Implementation Completion Report China Gansu Provincial Development Project

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Implementation Completion Report China Gansu Provincial Development Project Documentof The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 16421-CHA IMPLEMENTATION COMPLETION REPORT CHINA Public Disclosure Authorized GANSU PROVINCIAL DEVELOPMENT PROJECT (LOAN 2812-CHA/CREDIT 1793-CHA) PART I-AGRICULTURE COMPONENT Public Disclosure Authorized January 23, 1997 Rural and Social Development Operations Division Public Disclosure Authorized China and Mongolia Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Yuan (Y) Y 1.00 = $0.12 (1996) 1986 (appraisal) $1 = Y 3.71 1987 $1 = Y 3.71 1988 $1 = Y 3.71 1989 $1 = Y 3.71 1990 $1=Y4.72 1991 $1 = Y 5.22 1992 $1=Y 5.38 1993 $1 = Y 5.45 1994 $1 = Y 8.70 1995 $1 = Y 8.31 1996 $1=Y8.30 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS DAP - Di-Ammonium Phosphate ERR - Economic Rate of Return GPIO - Gansu Project Implementation Office ICB - International Competitive Bidding ICR - Implementation Completion Report ITC/CNTIC - International Tendering Company/China National Technical Import/ Export Corporation NCB - National Competitive Bidding O&M - Operation and Maintenance PLG - Project Leading Group PMO - Project Management Office SAR - Staff Appraisal Report TBM - Tunnel Boring Machine UNDP - United Nations Development Programs Vice President (Acting) Javad Khalilzadeh-Shirazi, EAP Director Nicholas C. Hope, EA2 Division Chief Joseph Goldberg, EA2RS Staff Member Lang S. Tay, Senior Irrigation Engineer, EA2RS FOROFFICIAL USE ONLY FORWARD 1. Project Background. The Gansu Provincial DevelopmentProject comprises three components for agriculture, education and industrial diversification. The Project was identified based on the findingsof a 1986 Bank study, Growth and Development in Gansu Province, carried out to assist the Central and Provincial Governmentsin developing an overall strategy for income growth and poverty reduction. In the early 1980s, 41 percent of Gansu's population lived in poverty, compared to 13 percent nationally, and rural per capita incomes were the lowest nationwide. The Bank study identified a range of issues facing the province but found three problems acute. First, incomes and livingstandards in the province's upland region of Dingxi were found particularly low. Dingxi had 30 percent of the provincial population -- almost all employed in agriculture, a larger proportion of rural poor, irrigation of only 13 percent of the cultivated area and a shortage of drinking water, and an urgent need for land rehabilitationto counter erosion of the loess soils and to introduce appropriate agricultural production systems. Second, restrictions on labor mobility combinedwith unsustainable pressure on the province's fragile natural resource base argued for the development of labor-intensiverural industries relying on low-cost labor. Third, improvement of the educational system, particularlyof teacher training in basic education, was identified as critical, in view of internationalexperience showing education's prime role in allowing mobilityto more remunerativenonagricultural employment, adoption of improved agricultural technology, and -- for women -- fertility reduction, improvement in family health and retention of childrenin school. 2. Project Design. To address these problems, three separate projects were prepared and appraised. However, when the amount of Bank Group assistance for education and industrial diversificationhad to be scaled back to reflect provincial repayment capacity, the three operations in different sectors were processed together as components of a single Gansu Provincial DevelopmentProject, financedby Ln. 2812/ Cr. 1793-CHA. The agriculture component received $130 million equivalent of credit proceeds, the education component $20 millionequivalent of IDA funds, and an IBRD loan of $20 million and credit proceeds of $500,000 equivalent went to industrial diversification. 3. The project's agriculture component comprised construction of the technically challenging 57,000-ha Yindaruqinirrigation scheme, settlementof the irrigated area by 15,000 poor farm familiesfrom nearby resource-poor areas, land improvement over 75,000 ha in Dingxi's GuanchuanRiver Basin, and institutionalsupport. The education component includedupgrading of facilitiesfor training primary school teachers, expansion of facilitiesfor training lower secondary school teachers, increased in-serviceteacher training via expansion of television training facilities,improved science education in 400 lower secondary schools in poor counties, and support to enhance education administrationand management. In support of industrial diversification,the project provided a $20 millionline of credit to finance small- and medium-sizedsubprojects in rural and light industry, as well as training and technical assistance for the enterprises This documenthas a restricteddistribution and may be used by recipientsonly in the performanceof theirofficial duties. Its contentsmay not otherwisebe disclosedwithout WorldBank authorization. ii assistedand the project financialintermediary, the GansuInvestment and Trust Company (GITC). Whilethe provinceassumed the interestrate and exchangerate risks on the Bank loan, GITCbore the commercialrisk. 