strengthened at all levels; (iv) the strategic vision for ecological forestry development has been strengthened through demonstration and training; (v) the incorporation of economic tree crops on lower slopes, and understory activities in saline areas (poultry, mushrooms, seeds) will improve financial returns to farmers; (vi) growing domestic consumption in China should stimulate the demand for economic tree crop products and understory products; and (vii) SEAP technology is being scaled up in support of the Shandong government forestry program, part of which is to be financed by the European Investment Bank’s afforestation program. Details of project outcome and outputs are available in Annexes 2 and 3.

67. The project’s training program exceeded its planned targets. Despite restrictions imposed by central government on overseas training, all overseas training courses were undertaken. In total, 62 persons participated in international study tours to Australia, New Zealand, United States, Canada, Brazil, Chile, Sweden, Finland, and the United Kingdom - exceeding the 30 persons planned. Provincial and county level training was also completed, the main focus of which was Management and Quality Control, Financial Management, Pest and Disease Control, Environmental Protection, Silvicultural Design, Nursery Improvement, Forest Tending and Forest Management. Farmer training focused more on planting, tending and best environmental practice. In total, 4,566 courses were completed with 948,500 participants, more than 30 percent of whom were women. The training courses incorporated feedback from participants on the usefulness and relevance of training.

68. The main results of training were: (i) decision makers and farmers came to accept that mixed planting on barren and saline sites is a viable approach to restoring ecological balance, to the extent that mixed planting is now the method of choice; (ii) farmers have become aware of the importance of tending/weeding after planting and this has led to a dramatic increase in survival rates and an upsurge in community confidence in afforestation; (iii) instruction in the “three smalls” approach (smaller seedlings, smaller planting holes, lower planting density) has led to efficiency gains by reducing establishment costs by 30 percent; (iv) project training in the introduction of mycorrhiza treatment and salt tolerant species offers great potential to improve survival rates and broadened species choice in saline areas; (v) instruction on how to undertake the genetic improvement of Ulmus sp. has enhanced survival rates on saline sites; and (vi) training on how to direct seed black locust, and possibly Quercus sp., can greatly reduce planting costs. All these achievements are strongly supportive of the PDO.

69. Project extension has proved successful in promoting the ecological forestry concept. Through its 280 demonstration forest plots covering 2,700 ha in nine counties, the project was able to showcase and promote its achievements. It was also able to disseminate 25 technical and management standards/regulations on the topics of model design, seedling selection and nursery management, environmental protection guidelines, plantation and tending quality check and acceptance methods and etc. In addition, 12 technological packages (e.g. improved provenances of Platicladus, improved varieties of pines, native species promotion, fruit tree development, saline land management, revegetation of saline lands, use of forest structures in saline lands, breeding of saline tolerant poplar, breeding of Ziziphus sp., tissue culture with Ulmus sp., and biological control of Chouioia sp.) have

been promoted in 28 counties, all of which aim to introduce technologically advanced approaches to ecological afforestation. Furthermore, over 50 million seedlings of patented white elm seedlings have been planted on high salinity land in 1,225 ha in 10 provinces outside the project, 90 new tree varieties are being used outside Shandong province, and 230 visitors from other provinces have visited the project to benefit from its experiences.

70. Nearly all achieved values exceed the targets. Of interest is that changes in biomass and biodiversity appear to be strongly correlated with ecological stability. M&E has also produced additional key data on soil loss prevention, the physical and chemical characteristics of soil, water quality, carbon sequestration, pest incidence and social well- being. Monitoring data have also been used to assess the cost-effectiveness of different planting models. Reporting was good throughout, however, because quality checks of planting and survival needed to be conducted one month after the growing season to confirm seedling survival, payments to contractors were delayed and this slowed down loan disbursements.

3.3 Efficiency Rating: Substantial

71. Financial and Economic Analysis Results. At appraisal, a cost-benefit analysis approach was used to evaluate each plantation model in both Degraded Mountainous Areas and in Saline Coastal Areas. For purposes of consistency, the same approach was used to reassess the project’s financial and economic viability at time of closure. The analysis took the following approach: (i) re-estimating yield and production of ecological and economic tree crops based on actual tree species planted and their growth; (ii) using yearly (2010- 2015) market prices for major inputs and outputs and discounted to 2010 constant prices; and (iii) including carbon sequestration benefits at constant US$5/tCO2e for the economic analysis only since no financial gain is anticipated. With this approach, the project shows a 17.1 percent financial internal rate of return (FIRR) and an 18.2 percent economic internal rate of return (EIRR), both higher than those predicted at appraisal.

72. The results of the financial and economic analysis are considered to be conservative because: (i) a higher FIRR would result if revenues from non-plantation activities such as livestock raising, inter-cropping, and tourism were included in the analysis; (ii) an EIRR of 22.3 percent would result if the Bank recommended carbon sequestration price of US$30/tCO2e were to be applied as opposed to the market price of US$5; and (iii) an additional 5.6 percentage points would be added to the overall project EIRR if soil and water conservation benefits1 (not included at time of appraisal) are calculated. Other important eco-benefits would drive the EIRR even higher if they could be quantified, for example, improved micro-climate, increased biodiversity, and improved health. (See Annex 3 for details)

1 Derived from a test run calculation based on data provided by the project’s M&E team and the experience of the Shandong Agricultural University.

73. When considering the FIRR, it should be remembered that beneficiaries are responsible for less than half (46 percent) of the plantation investment (the remainder being met by the project), which would give them an FIRR of 28.2 percent on their investment. This is considered to be a very handsome return in rural areas, and should provide the farmer/beneficiary with a powerful incentive to participate in the project.

74. On efficiency gains, these can be seen on several fronts. First, the upgrading of nurseries and the training of nursery staff have led to the adoption of updated nursery technology and the use of improved seed for the planting of native species. Experience in other countries has shown that the use of superior seed results in productivity gains of 20 percent in the field. Given that growth and survival of planting stock in the project are better than expected in most areas, it would appear that similar gains are being obtained. Second, as mentioned previously, the selection of superior strains of elm and other species has produced productivity gains of 10 percent in saline soils, and has enabled elm to attain survival rates of 85 percent on soils previously considered to be unsuitable for planting. Thanks to this development, over 50 million patented elm seedlings have been planted during the project in 2,875 ha of high salinity land, 1,650 ha in the project area, and 1,225 ha in 10 provinces elsewhere in China, thereby offering the potential to utilize high salinity soils in Shandong, elsewhere in China, and in other parts of the world. Third, and most dramatic of all, is that establishment costs have been reduced by 30 percent with the introduction of “3 smalls” planting technique. Fourth, educating farmers on the importance of tending has substantially reduced field losses, the result being that survival rates have risen from less than 50 percent to between 85 percent and 90 percent. Lastly, and most difficult to quantify, is that training at all levels will contribute to improving operational efficiency generally.

75. Estimates of relative model efficiency have also been made. In degraded mountainous areas, models on the middle and lower slopes (S3, S4, S6, S7 and S8) are the most cost effective, thanks mainly to their ability to yield both financial and environmental benefits. Those on the upper middle and upper slopes yield only environmental benefits. However, all models in degraded mountainous areas show positive economic rates of return – 17.5 percent overall. Rates of return in saline areas are higher and more even overall (27 percent).

3.4 Justification of Overall Outcome Rating Rating: Highly Satisfactory

76. The project’s overall outcome is rated as highly satisfactory because both relevance and efficacy were high and efficiency was substantial. Although the relevance sub-ratings were split between relevance of objectives (high) and relevance of design and implementation (substantial), an aggregate judgement of high relevance in accordance with the Bank’s ICR Guidelines is justified in this case considering: (i) the exceptionally strong relevance of the project objectives to China’s current development priorities and Paris Agreement NDCs; and (ii) relevance of design and implementation being at the high end of the substantial range, with only minor shortcomings that did not significantly diminish the project’s overall relevance or materially affect its efficacy. With high relevance in combination with the project’s high efficacy in achievement of objectives as well as its substantial efficiency, the overall outcome is considered highly satisfactory.

77. The project achieved or exceeded all of its key outcome indicators, developed and demonstrated a range of viable afforestation practices in support of national and provincial policies aimed at arresting environmental degradation, and all activities were fully implemented under the project within the timeframe defined at appraisal. It is important to note that some of the most telling evidence of the project’s outcome, as framed by the PDO and detailed in the ICR, were not included in the formal results framework, which focused more on the effectiveness of investments themselves within the project area. However, these important reflections of the project’s outcome are discussed in Section 3.2 and/or Annex 2 (demonstration nature of the models used and their broader adoption outside the project area both in Shandong and other provinces, as well as some additional measures of environmental improvement).

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development 78. The project has demonstrated that combining economic tree crops and understory activities in ecological afforestation projects enhances the productivity of marginal land and improves the income potential of poor farmers. Such an approach (sustainable landscape management) opens up the possibility of achieving a win-win situation by combining ecological restoration with farm income generation including rural poverty alleviation.

