ASIAN DEVELOPMENT BANK TAR:PRC 33470 TECHNICAL ASSISTANCE TO THE PEOPLE’S REPUBLIC OF CHINA FOR PREPARING THE GANSU ROADS DEVELOPMENT PROJECT November 2003 CURRENCY EQUIVALENTS (as of 10 October 2003) Currency Unit – yuan (CNY) CNY1.00 = $0.1208 $1.00 = CNY8.27 ABBREVIATIONS ADB – Asian Development Bank DFR – draft final report EA – executing agency EIA – environmental impact assessment EIRR – economic internal rate of return GDP – gross domestic product GPCD – Gansu Provincial Communications Department HIV/AIDS – human immunodeficiency virus/acquired immune deficiency syndrome IPSA – initial poverty and social assessment NH – national highway NTHS – National Trunk Highway System PRC – People’s Republic of China TA – technical assistance TFYP – Tenth Five-Year Plan WEIGHTS AND MEASURES ha – hectare km – kilometer km2 – square kilometer NOTES (i) The fiscal year (FY) of the Government and its agencies ends on 31 December. (ii) In this report, "$" refers to US dollars. This report was prepared by H. Sakurai. I. INTRODUCTION 1. During the 2002 Country Programming Mission of the Asian Development Bank (ADB), the Government of the People’s Republic of China (PRC) confirmed its request for technical assistance (TA) to prepare an integrated roads development project (the Project) in Gansu Province. The Fact-Finding Mission comprising two domestic consultants visited the project area in June and July 2003, carried out an initial poverty and social assessment (IPSA), and collected necessary information. ADB’s Reconnaissance Mission1 was fielded in August 2003 to discuss with the officials of Ministry of Communications , the Gansu Provincial Government, and the Gansu Provincial Communications Department the final report and findings during the Fact-Finding Mission, and economic, social, and other project-specific issues. This paper is based on the understandings reached on the objectives, scope, costs, consultants’ term of reference, and implementation arrangements for the TA, and the Mission’s observations in the field. The TA is included in ADB’s 2003 program for the PRC,2 and proposed loan is included in the 2005 program. The TA framework is attached in Appendix 1. II. ISSUES 2. The PRC had about 1.76 million kilometers (km) of roads at the end of 2002. This is the world second largest road network, next to 6.3 million km of roads in the United States. The PRC’s 25,130 km of the expressway network is also second after the United States (about 88,800 km). However, the PRC road network is still underdeveloped in quality and size, and the road density is among the lowest in the world (17.7 km per 100 square kilometers [km2]). The PRC faces constraints and bottlenecks in road transport. Road networks are poorly developed and do not provide access to large parts of the country, particularly in the poorer inland regions. Vehicle numbers are growing at 2–3 times the rate of population, and the urban population has increased from 190 million in 1980 to 360 million in 2001. By 2010, an estimated 700 million people will live in major activity centers. The vehicle and population growth, together with the considerable volume of slow-moving nonmotorized vehicles, contribute to numerous road accidents, hamper traffic flow and cause congestion, and inhibit socioeconomic development. 3. The Government's policies for the road sector are based on (i) constructing expressways to expand the national trunk highway system (NTHS) and link all cities with a population of more than 500,000; (ii) developing secondary roads, particularly those that will help reduce poverty in the rural areas; and (iii) building roads that will support regional cooperation with neighboring countries in the southwest, northeast, and northwest. The NTHS is the heart of the road network, a system of interprovincial expressways and highways of about 35,000 km. It will be complemented by the development of national, provincial, county, township, and village roads. Most of the remaining NTHS sections will be completed together with 195,000 km of interprovincial highways and 150,000 km of rural roads during the Tenth Five Year Plan (TFYP:2001–2005).3 The TFYP will accelerate the road network development on the NTHS and will focus on the major corridors in the western region. The Government views road development as a key component of its strategy to improve access to activity centers and support socioeconomic development particularly in less developed regions with a lower road density. The western development strategy adopted by the Government in February 20004 will (i) facilitate economic and social development in the western region, (ii) link the western 1 Due to the spread of severe acute respiratory syndrome, ADB staff were banned from traveling in the PRC during the fact-finding period. 