Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 117875-CN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY Public Disclosure Authorized COUNTRY PARTNERSHIP FRAMEWORK FOR THE PEOPLE’S REPUBLIC OF CHINA Public Disclosure Authorized FOR THE PERIOD FY2020-2025 November 11, 2019 International Bank for Reconstruction and Development China, Mongolia, and Korea Country Management Unit East Asia and Pacific Region International Finance Corporation East Asia and Pacific Region Multilateral Investment Guarantee Agency Public Disclosure Authorized 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 Group authorization. Last Country Partnership Strategy: October 11, 2012 (Report No. 67566) CURRENCY EQUIVALENTS (as of October 30, 2019) Currency Unit = Renminbi (RMB) US$1.00 = RMB 7.06 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank MOF Ministry of Finance ASA Advisory Services and Analytics MP Montreal Protocol CHUEE China Utility-Based Energy Efficiency MSME Micro, Small, and Medium Enterprise Finance Program (IFC) NDC Nationally Determined Contribution CO2 Carbon Dioxide NDRC National Development Reform Commission CPS Country Partnership Strategy NGO Non-Governmental Organization CPF Country Partnership Framework NPS Non-Point Source (Pollution) CLR Completion and Learning Review ODS Ozone-Depleting Substances DPF Development Policy Financing OECD Organization for Economic Cooperation and DRC Development Research Center of the State Development Council PFM Public Finance Management EAP East Asia and the Pacific PforR Program for Results ECE Early Childhood Education PLR Performance and Learning Review EE Energy Efficiency PM Particle Matter E&S Environmental and Social PMO Project Management Office ESCO Energy Service Company POPs Persistent Organic Pollutants ESF Environment and Social Framework PPP Purchasing Power Parity ETS Emissions Trading Scheme PPP Public-Private Partnership FY Fiscal Year RAS Reimbursable Advisory Service FYP Five-Year Plan R&D Research and Development GDI Graduation Discussion Income RMB Renminbi (China’s currency) GDP Gross Domestic Product SCD Systematic Country Diagnostic GEF Global Environmental Facility SME Small- and Medium-sized Enterprise GHG Greenhouse Gas SO2 Sulfur Dioxide GNI Gross National Income SOE State-Owned Enterprise HCFC Hydrochlorofluorocarbons S&T Science and Technology HFC Hydrofluorocarbons TA Technical Assistance IBRD International Bank for Reconstruction and TVET Technical and Vocational Education and Development Training IDA International Development Association UDIC Urban Development Infrastructure IFC International Finance Corporation Cooperation IMF International Monetary Fund UN United Nations MARA Ministry of Agriculture and Rural Affairs UNICEF United Nations Children’s Fund MCDF Multilateral Center for Development Finance US United States MDGs Millennium Development Goals WBG World Bank Group MIGA Multilateral Investment Guarantee Agency WHO World Health Organization IBRD IFC MIGA Vice President Victoria Kwakwa Snezana Stoiljkovic S.Vijay Iyer (Acting EVP) Director Martin Raiser Vivek Pathak Merli Baroudi Task Team Leader Kathryn Funk / Nico Randall Riopelle / Eugeniu Croitor / von der Goltz John Nasir / Alexei Sandro Diez-Amigo Volkov COUNTRY PARTNERSHIP FRAMEWORK FOR THE PEOPLE’S REPUBLIC OF CHINA Table of Contents I. Country Context and Challenges ............................................................................................ 1 A. Economic and Social Developments ................................................................................ 1 B. China’s Medium-Term Challenges and Strategy ............................................................. 5 II. The World Bank Group Track Record and Lessons Learned ............................................. 13 III. The World Bank Group Strategy ....................................................................................... 17 A. Framework for World Bank Group Engagement in China ............................................ 17 B. Engagement Area One: Advancing Market and Fiscal Reforms ................................... 23 C. Engagement Area Two: Promoting Greener Development............................................ 26 D. Engagement Area Three: Sharing the Benefits of Growth ............................................ 33 E. Cross-Cutting Theme: Cooperating on Global Knowledge and Development .............. 36 IV. Delivering the World Bank Group Program...................................................................... 39 V. Managing Risks .................................................................................................................. 40 Boxes Box 1: Poverty and Inequality in China .................................................................................... 4 Box 2: Key Development Priorities, Underlying Institutions, Reform Challenges ................. 10 Box 3: Examples of Climate Change-Related Results During the 2012 CPS ......................... 14 Box 4: FY19 China Country Survey ....................................................................................... 16 Box 5: IBRD Lending to China ............................................................................................... 19 Box 6: One World Bank Group in China ................................................................................ 21 Box 7: The 3 “D’s—Reducing Distortions, Accelerating Diffusion, Fostering Discovery ..... 24 Box 8: China as an IDA Contributing Partner ......................................................................... 37 Box 9: The China-WBG Partnership Facility Trust Fund ....................................................... 38 Tables Table 1: China: Selected Economic and Social Indicators and Projections, 2015-2021 ........... 2 Table 2: Selected Targets in the 13th Five-Year Plan .............................................................. 11 Table 3: Key Advisory Services and Analytics by Area of Engagement ................................ 22 Table 4: Engagement Area 1--Institutional Constraints .......................................................... 23 Table 5: Engagement Area 2--Institutional Constraints .......................................................... 27 Table 6: Engagement Area 3--Institutional Constraints .......................................................... 34 Table 7: Summary Risk Table ................................................................................................. 41 Annexes Annex 1: China Country Partnership Framework Results Matrix ........................................... 42 Annex 2: WBG Completion and Learning Review ................................................................. 58 Annex 3: Selected Indicators of Bank Portfolio Performance and Management .................. 103 Annex 4: Operations Portfolio (IBRD/IDA and Grants) ....................................................... 104 Annex 5: Statement of IFC’s Committed and Outstanding Portfolio .................................... 107 Annex 6: China -- Indicative IBRD Financing, FY20-22 ..................................................... 109 Executive Summary Following four decades of high growth and poverty reduction, China has entered a new stage of development. Since the start of China’s reform and opening up in the late 1970s, GDP growth has averaged almost 10 percent a year and more than 850 million people have lifted themselves out of poverty. China today is an upper middle-income country and its economy has global importance. However, over the past few years, growth has moderated in the face of structural constraints, including declining labor force growth, diminishing returns to investment, and slowing productivity. The challenge going forward is to find new drivers of growth while addressing the social and environmental legacies of China’s previous development path. Governance and institutional reforms are at the core of addressing China’s remaining development challenges, as noted in the World Bank Group Systematic Country Diagnostic for China and China’s own strategic policy documents. China’s rapid economic growth exceeded the pace of institutional development, and there are important institutional and reform gaps that China needs to address to ensure a high-quality and sustainable growth path. The role of the state needs to evolve and focus on providing stable market expectations and a clear and fair business environment, as well as strengthening the regulatory system and the rule of law to further support the market system. Given its size, China is central to important regional and global development issues. China is the largest emitter of greenhouse gases, and its air and water pollution could affect other countries. Moreover, maintaining economic growth at reasonable levels has important spillovers for the growth of the rest of the world economy. Many of the complex development challenges that China faces are relevant to other countries, including transitioning to a new growth model, rapid aging, building a cost- effective health system, and building resilience to climate and natural disasters. China is a growing influence on other developing economies through trade, investment, and ideas. The China-World Bank Group (WBG) relationship, which will complete 40 years in 2020,