79. From the outset, it was recognized that farmer participation would be essential to success and that participation would need to be voluntary. During preparation, farmers were kept fully informed of the project’s objective, and their views were factored into project design. To cater to differing farmer needs and sites conditions, a degree of flexibility was introduced into the planting model design. Extension, monitoring, and research also helped strengthen farmer confidence in the project approach by ensuring that the most cost effective approaches were being used to achieve ecological restoration; it also provided farmers with the assurance that technical back-up would be available if problems developed. Around 40,000 person years of employment were provided in rural areas under the project, mainly during site preparation, planting and young seedling tending. This provided each participant with about RMB 2,400 of additional income per year, with the potential to earn additional income from improved crop production, non-timber products, and poultry. Finally, with the confidence that ownership of the trees and shrubs planted would pass to them, a strong sense of ownership was engendered, and this helped create strong farmer interest in project activities.

(b) Institutional Change 80. The main institutional changes brought on by the project comprised: (i) a deepening of high level political commitment to ecological forestry in Shandong; (ii) an increase in confidence at sector level in ‘ecological forestry’ for environmental restoration and protection; (iii) the development of county and community level capacities to design and implement ecological forestry programs; (iv) the main streaming of consultation and participation processes into ecological forestry operations; and (v) the creation of local capacity and innovative technology to vegetate saline coastal sites.

Other Unintended Outcomes

81. Scaling up. The development of planting models for ecological restoration has considerable potential for replication, and scaling up is already taking place with 84,000 ha of mixed trees and shrubs having been planted outside the project area. With continued scaling up, hydrological benefits will result from improved stream flow, better water quality and reduced flooding. Given the rising demand for water in Shandong, the economic benefits of improved hydrology will be considerable.

82. Preparing the way for ‘Payments for Environmental Services (PES)’. In common with other provinces in China, the rising demand for water in Shandong is placing severe pressure on its hydrology, including that of the Yellow River. The province has thousands of reservoirs with the water being used for electricity generation, irrigation and domestic consumption. The life of these installations and the quality of water they store is being adversely effected by soil erosion in catchment areas. Ensuring that erosion is kept under control depends on there being adequate incentives in place to persuade farmers in catchments to adopt sustainable land management practices. A promising mechanism to ensure this is the PES. Under a PES, which is like a transfer payment, downstream beneficiaries (hydroelectric plants, irrigation authorities and domestic water suppliers) pay incentives to small farmers in critical catchments to help them adopt sustainable land management. The overall objective is to improve water quality downstream. To design such a system, appropriate land use models must be available together with data on their costs and effectiveness. Thanks to the project, much of this information is now available, and this has greatly improved Shandong’s readiness to commence piloting PES in selected catchments.

83. Carbon Trading Readiness. The project has generated useful data on cost-benefit analysis on the carbon sequestration potential in project areas, and the potential which it has to generate financial and economic benefits (Annex 3). This has improved Shandong’s readiness to enter the carbon trading market once the emission trading system becomes operational sometime in 2017.

84. Spontaneous Natural Regeneration. In mountainous areas, project planting has had an unexpected positive impact on natural regeneration. Having planted a four species mix initially, ten species have been recorded in years 4 and 5. It appears that the initial plantings create favorable conditions for other species to proliferate (the nurse effect) and this results in a richer species mix and denser vegetative cover than expected.

85. The Move towards Landscape Management. Farmers working on barren mountain sides have come to recognize that linkages exist between land use for ecological stability on the upper middle and upper slopes and land use for sustainable production on the lower middle and lower slopes – the “fat for lean” system as they refer to it. That is, they have come to realize that mixed farming (agrosilvopastoral systems) on the middle and lower slopes will benefit from stabilizing the ecology on the upper slopes. This development is noteworthy because it suggests that future interventions should consider focusing on land

management units, with the land within a unit being managed according to its sustainable potential – or sustainable landscape management.

86. Facilitating Green Labelling. The adoption of best practice under the project has enabled jujube producers in Zhanhua to obtain a Sustainable Producer’s Certificate, or green label. Certified producers obtain a price of between 30 percent and 50 percent above that obtainable from uncertified produce. This has proven to be a powerful incentive in support of certification, and best practice.

87. Improved Salt Tolerance of Species. Genetic improvement work with Ulmus (Elm) has delivered significant improvements in its salinity tolerance on highly saline soils, the result being that survival rates have been substantially improved. The salt tolerance of a number of other tree species has also been improved by inoculating the soil with salt tolerant strains of mycorrhiza fungus – a technique introduced with assistance from the University of Alberta, Canada. These innovations have important implications for improving the effectiveness of planting on saline sites by improving growth, increasing survival and reducing costs. Related to this, four patents have been obtained for tissue culture varieties of Ulmus.

4. Assessment of Risk to Development Outcome Rating: Low

88. The risk to the development outcome is considered low because the few risks are being mitigated due to actions taken during project implementation. The main risks are: (i) farmers may neglect to manage areas planted; (ii) pests and fire could damage planted areas; and (iii) climate change might reduce rainfall or increase the incidence of storms and snow, and this could damage planted areas. The first risk has been mitigated by including economic trees in the planting mix, incorporating income generating understory activities where feasible, providing farmers with training in simple forest management practice, and furnishing farmers with simplified management prescriptions for thinning and pruning. Routine pest monitoring by CFB under their post PMP will ensure that pest outbreaks are quickly dealt with. So far, losses from pests and diseases in Shandong have been very low, and there is no reason to suspect that this will change. Mixed stand forests under this projects have also been shown to reduce pest risk relative to monoculture plantations. Regarding fire, this is an ever present risk in Shandong, but a robust and time-proven fire protection program is in place to detect and suppress fires, and losses to fires each year are negligible – less than 1 percent. An additional measure of protection is provided by having plantations in small blocks to reduce the risk of wild fires.

89. Changing weather patterns is a possible risk to planted areas, but with mixed species stands, natural selection should limit losses by favoring those species most adaptable to change to improve forest resilience. Should significant negative impacts be detected, the option exists to adjust species mixtures in new and existing areas.

90. A number of measures were undertaken to improve prospects for sustainability and viability. The avoidance of unintended negative environmental and social impacts was provided for under the project’s environmental and social safeguards. The multi-structure,

mixed species nature of the stands also helped increase resilience to pests, diseases and extreme weather conditions. Sustainability and viability were also enhanced by combining ecological benefits with financial returns (Annex 3). This was achieved by incorporating economic tree crops in the planting mix on lower slopes, promoting understorey activities (poultry, small livestock, honey, mushrooms, seed), and allowing selective thinning. These practices will improve financial returns and improve crop vigor without impeding ecological functions. This resembles a landscape management approach where land is managed sustainably in accordance with its sustainable potential. The potential of this approach has already been recognized by farmers in the project area who refer to it as a ‘fat for lean’ approach where lower returns from ecological forests in fragile areas are managed together with higher returns on more productive land.

5. Assessment of Bank and Borrower Performance 5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory

91. Preparation took around one year from the project concept review and appraisal, which is considered reasonable for a project like SEAP. The proposal was well prepared, clearly focused and thoroughly reviewed. The PDO and design of the project were appropriately dimensioned and supportive of national, provincial and county level development priorities. Safeguard policies were meticulously applied, consultation was extensive, appropriate training was catered for, and lessons learned from previous projects were taken into account. Institutional arrangements worked well, and environmental, social and sustainability issues were well covered.

(b) Quality of Supervision Rating: Highly Satisfactory

92. The project was regularly supervised by staff and consultants familiar with the project. Mission reporting was prompt, accurate and constructive. Any issues which arose were promptly identified and sound advice was given on how to address them, for example, rising costs and the need for additional counterpart funds.

93. Supervision focused mainly on capacity building issues, especially with regard to the project’s innovative technical design and its promotion. Supervision missions also helped the client to gain a deeper understanding of the importance of the PDO, its precise meaning, and the key data that would be needed to verify that it had been achieved. In particular, in the early stages of the project, supervision missions were required to show considerable determination in helping to persuade and guide local project agencies and farmers to move away from the traditional monoculture concept to mixed species planting. It also encouraged them to adopt new technologies, and provided guidance on the implementation of technical models and the training program. Supervision missions also helped to resolve ad hoc problems as they arose. This proactive approach greatly facilitated the shift from monocultures to mixed species ecological forestry.

94. Supervision also provided strong technical support to the client with the global, cross- country knowledge. The project’s most challenging undertaking was planting in saline, coastal areas where high soil salinity and desiccating winds combined to create a hostile environment for tree and shrub planting. Given the complexity of the issue, the Bank mobilized assistance from the University of Alberta, Canada, a center of excellence on this topic. This led the project to use a groundbreaking approach of using a salt tolerant mycorrhiza root fungus to improve the salt tolerance of various tree species. This inexpensive approach to improve salt tolerance of trees by inoculating the soil with mycorrhiza has far-reaching implications for tree planting in saline conditions by improving survival rates, broadening species choice, and reducing costs. Research also evaluated options to improve ground cover, raise seedling survival rates, ameliorate the chemical and physical characteristics of soils, increase microbial soil activity, and improve species drought tolerance. The resulting program of collaboration proved very fruitful, and contributed greatly to the achievement of the PDO, and the strengthening of institutional capacity at the local level.

