Document of The World Bank Public Disclosure Authorized Report No. 15079-CHA STAFF APPRAISAL REPORT CHINA Public Disclosure Authorized SHANXI POVERTY ALLEVIATION PROJECT FEBRUARY 21, 1996 Public Disclosure Authorized Rural and Social Development Operations Division Public Disclosure Authorized China and Mongolia Department East Asia and Pacific Regional Office CURRENCY EQUIVALENTS (As of October 1995) Currency Unit = Yuan (Y) $1.00 = Y 8.4 Y 1.00 = $0.119 FISCAL YEAR January I to December 31 WEIGHTS AND MEASURES I meter (m) = 3.28 feet (ft) I kilometer (km) = 0.62 miles I square kilometer (km2) = 100 ha I hectare (ha) = 2.47 acres = lSmu I ton (t) = 1,000 kg = 2,205 pounds I kilogram (kg) = 2.2 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ACWF - All China Women'sFederation CAAS - Chinese Academy of Agricultural Sciences CPMO - Central Project Management Office cms - cubic meter per second EIA - Environmental Impact Assessment FAO - Food and Agriculture Organization GIS - Geographical Information System IBRD - International Bank for Reconstruction and Development IDA - International Development Association IPM - Integrated Pest Management ITC - International Tendering Company mcm - million cubic meters MOF - Ministry of Finance MWR - Ministry of Water Resources NEPA - National Environmental Protection Agency PLG - Project Leading Group PMO - Project Management Office PRC - People's Republic of China SPC - State Planning Commission TVE - Township-Village Enterprise WFP - World Food Program WHO - World Health Organization YIS - Yuncheng Irrigation System YRCC - Yellow River Conservancy Commission CHINA SHANXI POVERTY ALLEVIATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: People's Republic of China Beneficiary: Shanxi Province Poverty: Program of Targeted Interventions Amount: SDR 67.3 million ($100 million equivalent) Terms: Standard, with 35 years' maturity Commitment Fee: 0.50 percent on undisbursed credit balances, beginning 60 days after signing, less any waiver. Financing Plan: See para. 3.28. Economic Rate of Return: 28 percent Maps: IBRD 27654; IBRD 27655; IBRD 27656 Project Identification Number: CN-PE-3649 CONTENTS 1. BACKGROUND ........................................ 1 A. Introduction ........................................ 1 B. Rural Poverty in China ....................................... lI C. Project Rationale ........................................ 4 D. Lessons from Previous Bank 3roup Operations ........................................ 5 E. Rationale for Bank Group Involvement ......................................... 6 2. THE PROJECT AREAS ........................................ 7 A. Location ........................................ 7 B. Yuncheng Prefecture........................................ 7 C. Luliang Prefecture....................................... 11 3. THE PROJECT ........................................ 15 A. Project Objectives ........................................ 15 B. Project Description ....................................... 15 C. Project Components ....................................... 16 D. Status of Designs ....................................... 23 E. ImplementationSchedule ....................................... 23 F. Cost Estimatesand FinancingPlan ........................................ 24 G. Procurement....................................... 25 H. Disbursements....................................... 29 i. Accountsand Audits....................................... 30 J. Environmentaland Social Impacts....................................... 30 K. Resettlement....................................... 31 L. Consultation,Participation and Targeting....................................... 33 4. MANAGEMENT AND ORGANIZATION . ...................................... 36 A. Project Organization....................................... 36 B. Financial Management....................................... 37 C. Operation and Maintenance....................................... 39 D. Land Contracts....................................... 40 E. Monitoring,Evaluation, and Reporting........................................ 40 This report is based on findings of an appraisal mission in July 1995. Membersof the appraisal team included J.M. Voegele (Mission Leader, IDA), G. Morgan (IDA), W.T. Smith, Liang Heng and R. Wallace (Consultants). Substantial inputs were provided earlier by R. Zweig and E. Chobanian(IDA), John Weatherhogg,F. Cossio, J. Kirk, J. Ernstbergerand S. Sugimura(FAO/CP), H. Ochs, S. Ferguson, L. Stafford, M. Lamb and B. Wakelin(Consultants). Peer reviewers comprisedMessrs. N. Jones, W. Ochs, B. Trembath, W. Magrath (IDA) and R. Grimshaw (Consultant). The Division Chief is Joseph Goldbergand the DepartmentDirector is NicholasHope. - 11- 5. BENEFITS AND JUSTIFICATION .......................................................44 A. Benefits ....................................................... 