4. ProjectOutcome. The project's agriculturaland educationactivities were, overall,successfully implemented, although a two-yearextension of the credit was requiredto completethe agriculturecomponent's Yindaruqin Irrigation Subcomponent. That subcomponent,entailing major tunnelingworks with difficultsite conditionsand complexengineering, suffered from poor performanceby some contractors,lack of counterpartfunds, and bureaucraticland settlementprocesses. Some on-farmworks and land settlementactivities are still ongoingwith localfunding. The Guanchuan subcomponentin Dingxiraised farmers'incomes by almost250 percent three years after completionof works, while net incomesof farmersin the Yindaruqinarea have eventually increasedby 136 percent for the low-incomegroup and by 55 to 60 percent for others. The land rehabilitationprogram tested under this and other projects has been subsequently refinedand used in the Loess PlateauWatershed Rehabilitation Project (Cr. 2616), among others. 5. The educationcomponent, the first Bank Group educationoperation focused on onlyone province,increased the numberof qualifiedprimary and lower-secondaryschool teachers, improvedthe qualityof scienceteachers and educationin poor counties,and improvedthe capabilitiesof educationadministrators in the design,development, and implementationof educationalprograms. The capacitybuilding for educational administratorsand managerswas importantfor continuedimprovement of the system. The administratorsand managerstrained under this project helped designand implement the subsequentThird Basic EducationProject (Cr. 2831-CHA). 6. The industrialdiversification component attempted to raise rural incomesin resource-poorareas with limitedagricultural potential and a populationsurpassing the carryingcapacity of the land. Sincelabor migrationin Chinaat the time was allowedonly in the contextof limited,officially sanctioned programs like the one under this project's agriculturecomponent, the project attemptedto providein-situ assistanceto the rural poor by promotingnonagricultural employment. While the provincialstudy cautioned planners"to look carefullyat the policyand institutionalenvironment that would facilitate developmentof productivenonagricultural jobs in Gansu" (para. 3.01), implying inadequacyin the current environment,the severityof rural poverty in Gansu,where some parts of the populationhad to rely on governmentprovision of grain, water and fuel relief, was consideredadequate justification for pilotinglimited support to employment diversification. 7. Implementationof the componentshowed the project's goals in the sector to be overambitiousand the study's warningto be justified. While 17 subprojectsreceived fundingfor modem equipmentand technologyand smallcivil works, financial performance of the beneficiaries -- 55 percent of which were non-state rural enterprises -- sufferedfrom manyproblems. Amongthese were subborrowers'inexperience in enterprisemanagement, shortages of counterpartfunds during implementationand of iii workingcapital during production,and economicreforms introduced during the project periodthat causedenterprise costs to rise significantlyand demandfor their products to fall. With most projectenterprises still producingat less than 50 percent of capacity,their loan repaymentto GITC sufferedas did GITC' s financialcondition. Positively,however, technicalassistance and trainingprovided under the projectintroduced provincial planners to the concepts of financialand economicanalysis of investments,and this appreciably improvedlocal planningcapabilities. 8. Assessmentof ProjectStrategy. The projectresponded appropriately to provincialneeds as identifiedin the Bank Group study. It also providedexperience with varioustypes of sectoralinterventions aimed at poverty alleviation.Although this project predatesintroduction of the current Bank Group poverty alleviationstrategy in China, with its targetingof whole operationsto specificpoor countiesidentified by the central and provincialgovernments, the agriculturalcomponent was well focusedby emphasizing the DingxiRegion. The educationcomponent
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