95. Supervision missions also provided support to the client on topics such as safeguard policies, financial management, and output based payments, thereby facilitating the smooth implementation of project activities. In addition, Bank missions encouraged the client to think ahead to post project management, sustainability and the possibility of using a landscape management approach for future interventions. Furthermore, it suggested that Payments for Environmental Services should be piloted in some areas, and that partnerships with civil society should be fostered to reduce the financial burden on the state of undertaking ecological afforestation. It is understood that new operations in Shandong are likely to include such approaches.

96. The overall rating of satisfactory is based on the lower of the two sub ratings, and is considered justified because the project was strategically focused, soundly prepared, well designed, adequately supervised, relevant to country needs, supportive of Bank and country policies and strategies, and compliant with safeguards.

5.2 Borrower Performance

(a) Government Performance Rating: Highly Satisfactory

97. The Provincial Government showed a high degree of commitment to the project throughout. This is witnessed by the fact that it was able to mobilize substantial additional counterpart funds and replace losses during the 2013 drought. It helped ensure that implementation kept on-track, and ensured that strong support was provided by political leaders at county, city and municipal levels. At no time did serious issues arise with either project management or project performance.

(b) Implementing Agencies

Rating: Highly Satisfactory

98. Promoting a new concept such as mixed species afforestation in degraded and hostile environments was a formidable challenge in Shandong, and provincial and County Forestry Bureaus, City Forestry Bureaus and farmers/communities had to work tirelessly to ensure that the project realized its goals. When the issues and difficulties arose, they were promptly dealt with, and institutions at all levels showed considerable dexterity in dealing with the complexity of the task, they also displayed unwavering commitment to the project throughout. They diligently followed up on matters identified by supervision missions and proved sufficiently flexible to accommodate the different requirements of farmers. They carefully monitored progress, ensured compliance with safeguards and quality, and submitted the necessary reports on time. Above all, they demonstrated strong commitment to the innovative, underlying concept of promoting mixed species afforestation for ecological restoration. The quality of planting and tending was consistently high and reporting by implementing agencies was up to the required standard. In the face of counterpart shortfalls, counties and beneficiaries persevered to ensure that implementation moved ahead.

(c) Overall Borrower Performance Rating: Highly Satisfactory 99. Borrower performance is rated as highly satisfactory to reflect the excellent performance of the government and the effective work done by implementing agencies. The project concept was new and challenging, and involved a degree of risk. However, in their determination to bring about change, government and line agencies at all levels were steadfast in their resolve, forward looking in their approach, and innovative in their thinking; they also proved responsive to challenges and open to new ways of doing things. In addition, they worked diligently, delivered on time and contributed greatly to the constructive partnership which developed between the client and the Bank.

6. Lessons Learned 100. The main lessons learned are:

(a) Projects which are designed around coherent national policy frameworks and local development strategies enjoy strong political support which, in turn, greatly enhances their chances of success;

(b) Integrated afforestation approaches which include mixed species planting, the retention of ground cover, the inclusion of economic activities and the promotion of natural regeneration are ecologically sustainable, financially viable and more resilient to pests and diseases.

(c) To capture the impact of projects which have a broad range of positive environmental and social impacts, using data produced by research and M&E can be an effective way to complement the more limited data produced from simpler, easier-to-measure impact/outcome indicators in the project’s Results Framework.

(d) The participation of communities and households early on in the project planning process (the bottom-up approach), and ensuring that project implementation is responsive to beneficiary needs is essential to fostering ownership and to maintaining beneficiary interest in ecological forestry projects; it is also essential to project sustainability. (e) Strong research-extension-demonstration-training linkages are fundamental to effective technology transfer and the adoption of best practice, and this is best achieved by having a group of highly qualified and motivated subject matter specialists capable of providing the required technical back-up in key areas of project activities.

(f) Flexibility in project implementation (technical design and management arrangements) is essential to ensuring that project interventions remain appropriate to local circumstances and that interventions can be adjusted in the face of changing conditions. In areas with differing land management requirements, a broader, landscape management approach which balances ecology with production could strengthen prospects for sustainable land management in marginal areas.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

101. The Borrower’s completion report and comments on the Bank ICR in Annex 7 are favorable and consistent with our own findings, and did not raise any issues of significant concern requiring comment by the Bank. The overall assessment and rating on the project performance are fully acceptable.

(b) Cofinanciers

102. Not Applicable

Not Applicable

Annex 1. Project Costs and Financing The total project costs and total financing required are summarized in the following tables. (a) Project Cost by Component Appraisal Percentage of Actual Components Estimate Appraisal (US$ million) (US$ million) (%) 1. Environmental Plantation Establishment 90.62 155.64 171.8 2. Technical Support and Project Management 6.35 4.78 75.2 Total Baseline Costs 96.97 160.42 165.4 Physical Contingencies 4.53 - - Price Contingencies 6.80 - - Total Project Costs 108.30 160.42 165.4 Interest During Implementation 3.72 1.55 41.6 Front-end fee IBRD 0.15 0.15 100.0 Total Financing Required 112.17 162.12 144.5

Note: Project Financing. While the IBRD Loan amount, which was fully disbursed by October 27, 2016, is fixed at US$60 million in US$ term for the project, its funding in RMB amount has been reduced due to depreciation of US$ against RMB. Consequently, the significantly increased total project funding requirement to fill the financing gap was met by the governments (at provincial, municipal and county levels) and beneficiaries (participating farmers, farm groups/communities/villages and forest farms) with 44.5% more funding than committed at project appraisal.

(b) Financing Type of Co- Appraisal Estimate Actual /Latest Estimate Percentage of Source of Funds financing (US$ million) (US$ million) Appraisal (%) Government 23.45 27.57 117.6 Beneficiaries 28.72 74.55 259.6 IBRD 60.00 60.00 100.0 Total 112.12 162.12 144.5

Annex 2. Outputs by Component

(a) Overall project outcome is summarized below

Project Outcome Planned at Actual at Completion Appraisal Component 1 - Environmental Plantation Establishment

(i) Successful 38,000 ha of degraded 36,897 ha successfully revegetated revegetation models for mountainous areas re using eight different mixed species degraded Mountainous vegetated models. On upper slopes, non- Areas under different soil commercial species were planted to and slope land conditions improve ecological functions developed and applied (models 1, 2, 3, 5 and 6), on lower slopes commercial tree crops were included (models 4, 7 and 8). 95% survival was obtained. Impact monitoring showed that project models reduced soil erosion by 68%, increased soil porosity increased by 20%, improved water retention by 30% and enriched biodiversity by 40%. Positive ERRs and IRRs were also obtained for models– see below.

(ii) Plantation models for 28,000 ha of Five planting models were used to saline coastal areas windbreak plantations plant 30,018 ha of mixed species on developed and applied established in saline saline coastal areas; 85% survival coastal areas. was achieved. Models reduced soil salinity 68% and wind speed by 61%, 45% and 31% at 5, 10 and 15 times the tree height on the lee ward side of the trees. Genetic improvements increased growth rates and improved survival rates. Correct species selection and planting mixtures raised survival by 30%.

1,900 km of road and Mixed species afforestation took dyke canal protected place along 2,150 km of canals and by mixed species roads, shelterbelts now protect these plantations installations from wind borne dust

and sand; nearby crops are also protected from desiccation. Component 2 - Technical Support and Project Management

(i) Propagation Number of different The aim was to increase the number technology and local tree and shrub of species available in nurseries seed/seedling supply of species available in from 15 to 44; at time of project local tree and shrub project areas. closure 50 species were available species improved in thereby improving the supply of project nurseries good quality planting material for mixed stand, ecological planting.

(ii) knowledge of Number of draft The project introduced 12 new environmental forestry technical technological packages for use in the techniques for key recommendations field. In addition, 85 superior clones environmental fragile /guidelines developed of native species were developed for areas improved and and adopted. planting, and the ‘three smalls’ extended approach was being promoted to improve the cost effectiveness of ecological afforestation. Species mixtures/matching were also promoted to maximize environmental gains. Species hybridization was used to improve species drought resistance and mycorrhiza inoculation to raise salt tolerance. 380 model forests covering 2,700 ha were also established in 9 counties to provide training and to promote SEAP technology. In addition, 40 Technical papers have been published and disseminated

(iii) M&E generates M&E system for The M&E system became lessons for up-scaling physical and financial operational in year 1. A project and transferring project inputs and outputs platform was created to disseminate experiences to other established and project experience and promote areas operational. scaling up. Project technology was used to plant 84,000 ha of ecological forests outside the project area. The project also received 230 visitors from outside the project area who wish to apply SEAP technology in

their home areas. The “3 smalls approach" appears to be of special interest.

