Integrated Urban–Rural Infrastructure Demonstration Project (RRP PRC 49029-002)

SECTOR ASSESSMENT (SUMMARY): MULTISECTOR1

Sector Road Map

1. Sector Performance, Problems, and Opportunities

1. The People’s Republic of (PRC) has experienced rapid urban population growth averaging 4.1% per year since the early 1990s. Urbanization was a key driver of high economic growth and transformation, lifting millions out of poverty. By 2015, the urban population had reached 771.16 million, or about 56.1% of the total population of 1,373.51 million, up from 26.4% in 1990.2 Two-thirds of the urban population growth is attributable to rural–urban migration. This rapid growth places great pressure on the PRC Government to build sustainable, environmentally friendly, livable urban areas. It also creates pressure to upgrade the skills of migrants to take advantage of employment and income opportunities in urban areas. It is also important to improve the institutional capacity of local government agencies to undertake urban planning and environmental management initiatives to ensure the sustainability of urban infrastructure.

2. Despite high levels of growth and urbanization in the PRC, wide regional disparities in economic development and physical infrastructure provision prompted the PRC Government to launch the National Strategy for Development of the Western Region to promote balanced economic growth and raise living standards.3 The government has allocated investments to (i) improve living conditions and the environment in urban areas, (ii) facilitate economic transformation and create local employment by establishing or relocating strategic industries to less-developed sites, and (iii) build and upgrade the infrastructure to improve connectivity and productivity. The western region enjoyed higher annual gross domestic product (GDP) growth than the eastern region in 2000–2014, yet in 2014 its average GDP per capita (CNY37,291.27) was just 74% of the national average, and only 55% of that of the eastern region.

3. Xinjiang Uygur Autonomous Region (Xinjiang), in the PRC’s western region, remains relatively less developed despite rapid economic growth since the early 1990s.4 Around 97% of the population lives in a belt that covers only 8% of the total land area. It has a large ethnic population and suffers from poor industrial performance and low educational attainment on the part of workers. Because Xinjiang borders with eight countries and is a gateway between Asia and Europe, the PRC Government has emphasized its key role in trade development and the revival of the ancient . Urumqi, the capital city of Xinjiang, has positioned itself as a regional transportation and logistics hub between the PRC and Central Asia.

2. Government’s Sector Strategy

4. In 2014, the PRC Government released the National New-type Urbanization Plan, 2014– 2020 (NNUP). 5 It promotes people-centered urbanization and city clusters to support development of small and medium-sized cities, to enable cities in the western PRC to become driving forces for regional development. The plan focuses on migrants, urban spatial layout, urban sustainability and integration of urban and rural development, and is a national effort to promote urbanization while addressing critical quality-of-life issues for urban residents. It recognizes

1 This summary is based on the detailed sector assessment. Available on request. 2 Government of the People’s Republic of China, National Bureau of Statistics. 2016. 2016 Statistics Report. . 3 Government of the PRC. State Council. 2000. The National Strategy for Development of the Western Region. Beijing. The PRC’s western region has six provinces, five autonomous regions (including Xinjiang), and one municipality. 4 In 2015, Xinjiang ranked 27th (of 31 provinces, regions, and cities in the PRC) in per capita annual disposable income of urban households (CNY21,966), and 24th in per capita annual net income of rural households (CNY8,850). 5 Government of the PRC, State Council. 2014. National New-type Urbanization Plan, 2014–2020. Beijing. 2 sustainability and coordination between urbanization and environmental protection as key aspects of urban development, and states that urbanization in the PRC must adopt new development approach. In 2015, urbanization in the PRC was 56.1% by permanent residence but only 39.3% by registration, levels that remain below developed country averages of around 80%. Xinjiang is also rapidly urbanizing (it was 47.2% urban in 2015), and its population growth rate (average of 1.64% during 2000–2015) exceeds the national average (0.5%). If this growth rate continues, its population will exceed 30 million by 2030.

5. Xinjiang’s Urban System Plan, 2014–2030 aims to address ecosystem protection and green development, promote industrial development and economic prosperity, accelerate integration of the region, and maintain diverse local characteristics.6 The NNUP and Xinjiang’s urban planning objectives include creation of compact, denser cities that place greater focus on people, and less on infrastructure or buildings. Urbanization in Xinjiang is focused in the Urumqi– Changji Metropolitan Circle, which encompasses all of this project’s urban centers. Projections and government policy suggest that urbanization will reach 60% by 2030, with an urgent need for investments in rational urban planning and infrastructure development, along with support for institutional capacity.

6. Changji Hui (Changji) lies at the heart of the most active trade and industrial activity in Xinjiang, as a key center along the new Silk Road. The population is concentrated along the central east–west economic and transport corridor, which cuts through the project city and counties, where approximately 500,000 people reside, with significant growth anticipated. 7 There is an urgent need to create a sound enabling environment through environmental improvement, infrastructure investments, and capacity building. Further, there is a significant gap between urban and rural residents in terms of quality of life and their environment. People living in rural villages and unplanned peri-urban areas have less access to safe and reliable urban infrastructure services, including water supply, wastewater, solid waste management, and road connectivity.