2 The TA was first listed in ADB Business Opportunities (Internet version) on 13 May 2002. 3 ADB assisted the Government in identifying road sector investment and policy reforms in the southwestern PRC through TA 3086-PRC (ADB. 1998. Technical Assistance to the People’s Republic of China for the Regional Road Sector Study. Manila. 4 Covering the following 12 provinces, autonomous regions, and municipality: Chongqing, Gansu, Guizhou, Inner Mongolia, Ningxia, Qinghai, Shaanxi, Sichuan, Xinjiang, Xizang, and Yunnan. The three prefectures included in the western development strategy are in Hubei, Hunan, and Jilin. 2 region with the central and eastern regions, (iii) provide the western region with trade outlets at the southern and eastern seaports, and (iv) promote regional cooperation with neighboring countries. 4. The link between transport development and poverty reduction is generally recognized.5 An ADB-financed study in the southwest region6 concluded that poor quality road infrastructure and inadequate transport services in poor areas are major obstacles to economic growth and poverty reduction. The greater the road development, the higher the per capita income.7 The Government has been supporting poverty reduction through road sector investments in several ways. First, the focus on NTHS construction has shifted from the east coast to the central and southwest regions, which have a higher incidence of poverty, and where road density is about 10.5 km/100 km2 compared with 35 km /100 km in the east. Second, the vehicle purchase fee, which has financed about 13% of road sector expenditures, has been allocated largely to financing road investments in poorer provinces. Third, Ministry of Communications grants and provincial communications department resources supplement local government budgets to improve county and township roads. Fourth, through the separate budgeting of poverty reduction funds, road improvements are carried out to link an increasing number of villages to the road network, with corresponding improvement in the quality of transport services. The Government’s measures and road development objectives will contribute significantly to poverty reduction in the western region. 5. ADB’s overarching objective, poverty reduction, has been emphasized in the road sector. The location of ADB-financed road projects has shifted from the northeast and coastal areas to the poorer central and southwest regions. Improving road infrastructure will help create an environment that facilitates economic growth and private sector development in the poorer interior provinces. To enhance poverty reduction impact, the scope of recent road projects has been broadened to integrate local roads with expressways, thus providing better access to poor counties and townships. ADB’s operations strategy supports (i) constructing roads that connect major growth centers and provide access to the western and central regions; (ii) integrating the network so that the NTHS is supported by a system of local roads, particularly those that provide access to poor areas; (iii) promoting road safety and vehicle emission reductions; (iv) strengthening the corporatization and commercialization of expressway organizations; (v) adopting appropriate pricing policies to ensure optimum use of road transport capacity; (vi) addressing traffic safety and environmental issues; and (vii) using alternative methods of investment financing, including private sector participation. 6. Gansu Province is one of the PRC’s five northwest provinces. It is on the upper reaches of the Yellow River and is bordered by Inner Mongolia Autonomous Region; Ningxia Hui Autonomous Region; Xinjiang Uygur Autonomous Region; and Qinhai, Shaanxi, and Sichuan provinces. Gansu’s eastern part won the Loess Plateau; its western part is in the Hexi Corridor known as the ancient Silk Road; its southern part is mountainous and its northern part is marked by the Alasan Plateau and Badanjilin Desert. Remote and isolated in harsh natural conditions, Gansu is one of the PRC’s least developed provinces. In 2001, Gansu’s per capita gross domestic product (GDP) was CHY4,165, the 30th among the PRC’s 31 provinces and autonomous regions, only 55% of the national average. The average rural per capita income was only CNY1,500—63% of the national average of CNY2,366, and 28th among the 31 provinces and autonomous regions. About 50% or more of Gansu’s rural population are living below the poverty line of CNY1,000 per capita per year, 5 ADB. 1998. Technical Assistance to the People's Republic of China for Study on Ways to Support Rural Poverty Reduction Projects. Manila. Also, Fan, S., Zhang, L., and Zhang, X. 2000. Growth, Inequality, and Poverty in Rural China: The Role of Public