(b) The detailed breakdown main project outputs

PAD MTR ICR % of % of Output Indicator Unit Target Target Achieved PAD MTR Value Value Value 1. Environmental Plantation Establishment 1.1 Re-vegetation of Degraded Mountainous

Areas 1.1.1 Areas of degraded mountain re- Ha 38,000 36,499 36,897 96.9 100.9 vegetation established Limestone mountain areas Ha 18,600 19,115 19,341 104.0 101.2 Granite/sandstone mountains Ha 19,400 17,384 17,556 90.5 100.6 1.1.2 Increase of vegetative cover in % 60 n/a 72.9 121.5 - project sites 1.1.3 Planting/seedling survival rate % 90 n/a 95 105.5 1.1.4 Increased number of plant species no. 30 n/a 40 133.3 - growing on project sites 1.1.5 Decrease in soil erosion in Reduce Reduced % n/a - mountainous area (% of baseline) d to 80 to 32 1.2 Protection Plantations on Saline Coastal

Areas 1.2.1 Areas of wind protection plantation Ha 27,600 30,018 30,018 109.0 100.2 in saline coastal areas established 1.2.2 Increase of vegetative cover in % 55 n/a 59.2 107.6 - project sites 1.2.3 Planting/seedling survival rate % 85 n/a 86 101.2 1.2.4 Increased number of plant species no. 15 n/a 18 120.0 - growing on project sites

1.2.5 Decrease in wind velocity at 5-10 Reduced % Reduce n/a - time of tree height (% of baseline) to48 d to85 1.2.6 Length of road and dike/canal Km 1,900 n/a 2,150 113.2 - protection plantations established 2. Technical Support and Project

Management 2.1 Nursery up-grading and Planting

Materials Development Number of nursery upgraded no. 11 7 7 63.6 100.0 Number of planting materials developed mil ps 94.5 n/a 92.0 97.4 - Number of different local tree and shrub no. 44 n/a 50 113.6 - species available in the project areas 2.2 Applied Research, Extension and

Demonstration

PAD MTR ICR % of % of Output Indicator Unit Target Target Achieved PAD MTR Value Value Value Number of technical guidelines developed no. 10 n/a 10 100.0 - and adopted Extension of new technologies no. 12 n/a 12 100.0 - Extension of technical standards and no. 25 n/a 25 100.0 - regulations Establishment of demonstration forest Ha. - n/a 2700 100.0 - plots Extension of salinity tolerant white elm in Ha n/a n/a 2,875 - - nurseries Patent for white elm tissue culture and no. n/a n/a 6 - - degraded mountainous afforestation Extended plantation outside project area Ha n/a n/a 84,000 - - 2.3 Training 868,87 109.2 Domestic training2 p/time 948,500 - 3 - Overseas Training p/time 62 n/a 62 100 - Of which, female p/time n/a 625,036 - - 2.4 Project Management, Monitoring and - - Evaluation 2.4.1 Project management - - Booklets, pamphlets, brochures no. n/a n/a 266,000 - - distributed Specialized publications no. n/a n/a 4 - - Technical thesis no. n/a n/a 20 - - Project web-page no. n/a n/a 1 - - Publicity in local media time n/a n/a 300 - - 2.4.2 Project monitoring and evaluation M&E system established and yes yes yes 100.0 100.0 operational Monitoring report prepared (at semi- no. 14 n/a 14 100.0 - annual, MTR and ICR)

2 Domestic training including PPMO and CPMO provided training to project management staff, nursery technicians and planting entities, including on-site training to farmers.

Annex 3. Economic and Financial Analysis

A. Introduction 1. The economic and financial analysis had been carried out at project ICR using updated prices (at current yearly market prices) of major inputs and outputs, actual project costs (derived from PMO records) and actual/latest projections of major benefits (based on intensive surveys, actual field measurements and true performance of the plantations). For consistency and comparability purposes, the analysis followed the same cost-benefit analysis approach used at project appraisal: (i) excluding costs of and benefits from Technical Support and Project Management Component; (ii) using US$5/tCO2e for carbon sequestration; (iii) following a 13 plantation-model pattern; (iv) based on one production cycle with a 27-year calculation period for each plantation model; (v) discounting all prices to 2010 constant prices; and (vi) analysis for each plantation model, Re-vegetation of Degraded Mountainous Areas subcomponent, Protection Plantations in Saline Coastal Areas subcomponent and the project as a whole to re-assess the project’s financial and economic viability. However, some adjustments were made to reflect the true situation for improved analytical accuracy and creditability including: (i) removing the carbon sequestration benefit from financial analysis as no such benefit was materialized during the project implementation period; (ii) adding fertilizer costs (missing in appraisal assessment) to economic tree plantations; and (iii) harvesting/collecting neither pole nor fuel wood of cottonwood trees. 2. With largely a public goods nature of the project, a number of plantation models were neither designed nor expected to yield robust financial returns. Demonstration of effective afforestation models in environmentally degraded/fragile areas in Shandong and generation of significant long-term environmental and economic benefits are the justifications for inclusion of the plantation models in the project. The project’s taking entire watershed landscaping approach allows middle and lower watershed plantation models and adjacent agricultural land to benefit both financially and economically from improved eco-systems as a result of afforestation in upper watershed. Therefore, the project focused more on performance of the Re-vegetation of Degraded Mountainous Areas subcomponent, Protection Plantations in Saline Coastal Areas subcomponent and the project as a whole rather than performance of individual plantation models. B. Main Assumptions 3. Project benefits. The project’s major quantifiable benefits are derived from (i) the incremental wood and timber products; (ii) the incremental fruit, nuts and tea production; and (iii) the incremental carbon sequestration. (a) The project was designed as an ecological afforestation program. No commercial timber harvest was permitted with limited thinning, trimming, fuel wood collection, and long-term regeneration. The incremental wood and timber products were therefore estimated in the form of live standing wood volume only, and the value of thinning, trimming and fuel wood collection is limited. The latest projection at ICR was to produce, very likely, a total volume of 6.35 million m3 of live standing wood under the project.

(b) The incremental production of fruit, nuts and tea contributed was estimated at 4.74 million ton at ICR including 4.51 million ton of fruits, 0.18 million ton of nuts and 0.05 million ton of fresh tea. This estimate was made based on site surveys, actual growth situation and historical performance of the trees and plants contained in specific plantation models under the project. (c) The quantity of incremental carbon sequestration was calculated following the methodology as adopted at PAD. The “Kyoto Protocol” makes provisions for direct human-induced land-use change and vegetation recovering activities to be considered in relation to each country’s Greenhouse Gases reduction target. All plantations under the project are expected to contribute to the sequestration of carbon with an estimate total of about 12 million tCO2e over the project life time. (d) In addition, the project also generated various other important in-situ, downstream and global benefits as a result of the project implementation. However, none of these benefits has been included in the project’s cost-benefit analysis in order to keep consistency and comparability with the approach taken at project appraisal. In fact, most of such benefits are difficult to quantify. These additional benefits are summarized below: • Improved soil and water conservation. This happened through (i) increased water retention capacity resulting in higher water infiltration rate, less immediate run-off, improved recharging of the ground water and reduced variability in water flows and thus the risk of floods; (ii) reduced soil erosion resulting in reduced sediment inflow to the water systems for an increased effective storage capacity of downstream water systems; and (iii) improved nutrient retention capability in the soils of project plantations resulting in improved soil structure and fertility in situ for an improved productivity with reduced fertilizer costs. The improved soil and water conservation also helped ameliorate saline soil, protect agricultural land and improve its productivity and stabilize newly created alluvial land at the Yellow River mouth delta area. • Increased biodiversity. The project was designed to increase number of plant species growing and restore vegetation cover on project sites. Environmental Plantation Establishment Component served this purpose well. Through project implementation, number of plant species growing in degraded mountainous areas increased from 10 (baseline) to 50 while the number growing in saline coastal areas increased from 3 (baseline) to 18 which significantly protected, restored and increased biodiversity in the project areas. The project also contributed to restoration and improvement of wildlife habitat. • Improved micro-climate in project area. Based on the result of project monitoring and evaluation, vegetative coverage in project sites increased significantly. It increased from 16% (baseline) to 89% in degraded mountainous areas and from 7% (baseline) to 66% in saline coastal areas. At the same time, wind velocity decreased from 100% (baseline) to 48% in saline coastal areas. Other elements for micro- climate effect i.e. air temperature, air relative humidity, soil temperature and soil moisture all indicated positive trends. Improved micro-climate reduced dust and sand storm pollution and would promote ecology’s benign circle.