7. City is within a 1-hour drive east of Urumqi. 8 It is eager to promote spatial development through improved land use and infrastructure service capacity, and resilient and competitive urban–rural integration to sustain the projected population. It will (i) optimize its industrial structure by developing a comprehensive urban economic system supported by the manufacturing, service, and tourism industries; and (ii) improve public services to enhance the environment through convenient transportation. Ganhezi Town is a small satellite town (population 6,539 in 2015) located southeast of the urban area within Fukang. It was originally set up to support the coal industry, but experienced decline following slowing of the industry, which began in the 1980s. The town aims to develop into a modern comprehensive service center for local industries, and to transform into a livable environmentally friendly town.

8. is located 76 kilometers (km) west of Urumqi.9 Many former rural villages remain within the urban boundaries on valuable land, and are the focus of upgrading activities. Its master plan identifies the key development goal as making the county a green and livable urban center with strong leisure and healthcare service industries in the west of the Urumqi– Changji city cluster.

6 Xinjiang Uygur Autonomous Region, Urban–Rural Planning Department. 2015. Xinjiang Urban System Plan, 2014– 2030. Urumqi. 7 Changji urbanization rate increased from 36% in 2000 to 58% in 2015, and may increase to 75% in 2030. 8 Fukang has a population of 180,863 with an urban population of 108,500 in 2015. Its master plan estimated the urbanization rate would reach 81% by 2020, and 86% by 2030. 9 Hutubi has a population of 154,372 with an urban population of 87,900 in 2015. According to the master plan, its urbanization rate was 68% in 2009, and is projected to reach 75% by 2030. 3

9. is about 200 km east of Urumqi.10 Its master plan calls for urban–rural development strategies that focus on ecological protection, livability, and industrial development; aim to expand and strengthen the county; integrate urban and rural development to fully support the national plan for construction of an energy base in east Xinjiang; and support local targets regarding environmental resource protection and construction of local service facilities.

10. Water. Since the 1990s, the PRC has promoted market-oriented reforms, and significantly improved urban water supply capacity and quality. Over 80% of water supplies come from surface water, 18% from groundwater, and the rest from non-conventional water sources. In 2014, 13% of the PRC’s water consumption was for domestic use, 22% for industrial use, 63% for irrigation, and 2% for ecological use. Inadequate water supply facilities contribute to low coverage, excessive energy consumption, poor drinking water quality, and high nonrevenue water in many areas. Due to relatively low precipitation and high evaporation rates, Xinjiang is one of the driest areas in the PRC. Qitai relies on groundwater, which is currently overexploited. In 2015, water levels in Qitai declined at an average rate of 0.58 meters per year; water quantity and pressure are unstable during the peak summer consumption period.

11. Solid waste. The PRC generates a large amount of municipal solid waste (MSW), at a rate of 1.2 kilograms per capita per day. The treatment rate of MSW is 89.3%, with 68% treated in sanitary landfills. The growth rate of recyclable content in MSW is high. A considerable amount of garbage is not compressed, resulting in low unit weight. Typical issues for MSW treatment in small and medium-sized cities are primitive mixed disposal, collection, delivery, and treatment; limited treatment capacity; low treatment levels; and the high operational costs of sanitary treatment facilities. The National Construction Plan of Sanitary Treatment Facilities for Municipal Domestic Solid Waste forecasts more rapid construction of treatment facilities, and promotes local reforms regarding waste sorting, establishment of diversified mechanisms on MSW, and improvements in the waste disposal market.11 In Xinjiang, only 20% of the counties and cities have built safe waste treatment facilities, and all use sanitary landfills. Urumqi is the first location in Xinjiang to have begun comprehensive solid waste treatment. Construction of a landfill in Qitai is essential, and there is much room for improvement in MSW source classifications, and construction and management of the collection and delivery system.

12. Roads. Challenges arising from the PRC’s rapid urbanization include the need to build and upgrade roads, bridges, and other municipal infrastructure. Common problems in planning, engineering design, and construction include inadequate facilities for public and non-motorized transport, poor traffic management and traffic safety, inadequate infrastructure management and maintenance, and inadequate education and public awareness. Rapidly growing vehicle ownership, the increasing frequency of road accidents, and the lack of traffic and parking management systems compound urban transport problems. In Xinjiang, the development of traffic infrastructure will enable interconnection and integration, and create important opportunities for development along the Silk Road, as well as urban–rural development.

