Technical Assistance Report Project Number: 40641 July 2007 People’s Republic of China: Preparing the Small Cities and Towns Development Demonstration Sector Projects CURRENCY EQUIVALENTS (as of 11 July 2007) Currency Unit – yuan (CNY) CNY1.00 = $0.1319 $1.00 = CNY7.5835 ABBREVIATIONS ADB – Asian Development Bank DFR – draft final report DMF – design and monitoring framework EA – executing agency EIA – environmental impact assessment EMP – environmental management plan FSR – feasibility study report HPG – Hebei provincial government IA – implementing agency LPG – Liaoning provincial government PMO – project management office PPMS – project performance monitoring system PRC – People’s Republic of China RP – resettlement plan SEIA – summary environmental impact assessment SPG – Shanxi provincial government TA – technical assistance TECHNICAL ASSISTANCE CLASSIFICATION Targeting Classification – Targeted intervention (MDG) Sectors – Multisector (water supply, sanitation and waste management, transport and communication, energy, education) Subsectors – Water supply and sanitation, waste management, roads and highways, energy transmission and distribution, technical education, vocational training and skills development Themes – Inclusive social development, Sustainable economic growth, environmental sustainability Subthemes – Human development, fostering physical infrastructure development, urban environmental improvement NOTE In this report, "$" refers to US dollars. Vice President C. Lawrence Greenwood, Jr., Operations Group 2 Director General H.S. Rao, East Asia Department (EARD) Director R. Wihtol, Social Sectors Division, EARD Team leader A. Leung, Principal Urban Development Specialist, EARD Team members M. Gupta, Social Development Specialist (Safeguards), EARD S. Popov, Senior Environment Specialist, EARD T. Villareal, Urban Development Specialist, EARD W. Walker, Social Development Specialist, EARD J. Wang, Project Officer (Urban Development and Water Supply), People’s Republic of China Resident Mission, EARD L. Wu, Principal Social Sector Economist, EARD o o 114 00'E 122 00'E Siping SMALL CITIES AND TOWNS DEVELOPMENT HEILONGJIANG DEMONSTRATION SECTOR PROJECTS I N N E R M O N G O L I A IN THE PEOPLE'S REPUBLIC OF CHINA Tieling Fuxin Xinmin Fushun Weichang Nanzamu Beizhen Shenyang Guyuan Liaozhong Chaoyang Heishan Donggang Longhua Liaoyang I N N E R M O N G O L I A Jinxian (Linghai) Benxi Pingguan Panshan Anshan Nanfen Zhangbei Chengde Jinzhou L I A O N I N G Kuandian o Jinxi Haicheng 41 00'N Zhangijakou Jianchang 41 o 00'N Yingkou Gushan Huian Liaodong Bay Gai Xian Huailai Suizhong Yanggao Dandong Datong Sanhe Shanhaiguan Yutian Qinhuangdao Qiaocun BEIJING Zhuanghe Baodi Tangshan Shuozhou Lingqiu Gaobeidian Xinjin Korea Bay Shenchi Laiyuan Fanshi Baxian Tianjin ) Baoding r T I A N J I N Dalian e Baode v i Yuanping Bohai Sea R Kelan Gaoyang w lo H E B E I el Jingle Xinzhou Hejian (Y Cangzhou S H A N X I Zhufutun Shijiazhuang Wuyi Shouyang Botou Jingxing Hengshui Taiyuan Yangquan Zhaozhou Bohai Bay Lishi Yuci e Jinzhou Dezhou H g Mucun Qingyuan n S H A N D O N G a u Yushe H Wutong Gutao Xingtai Weixian Zuoquan Linxi Xiangyuan Subproject City/Town Huozhou Licheng Wuan National Capital r Handan e iv R n Provincial Capital e Lucheng F City/Town o 36 o 00'N Linfen Changzhi Pingshun 36 00'N National Road Jishan Other Road Yellow Sea Houma Jincheng Railway N River Provincial Boundary Yuncheng H E N A N 0 50 100 150 International Boundary 0 7 Boundaries are not necessarily authoritative. - Kilometers 1 8 6 6 H o 122 o 00'E R 114 00'E I. INTRODUCTION 1. During the Country Program Midterm Review in April 2007, the People’s Republic of China (PRC) confirmed its request for assistance from the Asian Development Bank (ADB) to finance the proposed Small Cities and Towns Development Demonstration Sector Projects in Hebei, Liaoning, and Shanxi provinces. Financing will be under three sector loans, one for each province, but the impacts are the same: improving urban environmental conditions, supporting employment generation, and improving infrastructure facilities and municipal services in a range of small cities and towns. The resulting three projects are included in the 2009 lending program and a project preparatory technical assistance (TA) is scheduled for processing in 2007.1 ADB’s Fact-Finding Mission visited the three provinces in May–June 2007. This report is based on the understanding reached with the Government regarding the impact and outcome, methodology and key activities, cost estimates, financing plan, and implementation arrangements for the TA, as well as the Mission’s observations. II. ISSUES 2. Urbanization continues to be a key thrust of the Government’s development objectives under the 11th Five-Year Program (2006–2010), with emphasis on balancing regional development between the coastal and inland provinces by coordinating the development of large, medium-sized, and small cities and statutory towns, and strengthening the development of urban settlements around metropolitan areas. This strategy of promoting growth with equity is in line with ADB’s strategic priorities in the PRC. Both the 11th Five-Year Program and ADB’s Town-Based Urbanization Strategy Study2 have stressed that the PRC should develop towns by facilitating the development of larger urban agglomerations. The national and provincial governments also need to focus their efforts on towns with high potential for employment generation and economic growth. The Government aims to increase economic productivity and narrow the urban-rural income gap through the development of cities and towns. Cities are the main engines of economic growth in the PRC today. In support of industrial production and administrative activity, the service sector in cities has expanded enormously in recent years, creating large numbers of jobs per unit of invest- ment. At the same time, many towns located near metropolitan areas or along development corridors play important roles as manufacturing centers, tourist destinations, and agroprocessing sites. Investment is justified as most urban infrastructure projects are considered public goods and are expected to generate positive economic externalities. However, municipal and town governments often lack financing and institutional capacity to prepare and implement large projects. 3. The proposed projects aim to help promote balanced and environmentally sustainable urbanization; narrow the urban-rural gap; and improve production, employment, and living conditions in small cities and towns in each of three project provinces (Hebei, Liaoning, and Shanxi). The projects will support the development of selected small cities and towns in the three provinces that will have a demonstration effect for other small cities and towns in the three provinces and elsewhere in the PRC. The projects will assist the provincial and local governments in developing an approach and criteria for selecting and prioritizing small cities and towns with potential for employment generation and economic growth, and those suffering from environmental blight, and will specifically seek to improve technical and financial sustainability within selected sectors. Institutional strengthening and operational know-how, supported by strength in financial management with the introduction or strengthening of market-based mechanisms for public utilities and services, will form the cornerstone of the projects. Developing markets and creating jobs by 1 The TA first appeared in ADB Business Opportunities on 13 April 2007. 2 ADB. 2004. Technical Assistance to the People’s Republic of China for the Town-Based Urbanization Strategy Study. Manila. 2 supporting urbanization and protecting the environment in small cities and towns are in line with ADB's strategic objective of promoting growth with equity in the PRC. 4. The provinces of Hebei, Liaoning, and Shanxi are located in the north and northeast part of the PRC. Their combined total population is 103.25 million, comprising mainly Han Chinese. The population living in urban areas represent about 40% of this total.3 Income levels in the three provinces lag behind those of other areas of the PRC. In 2006 about 6%, 6.2%, and 8.8%, respectively, of the total populations in Hebei, Liaoning, and Shanxi lived on incomes below the official poverty line, compared with the 4.95% national average poverty incidence.4 Hebei is the center for the iron and steel industry which, together with the pharmaceutical industry, has produced heavy pollution in the province. Liaoning is the base for industrial materials and machinery, while Shanxi produces about one third of the PRC’s coal output and has significant coal processing industries; all these activities compound environmental pollution. 5. The race to industrialize has left much of the area with very significant pollution problems and correspondingly poor living conditions. Atmospheric, aquatic, and ground pollution blight the provinces, creating a poor living environment and a serious threat to human health and life expectancy. Living conditions for the populations of small cities and towns are made worse by congestion and conflict between heavy industrial traffic and other road users, inadequate potable water supplies, and lack of sewage collection and wastewater treatment. Centralized heating has limited coverage and, elsewhere, heat is provided by a multiplicity of coal-burning stoves. Solid waste management is often rudimentary with poor environmental protection. Increases in the urban