• Benefit from improved tree seedlings. A total of about 92 million pieces of high quality tree seedlings were produced by project financed nurseries which ensured use of 100% of Grade A seedlings by project beneficiaries. In particular, the successful tissue culture and rapid multiplication technology for salinity tolerant white elm made a breakthrough in harnessing high salinity soil by improving survival rate and preservation rate of tree planting in high salinity coastal land to 96% at a half reduced cost for land preparation resulting in great improvement of land efficiency. This success has been patented by the Chinese State Intellectual Property Office. The fact that over 50 million pieces of patented white elm seedlings has been planted, by the time of ICR, in 2,875 ha of high salinity land in both project area (1,650 ha) and 10 other provinces (1,225 ha) in China provided a likely solution for harnessing high salinity land in Shandong, China and other parts of the world. • Benefit from non-plantation activities. Along with tree plantations, various economic activities were carried out in the project areas by beneficiaries (participating farmers, farm groups/communities/villages and forest farms) and local governments including forest chicken raising, mountain mushroom production, inter-cropping in forests in initial years of plantation etc. With improved local environment and landscape integrity, forest tourism was developed in a number of counties which contributed to a happier life of visitors and sustainable development of the project financed plantations. 4. Input/output prices. Input and output prices used in the financial and economic analysis were updated from Appraisal estimate. The financial input and output prices of tradable products used in the plantation models were prevailing market prices. Since China became a member of the WTO in 2001, China has been increasingly recognized in the international community as a market economy with minimal price distortion where market prices of most commodities and services reflected their opportunity costs. Following a conservative approach, a lower-end price forecast scenario for timber and tree products and minimal prevailing market prices for fruit production are used in the economic analysis. 5. Labor. Almost 70% of the project investment was in the form of labor input. A constant RMB50 per labor-day was used in estimating project cost as well as in both financial and economic analysis at appraisal. During the project implementation, the actual labor cost increased significantly to a yearly average of RMB60, RMB70, RMB75, RMB80, RMB90 and RMB100 per labor-day respectively during 2010 and 2015 which were used at ICR as financial cost for labor as well as the opportunity cost of labor for economic analysis. 6. Plantation pattern and phasing. Thirteen plantation models were developed during project preparation to draw on the implementation experience of previous WB- financed forestry project in China with modifications to fit specific environmental conditions of project area in Shandong province. They were implemented with a total of 66,915 ha of plantations completed including 36,897 ha of re-vegetation of degraded mountainous areas (plantation models S1-S8) and 30,018 ha of protection plantations in saline coastal areas (plantation models Y1-Y5). The plantations were completed in four years from 2010 to 2013 and tending for the trees planted in 2013 was extended to 2015. The completed plantations by plantation models and by year are detailed in Table 1.

C. Project Costs 7. The total project financing required at ICR was RMB1, 031.54 million (US$162.12 million equivalent) against the appraisal estimate of RMB753.48 million (US$112.17 million equivalent) or increased by 36.9% and 44.5% respectively in RMB and US$ terms. This increase was a combined result of the following factors: (i) increased plantation establishment cost caused mainly by increased prices of major inputs (labor, seedlings and fertilizers); (ii) increased total plantation area by 1,315 ha (see Table 1 for details); (iii) extension of demonstration forests to every participating project municipality; (iv) depreciation of US$ against RMB (US$1=RMB6.8 at appraisal and a weighted average exchange rate of US$1=RMB6.3630 at ICR); and (v) reduced investment for certain activities (reduced number of participating nurseries from 11 at appraisal to 7 and savings in office equipment procurement,) and smaller payment of interest during implementation. D. Economic Analysis 8. Economic internal rate of return. The economic analysis has been conducted for each plantation model, Re-vegetation of Degraded Mountainous Areas subcomponent, Protection Plantations in Saline Coastal Areas subcomponent and at project level. The quantifiable benefits used for economic analysis are derived from: (i) the incremental wood and timber products; (ii) the incremental fruit, nuts and tea production; and (iii) the incremental carbon sequestration. In addition, the project has also generated various other important in-situ, downstream and global benefits as a result of the project implementation, such as improved soil and water conservation, increased biodiversity, improved micro- climate in project area, and benefit from improved tree seedlings which are mostly difficult to quantify and for consistency and comparability purposes with the approach taken at project appraisal, they are not included in the economic analysis. The economic benefit flows were calculated according to the achievements by year and by plantation models while the economic cost flows were based on actual investments and projected expenses by year. The conservative analysis generated a robust project EIRR of 18.2%, higher than the PAD calculation of 15.8%. See Table 2 for details. 9. S1 is the only plantation model which yielded an EIRR below 8% of World Bank recommended standard discount rate. The primary reason for the lower EIRR is that S1 was designed to be on top of mountain with steep slopes, bare stony ground with often 15 cm soil depth. The objective of S1 was to increase plant coverage, reduce soil erosion and protect water catchments. However, the EIRR calculation at ICR did not include any environmental benefit. In a test run calculation based on data provided by the project’s M&E team and the experience of the Shandong Agricultural University, adding in situ benefit of soil and water conservation only to the calculation generated an EIRR of 18.0% for S1 and 23.8% for the project. See Table 2 for detail. Even if no environmental benefit is added in economic analysis, S1 would yield 11.9% of EIRR and the project EIRR would increase to 22.3% when the World Bank recommended price of US$30/tCO2e applied for carbon sequestration benefit3 was applied. See Table 2 for detail. Moreover, the economic benefit would be enormous if plantation and expansion of the patented white elm is accounted for economic analysis.

3 See “Guidance Note on Social Value of Carbon in Project Appraisal” – World Bank July 14, 2014.

10. Against the PAD calculation of EIRR at 15.8%, the improved EIRR was due largely to (a) much higher output prices for fruits, nuts and tea as well as live standing wood; and (b) much higher production of fruits, nuts and tea, despite significantly increased economic costs. 11. No sensitivity analysis has been conducted as (a) the output prices for both wood and timber products as well as fruits, nuts and tea have been on an upward trend since project started which is likely to be maintained in foreseeable future and (b) the significant other economic benefits are not accounted for in the EIRR calculation. E. Financial Analysis 12. As stated in the PAD, financial analysis strictly speaking is not applicable to the environmental forestry plantation activities financed under the project. Ideally, a cost effectiveness analysis approach is more appropriate and should have been adopted instead. In fact, such a cost effectiveness analysis was indeed carried out by the government team but nevertheless, was not eventually accepted. Financial analysis was conducted at ICR to re-evaluate the project’s financial attractiveness to the project beneficiaries (participating farmers, farm groups/communities/villages and forest farms). The financial benefits included (a) the incremental wood and timber products; and (b) the incremental fruit, nuts and tea production. The project generated an overall FIRR of 17.1% with 15.8% and 18.7% respectively for Re-vegetation of Degraded Mountainous Areas subcomponent, Protection Plantations in Saline Coastal Areas subcomponent which are attractive. S1 is the only plantation model which yielded an FIRR below 8% of World Bank recommended standard discount rate. The focus of S1 was its expected significant environmental benefit to the entire watershed catchments. Table 3 provided detailed information of the financial analysis results. 13. Despite relatively low FIRR for plantation model S1, the fact that the beneficiaries were responsible for less than half (46.0%) of the total project investment but achieved an FIRR of 28.2% on their investment provided necessary incentives to attract strong interest of beneficiaries to participate in project activities. In addition as indicated above, various non-plantation economic activities have been carried out in project area such as forest chicken raising, mountain mushroom production, inter-cropping in forests, and forest tourism which would also generate considerable financial returns to the beneficiaries. Based on data provided by the PPMO, the FIRR for forest chicken raising (in Hekou) and mountain mushroom production (in Yishui) was calculated at 38.7% and 39.5% respectively.

Table 1: Completed Plantation (ha)

PAD Completed at ICR Models Target 2010 2011 2012 2013 Total Re-vegetation of Degraded Mountainous Areas Model S1 7,081.9 3,806.9 3,503.6 2,379.8 227.3 9,917.6 Model S2 2,777.6 504.7 763.9 272.1 588.3 2,129.0 Model S3 1,903.6 683.5 608.2 671.7 201.7 2,165.1 Model S4 7,174.5 1,106.3 1,178.4 1,331.6 1,575.3 5,159.5 Model S5 6,638.0 2,009.6 2,317.9 1,718.7 378.4 6,424.6 Model S6 4,417.4 787.4 1,246.0 1,423.3 318.7 3,775.4 Model S7 7,890.5 2,726.7 1,525.3 1,887.6 565.1 6,704.7 Model S8 459.9 285.3 195.4 60.7 48.0 589.4 Sub-total 38,343.4 11,910.4 11,338.7 9,745.5 3,840.6 36,896.3 Protection Plantations in Saline Coastal Areas Model Y1 6,594.0 1,270.3 1,219.7 2,725.1 1,147.0 6,362.1 Model Y2 12,588.0 2,095.0 3,624.9 3,970.9 1976.9 11,660.4 Model Y3 1,332.1 322.2 830.1 406.3 - 1,558.6 Model Y4 4,721.2 437.8 1,381.6 801.1 1,365.6 3,986.1 Model Y5 2,393.9 1,470.8 1,806.3 2,847.7 326.0 6,450.8 Sub-total 27,629.2 5,596.1 8,862.6 10,751.1 4,870.3 30,018 Total Project 65,972.6 17,506.5 20,201.3 20,496.6 8,710.9 66,915.3

Table 2: Summary of Economic Analysis (%)

EIRR at ICR EIRR at ICR EIRR at ICR Models EIRR at PAD Base Base+aa/ Base+bb/ Re-vegetation of Degraded Mountainous Areas Model S1 0.2 6.0 18.0 11.9 Model S2 1.1 12.4 21.6 15.8 Model S3 16.4 14.3 21.6 22.0 Model S4 17.7 21.0 24.7 21.8 Model S5 2.0 10.2 19.8 17.5 Model S6 19.8 15.5 26.4 24.4 Model S7 17.7 20.6 24.1 21.1 Model S8 25.1 32.9 34.2 33.1 Sub-total 14.9 16.7 22.8 19.6 Protection Plantations in Saline Coastal Areas Model Y1 11.0 21.1 29.8 37.6 Model Y2 22.3 22.3 25.9 23.6 Model Y3 21.7 18.0 26.0 28.4 Model Y4 15.5 11.3 19.4 23.8 Model Y5 35.0 17.0 23.3 25.9 Sub-total 16.7 20.3 25.3 26.0 Total Project 15.8 18.2 23.8 22.3 a/ in situ benefit of soil and water conservation added. b/ World Bank recommended price of US$30/tCO2e is applied for carbon sequestration benefit.