13. Forestry. Since 1978, the PRC has been improving the environment in the northern PRC through forest planting, reducing water and soil loss, and restraining sandstorm erosion, and Fukang has participated in these efforts since 1996.12 The Forestry Development Thirteenth Five-

10 Qitai has a population of 238,584 with an urban population of 88,000 in 2015. Its master plan reported that its urbanization rate was 45% in 2009, and forecasted to reach 72% in 2020 and 82% in 2030. 11 The PRC National Development and Reform Commission and Ministry of Housing and Urban–Rural Development. 2016. National Construction Plan of Sanitary Treatment Facilities for Municipal Domestic Solid Waste during Thirteenth Five-Year Plan (Draft for Comments). Beijing. 12 Government of the PRC. 1978. Three-North (Northeast, North and Northwest PRC) Protection Forest Engineering. Beijing. 4

Year Plan balances ecological construction and forestry development.13 Xinjiang has the largest, most widely distributed, and most hazardous areas of desertified and sandy land in the PRC. Changji is located at the southeast edge of the Junggar Basin, with an environment that is very vulnerable to degradation. During 2016–2020, Changji is striving to implement land greening, promote construction of green corridors, build ecological barriers against wind and sand to protect road surfaces, and complete road greening of all suitable roads.

14. Technical and vocational education and training. The PRC’s introduction of market- oriented economic reforms provided the impetus to modernize and restructure its technical and vocational education and training (TVET) system. Total enrollment of Xinjiang’s TVET system in school year 2014–2015 was 16.1% of total secondary enrollment, far below the national average of about 50%. Each project area has one TVET school, with combined enrollment of 5,453 students, of whom ethnic minorities comprise 42%. In addition to teachers’ lack of qualifications, inadequate industry linkages, and TVET’s low social image, the main weakness of Xinjiang’s TVET system is its limited enrollment capacity, which renders it unable to produce enough graduates to meet industry skill requirements. The challenge is to significantly increase TVET system output and upgrade technology and training provision quality while making TVET inclusive, through provision to rural migrants around industrial centers of basic skills for wage or self- employment, in support of people-centered urbanization.

3. ADB Sector Experience and Assistance Program

15. Between 1992 and 2016, ADB approved 48 loans totaling $5.3 billion, and 125 technical assistance projects totaling $71.5 million to support multisector projects; water and other infrastructure and services projects; and forestry and land-based natural resource management projects in the PRC. Experience suggests that project investments and technical assistance interventions are effective when they are part of well-conceived urban development plans and approaches, and support broader approaches. Lessons from previous urban development projects as well as the knowledge generated from various best practices have been reflected in the project design, including integrated urban development, and reduce, reuse, recycle (3R) principles.

16. The PRC’s Thirteenth Five-Year Plan, 2016–2020 seeks to balance rural–urban development to facilitate inclusive urbanization and industrial transformation.14 The ADB country partnership strategy for the PRC, 2016–2020 supports the PRC’s strategic priorities including in managing climate change and pursuing environmental sustainability, and identifies city cluster development as an approach to inclusive, green city development.15 ADB also pays high attention on inclusive development through a focus on the poor and gender issues. ADB has been a strong supporter of PRC development initiatives in Xinjiang, and plays an important role in improving cooperation between the PRC and Central Asian countries. In 2007, ADB initiated the Central Asia Regional Economic Cooperation (CAREC) program to improve living standards and reduce poverty in CAREC countries through efficient and effective regional economic cooperation. The ADB loan projects for Xinjiang fully support the development objectives of the Xinjiang government, and are also consistent with the cross-border trade strategy of the CAREC initiative.

13 The PRC State Forestry Administration. 2016. Thirteenth Five-Year Plan on Forestry Development. Beijing. 14 Government of the PRC, State Council. 2015. National Economy and Social Development Thirteenth Five-Year Plan, 2016–2020. Beijing. 15 ADB. 2016. Transforming Partnership: People’s Republic of China and Asian Development Bank, 2016–2020. Manila. 5

Problem Tree for Multisector

Effects Poor quality of life and poor living environment for residents in Fukang City, and Hutubi and Qitai counties

Unattractive places Failure to capitalize on growth Poor to live, work, and do potential in area adjacent to Urumqi industrial business and Silk Road Economic Belt performance

Deteriorating People have limited Long time and high costs in Low educational attainment environmental access to travel between rural and urban and limited skills of workers conditions infrastructure services areas and within urban areas

Core Rapid urbanization is overwhelming the capacity of current infrastructure in Fukang City, and Hutubi and Qitai Counties Problem

Lack of human resources Significant deficiencies Unsustainable Inefficient development and skills in basic infrastructure sprawling with infrastructure-based training for workers and poor service levels widely urban development matching the needs of the and connectivity to dispersed model rather than local industries economic corridor development people-based

Causes

Insufficient local Urban Weak capacity of Lifestyle government funds population integrated urban- changes and sustainable growth regional planning and revenue generation management

Agricultural modernization, Relocated rural industrialization population changes

Source: Asian Development Bank.