44 B. Markets and Prices ....................................................... 44 C. Economic and Financial Analyses ....................................................... 46 D. Project Risks ....................................................... 52 6. AGREEMENTS AND RECOMMENDATION .................................................. 54 ANNEXES Annex 1: Financial And Economic Prices....................................................... 57 Annex 2: Cost Summary. Procurement And Expenditure Schedule .......................... 59 Annex 3: Yuncheng Irrigation System ........................................................ 65 Annex 4: River Beach Land....................................................... 79 Annex 5: Land Development And Erosion Control ................................................... 89 Annex 6: Rural Roads ....................................................... 107 Annex 7: Rural Water Supply....................................................... 120 Annex 8: Livestock ........................................................ 131 Annex 9: Horticulture ........................................................ 140 Annex 10: All China Women's Federation ....................................................... 161 Annex 11: Agricultural Processing ....................................................... 165 Annex 12: Social Assessment ....................................................... 176 Annex 13: Status Of Environmental Impact Assessment ......................................... 188 Annex 14: Supervision Schedule ....................................................... 196 Annex 15: Project Planning Matrix, Indicators And Implementation Schedule....... 197 Annex 16: Disbursement Profile....................................................... 201 Annex 17: Selected Documents And Data Available In The Project File ................ 202 MAPS IBRD 27654 - Participating Prefectures IBRD 27655 - Luliang Prefecture IBRD 27656 - Yuncheng Prefecture - 1 - 1. BACKGROUND A. INTRODUCTION 1.1 The Governnent of China has requested the International Development Association (IDA) to assist in financing a poverty alleviation project in Shanxi Province. The proposed project would raise incomes and living standards in some of the poorest counties of one of China's less prosperous provinces. This would be achieved by improvements to irrigation systems, land development, expansion of household livestock and horticulture, and modernization of agricultural processing. The project was prepared by the Yuncheng and Luliang prefectures under the direction of the Shanxi Provincial Planning Commission with assistance from the Food and Agriculture Organization. The project was preappraised in March 1995 and appraised in June 1995. B. RURAL POVERTY IN CHINA 1.2 China's economic reforms, begun in 1978, sharply reduced poverty in the period 1978-85. In 1978, 270 million (one third of the population) lived below the absolute poverty line compared to 100 million (one tenth of the population) in 1985. But, since 1985 there has only been a small decline in the incidence of absolute poverty. This is because gains in farn incomes have come mainly in areas with favorable natural resources, where farmers could benefit from market-oriented reforms. Gains in poverty alleviation have been harder to make in remote mountainous areas, where the area of farmland per family is small and irrigation potential is limited. In these areas, per capita output of grain and subsistence foods failed to show any significant increase in the 1980s, and rural enterprises employ only 4 percent of the rural labor force in the poorest counties in contrast to the 22 percent national average. China's poverty reduction strategy is now focused on raising living standards and incomes in the poorer areas through investments in land development, rural works, and rural enterprises. 1.3 The Government's first poverty-focused program was initiated in 1986, when 18 priority areas throughout China, including two in Shanxi Province, were targeted for assistance. Recognizing the necessity for a stepped-up redirected effort, in 1993 the State Council endorsed a new program to focus on the poorest counties throughout China. Called the "Eight-Seven Poverty Alleviation Plan (8-7 Plan)", its objective is to raise the estimated 80 million people in absolute poverty to above the poverty line by the end of the century. Counties included in the plan had incomes below Y 400 per head (1992 prices), or incomes below Y 700 per head despite involvement in the previous poverty program. The 592 nationally designated poor counties include over 70 percent of the 80 million poor.