Table 3: Summary of Financial Analysis (%)

Models FIRR at PAD FIRR at ICR Re-vegetation of Degraded Mountainous Areas Model S1 -0.2 4.6 Model S2 0.5 11.6 Model S3 15.5 12.6 Model S4 17.0 20.7 Model S5 1.5 8.6 Model S6 18.5 13.5 Model S7 17.0 20.0 Model S8 24.4 31.9 Sub-total 14.2 15.8 Protection Plantations in Saline Coastal Areas Model Y1 10.9 17.3 Model Y2 21.5 21.4 Model Y3 20.5 15.7 Model Y4 14.6 8.3 Model Y5 33.4 14.9 Sub-total 16.3 18.7 Total Project 15.2 17.1

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending Susan Shen Practice Manager GSU02 Task Team Leader Economist, Josef Ernstberger Senior Economist GEN2A Consultant Senior Social Development Zongcheng Lin GSU02 Social Safeguards Specialist Jin Liu Senior Environmental Specialist GEN2A Forestry Patria Consuelo M. Morente Senior Financial Assistant TRODR Project Assistant Environment Xin Ren Senior Environmental Specialist GEN2A Safeguards Syed I. Ahmed Lead Counsel LEGAM Lawyer Forestry, David Lamb Forestry Restoration Specialist GEN2A Consultant Jianan Shi Senior Procurement Specialist GGO06 Procurement Senior Financial Management Financial Yi Dong GGO20 Specialist Management Qun Li Senior Agricultural Economist GSU02 Economist Hongwei Zhao Program Assistant EACCF Program Assistant Supervision/ICR Garo Batmanian Lead Environmental Specialist GEN2A ICR Team Leader Jin Liu Senior Environmental Specialist GEN2A Task Team Leader Senior Financial Management Financial Yi Dong GGO20 Specialist Management Environmental Xin Ren Senior Environmental Specialist GEN2A Safeguards Xieli Bai Program Assistant EACCF Program Assistant Senior Social Development Social Safeguards, Zongcheng Lin GSU02 Specialist (Consultant) Consultant Senior Forestry Specialist Forestry, Richard Owen GEN2A (Consultant) Consultant Yunlong Liu Procurement Specialist GGO08 Procurement Economist, Weiguo Zhou Senior Economist GEN2A Consultant

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY09 26.76 163.65 FY10 12.48 104.02

Total: 39.24 267.67 Supervision/ICR FY11 8.45 26.14 FY12 8.40 27.24 FY13 11.03 39.67 FY14 14.09 61.69 FY15 10.02 47.58 FY16 7.62 33.43 FY17 6.95 45.66

Total: 66.56 281.40

Annex 5. Beneficiary Survey Results

Not Applicable

Annex 6. Stakeholder Workshop Report and Results

Not Applicable

Annex 7. Summary of Borrower's Completion Report and Comments on the Draft ICR Borrower Comments on the Draft ICR

The Borrower reviewed the Bank’s draft ICR and provided the following comments: “We have reviewed the project ICR and consider it precisely summarized and evaluated project implementation progress, performance, results, lessons learned, and achievement of PDO. The assessment is objective and explicit, and the Report is well structured with the accurate data and through analysis. The lessons learned from the project have being used to promote the sustainable forestry management in Shandong. The overall assessment and rating on the project performance were fully acceptable.”

Summary of Borrower’s Completion Report

Note: The Borrower prepared a 200-page completion report that was submitted to the Bank and archived in project files. The following summary of its main findings and assessments was provided by the Borrower for inclusion in the ICR.

I. Project Overview

A. Project Background

1. Survey data of 2008 shows that Shandong province has 0.25 million hm2 of degraded mountainous land and 0.533 million hm2 of saline-alkali land; these lands are largely unproductive/barren due to low soil fertility and high levels of salt. . At time of project preparation, forests covered only 13.44 percent of the province’s land area, making it one of the lowest in China. Sparse forest cover, coupled with dissected topography and fragile soils, resulted in severe soil erosion, drought, desertification and flooding, and this in turn was constraining sustainable economic development in the Province. The degraded mountainous land and saline coastal areas of the province produce little or no ecological/environment and economic benefits, and establishing plantations on them is the best way of ensuring that they contributed to the achievement of Shandong’s long term development goals. The provincial government therefore decided to increase forest cover to 30 percent by 2020, and to enhance the ecological functions of areas planted. However, afforesting these difficult sites is very challenging due to the fact mountainous areas are steep, infertile, eroded and drought-prone,; and coastal sites are wind swept, highly saline, have a high water table, and experience high levels of evapo-transpiration. Very few tree and shrub species can survive in such areas.

2. To harness the potential which these areas had to contribute to the achievement of the provincial government’s broader development goals, and to ensure that any such interventions undertaken were sustainable and socially equitable, the Shandong Government requested the World Bank (the Bank) to help it develop a project which would provide solutions to the afforestation of these difficult sites, The overall aim was to

increase coverage of ecologically sustainable forests in priority degraded mountainous areas, and in saline coastal areas where wind erosion was severe. The project proposal which resulted was listed in the Bank’s three-year rolling lending plan (2008–2010), and implementation started in July 2010.

B. Project Objective and Scope

3. Project objective: The project development objective (PDO) is to demonstrate effective afforestation models in environmentally degraded areas in support of Shandong’s environmental afforestation programs.

4. Project scope: The project was designed to cover degraded mountainous areas and coastal saline-alkali areas in 30 counties/districts (including a forestry farm). The coastal saline-alkali areas included Lijin County, Kenli County, Hekou District, Huimin County, Bincheng District, Zhanhua County, Binzhou Economic Development Zone, Wudi County, Changyi City, Gaomi City, Hanting District. Degraded mountainous areas include Zhucheng City, Anqiu City, Qingzhou City, Gaomi City, Weifang District, Hanting District, Sishui County, Jiaxiang County, Qufu City, Zoucheng City, Culaishan Forest Farm, Dongping County, Xintai City, Rushan City, Lanshan District, Donggang District, Wulian County, Juxian County, Xueye District, Mengyin County, and Yishui County.

C. Modification of the Development Objective

5. The project development objective was not modified.

D. Main Beneficiaries

6. The main project beneficiaries included 562 villages, 26,556 individual households, and 4 ecological forest farms in 28 project counties (city, district).

E. Designed Components

7. The project includes two components:

(a) Component 1: Environmental Plantation Establishment which aims at the mixed species afforestation of 66,000 hm2, of which, 28,000 hm2 in coastal saline area and 38,000 hm2 in degraded mountainous area.

(b) Component 2: Technical support and project management which includes scientific research, nursery upgrading, technical support and training, project management, and monitoring and evaluation.

F. Project Implementation and Adjustments

8. Component 1: Environmental Plantation Establishment

(a) Activities: 66,915 hm2, of mixed species plantations were established accounting for 101.43 percent of the project target; of this, planting in coastal saline areas

totaled 30,018 hm2, and planting in degraded mountainous areas totaled 36,897 hm2.

(b) Investment: Due to an increase in labor and material costs and the devaluation of the dollar against the renminbi (RMB) during the project period, total actual project investment reached RMB 1,031.5 million, which accomplished 136.9 percent of that planned in RMB.

9. Component 2: Technical support and project management.

(a) The outputs under this component were completed, or even exceeded the designed targets. Cost savings resulting from reductions in office equipment and nursery upgrading were transferred to Component 1 and used to compensate for the higher unit costs of afforestation.

(b) Nursery upgrading: Seven nurseries were upgraded and project nurseries were able to provide the large numbers of species seedlings needed for project afforestation. Four nurseries originally included in the project were found to be adequate to provide the seedlings to the project with the marketing supply and needed no assistance from the project. . This adjustment was agreed by the Bank during the mid-term review.

10. Due to changes in land use planning, two project units, Culaishan State Forest Farm in Taian City and Binzhou Economic Development District, withdrew from the project. The number of designated units/counties was therefore reduced from 30 to 28. This reduction was approved by the Shandong provincial development and reform commission and finance department, and the Bank.

II. Factors affecting implementation and outcomes

A. Policy and Government Commitment

11. At time of project preparation, the Central Committee and State Council of China were paying more attention to forestry development, considering it to be a fundamental element of the terrestrial ecosystem, and that forestry development would need to play a key role in the realization of the Government’s development priorities the realization of an ecological civilization.

12. The “China State Council Decision on Accelerating Forestry Development”, “Shandong Ecological Protection Plan”, the “Shandong Forestry 12th Five-year Plan”, emphasized the role that forestry development was to play in support of economic development and environmental improvement. Such was the provincial government’s commitment to the Five Year Plan that it allocated an additional RMB 240 million to the project to fill the funding gap created by an appreciating RMB and higher labor costs experienced, as well as the replace of losses caused by drought during project implementation. Such was the impact of the project that the Shandong Government promoted and disseminated project technologies outside the project area under the province-wide Shandong Provincial Forestry 13th Five-year Plan,

B. Other Factors

13. Effective institutional arrangements set up by the Government for project implementation provided strong leadership and coordination for project implementation and problem solving. The Project leader group (PLG) at Provencal and county levels ensured that the project’s technical design was followed, that implementation was kept on track and that adequate funding was provided. In addition, the project management offices (PMOs) at provincial and county levels ensured that project activities were well organized and that the required quality was achieved in the field through quality checks. In addition, a technical support panel was set up to provide technical assistance and training, and this helped ensure that project technical requirements were fully understood by local forestry staff and farmers, and that new technologies were e adopted.

14. Afforestation of marginal land is challenging. In steep, degraded mountainous areas, soils are shallow, eroded soils and low in nutrients. Such areas had been left barren for decades, and attempts to afforest them had failed due to very low survival and poor seedling growth. Similarly the afforestation of wind-swept coastal areas had met with little success due to high soil salinity, a high water table, low fertility and high evapo-transpiration. To help surmount the challenges in these areas, the project provided highly targeted research programs, together with inputs from international and national experts on cutting edge technology and best practice. This form of assistance was extremely useful in developing and demonstrating afforestation models suitable for use in these difficult sites.

15. Risk of natural disaster to the project. Some project areas in saline areas suffered persistent droughts from 2011 to 2014, with average annual precipitation being less than 400 mm, as a result, survival rates in several sites were very low. Under the project, salt- and drought-tolerant species like white elm, black locust were used for replanting, and this succeeded in reducing the negative impacts of drought

16. Risk of fluctuation of exchange rates, increasing seedling and labor costs. The exchange rate between the dollar and the renminbi changed from 1:6.8 at time of project appraisal to 1:1.61 when most planting was occurring) and to 1:1.65 at time of project completion. This resulted in a shortage of local funding for project implementation. To cater for this, project units adopted cost saving afforestation methods, and governments at all levels, together additional labor inputs from farmers, provided additional counterpart funds. Together, these measures ensured the successful completion of the project.

17. Modification to project areas. Due to changes in land use zoning in Taian and Binzhou cities during the project implementation, the land previously designed as project land were no longer available to the project. As a result, Culiacan State Forest Farm in Taian and Binzhou Economic Development Zone had to withdraw from the project, and the funds originally allocated to them for afforestation tasks were transferred to other project counties, and this helped ensure the accomplishment of the project activities.

18. Impact of traditional afforestation practice. The planting of monocultures with big seedlings planted close together is traditional planting practice in Shandong. Replacing this with the new approach of establishing mixed species stands proved very difficult in the early stages of the project. However, this problem was overcome through perseverance by

the Bank team and project agencies, through the provision of extensive training and technical guidance, the establishment of demonstration plantation plots in project counties, promoting the use of small seedlings and low density planting, extension and dissemination. This conceptual transition improved the cost effectiveness of afforestation, and greatly improved forest environmental functions and ecosystem stability.

C. Post-completion Arrangements

19. After project completion, plantation maintenance comprises mainly pest management and fire prevention and control. Existing institutional arrangements for forestry management and protection at provincial and county levels are extremely good and this will ensure that project plantations will be managed and protected after project closure. In addition, the PMOs will continue to exist at all levels, and the Shandong Forestry Science Research Institute and Shandong Agricultural University will continue to provide the needed technical support to project areas after project closure.

20. To help maintain plantation areas, a subsidy of RMB 225 per hm2 is available for long-term forest maintenance. For sites that need further tending, the government also provides forest management funding under National Forest Management Project, this amounts to RMB 1,500/ha. The research and monitoring requirements will be handles by the provincial government program.

21. In addition, sustainability will be helped by combining ecological protective forest with economic tree crops. This involves managing the land in accordance with its sustainable potential that is planting economic tree crops on lower slopes, and planting ecological plantations on the more infertile upper slopes. This approach is attractive to farmers who see the benefits of combining production with protection. It is expected that during the project life period, the fruit and nut output will be 4,700 million kg with the income of around RMB 33,000 million. In addition, the selling of oriental arborvitae seeds and non-timber products will also generate income to local people for long-term forest plantation management.

III. Project Achievement 22. Forest Coverage Increased. Between 2010 and 2013, all 66,915 ha of forests in 7,894 sub-compartments were planted with a mixture of trees and shrubs. This accounts for 101.4 percent of the planned target, including 30,018 ha in coastal saline-alkali area and 36,897 ha in degraded mountainous area. Forest cover increased by 2.2 percent on average in project areas. In Xueye District, forest cover increased by 9.1 percent.

23. New Afforestation Technology Introduce and Quality of Planting Significantly Improved. A combination of new planting technology and strict quality control in the field has led to vast improvements in the quality and cost effectiveness of tree and shrub planting in degraded mountainous slopes and wind swept, saline coastal areas. The monitoring results showed that the planting quality and seedling growth all reached and exceeded the quality standards laid down by the project with seedling survival rates in mountainous and saline-alkaline areas being above 95 percent and 86 percent respectively, and seedling growth being 23 percent higher than the designed target.

24. Further gains have been realized in coastal saline-alkaline areas where the use of superior Ulmus pumila strains has seen dramatic improvements in growth and survival. The new strains of Ulmus pumila planted in highly saline-alkaline soils (around 0.4 %) have achieved a survival rate of 96% and very high growth rates (12.7 m high after three years. The introduction of mycorrhizal technology also looks promising for improving growth and survival.

25. Forest Ecological Functions Improved through Multi-species, Mixed Planting. Around 40 tree species and 18 tree and shrub species were used to plant in degraded mountainous areas and saline-alkaline areas. This is, 10 and 3 tree and shrub species more than the targets. The use of a large number of local species (in particular broadleaf trees), the creation of mixed species plantations and the promotion of natural regeneration have contributed greatly to the development of a more stable, mixed forest structure with multiple storeys and highly positive environmental functions. In mountainous area, soil total porosity increased by 2.1–9.5 percent, organic matter increased by 0.3–0.6 percent, and soil erosion decreased by 68 percent, which is 47% higher than the target. In saline- alkali area, soil salt decreased by 0.23–0.32 percent and wind speed decreased by 52 percent, which is 37% higher than the targets. Mixed forests have also reduced the risk of fire and pest outbreak, and has led to an increase in the insect and bird populations.

26. Investment Effectiveness Increased. The ‘big seedling, big pit, high density’ planting practice was replaced by the ‘small seedling, small pit, low density’ planting practice, which improved the cost-effectiveness of afforestation. This innovation succeeded in reducing the cost per hectare of afforestation by 20%.

27. Scientific Research Program Promoted Innovation. The research program focused in three areas, all of which were supportive of the project objectives. First, research focused on the selection of the most efficient afforestation models and tree species in dry and barren mountainous region, second on the efficiency of ecological afforestation models in Yellow River Delta coastal saline, and third on germplasm resources conservation and utilization of superior local trees. As a result, 85 superior strains, (5 new strains), were selected and bred. In addition, 4 tissue culture patents for saline-alkaline tolerant Ulmus pumila were obtained and forest certification was obtained for Zhanhua jujube from China Forest Certification Council (CFCC) and Programmer for the Endorsement of Forest Certification (PEFC). These jujube products have been exported to Southeast Asia where the sale price increased from RMB 36 per kg to RMB 60 per kg after the certification. The project’s research and extension program made excellent progress in promoting new technology development and adoption, it also helped improve efficiency.

28. New Technologies and Research Results Disseminated. Under the project, 13 afforestation models, 12 research findings , 25 technical standards and guidelines have been developed and extended to outside the project. The 85 new species selected, such as ulmus, poplar, willow, and American black walnut have been adopted in 20 provinces/cites outside Shandong, for example, Hebei, Liaoning, Shanxi, Inner Mongolia, Henan, Anhui, Jiangsu, Shanghai, Tianjin, Xinjiang, Ningxia, and so on. Project experts have also been invited by the State Forestry Administration to share their experiences at a number of

national conferences, as well as in international workshops. More than 230 people from outside Shandong have also visited project sites in Rushan, Xintai, Zoucheng, Wudi, Zhanhua, Hekou, and Kenli.

29. Community Consultation Enhanced Stakeholder Qwnership. Around 562 villages and 4 forest farms participated in the project. The participating households are 26,556. During project preparation (and during implementation) an intensive program of community consultations was conducted in each of the villages in project area. Communities and farmers were informed of the project opportunities, their interest in participating was determined and their preferences in terms of species to be planted and operational arrangements were recorded. Participation also ensured that farmers fully understood that their participation would be strictly voluntary and that the project would take account of their preferences. Women were encouraged to participate in the consultation process with more than 20% consulted farmers are women. To undertake afforestation, 7,894 contracts were signed between county PMOs and villages, individual households and forest farms. Consultation with beneficiaries has shown that the participation of communities and households in the project planning process is an effective tool to create ownership and to ensure that long-term forest management is sustained.

30. Technical Skills Improved through Training. During the project implementation, 4,566 training sessions were held; more than 949,000 project staff and farmers were trained with women accounting for 35.8 percent of those trained. Training greatly enhanced the technical capacity of local people in planting and forest management. In addition, it greatly improved the capacity of local forestry staff, planting entities staff and farmers to apply improved water conservation practices, so as to improve planting survival rates; to use the direct sowing of Robinia pseudoacacia to reduce planting costs; to apply salt-tolerant species tissue culture techniques to afforest highly saline soils; and to adopt mixed species planting to enhance forest environmental functions and resilience. Through the project, the Head of Zhang Deye County PMO became fully conversant with project design, afforestation and forest tending, and this enabled the PMO staff to implement the project efficiently.

31. Improved Seedling Supply. Around RMB 2.43 million was invested in project counties to upgrade their office equipment. Ten different types of equipment, including 355 computers, printers and other items of office equipment purchased. This greatly enhanced administrative capacity and the efficiency of project management. In addition, seven nurseries were upgraded at a cost of RMB 6.2 million. New technology such as elm fast-cultivation technology and mycorrhizal technology were introduced, and 42 native tree species were, for the first time, included in nursery production. In total, 23 million high quality seedlings of a variety of native species, including 15.6 million container seedlings, were provided to the projects. The upgrading of nursery capacity will make a significant contribution to government afforestation projects.

32. Sustainable Forest Management. The Project is expected to create a standing volume of ecological plantations of approximately 6.35 million m3, with an estimated value of RMB 3.89 billion; it is also expected to result in the production of around 4,745 million kg of fruits and nuts with a value of around RMB 33 billion. Carbon sequestration benefits

will also be produced. Using the Bank’s standard carbon prices for 2015, the carbon sequestration value of project activities would be around RMB 2.289 billion. A financial analysis carried out for the project produced an internal rate of return of 17.1 percent, which is a little higher than the 15.2 percent estimated at time of project appraisal. In addition, the project provided 12.8 million working-days of employment for local farmers.

IV. Evaluation of Bank and Borrower performance A. Bank Performance

Evaluation: Highly Satisfactory

33. Enthusiasm and cooperation. The success of the SEAP is a good example of how close cooperation between the Bank and the Borrower can produce excellent results. The Bank team showed enthusiasm and patience while working with Shandong project staff and helped solve practical problems in a timely manner. During the implementation of SEAP, the Bank team provided solid management and technical support, and this is a feeling of trust and friendship. This spirit of constructive collaboration has built a solid foundation for future cooperation on Bank projects.

34. Strict project inspection. The Bank teams visited Shandong more than 20 times between 2008 and 2016. Team members visited project counties to discuss progress with local project agencies and farmers, they also visited the fields to inspect implementation. They checked both office documents and fieldwork and were both precise and professional in their work, and this helped promote the smooth implementation of SEAP. During the early stages of project implementation, the Bank team make great efforts to persuade local project agencies and planting entities to change from the traditional monoculture planting concept to the mixed species planting concept and to adopt lower cost planting technologies, while strictly monitored compliance with the technical specifications of models. This proved fundamental to promoting the shift towards cost effective and technically sound ecological afforestation practice, thereby ensuring the achievement of the project objective and its demonstration functions.

35. Constructive advice and pragmatic and flexible attitude. The Bank team’s constructive advice and pragmatic and flexible attitude greatly assisted project agencies to solve problems and difficulties which occasionally occurred during the project implementation, and project agencies considered this to be very helpful. For example, at the midterm review, the project was facing the prospect of counterpart funding shortages caused by the exchange rate change and rising labor costs. The Bank team carefully analyzed the situation with project staff and recommended practical measures on how to deal with it, such as using smaller seedlings and low density planting. This measure not only reduced costs but also increased the survival rate. They also suggested the direct seeding for Elm to speed up growth of a promising salt tolerant species – this innovation reduced costs and improved soil management in highly saline areas. The constructive advice and pragmatic and flexible attitude facelifted the smooth project implementation of SEAP.

36. Strong technical assistance and guidance. The Bank team always provided regular and sound technical advice to project agencies on the technical aspects of afforestation models, environmental protection, and pest management. Bank teams always had a good combination of skills and this enabled them to provide broad based advice to project staff on technical issues associated with the introduction and promotion of new afforestation approaches. This advice was especially helpful in such areas as environmental and social safeguards policy, financial management and procurement. The Bank was also instrumental in organizing three very informative international conferences, where five professors were invited from abroad giving practical advice on project related issues. They also to exposed project staff to new ideas and the latest research findings on the afforestation of degraded mountainous areas and highly saline coastal sites - for example, how tree root inoculation with mycorrhiza opens new possibilities for the afforestation of saline areas.

37. Professionalism. Every time the World Bank team visited Shandong, they had a tight work schedule and inspected field work in person. After field visits they prepared an aide memoire (AM) timely with focus on the issues identified and next step actions to improve the project management. This helped project management and also helped solve problems if they occurred. The professionalism and efficiency displayed by Bank teams during supervision set a good example for us to follow. In addition, Bank team members provided timely technical and management assistance as and when it was needed.

B. Performance of the Borrower

Evaluation: Satisfactory --The Borrower did their utmost to fulfill their responsibilities.

38. The leading groups at provincial and county levels included all relevant departments, such as the Development and Reform Commission, finance departments, forestry department, and audit bureaus. It provided a strong leadership to the project and skillfully coordinated the work of all agencies involved... For instance, government at all levels made great efforts to put in place the counterpart funding needed for project activities, especially when rising labor costs and an appreciating RMB created a funding gap.

39. Building on the experience gained from the previous Bank project, as well as from government projects, an adequate staff and expertise were available for project management including institutional organization arrangement and coordination, regulations, financial management, quality control, seedling supply, scientific research, training and extension, monitoring and evaluation. That is, the capacity existed to effectively manage the project in a timely way, and to address any issues that arose during project implementation. In addition, the technical support team was available to provide strong technical assistance as and when needed, especially in scientific research and extension. As the result, good progress was made with afforesting very difficult marginal land, project experience being widely disseminated.

V. Experiences and Lessons Learned 40. Responding to local farmers’ requirements. Given that planting would need to be done largely on farmer’s land, community consultation was conducted in the involved

villages and households, and the requirements of local farmers were incorporated into project design. The active involvement of local communities not only led to better project implementation but it also enhanced the farmers’ ownership of project activities, which improved the project sustainability by bringing farmers’ interesting and benefits to the consideration.

41. Strong research-training-extension linkage was fundamental to new technology transfer. The focus of research, training, and extension program was to resolve the challenges associated with the afforestation of marginal land. During implementation, customized technical assistance and training were provided to local project staff and farmers, which enabled farmers understand the new technologies being promoted by the project. Addition, technology transfer was backup through research and extension on afforestation technologies, technical standards and regulations, research results/achievements, new species and afforestation models.

42. Reducing planting density is critical to formulating good forest structure. Wider seedling spacing during planting can both reduce costs and promote the natural regeneration by creating more space for existing vegetation recovery and seedling growth. The project’s move to lower density planting in afforestation models has resulted in better natural vegetative cover including young tree seedlings, shrubs and grasses. This has proven to be a very cost effective approach to promoting natural generation and forming a diversified and multiple storey forest structure with improved forest environmental functions.

43. Direct seeding afforestation should be promoted. The project piloted direct seeding technology, and this proved very successful and cost- effective by increasing survival rate in difficult site conditions. The direct seeding experience gained with Ulmus pumila, Quercus acutissima, prumus armeniaca var and prurus davidiana has now been extended outside the project area.

44. Flexibility in the application of technical models is necessary. The application of the ecological afforestation models should be flexible in order to accommodate specific site conditions and farmer preferences. For example, higher value species might be included to generate multiple benefits in addition to environmental impacts. In this regard, the approach of planting economic species on the lower slopes and ecological tree species on upper slopes is a good example of combining economic and ecological benefits from planting.

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Not Applicable

Annex 9. List of Supporting Documents

1. Project Appraisal Document 2. Borrower’s Completion Report 3. Aide-Memoires and ISRs 4. Semi-annual Progress Status Reports from Borrower 5. Project Agreement 6. Loan Agreement 7. Project Implementation Plan

MAP: Updated IBRD 37238